The state Department of Hawaiian Home Lands has refined its plan to spend a historic $600 million mostly to produce homesteads for beneficiaries, and may be acquiring land and helping private developers finance housing projects as part of the effort.

A “preliminary strategic approach” drafted by the agency to meet a three-year deadline to use the record appropriation from the Legislature was unanimously approved recently by the Hawaiian Homes Commission.

The plan includes more homestead lots and less cash assistance for beneficiaries, compared with projections provided to lawmakers before their May 5 approval of the funding measure that Gov. David Ige signed into law July 11.

DHHL now projects that it can produce 3,163 lots, up from 2,910. And a previously anticipated $112 million in beneficiary cash assistance has been reduced to $60 million.

The agency’s plan envisions $540 million being spent to produce homesteads. This includes $35 million to buy land that could be used to deliver 300 lots, and $30 million to help finance affordable-^­housing projects proposed by private developers, which could include rent-to-own homes.

The nine-member commission overseeing DHHL unanimously approved the agency’s plan at a special Aug. 25 meeting.

“It is a very weighty issue we are deciding,” commissioner Randy Awo said at the meeting.

Commissioner Patty Ka­hanamoku-Teruya described the effort as bigger than ordinary DHHL homestead master-planning. “It’s just not a project, it is a legacy,” she said.

The preliminary plan is expected to be finalized for submission to the Legislature in December but includes flexibility for future adjustments. Such things could include production of more multifamily rental housing as opposed to lots for single-family homes.

It’s also possible that rising construction costs could depress the number of lots developed, and there is concern that DHHL won’t be able to spend or encumber all $600 million by the deadline due to staffing and procurement challenges.

“That is a concern of mine,” Zachary Helm told fellow commissioners at the meeting.

Under the special appropriation, any portion of the $600 million not encumbered for specific use by June 30, 2025, reverts to the state’s general fund.

William J. Aila Jr., DHHL director and commission chair, said hiccups are sure to occur but that the agency is highly focused and motivated to successfully meet the challenge. “We certainly feel the pressure of trying to spend $600 million in two years and 11 months from now,” he said during the meeting. “We are confident that we can get this done.”

Under the plan, DHHL is applying nearly all of the $540 million for homestead development to accelerate assembly of 20 existing projects already in various stages of production — from planning to design to permitting to contracting for construction.

Cedric Duarte, a DHHL spokesperson, said in an interview that initial spending for lot development could begin around mid-2023, though one land acquisition could happen early next year. That acquisition is poised to lead to production of 60 lots at a second phase of an existing DHHL homestead community called Kaupea in Kapolei.

The most advanced and largest project in the spending plan is East Kapolei II, where DHHL plans to use $149 million to produce 781 lots.

One new addition in DHHL’s spending plan is a project in Ewa Beach where the agency anticipates being able to develop 600 lots at a cost of $48 million on 80 acres received in May from the federal government.

This property was previously used by the National Oceanic and Atmospheric Administration, and is close to existing infrastructure. Duarte said 600 may be a high estimate for homestead lot development on the site, which is in a very early stage where an environmental study, community outreach and design have yet to be done.

By island, DHHL’s plan includes 1,661 lots on Oahu, 461 on Maui, 440 on Hawaii island, 190 on Kauai, 75 on Lanai and 36 on Molokai. Another 300 lots statewide are envisioned through the acquisition of land or projects.

The $60 million budgeted for beneficiary assistance could in part be used to help beneficiaries make a down payment on mortgages for homes on DHHL lots, according to the plan, which does not specify how much a beneficiary might receive.

Previously, lawmakers and DHHL contemplated using $112 million to provide interested and qualified beneficiaries with up to $100,000 each in lieu of receiving a homestead lot as a way to help beneficiaries buy homes not on DHHL land, or to pay down a mortgage on a home they already own outside a DHHL subdivision in return for relinquishing their opportunity to receive a homestead.

The Hawaiian homestead program was created in 1921 under a federal law to compensate for the government’s history of taking Hawaiian land.

Under the program, beneficiaries must be at least 50% Hawaiian and can receive 99-year land leases for $1 a year but have to pay for or build their own houses.

The state inherited the program as a condition of statehood in 1959 but has struggled for over 60 years to deliver more than a relatively small number of homesteads, in part because of little funding and expensive infrastructure costs to develop DHHL land, which is often outside urban areas.

DHHL has about 9,980 lot lessees, and around 28,700 applicants on a waitlist. More than 2,000 beneficiaries have died while on the list, according to an analysis by the Honolulu Star-­Advertiser and ProPublica.

Kali Watson, leader of a nonprofit affordable-housing development firm and who once headed DHHL, told the commission at its recent meeting that the agency can’t possibly meet the Legislature’s deadline and that DHHL could produce more homes by partnering with developers to use other state and federal funding sources for projects.

Watson also said the governor should issue an emergency proclamation that allows DHHL to sidestep bidding and procurement regulations.

“I don’t think with the existing staff the department is going to be able to meet that deadline,” he told the commission. “There’s no way.”

Aila said DHHL is discussing projects with developers and that the agency can increase staff and even hire professional help.

Duarte in an interview added that a lot of landowners have approached DHHL with offers to sell the agency land for homestead use.

Commissioner Awo said the approved preliminary plan addresses DHHL’s need to meet the Legislature’s deadline by allowing flexibility to produce homestead lots and housing in different ways.

“We should be moving with deliberate speed and not with reckless abandon,” he said. “That’s the balance that we are trying to strike here.”