Attorney Scott Settle, Managing Principal of Settle & Meyer, joins producer/host Coralie Chun Matayoshi to discuss what progress has been made by Governor Josh Green and the Hawaii State Legislature which just adjourned this month.
ALOHA Homes (Affordable Locally Owned Homes for All)
The ALOHA Homes concept, patterned after the Singapore model for affordable housing, has been on the table for several years and finally received passage as a pilot project this year. The program allows the Hawaii Community Development Authority (HCDA) to develop low-cost 99-year leasehold residential condominium units on state and county owned land in urban redevelopment sites within one mile of the Honolulu Rail Transit System. and sell them to qualified residents. The State would contract with a private developer to build the condominium and the developer would recoup costs through unit sales. Homeowners would pay monthly maintenance fees to maintain the property, similar to fee-simple condo ownership, and the state would regain ownership of all units at the end of the 99-year lease. This is a so-called pilot project because there were only minimal funds allocated to the program this year. This will allow HCDA to set up the rules for the initial program and seek from the Legislature additional funding and specific lands to be used in future years.
Workforce Housing for Teachers
A solution that addresses 2 big problems (teacher shortage and lack of affordable housing) is workforce housing for teachers. SB 941 CD1 authorizes the School Facilities Authority to: partner with public and private agencies to develop housing on or off campus for teachers, educators, and staff and develop classrooms; request any state or county agency to render services to the Authority; contract to manage the leasing and property management of housing projects or transfer the property to another public agency; adopt administrative rules to lease vacant housing; and transfer appropriated funds to partner state agencies for the development of housing and classrooms, subject to approval by the Governor. The bill appropriates funds out of the School Facilities Special Fund to be expended by the School Facilities Authority for the construction of housing and classrooms and allocates $170M to the School Facilities Authority to build school housing at Nanakuli, Waipahu and Mililani high schools and $45M for teacher housing hear public schools in South Maui.
Private Activity Bonds and Public Private Partnerships
The Honolulu City Council recently approved a proposal to acquire and rehabilitate the Mauna Kea Tower apartments in Chinatown by issuing private activity bonds.Private activity bonds allow the government to borrow on behalf of private developers, secured by particular projects being financed with no direct liability or risk to the government. These bonds are issued typically at reduced interest rates, and often on a tax-exempt basis, which reduces the overall cost of development or preservation of affordable housing. Federal law caps the amount of private activity bonds that each state can issue based on population size, and in Hawaii that amounts to about $300M per year. About 50% is allocated to the counties, and 50% is retained by the state. For the last 2 decades or so, the counties almost always returned their bond allocation to the state because they did not have the staffing or expertise to underwrite and issue bonds. In recent years, the entire bond capacity has been used to develop rental projects under the low-income housing tax credit program serving residents earning 60% or less of the median income. The bond program, coupled with tax credits, can only build (or preserve) about 1,200 units per year. The counties have more recently wanted to have greater control over the use of bonds allocated to them and have begun to retain them. So in addition to retaining bonds for the Mauna Kea Tower, the Honolulu City Council is expected to review a similar affordable townhouse development project in Waipahu using private activity bonds. As a result, the state will have less bond capacity and be limited in the number of units it can approve for the bond program.
HB 923 CD1 is the result of the tug of war between the state and counties on bond capacity. It requires counties with a private activity bond program to exhaust their allotment before applying to the State for the state allocation and requires the State, if it receives a county allocation, to award that same amount to project or projects in that county. The bill authorizes the Department of Budget & Finance and Housing Finance & Development Corporation to enter into a cooperative agreement with a county to coordinate the award of private activity bonds and low-income housing tax credits for new rental housing projects in the county and requires each county’s Director of Finance to report to the Department of Budget & Finance and Hawaii Housing Finance & Development Corporation any county amount of unused or unassigned allocation. The bill also clarifies that the state cannot allocate to the counties any of the state’s share of bonds after 6/30/2023 and before 12/31/2028.
The plus side of public private partnerships (P3) is that the state and counties own a lot of land that they can ground lease for development for free or at very low rates, thereby reducing development costs. On the downside, states and counties are required to go to great lengths to assure the public that they are getting the best terms for their land or assistance, and therefore require each P3 project to go through a complex process of competitive bidding and procurement, as well as often require developers to seek approvals along the way even after they have been selected to develop a project. This process can lead to delays and disagreements which can lead one or both parties to abandon the relationship and kill or severely delay the P3 project.
SB 74 CD1 – Bank Investment
This bill allows a bank to invest, in the aggregate, up to 15% of the bank’s capital and surplus in limited partnerships, limited liability partnerships, limited liability companies, and corporations formed to invest in affordable housing residential properties without the prior approval of the Commissioner of Financial Institutions or an after-the-fact notice. It authorizes an eligible bank to make an investment exceeding 15%, but not exceeding 20%, of the bank’s capital and surplus without prior notification to, or approval by, the Commissioner if the eligible bank submits an after-the-fact notice.
FY 2023-24 Budget Allocations
Rental housing trust fund- $100M (FY2024) and $180M (FY2025)
Dwelling unit revolving fund – $50M in each Fiscal Year
Rapid re-housing program – $3.7M in each Fiscal Year (provides temporary financial assistance with rent and utility payments to keep renters from becoming homeless)
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.
“What’s the Law” is sponsored by Hosoda Law & Just Well Law, representing families who lived on the Navy water line on O’ahu between May and November 2021, seeking accountability and financial recovery from landlords and the United States. To learn more visit well.law/redhill.