 Hawking Tax with Tom Yamachika. They're synonymous, you know. Tax, Tom Yamachika, it's all synonymous. Tax Foundation of Hawaii, it all comes together, doesn't it, Tom? Well, there's a lot of T's in there. Alliteration, yeah? Right. Unamata Puea. So, you know, I woke up to read Civil Beat. I think it was yesterday, was it? Right. And that was your article about the Special Land and Development Fund. Among its friends, it's called the SLDF. Right. Okay, at DLNR. And he wrote this really good article about it, which I have in front of me right here, so I know what you said. But I think that people may not know what you said. So, can we talk about the Special Land and Development Fund and what that is and how it relates to state money and, you know, fiscal policy? Sure. Sure. As you probably know, the state owns a bunch of land as well as, you know, other than what it uses for itself. Right. So, it has, like, for example, Kuala Lumpur Airport, and there are some businesses that are doing business on the tarmac. And they can be there because they have what we call a revocable permit. And there are other lands that are leased by the state to the various individuals. This is all through DLNR, the Department of Land and Natural Resources? Right. Specifically the Land Division. So, they have maybe, I think, 1600 or so properties that they are in caros on behalf of, you know, you and I, we're the taxpayers. We're the landlords, ultimately. Right. And they are managing our lands. What kind of uses do they, you know, lease? What kind of uses do they permit on these 1600 properties? There are various kinds. I mean, there are some businesses. There are some non-profits, I'm sure. There are some other kinds of establishments. But, you know, they're all, you know, being there. And because it's state property, they need to pay rent. Right. And all of these rents go into the Special Land and Development Fund, as well as, you know, some of our taxes. Right. There is a piece from our tobacco tax that goes in there, as well as... Barrel tax. As well as the trans-accommodation. Yeah. I think it's 500,000 a year for the, for the fuel tax and... Fuel tax, right. Yeah. And then 3 million from the TAT. Hmm. Gee, it all, it all sounds, you know, I've heard it said many times, Tom, that the biggest landholder in the state of Hawaii is the state of Hawaii. When you say 1600 properties, it's not that each one of them is a house lot size property. Some of them are big, huge properties. And I guess, you know, I know we're going to talk about lots of other things, but a voice in my head is asking me to ask you, why don't we use some of that land for the homeless? Are we using some of that land for the homeless? I think there was, there were some proposals to that effect. I don't know what is actually being done. That's an aspirational thing, then. Quite possibly, yeah. But the focus of this auditor's report was on the management of the 1600 leases and revocable permits. And, you know, are they taking good care of our land? Are in the collective. So there's two issues. One is managing the actual property. That is, you know, renting it, getting into some kind of contract about it. Managing the tenant, managing the way the land is being used and kept. And the other is managing the rental money that comes out of the rental of the 1600. Now they're supposed to be, you know, the same thing, right? But part of the mentality there is, oh, you know, we don't have the resources or the time to be property managers. We can't collect rent, so we'll do that. So, and, you know, I talked about certain deficiencies that the auditor found, but it was all in the context. There was an audit. Yeah. Now was the audit of the entire, you know, DLNR or just a special fund? Just a special fund. Okay. State auditor did that. State auditor did that. Yes, less condos. And the major problem that was found wasn't what I wrote about in the article. What I wrote about in my article was the tip of the iceberg. The major problem was, you know, the auditor's office found that these lands were not being managed right. Okay. That we were leaving millions of dollars on the table through a number of things. You know, number one, we weren't really getting the fair market value for a number of these permits, right? They cited, for example, a parcel of land, I think, on the Big Island, where the rent that was being charged by DLNR was 75,000, I think, a month. That's a lot of land. Right. But the tenant of that property had subtenants. And together, all the subtenants were paying $300,000. What a deal. Yeah. I want some of that. Yeah. I want to be the landlord there. You're a millionaire in no time. Yeah. How did that happen? I mean, this sounds like corruption time. It's not so much corruption as inaction, I think, because you have to have an overall plan for what you're going to do with these lands, right? And that was the number one criticism that the auditor had. There's no overarching plan. But wait, the agency said, we got to be able to turn in a dime if economic conditions happen, if leadership at the top changes, if this happens or that happens. But wait a minute. That just means you're reacting to anything and you're not being proactive at all. Take any offer. Right. So it's much easier for them to say, OK, we have a tenant in our property. Let's leave them there. And let's not bother with the rent. And that's how it has transpired for years and years and decades in some instances. So it's become corporate culture for DLNR to do this. I mean, that's the way they've done it. That's the way they're doing it. That's the way they see doing it going forward. But one thing that strikes me, and I know this is also a digression that's the one I ask you, did they ever actually hire a management company? A management company that charge them like 10% or something? A management company that would get them the best rent, that would make sure to collect the rent and pay it over to the state? I mean, that seems like a very clear answer here. Did they ever do that? No, they didn't. And the auditor observed that HHFDC is that. I think the excuse that DLNR gave was, well, you know, we don't know how to procure this under a state procurement code. Really? You know, it's 27 management companies that would love to have the job. All they have to do is put an RFP out there and they'd have all 27 asking for the work and making competitive bids for the percentage of income. Yeah, and I think that's what HHFDC did. HHFDC is? The Holy Housing Finance and Development Corp. They deal with low-income housing. Well, it seems like a natural. Did the auditor suggest that? Indirectly. Okay, so what happens is, I guess, all the land or, well, is the land, the 1600 parcels, are they all rented or are some of them, you know, like abandoned vacant kind? Well, what the auditors observed was that there's really four things that you need to look for when you manage property budgets. Number one, you ought to be periodically inspecting your property. Yes. Right, so like if it's in disrepair, you can go knock on the tenor and say, what the hell's going on here? We're used for illegal purposes. We're dangerous. Who knows what? Right, and DLR wasn't doing that. Two is collecting delinquent rent. Okay, now, and I had some statistics of that, that I quoted in my article. There was like, what was it, 75% of rent that was past due and 20% wasn't being collected at all. Uncollectable. So that leaves what, like, of tenants who actually pay the rent on time, I get this right, 5%. Not quite. A small percentage. More like 25. Okay, that's still tiny. I mean, really, this is our money, this is you and me. And the legislature's always looking for money everywhere and trying to gin up more taxes and whatnot. I think this is right on the floor in front of them, right in front of their eyeballs, and they're not collecting it. Yeah, and you see one reason for that is because it's in a special fund. Special funds largely avoid legislative scrutiny. Okay, the department supposed to take care of itself. But guess what happened? In a one 2018 study that the department did, they took a look at just revocable permits, which is, I think, you know, maybe half the land portfolio. They took a look at one third of the revocable permits that were out there, and they found that they were being undervalued. That they weren't getting enough, you know, that they weren't getting fair market rent. This is going to be roughly 500 parcels out of the 1600. Yeah, and the difference was roughly $800,000 a year. $800,000 per year. This is one third of the portfolio revocable permit. You know, if this was done on a commercial level, you know, outside government, the people involved would be fired and sued for dereliction. Yeah, so when the auditor wrote them up, the agency had a reply, right? The agency said, we don't agree with your findings. Oh, for what reason? You didn't look at any comparable with other agencies. That's not a valid comparable. Yeah. And so, you know, given that there are no comparables, we're fully justified in doing what we did. That's what they said. Worse yet. It's a lie in the sky comparable. So my point was, well, look, if you had, you know, a 25 or 20% uncollectible rate and 75% pass due, wouldn't you be at least asking questions of your property manager? If not, you know, if not dumping them out, right? Okay, time. But don't they have property managers on staff and DLNR in this fund? Don't they have people they pay salaries to? Probably substantial salaries with substantial seniority and all kinds of great benefits, including retirement benefits. Don't they have people who are, you know, delegated to, assigned to, paid for managing these properties? They got to. They must, even though they're not commercial managers like some of the commercial management companies in town, they must have people responsible now. Yeah, I mean, I never really got an explanation, you know, for what does the land division do? What are they supposed to do? Yes, they're supposed to make sure that the properties are rented out. I mean, that kind of sounds like what a property manager does. Well, it's really. But then I see several references within the report to, oh, no, no, no, we're not staffed and equipped to do property management duties. Wait a minute. That's my point about getting a regular property manager because they do the work and they take it out of the revenue. There's no reason this couldn't happen. You wouldn't have to hire anybody. You wouldn't have to organize additional staff. You just have the manager, the contract manager do it all. You get rent from every single tenant in the full amount every month. So the state must be losing, you know, what did you say, $800,000 per annum? I bet it's more. 1600 properties. Yeah, I mean, that's, again, the state has not only the revocable permits, but they also have long-term leases, right? And the $800,000 was only one-third of the revocable permit. So we're looking at many millions of dollars that are just being left on the table. So this leads me to ask about state audits. Why did the state auditor audit this fund? What caused that? Did somebody ask? Did somebody write a letter? Did you write a letter? What happened to motivate the auditor to do something? I'm not sure. A lot of these are actuated by, you know, resolutions that get passed. Somebody in the legislature maybe asked for it to happen. Okay, so then you get oversight with the state auditor. Now the auditor writes a report and query, you know, because DLNR responded by saying, oh, nobody, there's no comparable that we can look to, so you can't say that we're out of school on this, which is actually ridiculous. It would go, the report would go on a shelf somewhere, wouldn't it? And if you didn't catch it, and if we didn't talk about it here today, nobody would be talking, am I right? That's a very good question. I mean, there would be, I think, a big temptation to do nothing. Okay, we had an audit, okay. I mean, I remember there was an audit of, was it the energy office in D-bed, and it was criticism, big time of the energy office there, big time criticism, or maybe it was D-bed in general, and... The energy office in particular, I mean, the criticism was, you remember that? What did they do? Nothing. That was the criticism. Yeah, but what happened is there's two steps. The audit report comes out, and the state comes back and says, we disagree, and they come up with a bunch of reasons, none of which really made sense, and then it stopped. That was it, nothing happened. The legislature, as far as I know, did not do anything. I mean, we should talk to a legislator about this, but somebody oversight D-bed, but I don't think the legislature did anything about this. Yeah, I know there were billed drafts that did, but I don't think they passed. Yeah, so the audits don't really mean that much in general. Because it's a public consciousness sort of thing. It passes off the screen. It's out of the news cycle. Nobody remembers. Six months later, it's old news, nobody remembers. So that sounds like it would have been the case here for this audit. Yeah, and when the audit report initially came out, it did get some press coverage from our local media. And now it's maybe a month later, a few months later, and I'm bringing it up again because, well, what's been done? We don't know. Probably nothing. But this is worth bringing up in January. It's worth making some noise about. If anybody were to make noise about the fact that this money is not being collected, these lands, a lot of land, a lot of land, the biggest land holder in the state are not being managed, really zero management of what it sounds like. What should the legislature do, Tom? I mean, we're talking about fiscal responsibility here. We're talking about trying to, you know, this reminds me of those federal grants where there's money hanging on a tree and the state agency that's responsible for taking the money from the federal program doesn't do it. And then it lapses. We never see them see a scandal once in a while about that. Yeah. Yeah. I mean, DOE was written up for that. Diotrans almost got written up for that. But they largely cleaned up their act. There's a lot of money that sits unclaimed. Yeah. I mean, it's just because people are being negligent. And the problem with that, and, you know, it's something that we will bring up with the legislature as often as we can, is when this kind of money goes unclaimed, the government still costs. So who has to make up the difference? We do. Right. And that's why the tax foundation cares about this. Definitely. Because if you don't collect money that you're entitled to get, if the state is entitled to collect and get and use to pay state expenses, it means that the legislature, its infinite wisdom has to raise taxes elsewhere to pay those expenses that are not being covered by the money that we are throwing away. Right? Right. I mean, either raise taxes or cut programs and... Right. So it goes to fiscal responsibility. So my question to you then is if you were the legislature, and make use of the legislature, coming soon in January, what would you do to restore fiscal responsibility to this special land and development? Well, I would really hope that within the department there can be some cleaning house. A clean house. You know, people with that kind of ancient mentality got a goal in my humble opinion. But the legislature, you know, can't say, ah, Joe Blow, he has to go. That wouldn't work for the state of Hawaii. They would have to reorganize the department. You know, just defund his position. Defund his position. I know this kind of thing happens. How do you do that? You say, Joe Blow, no good. So we're going to take his position away. But then there's nobody there. Well... How about they should say for the management of state lands, we require the DLNR to go out and engage a licensed property manager, or a combination of property managers. I mean, it's a win-win. Is it a property manager to like it? The taxpayers would like it. DLNR, you know, wouldn't have this swamp. May I use that term? So wouldn't that be a solution? Just order them by statute, order them to use a licensed property manager. Well, I'm sure somebody's going to complain, but no, we can have this done with our employees. And, you know, we need to preserve those jobs and... You know which side the union comes on? Oh, yeah. Of course. I brought it up. Yeah, that's fact, isn't it? There are people in state government who don't really do anything, and the union will protect them from being terminated, or protect their positions from being terminated. There's no resistance on a bill like this. Yeah, that's always, I think, the issue with trying to rightsize government is the minute you start thinking about laying off warm bodies, alarm bells go off, people go nuts, and there's a lot of stuff to deal with. What do we do? What do we do? Yeah, I think it's really all about prioritizing the scarce resources we have, making sure that our money is spent efficiently and well. If we can do that, I think it would go a long way to restoring at least some taxpayer confidence. But right now, with all this stuff coming out, number one, I'm very, very glad that there is a state auditor's office to put out this kind of... Do this kind of work and put out this kind of report. So we, as taxpayers and legislators, can be aware of it. It's not like we've got to do something about it. Well, there ought to be a follow-up, don't you think? I find it interesting these things appear in the paper, and six months or a year down the road, there isn't any follow-up. I like to do this as a regular matter. Whatever happened to Tom Yamachika's article on the special land and development fund at DLNR, whatever happened, and ask that question six months from now or a year from now. I think three years from now it'll come up again. Because there's a statute that requires the auditor to follow-up on reports like this every three years. That was my question, yeah. So the auditor has to follow-up in three years, you say? I think it's three years. And he has to do a secondary, a second audit. Or at least cover the recommendations made in the first audit to see what if anything happened. Yeah. That may or may not get in the paper. Right. But if it comes to your attention, you'll write it up. They should have you on their mailing list. The auditor office does. Good. So this, we're talking today about your article on the special land and development fund at DLNR. But do you have reason to believe that this is the only such set of concerns about public funds? Or could there be other similar kind of problems elsewhere in state government? Well, I mean, you've heard of the term tip of the iceberg, right? There's stuff that you can see and there's stuff you can't. Yeah. And the stuff you can is much bigger. Yeah. But if we didn't see the iceberg in the first place, we couldn't begin to do anything about it. At least now, we can try to chip away at it to deal with the underlying culture, which definitely needs to be changed. So this is really an identification of a culture point that we need to deal with. It's not just limited to DLNR. It's this attitude about we'll take care of it and we'll do a really sloppy job. No, just leave us alone. And I wonder, I told you before that in the Lingle administration, she was running after as hard as she could run these special funds. I guess this is a special fund. Yes, it is. It's what it is. And the money sits in there and it's really not subject to oversight. Nobody knows how much is in there or what it's being used for. Yeah. And theoretically, the agency is supposed to report what's in this fund to the legislature every year. But that wasn't happening because this special fund had like 23 sub-accounts and the agency was reporting the master fund in one sub-account. And the rationale for not reporting the others, well, we're only responsible for these two. The others got, you know, shuttled off to other agency divisions. But wait, it's the same agency. The agency, rather than the land division, the agency is responding to the auditor's report. So why isn't there a response from the other agency divisions to whom these sub-accounts have been transferred? And the problem was that some of these sub-accounts had been idle for years. They weren't being used. There's like a million and a half dollars in them. That's our money. That's our money! Why is it sitting there with, you know, with no activity? So what's supposed to happen with all these millions of dollars in these special funds at DLNR? Is it supposed to go into the general fund? Does somebody write a check back to, you know, the Department of Finance or something? I mean, what is the ultimate destination? And I suppose I'm really talking about all the special funds. How do you scoop them? How do you prevent people from cockroaching them this way? Basically what the legislature does is they pass an act and the transfer is done on the books. You know, this money goes back to the general fund. Poof, it's done. They do it? They do it. They've done lots of that. I think every year for the past, at least a dozen years. So was she successful, Tom Lingle, in getting rid of special funds and closing them down and finding the money that was hidden in the special funds and delivering it to, you know, the state or the state's use? Well, she started the process, I guess. There is statutes on the books now that say, okay, you know, auditor, you look at every special fund once every five years or so. And is it still serving the purpose? Does it meet the statutory criteria? If it doesn't, you report to the legislature and then, you know, a bill is drafted to shut it down. Well, learned a lot from you today and from the article. Thank you very much for writing it and coming down. Now, let me add that I think three years or five years is too long to, you know, review the results of a given state order, especially one like this. It should be a shorter period of time. I mean, I think about the stakes are so high. So you could say it's going to cost money to do it more frequently. Yeah, but you get so much money if you do it more frequently, right? Yeah, I mean, if, assuming that there's positive action to come as a result of it, if the agency is still in denial, they're not going to do anything. Yeah. But they have to be, you know, they have to be shown the light. Yeah. Well, I really enjoyed talking with you about this stuff, and we're showing the light, yeah? We'll come back in a couple of weeks and we'll show the light on something else. In the meantime, keep reading those order reports, Tom. Thanks for having me on the show. Tom, you have a chica. Next foundation of Hawaii.