City hopes to settle with HUD after nonprofit fails to perform

Published  10:05 AM HST Jul 20, 2013
ORI Wellness Center
HONOLULU -

City officials are hoping the U.S. Department of Housing and Urban Development will accept a compromise that would save taxpayers more than $6 million after Wahiawa nonprofit ORI Anuenue Hale Inc. failed to follow the parameters of a federal Community Development Block Grant worth $7.9 million.

On Friday, Managing Director Ember Shinn held a news conference to discuss the contents of a letter she hand-delivered to HUD Honolulu field office director Mark Chandler Thursday afternoon.

In the letter, city officials ask the agency to accept $1.88 million in restitution in exchange for transferring ownership of ORI's Camp Pineapple 808 to the city. The city would also work with ORI to better manage its Aloha Gardens Wellness Center, while bringing it into compliance with CDBG requirements. But even if HUD were to accept the deal, ORI and the City Council would have to approve.

"We're absolutely committed to working with ORIAH in trying to resolve this in a way that makes sense for both the city as well as the organization," said Shinn.

Chandler told KITV4 it's too early to tell if HUD would accept the city's offer, and the council has yet to meet on the matter. In his June 3 letter to Mayor Kirk Caldwell, Chandler asked the city to return the entire $7.9 million, and sparked concern over the management of CDBG grants after it was revealed the city had approved $1.2 million in loan forgiveness for ORI.

HUD also raised the possibility that politics played a role in the decision to retire two separate ORI loans, one for $815,000 and another for $350,000.

"City employees, running for elected office, were directly involved in approving, developing, or recommending the ORI CDBG loan forgiveness while receiving campaign donations from ORI representatives," wrote Chandler.

A city investigation revealed former Mayor Mufi Hannemann, former Deputy Managing Director Trudi Saito and former Director of the Department of Community Services Debbie Kim Morikawa supported retiring ORI loans, while former Budget Director Rix Maurer raised serious concerns. Shinn said current Council Chairman Ernie Martin was also in support of ORI loan forgiveness in his former role as deputy director of DCS.

However, Shinn said ORI's request for loan forgiveness dates back to 1999, and the city failed to discover why the nonprofit was chosen for a pilot project.

"We only have documents and we have the spotty recollection of people," she said.

Among the documents cited by Shinn as proof that Hannemann and other cabinet officials supported the retirement of ORI loans was a sticky note kept by Maurer in his personal documents. According to the former budget director, the note, which was in Saito's handwriting, said "Generally speaking, the mayor wants to do this."

Although Hannemann and Martin were among those receiving campaign donations from ORI, the city's investigation found no evidence of quid pro quo. According to the city's fact-finding inquiry, ORI representatives have given more than $100,000 to city politicos over the past 16 years.

"If you are aware of any evidence of benefits received by any City employee or official other than campaign contributions, we would appreciate receiving that evidence so that we may review it to determine if there was a conflict requiring any action," Shinn wrote in her letter to Chandler.

Hannemann issued a statement late Friday saying the original ORI loans were approved in 1995 and 2003, which preceded his time in office. He also said he was in agreement with former Mayor Peter Carlisle that the ORI loans were unlikely to be paid back, and should have been outright grants.

"I didn't have a problem with the forgiveness of the non-performing loans as long as it was made available to everyone in a similar predicament," said Hanneman. "Developing a policy on decades old outstanding loans, in accordance with sound fiscal policy, is the right thing to do and has nothing to do with quid pro quo. Hence, the actual forgiveness of the loan was done by other mayors after I left City Hall."

Records show Carlisle received no campaign donations from ORI, and it was his administration that raised concern to HUD officials about the nonprofits performance. Carlisle approved the forgiveness of the second ORI loan on Oct. 15, 2010 ($350,000), just a few days after being sworn into office.

"The idea is we're not trying to bleed the nonprofits to death with ancient loans," Carlisle said in a phone interview with KITV4.

The first ORI loan to be retired by the city on July 26, 2010 ($815,000), occurred under Caldwell, who at the time was acting mayor, after Hannemann resigned to run for governor. However, Caldwell has said he didn't learn of the matter until January of this year, shortly after he began his current term in office.

Meanwhile, the Honolulu Ethics Commission has launched a separate investigation of the ORI loan forgiveness program, but the commission has not revealed who is the focus of the probe.

Shin says the city has taken several steps to ensure a system of checks and balances for loan forgiveness, which includes join management responsibilities between DCS and the Department of Budget and Fiscal Services.

City attorneys have spent hundreds of hours researching documents about the loan forgiveness program, as well as site visits to ORI's facilities in Wahiawa. The city also hired the Hawaii Investigative Groups for $80,000 to assist with the internal probe.

The Ethics Commission has given no indication how long its investigation may last, or when it may issue an opinion on the matter. 

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