Hawaii County’s affordable housing credit program needs to be reshaped, but not before the county code itself can be revised, county officials said.
In February, a report by county auditor Tyler Benner revealed that the Office of Housing and Community Development was unable to properly monitor and record the movement of affordable housing credits due to “inadequate internal controls.”
Under the county’s affordable housing policy, developers who agree to build more than the minimum number of new affordable housing units required by the county can earn affordable housing credits, which can be transferred to other developers.
But because OHCD lacks sufficient tools to track those credits, their movement between developers has become largely opaque, a fault that allowed a former county housing official to commit wire fraud using the affordable housing program.
Alan Scott Rudo, a housing community development specialist from 2006 to 2018, pleaded guilty in August to conspiracy to commit honest services wire fraud by awarding affordable housing credits to false limited liability companies established by alleged co-conspirators, and then selling those credits to other developers for a profit.
Rudo’s share of that profit was at least $1.8 million.
Following that fiasco, North Kona Councilman Holeka Inaba requested an audit of the program, which discovered that the resale of affordable housing credits is rampant and the OHCD doesn’t have the controls necessary to keep track of them.
OHCD Director Susan Kunz told the Tribune-Herald in February that her department will correct those deficiencies, but a followup discussion at a County Council committee hearing Tuesday was vague about the degree to which the program can be improved without changing the county code.
Kunz told council members Tuesday that there already has been “a lot of progress” in implementing a list of seven recommendations by the auditor, and her office is working with consulting firm Keyser Marston Associates to review Chapter 11, the section of the county code that outlines the affordable housing policy.
Council members lamented that the complexity of Chapter 11 has created a byzantine housing credit program.
“I still don’t have an idea of what a credit actually is,” said South Kona Councilwoman Michelle Galimba.
Deputy County Corporation Counsel Sylvia Wan said that, through various implementations of Chapter 11, development of a single excess affordable housing unit can earn a single credit, half a credit, one-and-a-half credits, or two credits.
Wan told the council that while the audit report represents “the best of our knowledge” about the state of the program, she added it is labyrinthine enough that some facts may still be hidden.
“(The report) dived deep into many legal documents that are confusing even to the sharpest attorney,” Wan said. “I do believe the report … is the most complete picture that we have, but I hesitate to say that we might not discover something later, just because of how old and complicated this credit system has been.”
Inaba said that, for now, “the ball is in OHCD’s court” while they conduct their Chapter 11 review. When that is completed — Kunz said it could happen in a few months — the council can work out how to amend the program or Chapter 11 itself.
“I think we’re all anticipating changes to Chapter 11,” Kunz said. “Administrative rules are not going to happen until those changes happen. I don’t think it’s worthwhile for us to spend that kind of time.”
Until the County Council can figure out how to revise Chapter 11, Kunz said her office is looking to improve its software to keep track of how credits are awarded and exchanged.
But Kunz reiterated that even budgeting for new software would be premature until Chapter 11 is updated. She also entertained the possibility that affordable housing credits could be discontinued entirely, which would obviate the purpose for new software.
Even worse, the Department of Hawaiian Home Lands has its own affordable housing credit program that cross-pollinates with the county’s program. South Hilo Councilwoman Sue Lee Loy speculated that any changes to the county’s program might necessitate changes to state law.
Lee Loy noted that there currently is a measure, Senate Bill 1357, passing through the Legislature that makes permanent the requirement for the counties to award housing credits to DHHL.
Kunz said OHCD is monitoring that bill and is recommending that it be amended to allow the county to negotiate with DHHL on how those credits are used.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.