Audit: DLNR mismanaged state land

LIHUE — A division of the state Department of Land and Natural Resources responsible for millions of acres of state-owned property is being run without coherent policies or guidelines by a staff that is incompetent to the point that it misunderstands its own funding, according to a report released Thursday by the Hawaii State Auditor.

Over the course of 18 months, auditors combed through two years of contracts, leases, permits, financial records, annual reports, public-meeting minutes and other relevant documents, ultimately concluding that the DLNR’s Land Division is, simply put, “not fulfilling its mission.”

In a sprawling 53-page report to the governor and state Legislature, state auditors concluded that the Land Division “lacks clear and consistent policies and procedures necessary to guide day-to-day operations,” has no strategic, long-term plan to manage its obligations or goals, and has an understanding of its own revenue source that is, “frankly, very wrong.”

“In short,” auditors wrote, “the Land Division is ill-prepared for the current and future demands of public land management, unable to resolve its present challenges, and not planning for opportunities in the future.”

The state auditor’s report is the second one this year to focus on the DLNR. A January audit revealed numerous concerns with how DLNR officials managed a multimillion-dollar state fund, including poor oversight, budget shortfalls, inappropriate spending and lapsed funding.

And the state auditor is not the only government agency looking into the inner workings of the DLNR. Two state Ethics Commission reports in recent months revealed rampant corruption among DLNR employees in a Kauai division office.

The findings of the audit published Thursday reveal multiple instances of seemingly systemic problems related to resource mismanagement. Several specific instances were cited in the report, quoting multiple state Board of Land and Natural Resources board members who displayed a clear misunderstanding of their responsibilities.

Even Land Division Administrator Russell Tsuji was described as holding views about his job that sharply contrasted with those of the auditors. The report cited one example of a missed opportunity from 2014, when one of the land division’s larger leases expired, opening up the possibility for generating additional revenue.

The DLNR staff “did not prepare for this eventuality, and when the lease expiration dates were imminent, the Land Division did not have the staff, expertise and resources to do anything other than continue business as usual.”

Auditors said Tsuji “does not see the necessity of such planning, explaining that the division’s focus and direction often change ‘on a dime,’ especially during changes in administration.”

The DLNR disagreed.

“On the contrary,” they wrote. “We believe a long-range, strategic plan is precisely what provides an agency with the direction and guidance that are needed during transitions of leadership.”

Without long-term strategy or a basic understanding of the Land Division’s purpose, auditors found that DLNR leadership potentially cost the state tens of millions of dollars in unearned revenue, and maneuvered the division into a financially unenviable position for decades to come.

The Land Division is funded entirely by revenue generated from leases and land permits it issues to 1,600 DLNR-managed properties, but the auditors found that “strategically growing this income has not been a priority — or even a possibility — since the land division’s lack of planning has left its staff without the expertise, resources or options to actively and effectively manage its land portfolio.”

Auditors came across one instance in which the Land Division lost an estimated $16 million in annual revenue opportunities on a 10-year agreement on just 16 leases simply by extending short-term leases rather than issuing new ones at a higher rate.

When asked why the DLNR would lease state land for rates that are well below market value, one land board member — a former legislator who represented the Hilo district — told auditors that he was to blame “for having a soft heart,” explaining that some of the lessees are former political supporters and close friends.

In another example, auditors explain that the division recently entered into an agreement that will likely prevent it from collecting fair-market value on its single greatest income-generating property for decades to come by fixing rent prices through the year 2057, despite lease provisions requiring rent to be reassessed every 10 years.

When it comes to permits, “the land division is leaving even more of the state’s money on the table,” according to the report, which said an independent contractor reviewed a third of the division’s permits and discovered the total was $838,000 below fair market value.

“Since only a third of the land division’s revocable permits were appraised, an estimate of total lost revenue to the state is likely substantially higher,” the report added.

“In other words, the division is almost certainly costing the state well over a million dollars a year, in large part because the clear majority of those permits, which are meant to be issued on a temporary, month-to-month basis, are decades old and rent adjustments have been few and far between,” according to the auditors.

In addition to costing the state a fortune in unearned revenue, DLNR officials did not accurately account for the Land Division’s revenues, expenditures, transfers or available cash balances and underreported the balance of the division’s fund to the state Legislature by more than $1.5 million.

A financial audit of the DLNR as a whole in 2018 turned up a slew of other accounting discrepancies.

In response to a draft of the June audit, BLNR Chair Suzanne Case sent a six-page memo contesting many of the auditors’ findings. In the memo, Case objected to auditors’ opinions and characterizations regarding the Land Division’s strategic planning strategies, fiduciary responsibilities, implementation of policies and procedures, and efforts at financial transparency.

“The draft audit report includes useful recommendations in some instances,” Case wrote, before adding that the report “reaches a number of subjective conclusions based on the auditor’s interpretation of the public trust.”

In a rebuttal to Case’s memo included in the report, auditors wrote: “Instead of discussing the report during the exit conference, DLNR waited for its written response to raise questions about our audit findings. However, the department’s position is primarily unsupported, composed of cursory statements, most of which are inconsistent, contradictory, or misleading; some are simply wrong.”

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Caleb Loehrer, staff writer, can be reached at 245-0441 or cloehrer@thegardenisland.com.