Ori honolulu

OFFICE OF THE MAYORCITY AND COUNTY OF HONOLULU

530 SOUTH KING STREET, ROOM 300 * HONOLULU, HAWAII 96813PHONE: 1808) 768-4141 FAX: (808) 768-4242 INTERNET: www.honoIuIugçy

KIRK CALDWELLEMBER LEE SH:NNMAYOR

MANAGING DRECTOR

GEORGETTE T. DEEMERDEPUTY MANAGING DIRECTOR

Julyl8,2013 Ongira VndVL4 HAflU DELIVERY ati icrc4 +vMr. Mark A. Chandler, Director 4asU. S. Department of Housing and Urban DevelopmentHonolulu Field Office — Region IX u ‘ “41132 Bishop Street, Suite 14003Honolulu, Hawaii 968 13-4918

Dear Mr. Chandler:

Subject: On-Site Program MonitoringCommunity Development Block Grant Pro gramApril 11-25. 2011 and May 2013 Follow-up

This responds to your June 3, 2013, letter addressed to Mayor Kirk Caldwell, transmitting theU. S. Department of Housing and Urban Development, Community Planning and Development’s(“HUE)”), May 2013 Monitoring Report, which addressed open monitoring findings relating totwo subrecipients of the Community Development Block Grant (“CDBG”) program of the Cityand County of Honolulu (the “City”). The two subrecipients are OR! Anuenue Hale. Inc.(“ORIAR”), and its affiliate, Opportunities and Resources, Inc., formerly known asOpportunities for the Retarded, Inc. (“OPT’), and the findings pertain to ORIAH’s AlohaGardens Project (the “Project” or “Aloha Gardens”). The Project consists of two facilities, theWellness Center and Camp Pineapple 808 (“Camp Pineapple”). Mayor Caidwell recusedhimself from this mailer and asked that I respond to your letter.

We appreciate this opportunity to respond to BUD’s findings and concerns and your willingnessto consider our responses and proposals. As your June 3, 2013 letter (the “June 3 Letter”)acknowledges, the City has worked with ORIAH for the last two years in an attempt to increaseORIAI-I’s appropriate use of Aloha Gardens to ensure compliance with the CDBG nationalobjective of serving the elderly and developmentally disabled adults. Although we acknowledgeHUD’s position that there continue to be challenges regarding URIAH’s compliance with HUD’sstandards, we believe that ORIAH’s mission is commendable and that significant progress hasI Mayor Caidwell was Managing Director from January 2,2009, until July 21, 2010, when he becameActing Mayor, and was Acting Mayor until October II, 2010. Our review of the City personnel involvedin the process and decisions with regard to ORI’s loan conversion discussed below has disclosed that theresponsibilities within the Managing Director’s Office were divided between then-Managing DirectorCaidwell and then-Deputy Managing Director Truth Saito; that the ORI loan conversion decision-makingprocess was assigned to DMD Saito; and that former Managing Director Caldwell was not involved in anyaspect of the decision to convert the URI loan Mayor Caldwell received a campaign contribution of$500.00 in September 2009 from an individual associated with OR!.

Mr. Mark A. Chandler, DirectorJuly 18, 2013Page 2 of 15

been achieved. As examples, approximately 40 acres of land were acquired; a portion of that landwas graded; the infrastructure has been installed; the primary building has been constructed andfurnished; programs that serve the target groups have been established; and, in order to do all ofthis, ORIAB has raised several million dollars from sources other than the funds it receivedthrough the City’s CDBG program as welt as garnered a large base of community support for itsprograms.

As will be described in more detail below, the City’s proposal for the future of Aloha Gardenscontemplates that the portion of the Project that is most compatible with HUWs nationalobjectives criteria remain a CDBG project; the remainder of the Project would be converted to aCity-managed project. The City also proposes reimbursing the CDBG program for funds that areattributable to the portions that will be converted to a City-managed project. However, the City’sproposals set forth in this letter are subject to: (I) the City reaching an acceptable agreement withORL&H; and (2) securing City Council approval of the settlement in accordance with applicablelaws. The specifics of the City’s proposals are set forth below, along with the City’s responses tospecific findings and concerns raised.

BACKGROUND

ORTAH was founded in 1993 as a Hawai’i non-member nonprofit corporation with a primarypurpose of improving the quality of economic and social participation of the elderly, disabledpersons, and persons of lower income. ORI was founded in 1980 as a Hawai’i member nonprofitcorporation with a primary purpose “[t]o promote the general welfare of and provide training forthe retarded persons living in the State of Hawaii.”

In the early 1980’s, ORI, in part with HUD funding obtained through the City, developed aresidential agricultural community in Wahiawa known as Helemano Plantation (“HelemanoPlantation”) for developmentally disabled adults on the 5-acre site of the old HelemanoElementary School. Later, OR! developed (again in part with HUT) funding obtained through theCity) a training center for residents of Helemano Plantation, which was opened also to otherdevelopmentally disabled individuals in the community.

While MUD’s on-site monitoring concerns both OR! and ORJAH and touches upon the HelemanoPlantation project, its primary focus is ORIAH’s Aloha Gardens Project.

In 1994, ORIAH first applied for CDBG funds to develop the expansion of Helemano Plantationto adjacent lands owned by Castle & Cooke. While ORIAN, at one point, considered acquiringJand in Kahuku for the Project, it ultimately acquired approximately 43 acres adjacent toilelemano Plantation (portion of TMK No. 6-4-3:003) from Castle & Cooke Properties, Inc., andDole Food Company, Inc., for the Project. Castle & Cooke donated 10 of those 43 acres andORL4H purchased the remainder using CDBG funds from the City.

The Project was originally conceived as being limited exclusively to the elderly anddevelopmentally disabled. The intent changed to include a focus on economic development,which requiredjob creation in accordance with a set formula based on the total CDBG moniesdisbursed; part of the Project would be devoted to public facilities. Over time, the Projectreverted to the original intent.

The original Subrecipient Agreement between ORIAH and the City for CDBG funding for theProject was entered into on February 23, 2001, for $1.5 million to acquire a property near Kahukia

Mr. Mark A. Chandler, DirectorJuly 18, 2013Page3ofl5

and owned by Campbell Estate for a social services facility. Over the next five years. throughApril 18, 2006, the Subrecipient Agreement was amended nine times as the scope of the projectchanged and more funds were allocated. Z With the final amendment, the total amount of CDBGfunding for the Project rose to $7,924,850.

ORTAH held a ceremonial ground-breaking for Aloha Gardens on November 12, 2002. Sevenyears later, a temporary Certificate of Occupancy for the Wellness Center issued on March 24,2009, and the Center opened later in 2009 or early 2010. The last Project invoice paid withCDBG funds was dated May 2006. The Camp Pineapple structures were constructed from 2006,and the City believes they were completed in 2010, According to ORJAH, non-CDBG flmdingand material in-kind support were relied upon to complete the Project.

Concerns about whether the Project was adequately meeting a CDBG national objective wereraised by HUD in its May 27, 2011, monitoring letter to then-Mayor Peter Carlisle (the “May2011 Letter”). See attached Exhibit 1. As a result, the City and ORIAH entered into aMemorandum of Understanding dated June 27, 2011 (Exhibit 2), which was reviewed andaccepted by HUD, and which was aimed at ORIAFI increasing the utilization rates for the Project,both at the Weilness Center and at Camp Pineapple, and the City stepping up its monitoringactivities so as to bring the Project in compliance with its stated national objective. Since thattime, the City has regularly monitored ORIAM and has submitted to MUD quarterly monitoringreports documenting efforts to increase utilization rates. Additional oversight efforts by the Cityis reflected, as an example, in the fact that the City’s Federal Grants Unit in the Department ofBudget and Fiscal Services (“BFS”), expressed its concerns in 2012 to the City’s Department ofPlanning and Permitting (“DPP”) about ORIAH’s request to DPP for a minor modification to aSpecial Use Permit (“SUP”) that would have had the effect of shifting developable landssurrounding the Weliness Center to ORIAH’s adjacent land that is not subject to CDBGrequirements. See attached Exhibit 3.

In the June 3 Letter, HUD restates in Finding 1 concerns originally raised in its May 2011 Letterand that apparently have not been closed by MUD. The June 3 Letter also raises a number of newissues not previously identified by MUD to the City, including in the May 2011 Letter. Forexample. HUD’s Finding 2 raises new questions as to whether contract payments for AlohaGardens included work that did not pertain to CDBG-eligible activities or projects. HUD’sFinding 3 raises new questions about public services grants to ORTAH that pre-date the City’sfiscal year 2006. HUD’s Finding 6 raises for the first time a conflict of interest issue inconnection with the City’s CDBG Loan Conversion program, concerning which the City hasalready taken corrective action in response to earlier monitoring by HIJD.

RESPONSES TO HUB’S FINDINGS AND CONCERNS

In the June 3 Letter, MUD allowed the City 45 days to respond to the previous Findings that Werenot closed by prior administrations and to the new Findings. The City has devoted significantresources to investigate the facts of the City’s three decades long relationship with ORI and

2 During this period of time, the CDBG grants were identified administratively and made through budgetordinances by the City Council. In 2003, HUD expressed concerns over possible conflicts of interest forCouncil members who were involved in CDBG funding decisions, as is more fully discussed in response toHUD Finding 6. In October 2006, Council adopted a resolution naming Council appointees to a selectioncommittee that would make recommendations to DCS on CDBG awards.


ORIAJ-T in order to develop meaningful responses to all of the Findings and Concerns raised.Due to the long history, the changes in administration and the loss of historical knowledge, wehave relied on documents and spotty recollections of available witnesses. ORIAH has refUsed topermit the City to interview its past and present employees and officers and initially refused topermit the City to review its files and documents. ‘ Accordingly, the City is unable to concludeits internal review prior to BUD’s deadline for this response. Nevertheless, the City submits thisresponse, with a proposed resolution and corrective action plan for HUD’s consideration

RU]) FINDING 1: NON-COMPLIANCE WITH A CE)BG NATIONAL OBJECTIVE

Under this finding, BUD notes that the purpose of the Weilness Center and Camp Pineapplefacilities was to serve elderly and developmentally disabled persons, which are presumed benefitcategories under the CDBG national objectives at 24 CFR 570.208(a)(2). HUD has concludedthat there is insufficient documentation or records to demonstrate program compliance with anational objective as required by 24 CFR 570.208 and 570.506. Additionally, HIJD hasconcluded that the City will not enforce and take action to ensure CDBG program compliancewith regard to ORIAR’s CDBG assisted projects.

BUD’s Corrective Actions:

1. The City is advised to reimburse its CDBG program $7,924,850 with non-federal funds.

2. Until the funds are repaid to the CDBG program the City must record the $7,924,850payable to the CDBG program as an account payable in its accounting records fordisallowed program costs.

3. Upon receipt of the funds into the City’s local CDBG account, the City must revise theifilS draws and cancel the Aloha Gardens activities. The funds shall be noted as a returnof grant funds and must be promptly reprogrammed for other CDBG-eligible activities.

city Response:

The City acknowledges HUB’s concerns regarding ORIAH’s compliance with CDBG nationalobjectives. The City further acknowledges that BUD’s concerns over this organization’s abilityto run a viable program have been repeated over the years, through three prior Cityadministrations and now to this fourth current administration. The past efforts of prioradministrations to impress upon ORIAH the seriousness of noncompliance and the consequencesof failure to meet the national objectives have been largely unsuccessful. Accordingly, the City isnow faced with putting its entire CDBG program at risk for loss of funding that would benefitother worthy and compliant nonprofit organizations serving low and moderate income residents.

In part to address Finding 1, the City proposes reimbursement of approximately $1.88 million tothe CDBG program. A portion of that reimbursement includes fair value for the acquisition ofand CDBG-funded improvements to Camp Pineapple, with the intent to remove Camp Pineapplefrom the CDBG national objective requirements. The City is committed to working with ORIAHin a focused effort to sustain national objective compliance for the Wellness Center and the

Attorneys for ORTAH permitted the City to briefly inspect some documents and have indicated awillingness to pernut further inspection.


remaining Aloha Gardens land acquired with CDBG finds, including improved monitoring asoutlined in the City’s proposed Corrective Action Plan.

The remainder of the reimbursement addresses the eligible cost issues raised in Findings 2, 3and 4. The City aclmowledges that documentation from ORIAH for some payment requests Wasunclear. To address 1{UD’s concerns about potentially ineligible costs in Finding 2, the Cityestimated a proportionate share of the development and construction costs for reimbursement.The City believes that the estimated share for reimbursement overstates the potentially ineligiblecosts but is willing to accept the additional amounts to resolve Finding 2. The cost issues inFindings 3 and 4, and related reimbursement, concerning ORLkH’s separate acquisition of thethree acre parcel used for entry to the Project site and for parking (the “Entry Lot”) are addressedin Finding 3.

HE]) FINDING 2: ACQUISITION AND CONSTRUCTION PAYMENTS

HUD notes under this Finding that the City authorized $7,924,850 in CDBG payments for theProject. MUD concludes, however, that construction contract payments for the Project includedwork that did not pertain to CDBG-eligible activities/projects, that ORIAI-I used CDBG finds topay for costs not associated with the CDBG-eligible Aloha Gardens Project and that paymentrequests were not detailed enough to confirm the costs were attributable to the CDBG-eligibleProject. MUD finds that these costs should be disallowed.

HUD ‘ s Corrective Action:

Per HUD, resolution of this Finding is subject to completion of the corrective action in Finding 1.

The City does not dispute that a charge for $275 for vegetation control for a private property nearPearl Harbor should be disallowed and reimbursed, and points out that some of the items listed onTable I in the June 3 Letter are addressed in other parts of this letter. However, the bulk of theexpenses listed are not specific enough to address at this time. The City will address this Findingby implementing the proposal described in the City’s response to Finding I and reimbursing aconservatively proportionate share (overstates the potentially ineligible costs) of totaldevelopment and construction CDBG-funded expenditures.

lIVE) FINIflNG 3: PROPERTY ACQUISITION — UNPERMITTED PARKING LOT

In the first sentence describing the “Condition” relating to this Finding, H1JD concludes that theCity authorized ORIAH to acquire with CDBG funds what the City’s DPP identified as an“illegal” three-acre parking lot adjacent to ORE’s Plantation Hale training facility (HelemanoPlantation) for mentally-challenged clients. HL’D finds that such use of $597,780 in CDBG fundsresulted in an overpayment and ineligible use of CDBG funds.HUD’s Corrective Action:

Per HUD, resolutton of this finding is subject to the corrective action in Finding 1.

City Response:

There are two parts to this response.


First, the City believes that the document referred to in the first sentence describing the Conditionis an email dated April 22, 2003, from a staff person at the DPP addressed to other City personnelwith the subject line, “Prposed [sic] acquisition of additional lands adjacent to HelemanoPlantation for for [sic] ORIs Aloha Gardens” See attached Exhibit 4. In that email, the DPPstaff person says:

I recently learned that ORI was planning to acquire about 3+ acres locatedbetween Helemano Plantation and Kam Hwy. for access as required by conditionof the SUP from Castle & Cooke (see attached aerial photo). However, thataccess area also has parking for Helemano Plantation that may have beenestablished illegally since the City Council Resolutions that covered HelemanoPlantation would not have included separate parking on Dole Plantation lands.Apparently, ORT made this arrangement for off-site parking on their own.

If the property is acquired for access then it “belongs” under the Aloha Gardensproject and should be included in the SUPlvariance. However, that would bring itbeyond the 15-acre limit and an amendment to the SUP would require Land UseCommission approval.

The staff person then goes on to list three options.

The approximately 3 acres referenced in the email is the Entry Lot, which serves as the primatyaccess road into the Aloha Gardens site. While there is surface parking on the Entry Lot, suchparking was constructed before Aloha Gardens was constructed, as shown in the aerialphotograph attached as Exhibit 5, and initially served as the parking area for the HelemanoSchool Site. The supposed “illegality” referred to in the email refers to the possibility that suchparking was not approved via the Hawaii Revised Statutes (“RRS”) chapter 201G exemption thatpermitted the Helemano Plantation to be developed in the agricultural zoning district.

Even if the surface parking on the Entry Lot was not a part of the HRS chapter 20 1G exemption,the City intends to address this Finding through an agreement with ORIAI4 that addresses manyof the Findings and Concerns and, pursuant to which, ORIAI4 will undertake option 2 mentionedin the email, that is, “Modi’ the recently approved SUP to reconfigure the approved area toincorpoate [sic] the access/parking so that there is no net increase. That will require processinganother SUP amendment and will take at least 3 months;

Second, the City proposes to reimburse a portion of the CDBG funds that were used by ORIARto acquire the Entry Lot. The April 14, 2003 Summary Appraisal Report prepared by anindependent appraiser appraised the Entry Lot, having approximately 3.1 acres and AG-i zoning,at $650,000. Exhibit 6 at 8. The appraiser derived that value using the Direct MarketComparison approach. Id. at 5. For that approach, the appraiser reviewed five comparabletransactions. Ia’. at 6. Transactions No. 1-3 were AG-i (agricultural) zoned lots in a Waialuaagricultural subdivision. Id. Transaction No. 4 was an AG-2 (agricultural) zoned lot in Kahukuwith grandfathered commercial structures. Id. Transaction No. 5 was a B-i (commercial) Zonedlot in Kunia purchased with plans to construct a shopping center. Id. The appraiser adjusted thevalues of the comparable transactions based on several factors, including location, access, lotsize, and zoning. Id. at 7. For zoning, the appraiser assumed that parking was a principalpermitted use of the Entry Lot. Id. As a consequence, for comparison to the other AG-i lots(Transactions No. 1-3), for which parking was not a principal permitted use, the appraiser


increased the reported value of those transactions by 25% to reflect the assumed superior useavailable on the Entry Lot. Id. For Transaction No. 4, with its grandfathered commercial use, theappraiser deemed the value comparable and made no adjustments based on zoning. Id. Finally,because Transaction No. 5 was zoned for more general commercial use, the appraiser reduced thereported value of that transaction by 20% to reflect the inferior uses available on the Entry Lot.Id.

Assuming that the other adjustments for location, access, and lot size remain unchanged, thedifference between the appraised value for permitted uses of an AG-i zoned lot and an AG-Izoned lot with parking as a principal permitted use, is 25% of the value for the traditional AG-lzoned land. Based on the CDBG expenditure of $594,134.67 to acquire the Entry Lot, thedifference would be $118,826.94. The City further would note that direct market comparisonsbetween per acre value in the January 2003 appraisal of the 33 acre parcel to the per acre value inthe April 2003 summary appraisal of the 3 acre Entry Lot are not linear As explained by theappraiser, larger undivided parcels are less marketable. Id. at 7 (“Adjustments for size were madebased on the concept that larger parcels, a11 other factors being equal, tend to command lower unitrate values.”). In this instance, the appraiser reduced the reported value of lots only 2 acres largerthan the 3 acre ORIAH parcel by as much as 13%. Id. The City proposes to reimburse theCDBG program $11 8,826.94—the increase in value resulting from parking as a principalpermitted use on the Entry Lot, according to the appraisal—to resolve concerns regarding theprincipal permitted use of the Entry Lot. This amount is included in the total amount proposed inresponse to Finding 1 above.

The Entry Lot provides a shared access that will continue to benefit ORI’s residential communityof developmentally disabled individuals at Helemano Plantation and ORIAH’s beneficiaries atthe Weilness Center, consistent with CDBG requirements.

BUD FINDING 4: PROPERTY ACQUISITION — COST REASONABLENESS

This Finding concludes that the City authorized a CDBG payment for a parking lot that was not aprincipal permitted use, failed to ensure the property appraisal was based on permitted uses of thesite (agricultural), and permitted ORIAH to use CDBG funds to pay more than the fair-marketvalue for the acquired property.

HUD’s Corrective Action:

Per HUD. resolution of this finding is subject to the corrective action in Finding 1.

City Response:

The City acknowledges that it appears the surface parking on the Entry bat was not a properlypermitted principal use at the time that the Entry Lot was purchased by ORTAH. The Citysubmits however, that the land had been used as a parking lot for many years prior to ORIA.H’spurchase and that the City advised ORIAH that an option to correct the deficiency would be toreconfigure the boundaries of its SUP to include the parking lot. The City also submits that, sincethe purchase of the Entry Lot, the City has properly enforced its zoning requirements whenORJAH has made requests that have raised questions regarding its compliance with HUDrequirements.


As stated in the City’s response to Finding 3. the City will reimburse the CDBG program$118,826 and will address this Finding through an agreement with ORIAII pursuant to whichORL4H will request modification of the SUP to include the surface parking areas within theEntry Lot.

1TUI) FINDINGS: PUELIC SERVICE COSTS AND EXPENDITURES

HLTD finds that, for certain public service subrecipient agreements with ORIAH prior to 2006, theCity’s records fail to demonstrate that payments to ORIA.FI were direct costs for implementing apublic service activity, resulting in ineligible or questionable CDBG program payments thatinclude, but are not limited to, grant research and management fees.

HIJD’s Conective Action:

HUD proposes that the City reimburse, with non-federal funds, the CDBG program for $226,680or provide supporting documentation for the eligibility of the CDBG expenditures on the publicservices costs identified by FTUD as ineligible or questionable.

City Response:

The City has reviewed HIJD’s listing of questionable and ineligible expenditures set forth in thisFinding.

The City notes that all of the questioned expenditures were under public service subrecipientagreements for years prior to 2007. None of these expenditures were mentioned in HUIYs May2011 Letter. Reimbursement should not be required for “questionable” expenditures undersubrecipient agreements closed out before June 3, 2009, as the four-year record retention periodhas expired. 24 C.F.R. § 85.42 (as modified by 24 C.F.R. § 570.502(a)(l6)). ORL&Hadministered five CDBG-funded public service grants from 2000 to 2006. The last subrecipientagreement closed no later than January 2007. See attached Exhibit]. To the extent some recordsfor the grants were available, the review conducted by the City has not produced documents thatwould support the conclusion that these “questionable” expenditures were in fact ineligible.

With respect to the automobile expenses identified in HU1J Finding 5 as “ineligible,” the City’sresearch indicates that these expenses were for vehicles used to transport ORIAH clients, and notfor ORIAH employee auto expenses. See attached Exhibits 8 and 9. Accordingly, theseexpenditures were CDBG-eligible.

With respect to the “ineligible” items for “Grant Research ($6,000) and “Administration”($20,000), those items are identified as proposed categories of expenditures in SubrecipientAgreement No F76820. The City does not have extensive records for Subrecipient AgreementNo. F76820 because the record retention period expired in 2005. Although ORTAR’s finalexpenditure report does not expressly charge for the ineligible categories, Exhibit 10, the Citywould agree to reimburse $26,000 to the CDBG program.


CDBG FINnING 6: LOAN FORGIVENESS

HUB finds that the City made a decision to forgive” OH (an ORIAH affiliate) nearly $1.2million in CDBG loans when City employees, running for elected office, were directly involvedin approving, developing, or recommending the OH CDBG loan forgiveness while receivingcampaign donations from representatives of, or persons closely associated with representatives of,OH or ORJAH (collectively referred to as the “ORI Representatives”). HCTD finds that thefinancial relationship between OH I ORIAII and City staff created a CDBG conflict of interestsituation.

HUD’s Corrective Action:

HUD proposes that:

I. The City immediately reinstate the OH loans and interest due until it issues a publicnotice and complies with the 30-day comment period advising the public of the City’s OH loanforgiveness, including the total amount forgiven (loan and interest) and the situation involving theORI/City conflict of interest.

2. The City provide HUD with a copy of the public notice nd accounting entries reinstatingthe OR! CDBG loan and interest account payable addressing Corrective Action 1 above.

3. The City provide a copy of the City’s loan forgiveness policy to its subrecipients thatcurrently have an outstanding CDBG loan with the City and provide HUD with a copy of thesubrecipients’ written receipt of the policy.

çjtyResponse:

There are two parts to this response.

1. The OH Loan Conversion. The City aclmowledges that, until 2010, it was Citypolicy to deny requests to convert HUD-funded loans to grants. In 2009, however, the City’sDepartment of Community Services (“flCS’) and the BPS began a dialogue concerning a changein City policy to permit loan conversion for CDBO and HOME loans that supported special needshousing or public facility projects. Although the December 20, 2009, memorandum from BPScited in the June 3 Letter (Exhibit 11) raises concerns about loan conversion and specificallyreferences OH; the November 13, 2009, memorandum from DCS (Exhibit 12) does not mentionORI and includes a list of 17 loans potentially eligible for conversion. The DCS response to BPSon March 16, 2010 (Exhibit 13), explained that DCS had reviewed the eligible loans and selectedORI as a “pilot project;” DCS emphasized that the policy change only concerned a limited subsetof I{UD-funded borrowers that typically relied on government subsides for operations and werenot self-supporting. Although the City interviewed individuals involved in the OH loanconversion process and reviewed relevant documents, no witness or document explains why theCity selected OH as the pilot project for loan conversion or why a loan conversion policy wasnot written and publicly disseminated for comments before conversion of OREs loans.

While a technical distinction, the City notes that the loan was not forgiven”; rather, the loan wasconverted to a grant.As far as we can detennme, based on our review of the documents and the witness interviews, theindividuals involved in the OH loan conversion decision-making process (from the fall of 2009 through


As detailed in the City’s prior monitoring response dated May 7. 2012, the City’s LoanConversion Policy was previously the subject of public notice and comment. The Citynevertheless commits to taking the corrective actions outlined above for HIJD Finding 6.

2. Campaign Contrib . Finding 6 also alleges a CDBG conflict of interestsituation arising from the receipt of campaign donations from ON Representatives by Cityemployees who were running for elected office and were involved in approving, developing, Orrecommending the ON CDBG loan conversion. In reviewing this matter, we do not agree that aCDBG conflict of interest exists in the absence of evidence that an individual received a directbenefit, such as would exist where the government official who participates in the decisionmaking relating to a subrecipient’ s CDBG-funded project is also an employee or officer of thesubrecipient. Our review of the facts did not support a CDBG conflict of interest in this situation.

Our research disclosed many City officials and employees who received campaign contributionsover the years from ORI Representatives. A copy of our cursory research is attached for yourinformation as Exhibit 14. While this list indicates that ORI Representatives contributed over$100,000 over the past 16 years to political campaigns. and while some may infer an attempt tounlawflilly influence the political process, we have found no evidence of a quid pro quorelationship nor any direct benefit resulting from the loan conversions inunng to City officialswho participated in the decision that would constitute a conflict of interest.

If you are aware of any evidence of benefits received by any City employee or official other thancampaign contributions, we would appreciate receiving that evidence so that we may review it todetermine if there was a conflict requiring any action.

We note that federal and state laws protect the First Amendment rights of individuals to makepolitical contributions. While Congress may limit, regulate or condition the use of federal fundsthat it appropriates, the federal government is much more circumscribed in its efforts to restrictprivate, nongovernmental grantees or contractors, or persons affiliated with them, from usingtheir own private or non-federal resources to engage in political advocacy or to make campaigncontributions in state or local election contests. Serious First Amendment concerns are implicatedwhen the government places restrictions on private persons in the area of political advocacy, andthe courts have been careful and deferential to the rights of private parties in terms of theirfreedoms of association and expression. We have asked our Ethics Commission to investigatewhether any conflict of interest under the City’s ethics laws existed for those who receivedcampaign contributions and were involved in the decision making of the loan conversion.

The City notes that HUD has previously raised conflict of interest issues in connection with theadministration of the CDBG program and approval of grants. Most notably, by letter datedNovember 25, 2003, addressed to Council Chair Donovan Dela Cruz (Exhibit 15), you advisedthe Chair of the possible occurrence of a conflict of interest involving the Councilmembers duringthe City budget process for CDBG-assisted activities. You advised of the importance ofCouncilmembers’ understanding of the HUD program regulations as the Council makes the finalfunding decisions for use of HUD Community Planning and Development program monies,citing to 24 CFR 570.611. You concluded that, at a minimum, Councilmembers who receive

June 2010) were: (1) Mayor Hanneman, who indicated his general agreement with the decision: (2) TrudiSaito, then-Deputy Managmg Director (“BMW’); (3) BFS Director Rix Maurer; (4) DCS Director DebbieMorilcawa; (5) Ernie Martin (OSP Executive Director); and 6) Keith Ishida. a DCS division chief.

Mr. Mark A. Chandler. DirectorJuly 18, 2013Page 11 of 15

payment or who are members or an organization’s governing body should refrain from offeringfor consideration or voting on a funding measure for that organization.

Thereafter, on July 14, 2004, the City Council adopted Resolution 04-189, CD1, which urges theMayor to establish a review panel to make recommendations on CDBG funding of projects fornonprofits. The Resolution proposed a review panel consisting of 7 members, 3 appointed by theCouncil, 3 appointed by the Mayor, and the 7th member nominated by the Mayor and confirmedby the Council; members serve for 4-year terms and no member is to serve more than twoconsecutive terms.

This format for a review panel was not implemented by the City and an agreed upon format for areview committee was apparently not established until the City Council adoption ofResolution 06-316, FD 1, on October 25, 2006, to select members for the CDBG and HOMEproject selection committee for the fiscal year 2007-2008 CDBG and HOME projects. ThisResolution identifies the Council’s three appointees to the committee and recommends a fourthindividual to serve as the jointly selected member of the committee. This Resolution directed thata copy of the Resolution be transmitted to you; we trust you received a copy in good order. TheMayor identifies three members for the committee and agrees upon the joint member, thusestablishing a 7-member selection committee. This is the format currently in place andmost-recently effected with the adoption of Resolution 13-7, CD1, appointing the Council’s threemembers and recommending a fourth member for CDBG and HOME projects for the fiscal year2013-2014, and providing also that a copy of the Resolution be transmitted to you. Again, wetrust you received a copy in good order.

HUB CONCERI’4 1: FAILuRE TO FOLLOW UP ON POSSIBLE PR0G1t4M VJOLATIONS

Under this Concern, ITUD concludes that the City failed to meet its obligation to administer itsthe ORIA}1 grant in accordance with Subpart J, Grant Administration [24 CFR 570.500 series],and Subpart K, Other Federal Requirements [24 CFR 570.600 series), and related provisions,citing as examples that:

During the period 2004 through 2011 the City failed to address a possible violation ofthe anti-kickback jprovisionsjof the CDBG program, arising from a September 22, 2004letter from ORI documenting that it had negotiated a $90,000 payment from thecontractor in exchange for a $5.3 million CDBG.

• The City failed to enforce against ORIAB certain Special Use Permit (SUP)limitations relating to a parking lot parcel acquired for the Aloha Gardens Project andfailed to follow a DPP recommendation that the parking lot be eliminated.

• In 2004 and 2007, the City reviewed ORTh.}I but failed to identify any noncomplianceissues.

HUB Corrective Action:

HLTD proposes that:

1. The City ensure proper authorities are reviewing the possible kickback situation.

2. The City train current City officials, staff, and management, including but not


limited to, individuals that have and had a direct role in the oversight of the ORI AlohaGardens project on the Copeland “Anti-Kickback” Act 18 Usc 874.

3. The City establish a system that will ensure subrecipient compliance with I-lEDprogram requirements, as measured through a decrease in non-compliance HUD programfindings for the City and its subrecipients.

City Responses:

Athough HUD poses this matter as a “Concern” rather than a “Finding,” we have spentconsiderable time investigating the history of the City’s relationship with ORIAH and its relatedorganizations. The evidence of political contributions to City officials as well as state and federalcandidates or elected officials is clear. \Ve have found evidence of inquiries by City Councilmembers on behalf of ORIAH, but such inquiries on behalf of constituents are routine actions byCouncil members — and on its face, completely proper. There is anecdotal evidence indicatingthat OH Representatives have the ear of and support from elected officials. Our internal reviewshowed management inconsistencies, which could promote an environment where externalinfluence could be exerted. Some of this can be explained by the history of the creation of DCS.Other explanations are attributed to the budget cuts and restrictions that forced more work onfewer staff.

However, two facts contribute to the oversight challenges of the Project:

First, the Project was managed by the DCS Office of Special Projects (“OSP”), and not by theCommunity Based Development Division (“CBDD”). CBDD has more expertise in managingconstruction projects and a process for documenting work progress and is typically responsiblefor the CDBG-funded construction projects.

Second, after construction was completed on the Project, there was a breakdown between DCSand BFS with regard to which department and person(s) were responsible for monitoringcompliance with the CDBG national objectives post-construction. Part of the explanation of thisbreakdowir is the fact that, while construction may have been completed for the Wellness Centerin 2009, the Federal Grants Unit of BFS did not take over post-development CDBG compliancemonitoring until 2011.

Regardless of the reasons, we have chosen to make a fresh start by reorganizing DCS so that thereis one unit responsible for grants rather than two, as in the past. In addition, we havestrengthened our interagency protocols to hold both DCS and BFS jointly responsible for certainaspects of program management. These organizational changes provide both check and balancein project management as well as coverage when staffing changes affect monitoringresponsibilities.

1. Regarding the first Corrective Action, the City notes, as HUD has noted, that the City didtake action in 2012 by referring the alleged kickback situation to the attention of the office of theUnited States Attorney (“USAO”), after the matter was brought to the City’s attention byHUD.USAO has confirmed receipt of the September 22, 2004, letter. Most recently, as a resultof the City’s present internal review, on July 16, 2013, the City provided to the USAO a copy of aSeptember 21, 2004, letter from ORIAH to its contractor relating to the matter. This letter wasprovided to the City by counsel for ORIAI-I. Copies of both letters are attached as Exhibits 16and 17.

Mr. Mark A. Chandler, DirectorJuly 18, 2013Page 13 ofl5

2. Regarding the second Corrective Action, the email reflecting the advice of DPP and theCity’s response are referred to in detail in the City’s response to Finding 3.

3. Regarding the third Corrective Action, the City’s proposal to take steps to strengthenoverall CDBG program compliance by subrecipients is set forth in more detail in the proposedCorrective Action Plan attached to this letter as Exhibit 18. The City believes that the actionsproposed will enhance the City’s ability to identify compliance with CDBG-requiremetits bysubrecipients and to promptly address any concerns.

Hill) CONCERN 2: RECORDS MISSING AND WITUIaD

During follow up monitoring in the last two years, HUT) has found that the City was initiallyunable to produce the entire Aloha Gardens Project files and that, when produced, the recordswere incomplete. In addition, HUD states that the City withheld certain documents from itclaiming “attorney-client privilege.” HUT) states that the City’s claim of attorney-client pnvilegeconflicts with CDBG program regulations.

HUT) Corrective Action:

H{JD proposes that:

1. The City notify all subrecipients in writing of the subrecipients’ obligation to provideHUD access to their records and failure to do so is a violation of program regulations that couldresult in disallowance of the subrecipients HI.JD funds.

2. The City provide H1JD with a listing of the subrecipients notified and copies of thenotices provided to the subrecipients.

3. The City establish a centralized records system for documenting all grants managementactivity. Until the City establishes a centralized records system, the City needs to maintain alldocuments generated for a HUD Annual Action Plan Activity (CDBG, HOME, HOPWA andESG), regardless of the City division creating the document, within the department responsiblefor developing and submitting the City’s Annual Action Plan (currently Budget and FiscalServices).

City Response:

The City acknowledges that it initially was unable to locate all DCS project files requested byHUD. The City notes that the request was made orally to an acting DCS Division Head andafforded the City only a few hours in which to locate files requested by HUD and to review thosefiles so that the originals could be delivered to HUD’s offices. The City continued its search forfiles after BUD’s initial request and supplemented its response as files were located and becameavailable for review.

The City notes that only three documents and two email streams were wititheld pursuant to theattorney-client privilege. Copies of privilege logs that describe those documents and emailstreams were previously provided to HUT) are attached hereto as Exhibits 19 and 20. Apart fromthis limited number of attorney-client privileged documents, the City produced or made availablefor production its DCS project files for review and copying by HUD. At the request of the HUD


Director, the City’s BFS Director set aside for HUD’s review certain BFS files; however, 11110has not asked to review such files.

Regarding FEUD’s expressed concern as it relates to the City’s assertion of attorney-clientprivilege with respect to the limited number of documents, the City must respectfully disagreewith FEUD’s position, which we interpret as being that the attorney-client privilege does not existin the context of CDBG monitoring by HUD. In our view, the attorney-client privilege is abedrock principle of the American legal system, regardless of whether asserted in the CDBGmonitoring context.

While the City believes that it is important to assert the privilege when applicable andappropriate, we note that efforts were made by DCS to accommodate HID’s desire for access toprivileged documents by (1) stating that a general waiver of the attorney-client privilege was notintended by the effort, and (2) authorizing the City’s Department of the Corporation Counsel toproduce the privileged documents upon FEUD’s agreement that the production would be for thelimited purpose of HIJD’s monitoring and that such production would not constitute such ageneral waiver of the privilege. This offer was made twice to the BUD Director in 2012, but theCity has not received any response. The City hereby renews that offer.

Having said all this, the City agrees to undertake the above Corrective Actions in connection withthis Concern. The City’s proposed efforts regarding establishment of a centralized records systemare set forth in more detail in the proposed Corrective Action Plan.

CONCLUDING REMARKS

The City would like to express its appreciation for the time and effort made by HUD in ensuringthat its grantees are aware of and implement the requirements of the CDBG prograim We believeI-RiD’s letters. and the City’s responses, reflect our mutual desire to serve in the best interests ofthe people of the City and County of Honolulu.

After the submission of this letter, the City intends to confer immediately with ORIAH and itscounsel to seek its agreement on corrective actions for certain Findings. We look forward toworking further with you on the matters mentioned in this letter,

Should you have any questions or require additional information, please contact CorporationCounsel Donna Y. L. Leong.

Aloha,

EMBER LEE SHTNNManaging Director

Attachments

cc

Department of Budget and Fiscal Services, Attn.: Director Nelson Koyangi


Department of Community Services, Mm.: Director Pam Witty-OaklandDepartment of Corporation Counsel, Attn.: Corporation Counsel Donna Y. L. LeongMark Bennett, Esq., Counsel for ORI Anuenue Hale, Inc.

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U.S. Department of Housing and Urban Development• Honoluki Field Office — Region IX* * 500 Ala, Mona Boulevard, Suite 3AIlium Honolulu, Hawaii 96613%4 •J httpjiwww.hud.govhttpWw.espanoLhud.gov

May27,2011

The Honorable Peter B. CarlisleMayorCity andCoW of Honolulu530 South King Street

,-.,Honolulu, HI 96813—

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Dear Mayor Carlisle:

SUBJECT: On-Site Program MonitoringApril 11-25,201!Community Development Block Grant

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This letter is to convey the results of the U.S. Department of Housing and UrbanDevelopment (MUD) on-site monitoring that was conducted on the City and County of Honolulu(City) April 11-25,2011. The purposeof the review was to assess the City and itssubrecipient’s compliance with the statutory and program regulations regarding its CommunityDevelopment Block Grant (CDBG) program.

C HUD found the City’s and its subrcipient, Opponities and Resources1Inc. (OR’simplementation of the City’s largest CDBG funded subrecipient project, Anuenue Hale AlohaGardens unacceptable. Since the inception of the OR] Anuenue Hale Aloha Gardens whichincludes the Weliness Center and Camp PineappLe 808 (Aloha Gardens) in 2000, City staff expressedconcerns and problems about ORI’s proposed implementation of the Aloha Gardens project tothe pr,evious two City administrations. The issues regarding qualifying the Aloha Gardensunder the CDBG regulations were so problematic that.the City requested and received HUDassistance on how to quali theproject.

Despite City staff and MUD concerns, the City awarded, CDBG thnds to OR! for theAloha Gardens project on ORI’s assurances that it would comply with the CDBG regulations.During construction, City staff encountered problems with ORI’s source documentation forpayment requests and compliance with CDBG national objective requirements. At a meeting toresolve the compliance issues, ORIs Chief Executive Officer told the City and HUD to-forgetthe MUD rules. Although aware of ORI’s position regarding HUT) regulations, the City Failed tomonitor ORI’s project for CDBG program compliance and allowed OR! to operate AlohaGardens as OR] pleased.

HUD’s monitoring of the OR! CDBG funded projects was significantly impaired due toORI’s unwillingness to produce-documents and cooperate with MUD during the on-sitemonitoring. More specifically, OR] refi.ised to provide HUD access to record, failed todiseloseincome generated from CDBG assisted properties, and -misrepresented it CDBq project. As aresult, MUD has concluded that the OR! Anuenue Hale Aloha Gardens and other CDBG assisted

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activities are not meeting CDBG eligible use nd national objective requirements. The City ishereby advised that the City and OR! need to repay the CDBG account $7,991,711 .47 unless theCity takes immediate corrective action proposed in the Schedule of Findings and Concernsenclosed.

The schedule identifies several areas of concern. Those concerns are noted as either afinding, which identities a regulatory non-compliance issue, or a concern, which recognizes aprogram weakness. The City will have 30days from the date of this Letter to address HUty5findings, concerns, and corrective action. Failure to take steps to address the corrective actionsand recommendations may result in HUD implementing program sanctions.

In closing, HUD would like to point out that Aloha Garden project can be brought in toCDBG program compliance; however, it will take a significant effort on the part of the City tobring the project into compliance and to ensure OR! follows the program rules. Finally, 1-RiDwould like to extend its appreciation to the staff from Department of Budget and Fiscal Servicesand the Department of Community Services for the assistance and courtesy provided during themonitoring review. Should you have any questions, please call, me at 808-522-8180, extension264 or Rebecca Boris, SeTtior Community Planning and Deelopment Representative, at808-522-8181, extension 265:

Sincerely,

Mark A. Chandler, DirectorOffice of Community Planning

and Development

Enclosures

cc:Mr. Michael R. HansenDirectorDepartment of Budget and Fiscal ServicesCity and County of Honolulu530 south King Street, Room #208Honolulu, H! 96813

Mr. Samuel E.H. MokuDirectorDepartment of Community ServicesCity and County of Honolulu715 South King Street, Suite 311Honolulu, HI 96813

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Ms. Holly KawanoFederal Grants CoordinatorDepartment of Budget and Fiscal ServicesCity and County of Honolulu53.0 South King Street, Room #208Honolulu, HI 96813

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SCHEDULE OF FINDINGS AND CONCERNSON-SITE MONITORING - CITY AND COUNTY OF HONOLULU

APRIL 11-25,2011

Review Purpose:

U.S. Department of Housing and Urban Development (HUD) conducted an on-sitemonitoring visit oftheCity and County of Honolulu (City) and itsCDBG subrecipients fromApril 11-25,2011. The purpose of the review was to assess the City’s and its subrecipients’compliance with the statutory and program regulations regarding its Community DevelopmentBlock Grant (CDBG) program

Review Scope:

The monitoring consisted of a review and an analysis of City’s CDBG-fimded progran inthe following areas:

1. Financial management of CDBG program income;• 2. Compliance with CDBO national objective requirements for low and moderate• income benefit activities;

3. CompLiance with CDBG eligible activities requirements;4. Coict of interest 1icies and produr;5. Opportunities and Resources, Inc. (0111) Anuenue Hale Aloha Gardens WelinessCenter and Recreation Cottages compliance with CDBG use of real property andprogram income requirements; and

•t6. Pablo Chinese Homes Food Services Complex compliance with CDBG use of realproperty and program income requirements.

Summary:

HUD found the City and OREs, implementation of the City’s largest CDBG ffindedsubrecipient project, Anuenue Hale Aloha Gardens unacceptable. In addition, HUD foundweaknesses in the City’s implementation of the CDBG conflict of interest requirements, and theCity’s tracking of CDBG program income generated by subrecipicnts.

Findings

CPD Finding Ml 1-012 (AC’fl—ORI Anuenue Hale Aloha Gardens Is Not Complying wfthCDI3G Eligible Use andNational Objective

Criteria:

CDBG regulations at 24 CPR570.506 require grantees to maintain records providing a flaIldescription of each activity assisted with CDBG finds. The records must demonstrate that eachactivity undertaken meets one of the criteria for national objective set forth in 24 CFR 570:208.Grantees must use real property acquired or improved with CDBG funds in excess of $25,000 incompliance a national objective in accordance with standards in 24 CFR 570.505. Forsubrecipients, at a minimum, the standards of for use of real property shall apply from the dateCDBG funds are first spend for the property until five years after the close out of the grant fromwhich the assistance to the property was provided.

Condition:

•ORjAnuenue Hale Aloha Gardens. The City and ORI expended $7,924,850 in CDBGfinds to acquire 36.321 acres and construct Aloha Gardens, which includes a Wellness Centerand Camp Pineapple 808. According to the City’s subrecipient agreement with ORI firstexecuted on February 23,2001 and amended nine times through April 18, 2006,ORI would Usethe real property for cabins, garden/nursery, farming/agriculture, elder care activities andvocationaJ training that would meet CDBG eligibility requirements specifically and exclusivelyserving.the CDBG presumed beneficiary population of the elderly and adult withdevelopmentally disabilities.

During HUD’s monitoring of the City and ORI, ORI impaired the monitoring byrestricting MUD access to beneficiary information, refusing to provide Ml access to informationand files of all beneficiaries of ORI Anuenue 1—lale Aloha Gardens, and misrepresenting use ofCamp Pineapple 808. ORI did provide limited information related to participants served at theWelihess Center from October 2010 to March 2011. These records revealed participation at the16,500 square foot facility ranged from 19 to 27 clients per month demonstrating a significantunder utilization of the facility. ORI stated that the participants list did not include participantswho reside in Helemano. When requested and advised of the.CDBG requirement to have accessto confirm CDBG eligibility of the clients, ORI refused to provide access to the participant files.During the on-site monitoring: HUD observed only five participants in the Adult Day Careprogram at the Wellness Center supporting the records review that the 16,500 square feet,$8 million facility is significantly underutilized.

ORI also refused to provide any access to Camp Pineapple 808 records. Through aninternet search, HUD identified at least two ineligible events planned at CàmpPineapple 808.On May 28, 2011, the American Camp Association was to hold a Camp Staff Training Day. On

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July 7-10, 2011, the United Methodist Women will hold its 2011 Hawaii School of ChristianMission.

OR! Day Care for Elderly and Adults w3th Disabilities. The Cityexpended $66,861.47 inCDBG finds to thud an OR! CDBG public service activities at the Weliness Center. Accordingto the City’s subrecipient agreement executed on October 15, 2010, OR! would provide adult daycare services to a minimum of 20 clients that are elderly, disabled, and/or adults with specialneeds, là ORI’s application to the City for CDBG ftxnds, OR! described its project as consistingof two components: the Adult Day Care/Day Health Program and the Health and ‘#ellnessProgram.

• The Health and Weliness Program was an existing program serving adults withdevelopmental disabilitips and providing exercise, recreation, and therapy sessions(movie, cooking, music, dance, and computer); health talks with the doctor and/ornurse, outings, and excutsions.

• The Adult Day Care/Day Health Program was the new program for which ORI was.seeking CDBG fUnding to provide the elder care services at the Weliness Center.

A review of supporting documentation for CDBG draw downs and interviews with OR!• staff revealed that OR.! was receiving CDBGpublic service dollars to pay for the salaries of sixProgram Aides that work with adults with developmental disabilities under the Anuenue Hale• existing Health and Wellness Program. HUD determined that the Waianae Coast( Comprehensive Health Center, a privately funded activity, was the new/increase elder care

servicfes at the Weilness Center without CDBG finds.

Cause::

OR! Anuenue Male Aloha Gardens. From the start, the City staff had concerns aboutability of the ORI Anuenue Hale Aloha Garden to comply with CDBG national objectiverequirements. Despite staff concerns, the project was funded. In January 7, 2003, the City andOI.! entered into an Agreement of Understanding as to how the OR! Anuenue Hale would satisfjCDBG eligible activity and national objective requirements through a combination economicdevelopment low-to-moderate income job creation and public facility presumed benefit forelderly and adults with developmental disabilities. On July 7, 2008, when the City and OR!could not justif3’ that the activity would be able to create the minimum number ofjobs necessaryto meet the low-moderate income job creation standard, the City and OR! executed a StatementofAssurancesand agreed that the entire Aloha Gardens (the Weilness Center, Camp Pineapple808, etc.) would be used exclusively for elderly and developmentally disabled individuals.Despite all the City’s past efforts to secure assurances from ORI and known eoncerns aboutORI’s unwillingness to comply with CDBG requirements, the City failed to monitor OR!Anuenue Hale Aloha Gardens following completion of the development to verify ORI’scompliance.

OR.! Day Care for Elderly and Adults with Disabilities (Public Service Activity). FromAugust 3 to September 28, 2010; prior to executing a CDBG subrecipient agreement with ORI to

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ftinded adult day care services, emails between City staff noted compliance issues regarding theuse and beneficiaries of ORE Anuenue Hale Aloha Gardens. City staff noted that OR! mighthave been requesting to use CDBG public service funds for eligible and ineligible activities.City staff recommended conducting a site visit to verify program services and the number ofpeople being served. City staff aio stated that it might not be feasible to move forward withexecuting the subrecipient agreement. Despite it all, the City executed the subrecipieritagreement to find adult day care services without conducting a site visit.

The City’s ongoing management ofopen activities and completed activities still withinthe eligible use period is weak. During the fiscal year 2010, the City conductedppstdevelopment monitoring of only five (5) CDBG activities. Of the five, four were’&eskmonitoring and caly one monitoring involved a site visit.

Consequence:

1. The ORI Anuenue Hale Aloha Gardens consisting of 36.321 acres acquired andconstructed with CDBG finds is not meeting CDG eligible use and nationalobjective requirements.

2. The 16,500 square feet Weilness Center and the 36.321 acres property isunderutilized.

3. The OR! Day Care for Elderly and Adults with Disabilities is not eligible becauseCDBG hinds were not going to a new or increase in pubLic service..

Corrective Action:

.L Within 30 days of this report, the City needs to notify MUD which of the followingoptions it will undertake to resolve this monitoring finding.

Option l. The CityandORlneeds EorepaytotheCDBGaccount$7,924,850 plusany increase in the property value for the ORI Anuenue Hale Aloha Gardens and$66,861.47 for the ineligible use of CDBG public service fttnds for the OR! DayCare for Elderly and Adults with Disabilities within 60 days of the monitoringreport.

OR

Option 2. The City needs to bring ORI Anuenue Hale Aloha Gardens intocompliance with CDBG eligible use and national objective requirements:

I. Convert Camp Pineapple 808 into group homes/shelters for the elderly oradults with severe disabilities operated by OR! or another nonprofitorganization in compliance with CDBG record keeping requirements;

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2. increase the utilization of the Weliness Center by the elderly and adults withdevelopmentdisabilities by identi&ing and requiring OR! to identify andexecute agreements with other notiprofits including encouraging nonprofitorganizations that serve the elderly and adults with disabilities to provideservices at the Weilness Center;

3. Cease handing the OR! public service activity until the City and OR! clearlydefines the tasks to be performed and the specific increase of the publicservice activity;

4. Repay to the CDBG account $66,861 471cr the ineligible use of CDBO publicservice funds for the OR! Day Care for Elderly and Adults with Disabilitieswithin 60 days of the monitoring report; and

5. Conduct quarterly on-site monitoring visits of the OR! Anuenue HaleAlohaGardens for the remaining years of the CDBG real property use period andsubmit the reports to HIJD within 30-days of the end of each quarterbeginning with the quarter ending September 30, 2011.

2. The City needs to strengthen its post development monitoring for CDBG projects.The City should conduct on-site monitoring of at least 20 percent or no less than fourwhichever is greater of it CDBG subrecipients and CDBG-assisted real propertywithin the COBU use period. •The City should select for on-site monitoring theC subrecipients and activities with the highest nsk assessment results

CPD Finding Ml 1-013 (INC) — Tracking Program Income Cenerated by Subrecipients

Criteria:

Grantees need to have system for tracking CDBG program income generated bysubrecipients or other entities to which finds are passed through in accordance with24 CFR 570.502(aX4). The system needs to ensure the timely and accurate reporting of CDBGprogram income and transfer of any finds to be returned to the grantee.

Condition:

Pablo Chinese Home. The City provided CDBG hinds to Pablo Chinese Home toacquire and renovate a Hospice Houseat 2449 10th Avenue, Honolulu, Hawaii 96816 andconstruct a Food Service Complex. Pablo Chinese Home leased the Hospice House to HospiceHawaii beginning in November 20, 2006. Rent began at $4,000/month and increased annually toa current rent of$4,502lmonth. HUD noted that the City and Pablo Chinese Home did not trackCDBG program income generated from the CDBG assisted Hospice House.

HUD reviewed financial revenues and expenditure documentation on Pablo ChineseHome Hawaii Neighborhood Outreach to the Aged (HiNOA) Project which consists of the

Hospice House, the Adult Day Care, and the Food Service. After review of the financialdocumentation, HUD confinned that there was no cash remaining from the Hospice House grossrental receipts after incidental costs to operate and maintain the HiNOA project for fiscal years2009 and 2010.

ORI Anuenue Hale. The City expended $7,924,850 in CDBG ftmds to ORE to acquire36.32 1 acres and construct Aloha Gardens, which includes the Weliness Center and CampPineapple 808. OR] staff stated that outside organizations use the Aloha Gardens facilities. Amedical doetor provides medical care and health workshops, a hair stylist provides haircuts, and‘yVaianae Coast Comprehensive Health Center provides elder day care services t the WeilnessCenter. HUD is also aware ofat least two events that were planne4 at Camp Pineapple 808 andadvertised ott the Internet: on May 28,2011, the American Camp Association was to hold aCamp StaffTraining Day and ofluly 7-10,2011, the UnitedMethodist Women will hold its2011 Hawaii School of Christian Mission. ORI refused HUD’s requests for access to OR!records on agreements with outside organization and revenue generated from use of the AlohaGardens facilities.

Cause:

The City does not have a system for tracking program income generated by subrecipientsfrom the use or rental of real property acquired or constructed with CDBG funds. The City doesnot monitor CDBG-assisted real property for compliance with CDBG program income rules• -. during the CDBG real property use requirement period.

Consequence:

1. The City cannot ensure that subrecipients generating program income on CDBGassisted property are reporting timely and accurately on the use and/or returned ofCDBO progratu income to the City.

2. The City cannot ensure that OR! is in compliance with CDBG program income rulesregarding revenue generated from the use or rental of real property acquired amidconstructed with CDBG funds.

Corrective Action:

I. The City needs to develop a system for tracking and verifying CDBG programincome generated by subrecipients or other entities to which CDBG funds are Passedthrough.

2. The City needs to ensure that OR! remits to the City the CDBG program income fromthe use or rental of the Weliness Center and Camp Pineapple 808. As part of theprocess, the City needs to review OR] records onagreements with outsideorganizations for the use of the Weliness Center and Camp Pineapple 808. The Cityneeds to review ORI records on revenue generated from the use of the Weliness

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Center and Camp Pineapple 808. Costs incidental to the generation of the incomeshould be deducted from the CDBG program income.

CPD Finding M11-014(PRC) — Conflict of Interest

Criteria:

Conflict of interest provisions at 24 CFR 570.611 and 24 CFR 35.36 state that any personwho is an employee, agent, consultant, officer, or elected official or appointed oflióial of therecipient, or of any designated public agencies, or of subrecipients that are receiving CDBGfinds who exercise or have exercised any ftmctions or responsibilities with respect to CDBGactivities, or who are in a position to participate in a decision malcing process or gain insideinformation with regard to such activities, is prohibited from obtaining a financial interest orbenefiting from a CDBG-assisted activity, or having a financial interest in any contr4ct,subcontract, or agreement with respect to a CDBG-assisted activity, or with respect to theproceeds of the CDBG-assisted activity, either for thenselves or those with whom they havebusiness or immediate family ties.

Condition:

The City uses a Request for Proposals (RFP) process to screen and select CDBGactivities. City staff process and review applications for eligibility and feasibility. HUD’s( review and analysis of disclosure information provided by City staff as part of the monitoringand an internet based search of the employees revealed that at least one City employee failed todisclose his/her conflict of interest. The employee is a manager with in the City’s Department ofCommunity Services that has direct oversight of HUD program thnded projects.

Additionally, HUD found that CDBG applications that pass the City’s eligibility andfeasibility review are passed on to a seven-member selection committee. For the most recentproject selections, four selection committee members disclosed conflict of interest in anorganization applying for CDBG finds or had involvement in the planning, development, orftinding of a project or organization applying for CDBG funds. Two of the four selectioncommittee members did not recuse themselves and ranked the projects and organizations withwhich there appeared to be a conflict.

Cause:

I. The City had knowledge of the City manager’s conflict but could not explain why ithas allowed the conflict to exist.

2. The City withheld reporting the conflict in HUD’s monitoring request for disclosurebecausethe manager did not disclose the conflict in his/her response to the HUDmonitoring conflict disclosure request.

3. The City failed to establish quality controls to prevent thc manager’s conflict ofinterest, despite having knowledge of the conflict.

4. The City took the position that there was no conflict of interest or perception of aconflict of interest for the two committee members and thus advised the members thatthey could vote on the projects in question.

Consequence:

The City did not comply with the CDBO conflict of interest provisions. Upon review ofthe scores and ranking of projects reviewed by the selection committee and City manager thathave conflicts, HUD concluded that the scores did not give the applicants and their projects anunfair advantage over other applicants.

Corrective Action:

1. The City needs to update its process for screening, selecting, and administeringCDBG projects to ensure that the process complies with conflict of interestprovisions.

2. The City needs to provide mandatory ethics training to the City management and staffresponsible for the review, award, and administration of the CDBG program and tothe members of the CDBG selection committee.

3.

The City needs to require City management and staff responsible for the CDBGprogram arid members of the CDBG selection committee o certiI’ in writing theircompliance with the conflict.of interest provisions and to provide..written disclosureof any such interest that might reasonably tend to create a confliót of interest.

4. The City needs to ensure that any City management, staff or CDBG selectioncommittee member with a conflict of interest do not exercise any functions orresponsibilities with respect to the CDBG activities with which they have a conflict ofinterest.

5. The City needs to require its manager that has the conflict of interest to disclose theconflict and seek City ethics office/division approval to continue the relationship. Ifthe ethic office/division approves the continuation of the conflict, the manager neethto be directed to recues him/herself from direct oversight of any project of theorganization that he/her represents when the organization seeks or assists with HUDprogram funded projects.

Concerns

Cpu Concern Ml 1-0 15 (ACT) — E’aloIo Chinese Home’s Documentation of NationalObjective Compliance

Criteria:

CDBG regulations at 24 CFR 570.506 require grantees to maintain records providing a thudescription of each activity assisted with CDBG ftinds. The records must demonstrate that eachactivity undertaken meets one of the criteria for national objective set forth in24 CFR 570.208.Orantees must use real property acquired or improved with CDBG funds in excess of $25,000 incompliance a national objective in accordance with standards in 24 CFR 570.505. Forsubrecipients, at a minimum, the standards of for use of real property shall apply from the dateCDBG finds are first spend for the property until five years after the close out of the grant fromwhich the assistance to the property was provided.

Condition:

The City provided $5,680,000 to Pablo Chinese Home to acquire and renovate theHospice House, èonstruct the Food Service Complex, and renovate the Lani Booth Building andVictoria Ward Care Home. According to the City’s subrecipient agreement with Pablo Chinese( Home first executed on February 20, 2003 and amended five times through November 8, 2006,PaloloChinese Home would use the real property for elder care activities that wouldmeetCDBGnational objective requirements by specifically and exclusively serving the CDBGpresunied beneficiary population of the elderly.

MUD reviewed Pablo Chinese Home’s detailed admission and discharge reports andadmission files of’ 14 out of 390 participants in the Victoria Ward Adult Residential Care Home,the Lani Booth Nursing Home, and Senior Day Care between August 1, 2009 andApril 12, 2011. Fifty-seven (57) percent or eight out of 14 participants had admissions files thatsupported client eligibillty. Forty-three (43) percent or six of the 14 participants had admissionfiles that included only Medicare eligibility which was insufficient to determine CDBG clienteligibility.

HUD also reviewed Hospice Hawaii’s detailed admission and discharge reports andadmission flies fbr four (4) out of 333 participants admitted to the Hospice House betweenJanuary 2007 and March 2011. All four-participant files included documentation of Medicareeligibility but did not include sufficient documentation to initially determine client eligibility.However, based on intake information HUD concluded that ninety-eight (98) percent or 328participants were more than likely CDBG presumed benefit elderly

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Ca use:

City did not monitor Pablo Chinese f-tome and its lessee, Hospice Hawaii, forcompliance with CDBG national objective recordkeeping requirements during the CDBG realproperty use period. Pablo Chinese Home and Hospice Hawaii thought that documentation ofMedicare eligibility, in the absence of identification cards, was sufficient to document elderlystatus.

Consequences:

The City cannot ensure that Pablo Chinese Home and its lessee, Hospice Hawaii, weremeeting the CDBG national objective requirements by serving specifically and exclusively theCDBG presumed beneficiary population of the elderly.

Recommended Action:

The City should work with Pablo Chinese Home and its lessee, Hospice Hawaii, toimprove their admissions processand require copies of participant identification that sufficientlydocuments elderly status such documentation may include passport and driver’s license or IDcard issued by federal, state, or local government agencies or entities provided it contains.aphotograph and information such as name and date of birth.

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MEMORANDUM OF UNDERSTAI’.WINWRYAN]) BETWEEN TilE

CITY AND COUNTY OF HONOLULU AN])ORI ANIJENUE HALE, INC.

This Memorandum of Understanding (“MOU”) is entered into by and between the City andCounty of Honolulu (the “City”) and OR! Anuenue Hale, Inc. (“ORIAH”) for the purpose Ofsetting forth the understandings of the parties regarding actions to be taken by ORIAH to addressfindings of the U.S. Department of Sousing andUrban Development (“THUD”) with respect toOfflAH’s Aloha Gardens Project (the “Project”) and regarding fature use of the Aloha Gardensproperty.

RECITALS

1. By letter dated May 27, 2U11, HUD presented the City with certain findings regar,ljngits recent monitoring of ORIAH’s Aloha Gardens Project and, based upon its conclusion that theProject was not in compliance vñth Community Development Block Grant (CDBG) regulationsrequired the City and ORIAH to either bring the Project into compliance or repay to the City’sCDBG account $7,924,850, plus any increase in the property value for the Project, and$66,861.47 for the ineligible use of CDBG public service funds for the ORIAH Day Care forElderly and Adults with Disabili.ties.

2. While ORIAH believes it is, and aiways has been, fully in compliance with HUDregulations, the City and ORIAH both acknowledge that in order to avoid repayment by the Cityof in excess of $7,924,850 to the City’s CDBO account and reimbursement of a lilçe amount byORTAH to the City, the parties must make certain changes to bring the Project into CDBOcompliance and must demonstrate to BUD that the Project has been brought into compliance.

3. The City and ORIAHboth acknowledge that this MOU is not intended to relieve themof any obligations under Subrecipient AgTeement No, F-84471, dated February 23, 2001, asamended by Amendments 1 through 9, respectively dated December 28, 2001, June 28,2002,January 27, 2003April 23, 2003, November 18, 2004, April29, 2005, November 4,2005,March21, 2006, and April 18, 2006.

4. The City and ORIAH further acknowledge that this MOB is intended to supplement,and not displace, any of the assurances regarding the use of the Project provided to the Cityunder that certain Statement of Assurances in Support ofRequest for Disbursement of Fundsdated July 7, 2008.

AGREEMENT

In consideration of the foregoing and of the acknowledged necessity to take corrective action toaddress BUD’s findings, ORIAH agrees as follows:

COMMITMENT TO2DDB G CQjL{C

1. ORIAN aclcn,owledges that its Subrecipient Agreement with the City requires thatcabins, garden/nursery, farming/agricultire, elder care activities and vocational fraining activitiesconducted in the Aloha Gardens Project be carried out in a manner that meets CDBG eligibilityrequirements and exclusively serves the CDBG presumed beneficiary population of elderlypersons and severely disabled adults.

2, ORIAH specifically acknowledges that the Weilness Center is subject to CDBGregulations, including the foregoing use limitation.

3. ORL4H commits to complying with CDBG regulations and requirements with respecito the Weliness Center, including the foregoing use limitadon

4. OR1AH also commits to complying with all CDBG regulations and requirements withrespect to Camp Pineapple 808, including the foregoing use limitation, and shall develop a planfor CDBG compliance as detailed in paragraph 12 below.-

5. ORIAR further specifically acknowledges that it is the position of HIM) and the Citythat Camp Pineapple 808 is also subject to CDBG regulations, including the foregoing uselimitation. ORIAS disagrees with that position.

6. ORLAJ-l acknowledges that CDBG funds were used for Camp Pineapple 808 landacquisition, environmental assessment and casts of surrounding infrastructure.. The Cityacknowledges that ORIAH also used a significant amount of fluids from other sources tocomplete the development of Camp Pineapple 808. A full accounting ofthe funds expended forCamp Pineapple 808 will be partof any change-of-use effort pursuant to paragraph 7.

7. ORIAH understands that it may seek, through the City, removal of Camp Pineapple808 from the coverage of CDBG regulations by pursuing a subdivision of the Aloha Gardensproperty and by complying with all HOD requirements for a change-of-use of the Project. Untilthe completion of any such change-of-use effort, ORtAH will comply with all CDBG regulatiousand requirements with respect to Camp Pineapple 808, including the foregoing use limitation.

8. ORIAR aclcnowledges that it will hereafter be subject to quarterly monitorings by theCity with respect to the Aloha Gardens Project, and commits to cooperating with the City in suchmonitorings ORIA.H shall submit the following documents to the City at each quarterlymonitoring:

a) Financial statement,b) Balance sheet,c) Profit and loss statement,d) Cash flow statethent,e) Rent rolls, and

Copies of agreements with other organizations and individuals using the facilitiesto include, but not be limited to, rental agreements.

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ELIGIBILITY DOCUMENTATION

9. ORIAB commits to providing documentation of the eligibility of all individuals whouse the Weilness Center, Camp Pineapple 808, the outdoor theater, or other CDBG-assistedportions of the Aloha Gardens property. ORIAH commits to working with the City to develop,by August 1, 2011, satisfactory procedures for documenting the eligibility of elderly persons andadults meeting the Rureauof the Census’ Current Population Reports definition of’ ‘severelydisabled” (hereafter. “elderly persons” and “severely disabled adults”). Those procedures willidentify specific action steps and records that ORJAH shall take or follow in order to complywith CDBG requirements for documenting eligibility. For purposes of this MOU, the definitionof a severe disability is as outlined on the attached page 3-9 ofBasically CDBG. Refer also to 24CFR 570.208(a)(2)(A).

CLIENT FILES AND FINANCIAL RECORDS

JO. ORIA}L commits to maintaining files and financial records and to making those filesavailable for inspection in accordance with the rquirements of the Subrecipient Agreement andCDBG regulations. ORIAH commits to working with the City to develop satisfactory proceduresfor maintaining files and financial records and to making those files available for inspection.ORIAH may, through the City, seek technical assistance from HUD regarding how to carry outits CDBG compliance responsibilities regarding recordiceeping and inspection of records whilealso complying with HIPAA. HIPAA compliance could include, if necessary, having City orHTJD staff sign a confidentiality agreement before reviewing patient files.

CAMP PINEAPPLE 808

11. ORIAH shall by July 15, 2011 present to the City a detailed proposal for brinngCamp Pineapple 808 in CDBG compliance and assuring that it exclusively serves elderly personsand severely disabled adults. This proposal shall be subject to review and appitval by the Cityby August 1, 2011. The proposal is also subject to HUD approval.

WELLiES& CENTEg

12. ORIAH shall by July 15, 2011 present to the City a detailed plan showing howORIAH will increase the utilization of the Welluess Center by the target population of elderlypersons and severely disabled adults. The increased utilization of the Welleess Center shallcomply with CDBG use of real j,rdperty requirements. This utilization plan shall be subject to -

review and approval by the City by Angust 1, 2011. The plan is also subject to WJD approval.

PUB LIQVIC&ACTIVITY

13. With respect to the suspended CDBG public service contact for the Day Care foxElderly and Adults with Disabilities determined by HUD to be ineligible, ORLAH shall, by Judy15,2011, submit a proposal to the City detailing the eligibility of its proposed use of frnds as anewo increased level of activity. Such proposal must provide enough detail, including the

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specific incroase in the service proposed, for the City and HOD to deterthire the eligibility of theactivity. This proposal shall be subject to reView and approval by the City by August 1,2011.The proposal is also subject to BUD approval.

14. With respect to $66,861.47 in CDBG public service activity finds alreadyreimbursed by the City to the City’s CDBO account, ORIAH shall repay the: City by September30, 2011, unless: (1) ORIkH submits dotailed docuthentation to the City by August 1,2011demonstrating that this etpenditure was for new or increased services, and therefore is eligible asa new or increased public service activity; and (2) MUD agrees on or before Angust 31, 2011 thatthe expenditure was eligible; and (3) BUD allows the City to reimburse itself from its COBOacbountinthe amount of$66,861.47.

PROGRAM INCOME

15. At each quarterly monitoring hereafter ORIAII shall provide to the City a report onprogram income generated by any HOD-funded activity. “Program income” is defined in 24CFR 570.500 and the Subrecipient Agreement

16. ORIAH shall also provide to the City an annualfinancial report within 30 days of theclose of ORIAH’s fiscal year on program income generated by any HUD-fImded activity.

17. ORIAH shall remit any program income to the City within 30 days of the close ofORIAH’s fiscal year.

The City and ORIAH have executed this Agreement on-J 2-7 2oq.

CITY AND COUNTY OP HONOLULU

Director of Budgetand Fiscal Services

ORI ANUENUE HALE,

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APP AS TO FORM AND LEGALITY

Counsel

EXHIBIT 3

DEPARTMENT OF BUDGET AND FISCAL SERVICESCITY AND COUNTY OF HONOLULU

530 SOUTH KING STREET. ROOM 208 • HONOLULU. FLAWfl S8h1PHONE: (809) 753900 • FAX (905) 768.31Th • INTERNET: vAcwora*J.gov

PETER . CARUSLEMIQk4Aa It KANSEN

tAAV0tIRLCTOR

NELSON H. KOYANAGI JR.OEPUFY DIRECTOR

November 20, 2012

MEMORANDUM

TO: Raymond YoungDepartment of Planning and Permitting

FROM: Cheryl Tanabe (1 j2tu&’(Ojteabc—-.Department of BudM & FisbMjervices

SUBJECT; Comments for Minor Modification to the Site PlanApproved by 20021SUP-6 for CR1 Anuenue Hale, Inc.Aloha Gardens — Helemano, Tax Map Key: 6-4-3:3

Thank you for the opportunity to review and comment on the subject applicants’ requestfor a site plan modification. We have reviewed the applicant’s request and weunderstand that the modifications being requested are as follows:

1. Carving out a portion of the property currently in Lot A-i identified as theRecreation Camp and joining ft with the Group Living Facility in Lot A-2 which willbecome the revised Lot A-2-A. The target group for the ADA recreational campwas noted to be families, persons with disabilities, the elderly and visitors toencourage ag-tourism.

2. Eliminating portions of the property in Lot A-i currently in the SUP and adding itto the agricultural area. The applicants’ agricultural plan revised 8120112indicates that the agricultural products will be used for its elder day care,residential food service, educational purposes for the elder day care andcommunity, classes and workshops for camp participants and for sale throughthe Ohana Country Market.

3. Adding to the SUP portions of property in Lot A-I and Lot A-2 that are currentlyoutside of the SUP.

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MemorandumRaymond YoungNovember 20, 2012Page 2

History:

The City and County of Honolulu has invested approximately $7.9 million in Departmentof Housing and Urban Development (HUD), Community Development Block Grant(CDBG) funds for the acquisition and development of the ORI Anuenue Hale, Inc.(ORIAH) Aloha Gardens Project. The parcel which includes the vocational trainingcenter, ADA campground, water tank and A-C parking lot adjacent to the HelemanoPlantation was acquired and/or improved with federal funds.

CommentslConcerns:

According to the revised agricultural plan, the target groups are noted to be eligibleadults who desire day care services, low-income, the disabled, disadvantaged,immigrants, those needing vocational training to obtainlrnaintain employment oradvancement in employment, those seeking a trade as alternatives to higher education,the general public, community, and visitors.

The CDBG Subrecipient Agreement between the ORIAH and the City restricts the useof the parcel to the following:

UAII activities on the 33 acres within the parcel being acquired with CDBG fundingshall be for recreational purposes and meet CDBG eligibifity requirementsspecifically and exclusively serving the presumed beneficiary population of theelderly and developmentally disabled.”

In 2011, HUD monitored the project, which resulted in a finding that the, “OR! AnuenueHale Aloha Gardens project is not compliant with a CDBG eligible use and nationalobjective.” The HUD monitoring finding has left the property in an indeterminate stateand we recommend that the applicants’ request for the modification not be approveddue to the following concerns:

1. The HUD monitoring of the Aloha Gardens project is ongoing and a responsefrom HUD concerning the future use and use restrictions of the property acquiredandlor improved with federal funds has not been received to date.

2. The ADA Recreational Camp parcel was acquired and partially improved withfederal funds therefore, consolidating it with the group housing facility would notbe acceptable. In addition, the proposed use of the ADA Recreational Campfacility would not be compliant with the HUD requirements or current agreementwith the City.

MemorandumRaymond YoungNovember 20, 2012Page 3

3. Further, in reviewing the detail of federal expenditures, it is unclear as to whichTMKs were acquired and/or improved with federal funds. This issue is beingresearched and has not been resolved.

Based on the 1-IUD monitoring findings, attached is a Memorandum of Understandingdated June 30, 2011, between the City and ORIAH that outlines the future use of theAloha Gardens property.

Recommendation:

In closing, the Department of Budget and Fiscal Services is not recommending approvalof the applicants’ request for the modification due to the above outstandin9 issues andconcerns.

If you require further information, please contact me at 768-3931. Thank you for theopportunity to review and provide comments on the subject application.

Approved:

eW-4r-4JConnie Kaneshiro, Chief Fiscal/CIP Analystp

MEMORANDUM 01? UNDERSTANDINGBY AND BETWEEN THECITY AND COUNTY OF HONOLULU ANDOW ANUENUE HALE, INC.

This Memorandum ofUnderstanding (“MO!)”) is entered into by and between the City aicjCounty of Honolulu (the “City”) and ORI Anuenue Hale. Inc. (“ORIAH”) for the purpose ofsetting Ibrth the understandings of the parties regarding actions to be taken by ORL4H to addressfindings of the U.S. Depaitnent ofHousing and Urban Development (‘BUD’ with respect toORIAH’s Aloha Gardens Project (the 9’mjecfl and regarding future use of the Aloha Gardenproperty.

RECITALS1. By letter dated May 27, 2011, HUD presented the City with certain findings regaxung

its recent monitoring of OIUAN’s Moha Gardens Project and, based upon its conclusion that theProject was not in compliance with Community Development Block Grant (CDBG) regulations,required the City and OMAN to either bring the Project into compliance or repay to the City’sCDBG account $7,924,850, plus any increase in the property value for the Project, and566,861.47 for the ineligible use of CDBO public service funds for the ORIAR Day Care forElderly and Adults with Disabilities.

2. While OltiAll believes it is, and always has been, fully in compliance with BUDregulations, the City and OJUAN both acknowledge that in order to avoid repayment by the Cityof in excess of $7,924,850 to the City’s CDBO account and reimbursement of a 111cc amount byOMAN to the City, the parties must make certain changes to bring the Project into CDBGcompliance and must demonstrate to HI-3D that the Project has been brought into compliance.

3. The City and OMAN both acknowledge that this MOU is not intaided to idlest themof any obligations under Subrecipient Agreement No. 1-84471, dated February 23,2001, asamended by Amendments I through 9, respectively dated December 28, 2001, June 28, 2002,Januazy 27, 2003, April 23, 2003, November 18, 2004, April 29, 2005, November 4, 2005,March21, 2006, and April 18, 2006.

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4. The City and OMAN flitter acknowledge that this MOU is intended to supplement,and not displace, any of the assurances regarding the use ofthe Project provided to the Cityunder that certain Statement of Assurances in Support ofRequest for Disbursement of Fundsdated July?, 2008.

AGREEMENTconsideration of the foregoing and of the acknowledged necessity to take corrective action to

address HIJD’s findings, OIUAH agrees as follows:Qp41TMENT TO CDBC3 COMPLIANCE

1. ORIAN acknowledges that its Subrecipient Agreement with the City requires thatcabins, gardenhiursery, farming/agriculture, elder care activities and vocational fining activitiesconducted in the Aloha Gardens Project be canied out in a manner that meets CDBG eligibilityrequirements and exclusively serves the CDBO presumed beneficiary population ofelderlypersons and severely disabled adults.

2. ORJAJI specifically acknowledges that the Wellness Center is subject to CDBGregulations, including the foregoing use llmitatioa

3• ijpj4j commits to complying with CDBG regulations and requirements with respectto the Weliness Center, including the foregoing use limitaton

4. ORIAH also commits to complying with all CDBG regulations and requirements withrespect to Camp Pineapple 808, including the foregoing use limitation, and shall develop ap)anfor CDBG compliance as detailed in paragraph 11 below.

5. ORL4H further specifically aclUiowledges that it is the position of HUB and the Citythat Camp Pineapple 808 is ilso subject to CDBG regulations, including the foregoing uselimitation. ORLAH disagrees with that position.

6. ORIAH acknowledges that CDBG funds were used for Camp Pineapple 808 landacquisition, environmental assessment and costs of surrounding infrastructure. The Cityacknowledges that ORIAR also used a significant amount of Umds from other sources tocomplete the development of Camp Pineapple W8. A full accounting of the funds expended forCamp Pineapple 808 will be part of any change-of-use effort pursuant to paragraph 7.

7. ORIAI4 understands that it may seek, tough the City, removal of Camp Pineapple808 from the coveraEe of CDBC1 regulations by pursuing a subdivision ofthe Aloha Gardasproperty and by complying with all HI))) requirements for a change-of-use of the Project Untilthe completion ofany such change-of-use effort ORIAM will comply with all CDBG regulationsand requirements with respect to Camp Pineapple 808, including the foregoing use limitation.

8. ORIAK acknowledges that it will hereafter be subject to quarterly monitorings by theCity with respect to the Aloha Gardens Project, and commits to cooperating with the City in suchmonitorings. ORIAH shall submit the following documents to the City at each quarterlymonitñnW

a) Financial statement,b) Balance sheet,c) Profit and loss statement,d) Cash flow statement,e) Rent rçlls, andI) Copies of agreements with other organizations and individuals using the facilitiesto include, but not be limited to, rental agreements.

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ELIGIBILITY DOCtJMmfl’ATION

9. ORIAR commits to providing documentation of the eligibility of all individuals whouse the Weliness Center, Camp Pineapple 808, the outdoor theater, or other CEYBO-assistedportions cite Aloha Gardens property. ORIAH commits to working with the City to develop,by August 1 • 2011, satisfhctory procedures for documenting the eligibility ofelderly persons andadults meeting the Bureau of the Census’ Current Population Reports definition of”severelydisabled” (hereafter. “elderly persons” and “severely disabled adults”). Those procedures willidenti’ specific action steps and records that ORIAI4 shall take or follow in order to complywith CDBG requirements lbr documenting eigibilit>c For purposes ofthis MO!), the definitionof a severe disability is as outlined on the attached page 3-9 ofBasically ORG. Refer also to 24CFR 570.208(aX2XA).

CLIENT FILES AND FINANCIAL RECORDS

10. ORIAH.cornmits to maintaining files and financial records and to rrn.Ithig those filesavailable for inspection in accordance with the requirements ofthe Subrecipient Agreement andCDBG regulations. ORIAH commits to working with the City to develop satisfactory proceduresfor maintaining files and financial records and to making those files available fçr inspection.ORIAH may, through the City, seek technical assistance from HUD regarding how to catty outits CDBG compliance reçonsibilities regarding recordkeeping and inspection of records whilealso complying with HIPAA. HIPAA compliance could include, ifnecessary, having City orHOD staff sign a confidentiality agreemeatbefore reviewing patient files.

CAMP PINEAPPLE 808

11. ORlAHsball byluly 15,2011 presenttothe CityadetailedproposalforbringjngCamp Pineapple 808 in CDBG compliance and assuring that it exclusively seives elderly personsand severely disabled adults. This proposal shall be subject to review and approval by the Cityby August 1,2011. The proposal is also subject to BUD approval.WELLNESS CENTER

12. 0R1A14 shall by July 15.2011 preseutto the City a detailed plan showing howORIAN will increase the utilizaUoa of the Weilness Center by the target population of elderlypersons and severely disabled adults. The increased utilization ofthe Weilness Center shallcomply with CDBG use of real property requirements. This utilization plan shall be subject toreviewandapproval bytheCity byAagust 1, 20l1.TheplanisalsosuecttoHUD approvalfjLIC SERVICE; ACTIVITY

13. With respect to the suspended CDBG public service contact for the Day Care forElderly and Adults with Disabilities determined by HIJD to be ineligible, ORIAH shall, by July15,2011, submit a proposal to the City detailing the eligibility ofits proposed use of funds assncvi& increased level of activity. Such proposal must provide enough detail, including the

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specific increase in the service proposed, for the City and HUD to determine the eligibility oftheactivity. This proposal shall be subject to review and approval by the City by August 1,2011.The proposal is also subject to HUD approval.

14. With respect to $66,861 A7 in CDBO public service activity tnds alreadyreimbursed by the City to the City’s CDBG account, ORIAH shall repay the City by September30, 2011, unless: (1) ORJAH snbniits detailed documentation to the City by August 1,2011demonswating that øis expenditure was for new or increased services, and therefore is eligible asa newer increased public service activity; and (2) HUD agrees on or before August 31, 2Ol thatthe expenditure was eligible; and (3) HOD allows the City to reimburse itself from its CDBQaccount in the amount of $66,861.47.

PROGRAM INCOME

15. At each quarterly monitoring hereafter OR!AH shall provide to the City a tozt onprogram income generated by any HUD-funded activity. “Program income” is defined in 24CFR 570i00 and the Subrecipient Agreement

16. ORIAH shall also provide to the City an annual financial report within 30 d,s of theclose of OMAN’s fiscal year on program income generated by any HUD-fimded activity.17. ORL4H shall remit any program income to the City within 30 days ofthe close ofORIAH’s fiscal year.

The City and ORJAH have executed this Agreement on_Jttt%<_. 2—7,20 I(

CITY AND COUNTY OF HONOLULU

Director of Budgetand Fiscal Services

ORI ANUENUE HALE,

APPD AS TO FORM AND LEGALITY:

— Acquisition, construction, or rehabilitation of property lbr housing, Includinghomeownership assistance must qualify under the housing national objective which will bediscussed below In further detail.

— Creation or retention of jobs generafly qualify under the jobs or the area benefit categoryof the WI benefit national objective.

3.2.3 Low Mod Housina Activities CLMHI.( The housing category of WI benefit national objective qualifies activities that are undertakenfor the purpose of providing or improving permanent residential structures which, uponcompletion, will be occupied by LMI households.V Examples of eflgibleactMties include, but are not limited to:

— Acquisition of an apartment house to provide dwelling units to LMI households ataffordable rents, where at least 51 percent of the units wifl be occuiiled by WIhouseholds;

-. Site improvements on publlclyowned land to serve a new apartment structure to berented to WI households at affordable rents;

— Housing rehabilitation for single family units;— Conversion of an abandoned warehouse to be reconfigured into newapartments, where

at toast 51 percent of the units wHI be occupied by LMI households at affordable rents.I )n order to meet the housing LMI national objective, structures with one unit must beoccupied by a LMI household. If the structure contains two units, at least one unit must beLMI occupied. StrUctures with three or more units must have at least 51 percent occupied byWI households.

— Rental buildings under common ownership and management that are located on the sameor contiguous properties may be considered as a single structure.— For rental housing, occupancy by LMI households must be at affordable rents, consistentwith standards, adopted and publicized by the grantee.

iicaliy CDBG oventer 2007’)-HUt), Office of Block Giant Assistance

Definition of Severely DisabledPersons are considered severely disabled If they:• Use a wheelchair or anaher special aid for6 months or longer;• Are unable to pestarm one or ‘tue functional activities (seeing. hearing. haVIng one’s speech understood, Wgand g,waDdngupa(ghtofstañandwaIklng);• Need assistance with acthttles of da’y Mg (getting around inside the home, getting in or out of bed or a chair

bathing, dressing. eating and toeetinØ or Instrumental activities or daily ving (going outside the home, keepingtrack of money or bh pepaflng meals, doing light housework and using the telephone);• Are wevented from wosldng at ajob or doing houseworkHave a selected condWon including autism, cerebral palsy. /klzheimWs disease. senility or dementia or meritj

retardation; or• Are under 65 years of age and are covered by Medicare or receke SupØennal Secuity income ($51).

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Martin, arnie

Prom: Young, Raymond C. S.Sent: Tuesday, April22, 2003 1:29 PMto: Bob Stanfield (E-mail); Crispin, Eric G.; Kathy K Sokugawa (E-mail); Lowell K W. Chun (Email); Robert I-I. Bannister (E-mail); Stanton, Barbara K.Cc: Martin, ErnieSubject: Prposed acquisition of additional lands adjacent to Helemano Plantation for for ORl’s AlohaGardens

Background:

I recently learned that ORl was planning to acquire about 3 actes. located between Helemano Plantation and Kam Hwy.for access as required by condition of the SUP from Castle & Cooke (see attached aerial photo). However; that access.area also has parking for Helemano Plantation that may hm’e been established illegally since the City Council Resotutionsthat covered Helemano Plantation would not have included separate parking on Dole Plantation lands. Apparently, ORImade this arrangement for off-site parking on their own.

If the property is acquired for access then it ‘belongs’ under the Aloha Gardens project and should be included in theSUPiVaiiance. However, that would bring it beyond the 15-acre limit and an amendment to the SUP would require LandUse Commission approval.

The options are:

1. DCSt’DPP informs ORI that if acquired, the parking must be eliminated. No problems for allowing the roadway becauseroads are typically allowed in the State Ag. District. That meansthe parking has to be removed; or,2. Modil’j the recently approved SUP to reconfigure the approved area to incorproate the access/parking so that there isno net Increase. That will require processing another SUP amendment and will take at least 3 months; or,3. Add the additional acreage to the SUP/Variance and go before the Land Use Commission for final approval after OK bythe Planning Commission. Timefrarne will be even longer than 3 months. And, LUC has alrea4y said that these projectsshould be processed under a boundary amendment.

I recon’in,end Option 1 that ORI be allowed to acquire the property but eliminate the parking. If they need the parking, itcan be accommodated on the Aloha Gardens site since there is surplus parking proposed in that project.Option I has been discussed with Kathy and Ernie Martin of OCS and that is probably the best short-tern’ solution to allowthe Aloha Gardens project to move forward at this time. If in the future, ORl wants to use the addition for other thanaccess nd agriculture, we can consider further permitting for that piece.

3acr addition.jpg

If there are any problems with Option 1, please let me know.

Raymond YoungDepartment of Planning and PermittingPlanning Division650 South King StreetHonolulu, Hawaii 96813

(806) 527-5839

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EXHIBIT 5

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COMPLETE SUMMARY APPRAISAL REPORT

REGARDJNG

VACANT LANDWAIALUA, OAHU, HAWAII

TAX MAP KEY 6-4--3FOR II, FIRST DIVISION

PREPARED FOR9J HELEMANO PLANTATION

APRIL 2003

EXHIBIT 6

N4ec1u.sky’SzDo., Inc. Jan It. Mcduskv, MAI.flA.ItS1’t1 C0r45tLTA>.T

TOM FINANCIAL CENTER • 311 FORTSTREET BUILDING745 FORT STREET • HONOLULU HAWAII 96813-3S33

PHONE (SOS) 531.2705 (805) SW.3736

April 14, 2003

Susanna CheungPresidentHelemano Plantation64-1510 Kamehameha Highway

S Wahiawa, Hawaii 96786

Subject: Complete Summary Appraisal Report Regarding Vacant Land, Waialua,Oahu. Hawaii. Tax Map Key 6-4-3-Par Ii First Division

In response to your request, we have prepared this Complete Summary Appraisal Report regarding theabove referenced property located at Kameharneha Highway, Paalaa Uka, Waialua, Oahu, Hawaii. Theproperty is identified hy Hawaii State Tax Maps as a portion of TMK 6-4-3-li, First Division andcontains 3.1 acres. The land is zoned Agricultural and has potential for Commercial use. It is currentlyused as a parking lot in conjunction with the Helemano Plantation facility. Flelemano Plantation intendsto acquire the property for purposes of consolidation with their existing facility. In this regard, you haveretained Medusky & Co., Inc. to complete appraisal services.

ASSIGNMENT

Our assignment has been to prepare a Complete Summary Appraisal Report estimating the Market Valueof the fee simple interest in the subject property. The function of the appraisal is to provide factual reahproperty information and real estate market data, in addition to providing an estimate of Market Valueupon which decisions regarding acquisition of the property may be based. The intended readers of thisreport are the cijent and others involved in the acquisition process. The City & County of Honolulu isathird party to the appraisal/acquisition process and the appraisal is being prepared for a “request forrelease” of Federal funds. This report is subject to the Limiting Conditions and Assumptions contained inExhibit I in the Addenda of this report. The reader’s attention is particularly directed to the SpecialLimiting Conditions and Assumptions regarding Summary Appraisal Report and Subdivided Land Area.This appraisal assumes that the subject property has been subdivided from the Larger Parcel of which it isa portion as described herein. The effective date of value of this appraisal is April 14,2003.

{]t Valu& - The most probable price which a property should bring in a competitkre and open marketunder all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably,and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummationof a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

‘The Dktionary of Real Estate Appraisal, Fourth Ed. (Chicago, illinois: Appraisal Institute, 2002).

ntJndaIdoclIeporIst2OO3tItetefl14fl4 Poiitats0nO4OJIRevafldocNfl ITMO Hctn,rh t.ounseling • • Foasihi,;tv • lnvc%,rncnt$-

Susanna CheungApril 14, 2003Page2

- Buyer and seller are tynically motivated;

- Both parties are well informed or well advised, and acting in what they consider theirbest interests;

- A reasonable time is allowed for exposure in the open market;

- Payment is made in terms of cash in U.S. dollars or in terms of financial arrangementscomparable thereto; and

- The price represents the normal consideration for the property sold unaffected byspecial or creative financing or sales concessions granted by anyone associated with thesale.

ECONOMIC BACKGROUND DATA

Hawaii’s economy is supported primarily by tourism, federal government spending and agriculture, inthat order. Tourism provides the greatest opportunity for growth. After decline in the tourist industry inthe mid and late 1990’s, tourism showedsigus of improvement in 2000/early 2001. Federal governmentexpenditures have increased while agricultural production has decreased. After nearly a decade ofstagnation, the economic climate hit bottom with solid improvement in 2000 and 2001, prior to theterrorist attacks in September 2001 in New York and Washington D.C. Subsequerrtly, tourism is down(see graphs on a following page). The Iraq War has exacerbated the problem. Many tourist-orientedbusinesses are having trouble. The near term adverse effects are significant with long-term effectsuncertain at this time. Most local economists predict a return to normalcy within a year.

HAWAII REAL ESTATE MARKET

Hawaii’s real estate market has hit bottom after a sustained decline that began in 1991. Over the last threeyears, sales volume has increased. Property values/prices have stabilized with increases in value in somemarket sectors. The market for agricultural land has been stable with no indications of significant priceappreciation yet. The market for commercial property has been active, with potential for appreciation. Itis unclear to what extent the terrorist attacks on the mainland United States and the Iraq War will affectHawaii’s real estate market, however, preliminary indications are that it will remain strong.

ENVIRONS

The subject property is located near the WaialuaJWahiawa District boundary in Central Oahu. WahiawaTown, Mililani and South Central Oahu are to the south. Agricultural fields and the North Shore are tothe north. The Koolau Mountain Range is to the east and the Waianae Mountain Range is to the west.

Primary access to the area is via the H-2 Freeway that extends from Honolulu to Wahiawa, south of thesubject. Kamehameha Highway parallels the freeway and extends beyond Wahiawa Town providingaccess to the North Shore and the subject property.

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The town of Wahiawa is the urban center of the area and began as a plantation town which grew to servethe needs of nearby Schofield Barracks and Wheeler Air Force Base. Commercial development inWahiawa is strip-fashion along KamehaEneha Highway, California and Kilani Avenues. The remainderof Wahiawa Town involves mostly residential development.

Schofield Barracks, west of Wahiawa, is a major US Army Installation that is home of the 25hInfant7

Division. Wheeler Air Force Base (south of Schofield Barracks) is a small Air Force facility.

Other US Department of Defense facilities in the area includes Wahiawa Naval Radio Receiving Station(NCAMS PAC) and Helernano Military Reservation (US Army) to the east and northeast HelernanoMilitary Reservation is a US Army residential area. NCTAMS PAC, run by the Navy, is a majorcommunications center for the Pacific. It is a secured facility that includes a large antennae array.

Whitmore Village (southeast of subject) is a small residential community that also includes theheadquarters for Dole Food Company Hawaii. The area includes Helemano Elementary School> acommunity center, Lalawai Hale apartment project and modest commercial facilities (WhitnoreMarketlAloh4 Gas Station) along Whitmore Avenue. Surrounding land is planted with pineapple.

The subject property is located adjacent to the Dole Plantation pavilion which fronts KameharnehaHighway, The facility is a major tourist attraction based on an agricultural theme that attracts 900,ooo±visitors a year. It includes a large retail building, the world’s largest pedestrian maze, agriculturalattractions and adequate parking. Recent expansion includes a small train that takes visitors to a nearbyreservoir through pineapple fields.

Helemano Plantation, an organization that provides opportunities for retarded individuals, also abuts thesubject property and the Dole Plantation facility. This facility include offices, a restaurant and retail‘1 space. ORI Anuenue Hale, an affiliated organization, recently acquired 33 acres of agricultural land4 adjacent to the subject (across the service road) for $25,000 per acre (below market value). An additionalabutting 10.8 acres was donated to the organization.

In summary, the subject property is located in the vicinity of the Dole Plantation pavilion and HelemanoPlantation in Central Oahu. The area has been planted with pineapple for decades with pockets ofagricultural land put to urban development over the years.

PROPERTY DATA

Prootrtvjdgntification — The subject property is identified as a portion of TMK 6-4-3-li, First Divisionand contains 3.1 acres (see map on a following page). The Larger Parcel of which the subject is a portioncontains 79.814 acres. A Legal Description is not available. Per the client’s instructions, this appraisalassumes that the property has been subdivided from the Larger Parcel.

rperw Historv/Owr,ersh — The property has been owned by entities conu’olled by Castle & Cooke forseveral decades. Castle & Cooke Commercial Hawaii, Inc. currently holds title to the property.

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Land Area:- Larger Parcel:

Subject Portion:

Location:

t Jm1rovemefls:

Fee Simple Property Owner:

Ordinances Affecting Land Use and Development:

State Land Use Classification:

Sustainable Communities Plan:

County Zoning:

Federal Flood Insurance Rare Map (FIRM)Panel No. iSOO3CO 120 F, not printed:

Special Management Area (8MM:4

Census Tract:

SUBJECT PROPERTY DATATMK 6-4-03-por. II (First Division)

Eiaa Uka Waialua Oaliu. Hawaii

Agricultural District

Agriculture

Ag-I, Restricted Agricultural District

Zone D: Areas in which flood hazards are undetermined

Not located in Special Management Area.

100

Year S

2003 $36,1002002 $36,1002001 $36,0002030 $35,100l99 $36,1001998 536,100

Tax rates for this year are not availab’e.

Real Property Tax Assessed Values and Estimated Taxes for Larger Parcel 11 (79.814 acs)

Assessed Vaues 100%Land

S/acre Building Total

$452 $3,900 $40,000$452 $3,800 $39,900$451 £3,800 $39,800$452 £3,800 $39,930$452 $3,900 $40,000$452 $4,000 $40,100

Tax rates ror prior year have been used.

Tax Map Parcel: 6-4-03-por. II (First Division)

79.814 acres (3,476,698 sq. ft.

3.1 *acres ( 135,036sq.ft.)

Kamehameha Highway, Paaiaa Uka, Waialua, Oaitu, Hawaii

Portions involve paved parking lot.

Castle & Cooke Commercial Hawaii, Inc.

Tax Ratej$l,000Land Bldg.

$9.89 $9.89$9.89 $9.89$9.89 $9.89$9.89 $9.89$9.89 $9.89$9.00 $9.00

ApproxinmteR.P. Taxes

$3965595$394$395$396$361

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SUSTAINABLE COMMUNITIES PLANLAND USE MAP

EXISTING FUTiffip Preservation WasteWaterTreatmentPlantA Agriculture

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Susanna CheungApril 14, 2003Page 4

Land Use Ordinances — The State of Hawaii has classified the property for Agricultural use (see map on aprevious page). -

The North Shore Sustainable Communities Plan designates the property Agriculture (see map on aprevious page).

County zoning is AG-I, Restricted Agricultural District (see map on a previous page). It is noted that theproperty owner “as in the process of seeking rezoning of the property for Business/Commercial use inconjunction with their adjacent Dole Plantation facility. The proposed zoning change included other landas well. The zoning change process was canceled in early 2002 when it was rejected by the County.

The property is located in Flood Zone D indicating areas in which hazards are undetermined.

The property is not located in the Sp&ial Management Area.

Assessed Values/Real Proberty Taxes for the Larger Parcel of which the subject is a portion are includedon the Subject Property Data Table on a previous page. Assessed values are not necessarily consideredaccurate indicators of market value as is the case for the subject.

Utilities — Power and telephone lines run along Kainehameha Highway and are available to the property.

County water lines are not available. Water in the vicinity is available and is provided by private systems.

There are no sewer lines. Sewage is handled by on-site systems in the area.

Pendinr Sale — The subject property is pending sale to Helemano Plantation at a price to be determined.

PROPERTY DESCRIPTION

The property contains 3.1 acres in an irregularly shaped site.

Kamehameha Highway is to the west. In front of the subject, this roadway provides for two paved trafficlanes (one each way) with no cutbs, gitters or sidewalks. Power/telephone lines along the roadway areoverhead.

A gravel paved agricultural service road abuts the subject to the north. Vacant agricultural land recentlyacquired by ORI Arntenue Hale is located beyond the roadway.

Helemano Plantation abuts the property to the east.

The Dole Plantation parking facility is to the south.

Topography is fairly level, at grade of the abutting roadways.

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right Land recently purchased by (RU Anuenue Hale is to the left.

SUBJECT PROPERTYTMK 64-3-11 (por.) (First Division)

Waia!ua Oahii Hawaii

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Northeasterly view across Kamehameha Highway. Note the overhead utility

lines and absence of curbs, gutters and sidewalks along Kamehameha

Highway.

1

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SUBJECT PROPERTYTMK 6-4-3-Il (por.) (First Division)

WaialaOabu. Hawaii

Northwesterly view along the northern boundary of theleft). Kamehanieha Highway appears in the background.

Subject Property (at

Southerly view along the eastern boundary of the Subject Property. TheSubject Property is to the right. Helemano Plantation is to the left.

CL

- Susanna CheungApril 14, 2003

PageS

The [and is used as a paved parking lot in cofljunction with the Helemano Plantation facility. It also hasmature frees and oth er vegetation.

RIGHTS APPRAISED

The Rights Appraised involve the fee simple interest in the property.-

HIGHEST AND BEST USE-3

The highest and best use is the reasonable and probable legal use of vacant land or an improved propertywhich is physically possible, appropriately supported. financially feasible, and that results in the highestvalue. The four criteria the highest and best use must meet are legal permissibility, physical possibility,financial feasibility and maximum profitability.

Le€ally Perrnissihk — Zoning typically sets forth the legally permissible uses for land. The cuzyenlegally permissible uses for tbe propertyailowed by the zoning code involve traditional agricultural usesand include associated residential use. Parking lot use in conjunction with the Helemano Plantationfacility is also permitted. The current property owner previously proposed to obtain rezonirsg of theproperty to B-I, Business. The process required reclassification to Urban by the State as well as otherapprovals. The process was canceled in early 2002 as previously discussed.

Physically Possible — Physical characteristics of the land are well suited for agricultural and urban use.Urban use would likely be in conjunction with the adjacent Dole Plantation facility and/or HelemartoPlantation facility.

Financially Feasible — Preliminary analysis indicates that traditional agriculture use is not financiallyfeasible over the long run. Urban use in conjunction with the adjacent Dole PlantatiorflielemanoPlantation facilities is financially feasible.

Maximally Productixc — Of the financially feasible uses, the use that provides the highest residual landvalue is considered to be the highest and best use of the land. The highest and best use is concluded to befor use in conjunction with the adjacent Dole Plantation and1or Helemano Plantation facilities. Such usecould include commercial use if rezoning could be obtained. If rezoning cannot be obtained, parking useis allowed which benefits the adjacent facilities. The existing parking lot improvements are of modestinterim use valise and do not contribute significantly to the property’s overall value.

APPRAISAL METHODOLOGY

The Direct Market Comparison approach was employed.

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MARKET DATA

Employing the direct market comparison approach, we searched for transactions involving land havingcharacteristics similar to the subject and made appropriate comparisons. Due to the scarcity of pertinentland transactions in the immediate vicinity of the subject, we expanded our research to include the entireIsland of Oahu, focusing on outlying areas like the subject. Timewise, our research included January2002 to present.

A table summarizing the most pertinent transactions disclosed by our research is included on a followingpage. Details to each transaction are included in Exhibit 2 in the Addenda of this report. The transactionsare briefly described as follows.

Transaction No. I involves 5.1 acres zoned AG-I in an agricultural subdivision in Waialua. The propertyhas panoramic views and was purchased as a house lot with additional agricultural uses. The propertysold in December 2002 for $550,000 reflecting $2.50 per square foot.

Transaction N1c.2 involves 5.1 acres zoned AG-i in the same subdivision as Comparable No. I. Thisproperty sold in October 2002 for $550,000 reflecting $2.50 per square foot.

Itsaction Nofl involves 5.1 acres zoned AG-I in the same agricultural subdivision as ComparableNos. I and 2. The property sold in August 2002 for $550,000 reflecting $2.49 per square foot.

Transaction No. 4 involves 1.7 acres zoned AG-2 at Kahuku. The property is improved with oldercommercial structures that are allowed due to grandfathering. The property sold in April 2001 for$600,000. The buyer indicated that an improvement allocation of $300,000 is reasonable indicating aland allocation of $300000 or $4.09 per square foot.

Transaction No involves 4.6 acres zoned B-i at Kunia. The property sold in November 2002 for$2,650,000 reflecting $13.36 per square foot. The relatively low price for business zoned land reflectsatypical improvement costs and other factors adversely affecting the property’s value. The buyer plans tobuild a neighborhood shopping center.

])U.ECT MARKET COMPARISON

Direct market comparison analysis is summarized on the table on a following page. For purposes ofanalysis, we employed a unit rate of dollars per square foot as this is the typical unit rate used byknowledgeable buyers and sellers in Hawaii. Before adjustment, the five transactions reflect a range ofunit rate prices from $2.49 to $13.36 per square foot. Adjustments made are discussed as follows.

— The subject and all of the cornparables involve a fee simple interest. No adjustmentswere made.

Einncing — Transaction Nos. 2 and 4 involved seller financing that did not affect the price. Noadjustments were made. The other transactions involved cash to the seller, not requiring adjustment.

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Susanna CheungApril 14,2003Page7

Conditions of Sk — No special conditions were noted warranting adjustment.

Time — Adjustments for time are made to take into consideration changes in market conditions from thetransaction date to the effective appraisal date. The transactions occurred in the April 2001 throughDecember 2002 time frame during a stable market for agricultural/commercial land. No adjustments arewarranted.

LgcEn — Adjustments for location were made taldng into consideration proximity to Honoiuhi/urbancenters and the quality of the immediate environment. The subject enjoys a location closer to the urbancenter of Honolulu than Comparable Nos. I through 4 which were adjusted t25 to +35 percent.Comparable No. 5 is located in an urban area that is bedroom community of Honolulu. It is substantiallysuperior to the subject and was adjusted —40 percent

AccesslFrontaae — The subject has adequate access from Kamehameha Highway at the corner of anagricultural service road.

Comparable No.-- I has a corner Location, but does not benefit from frontage for commercial purooses dueto use restrictions and was adjusted +20 percent. Adjustments of +25 percent were made to ComparableNos. 2 and 3 which have single road frontage in the same subdivision as Comparable No. I.

Comparable No. 4 has access/exposure from Kamehameha Highway, as does the subject. However, thesubject has the additional service road frontage. An adjustment of +5 percent was made.

Comparable No. 5 has frontage/access from four roadways and is superior to the subject. An adjustmentof—lO percent was made.

2pjng/CommerciaI Us — Although the subject is zoned Agriculture, it can legally be used for parkingfor both the adjacent Dole Plantation and Helemano Plantation facilities. Further, it has long termpotential for rezoning to business use.

Comparable Nos. 1, 2 and 3 are inferior to the subject as they are restricted to residential/traditionalagricultural uses. Adjustments of +25 percent Were made.

Comparable No.4, although zoned Agriculture, has a grandfathered commercial use and is similar to thesubject in this respect. No adjustment was made.

Comparable No. S is zoned for business use and is superior to the subject. An adjustment of—20 percentwas made.

£iz — Adjustments for size were made based on the concept that larger parcels, all other factors beingequal, tend to command lower unit rate values. The Dilmore Size Adjustment Tables were used. The 85percent curve reasonably fits the market data and results in size adjustments ranging from —13 to -l2percent.

iis Vajuc — The five transactions, after adjustment, reflect a range of value for the subject from$4.37 to $4.99 per square foot. Weighted average analysis was completed. Greatest weight was placed

tLndaldoC\R€pOrtSt20O3WIeb0nb0 Plantation O4O3Wepordac

Susanna CheungApril 14,2003Page 8

on Transaction No. 4 as it involves agricultural land with grandfathered commercial use similar to thesubject. Weighted average analysis indicates a value for the property of $650,000 or $4.81 per squarefoot.

MARKET VALUE CONCLUSION

Based upon the research and analyses completed, subject to the Limiting Conditions andAssumptions stated in this retort, we estimate that the Market Value of the unencumbered feesimple interest in the subject property, as described herein, as of April 14, 2003, was:

SIX RUNDRED FIFTY THOUSAND UOLLARS($650,000)

There is a limited market for the subject property indicating a prolonged exposure time andmarketing time estimated at 9± months.

CERTIFICATION

I certify that, to the best of my knowledge and belief:

- the statements of fact contained in this report are true and correct.- the reported analyses, opinions, and conclusions are limited only by the reported assumptions andlimiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions,

and conclusions.- I have no present or prospective interest in the property that is the subject of this report, and nopersonal interest with respect to the parties involved.- I have no bias with respect to the property that is the subject of this report or to the partiesinvolved with this assignment.- my engagement in this assignment was not contingent upon developing or reporting

predetermined results.- my compensation for completing this assignment is not contingent upon the development orreporting of a predetermined value or direction in value that favors the cause of the client, theamount of the value opinion, the attainment of a stipulated result, or the occuffence of asubsequent event directly related to the intended use of this appraisal.- my analyses, opinions, and conclusions were developed, and this report has been prepared, inconformity with the Uniform Standards of Professional Appraisal Practice.- the undersigned have made a personal inspection of the property that is the subject of this report.- my analyses, opinions and conclusions Were developed, and this report has been prepared, inconformity with the requirements of the Code of Professional Ethics and the Standards ofProfessional Appraisal Practice of the Appraisal Institute.- the use of this report is subject to the requirements of the Appraisal Institute relating to review byits duly authorized representatives.- as of the date of this report, Jan R. Medusky, MM, CItE, has completed the requirements of thecontinuing education program of the Appraisal Institute.

Ptanlation O4OStRevorLdOC


- no one provided significant professional assistance to the undersigned in compieting this report.

We appreciate the opportunity of completing this assignment for you.

Sincerely,

MEDUSKY & CO., INC.

-, Jan It Medusky, MM, CREPresident

Hawaii State Certified General AppraiserCGA-17Certificate Expires 12/3 1/03

CEdward W. Becker

• Real Estate Appraiser

Hawaii State Certified General AppraiserCGA-581Certificate Expires 12)31/03

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LIMITING CONDITIONS AND ASSUMPTIONS

The conduct of any study is necessarily guided by, and its results influenced by, the tentsof the assignment and the assumptions forming the basis of the study. The followingconditions and assumptions, together with other assumptions embodied in the study,constitute the framework of our analysis and conclusions.

STANDARD LIMITING CONDITIONS AND ASSUMPTIONS

I. The conclusions and oninions are based upon the purchasing power of the dollar andeconomic conditions as of the effective appraisal date. This study expresses theopinion of the appraisers as of April 14, 2003 with an effective date of April 14,2003 and in no way was contingent upon the reporting of specified conclusions.

2. It is assumed that the subject nropertv is free and clear of any and all encumbrances,except for those noted herein; no responsibility is assumed for matters of a legalnature; nor is the report to be construed as rendering any opinion of title, which isassumed to be good and salable.

3. Soil Conditions and Land Aia - A soils report was not furnished to the appraisers.We assume soil conditions to be satisfactory for existing and potential developmentof the subject and assume no responsibility in this respect. Land areas are based oninformation provided by Tax Office records, the client and other sources and areassumed to be correct.

4. Relied Upon Information- Information provided by informed local sources, such asgovernmental agencies, financial institutions, Realtors, buyers, sellers, propertyowners and others, was weighed in the light in which it was supplied and checkedby secondary means when appropriate. It is believed that the information obtainedfrom these and other sources is true and correct.

5. iyJ - Any maps or plans reproduced and included in this report are intended onlyfor the purpose of showing spatial relationships. They are not necessarily measuredsurveys or measured maps and we are not responsible for cartographic or surveyingerrors.

6. Possession of this retort, or a copy thereof, does not carry with it the right ofpublication, and the report may not be used by any person or organization except theclient without the previous written consent of the appraisers and then only in itsentirety.

7. The report does not imDly the right of court testimony on the part of the appraisers,without additional arrangements.

8. Disclosure of the contents of this study is governed by the By-Laws and Regulationsof the Appraisal Institute. Neither all nor any part of the contents of this study(especially any conclusions as to value, the identity of the appraisers or the firm withwhich they are connected, or any reference to the Appraisal Institute or to the MMdesignation) shall be disseminated to the public through advertising media, public

HLindaWOCRePOrtSi2003RetemcflO PIo,,ta,ion 0403 ILCA .doc

EXHIBIT I (Page 2)

relations media, news media, sales media or any other public means ofcommunication, without the prior consent and approval of the appraisers.

9. Disclosure to Institute - The contents of this report are subject to the review, uponrequest of the Appraisal Institute, by duly constituted committees of the Institute orindividual members thereof when such committees or members are acting within thescope of their authority under the By-Laws and Regulations of the Institute. Thisrequirement was adopted by the Institute to facilitate the Institute’s efforts tomaintain the high standards of professional practice and ethical conduct that havebeen the hallmark of theinstitute since its creation.

10. Toxic Wastes and Hazardous Materials - The existence of toxic wastes and/or otherhazardous materials, which may or may not be present on the property, was notobserved by the appraisers. The appraisers have no knowledge of the existence ofsuch materials on or in the properly. The appraisers, however, are not qualified todetect such substances. The presence of substances such as toxic wastes, asbestos,urea-formaldehyde foam insulation, or other potentially hazardous materials may• affect the value of the property. The value estimate is predicated on the assumptionthat there is no such material on or in the property that would cause a loss in value,No responsibility is assumed for any such conditions, or for any expertise orengineering knowledge required to discover them, The client is urged to retain anexpert in this field, if desired. The value conclusion shown in this report assumesthat there are no toxic wastes and/or hazardous materials affecting the subjectproperty.

SPECIAL LIMITING CONDITIONS AND ASSUMPTIONS

II. Summan’ Aporaisal Renort - This is a Summaiy Appraisal Report that summarizesour research, analyses and market valuç conclusion regarding the subject property.Further details are retained in the appraisers’ files and are available for review uponrequest.

12. Subdivided Land Area— The subject property is a portion of a larger Tax Map Parcelthat has not yet been subdivided. The subject land area was provided by the clientand is assumed to be accurate. It is further assumed that the property is a saleable,subdivided parcel as described herein.

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EXHIBIT2(%e I)

LAND TRANSACTIONS

Transaction No. I

Property Data:

Tax Map Key: 6-5-04-IS (First Division)Land Area: 5.052 acres (220,065 sq. IL)Location: Pcamoho Estates, Kernoo, Waialua, Qahu, Hawaii

Improvements: Vacant

County Zoning: Ag-I, Restricted Agricultural District

Transaction Data:

Transaction Type: Warranty DeedTransaction Date: December 18, 2002Recorded: Doc. No. 2002-227864Grantor: Poamoho Venture Li’.Granrees: George E Vickers and Patricia S. VickersPurchase Price: $550,000 (cash to seller)

Indicated Unit Rate: $2.50 per sq. ft.$550,000 + 220,065 sq. ft.)$108,868 peracre$550,000 + 5.052 acres

Comments:

Details of this transaction were verified with David Taogoshi, a representative of the seller. According to Mr.Taogoshi, this was an arms length transaction involving cash to the seller. The property is located in anagricultural subdivision permitting one house per 5± acre lot. Topography is gently sloping and there aredistant ocean views. There are no curbs or sidewalks in the subdivision. However, there are drainage guttersalong the roadways. Utility lines are overhead.

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EXI-1I81T2(Page2)

iN.2

Property Data:

Tax Map Key: 6-5-04-03 (First Division)

Land Area: 5.057 acres (220,283 sq. ft.)Location: Poamoho Estates, Kemoo. Waialua, Cahu, Hawa:t -


County Zoning: Ag-I, Restricted Agricultural District

T:ansactiOn Data:

Transaction Type: Warranty DeedTransaction Date: October 28, 2002Recorded: Doe. No. 2002-197706Grantor: Poamoho Venture L.P.Grantees: David P. Crockett and Judith G. CrockettPurchase Price: $550,000 (see comments)

Indicated Unit Rate: $2.50 per sq. ft.S550,000 — 220,285 sq. It)$108,760 per acre$550,000 5,057 acres)

Comments:

Details of this transaction were verified with David Taogoshi, a representative of the seller. According to Mr.Taogoshi, this was an arm’s length transaction involving short term seller financing. The transaction involveda $250,000 down payment with the balance due at an unspecified time in the near future. According to Mr.

A Taogoshi, the buyer is in the process of obtaining a mortgage and will pay off the balance in the near future.

The property is iocated in an agricultural subcivision permitting one house per 5± acre lot. Topography isgently sloping and there are distant ocean views. There are rio curbs or sidewalks in the subdivision. Howevet,there are drainage gutters along the roadways. Utility lines are overhead.

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Property Data:

Tax Map Key: 6-5-04-b9 (First Division)Land Area: 5.069 acres (220,806 sq. ft.)Location: Poamoho Estates, Kemoo, Waiaka, Oahu, Hawaii


County Zoning: Ag-, Restricted Agricultural District

Transaction Data:

Transaction Type: Warranty DeedTransaction Date: August 26, 2002Recorded: Doc. No. 2002-152385Grantor: Poarnoho Venture Li’.Grantees: Alastair W. Thompson and Constance L. ThompsonPurchase Price: $550,000 (cash to seller)

Indicated Unit Rate: $2.49 per sq. ft.$550,000 + 220,806 sq. ft.)$108,503 per acre$550000 + 5.069 acres)

Comments:

Details of this transaction were verified with David Taogoshi, a representative of the seller According to Mr.Taogoshi, this was an arm’s length transaction involving cash to the seller. The property is located in anagricultural subdivision permitting one house per 5± acre lot. Topography is gently sloping and there aredistant ocean views. There are no curbs or sidewalks in the subdivision. However, there are drainage guttersalong the roadways. Utility lines are overhead.

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C: EXHIBIT 2 (Page 4)

Property Data:

Tax Map Key: 5-6-04-01 (First Division)Land Area: L64 acres (73,355 sq. ft.)Location: Kamehameha Highway, Kahuku, Koolauloa, Gahu, Hawaii

!mprovemenrs: Four wood frame structures built about 1931/1932.

County Zoning: Ag-2, General Agricultural District

Transaction Data:

Transaction Type: Warranty DeedTransaction Date: April 9,200!Recorded: Doc. No. 2001-052559Grantor: Tanaka Plantation, Inc.Grantees: Su-Ching Fong ChuPurchase Price: $600,000 (see comments)Allocation to Improvements: $300000Indicated Land Value: $300,000

Indicated Unit Rate: $4.09 per sq. ft.$300,000 + 73,355 sq. ft.)$178,147 peracre$500,000 + 1.684 acres)

Comments:

Details of this transaction were verified with Su-Ching Chu, the buyer. According to Mrs. Chu, this was an arm’slength transaction involving seller financing. The transaction involved a $250,000 down payment, with monthlyinterest only payments on the balance at 10%. The term of the original agreement has expired, but the partieshave extended the term indefinitely.

The land is improved with four older wood frame structures with grandfathered commercial use. There is a 3.630sq. ft. wood ftarr.e retail building built about 1932. There are three structures built about 1931 that include two2 bed/I bath dwellings containing 830 sq. ft. and 624 sq. and a 96 sq. ft. utility building. According to Mrs. Chuabout half of the price paid was allocated the buildings.

Topography of the and is fairly level, at grade of Kamehameha Highway. Utility lines are overhead.

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Transaction ND. 5

Property Data:

Tax Map Key: 9-4-106-01 (First Division)Land Area: 198,303 sq. ft. (4552 sq. ft.)Locatidn: Kunia Road, Kupuohi Street and Kupuna Loop, Village Park, Ewa, Oahu, Hawaiilrnprovementv Vacant

County Zoning: B-l,Neighborhood Business District

Transaction Data:

Transaction Type: Wartanty DeedTransaction Date: November 22, 2002Recorded: Doe. No. 2002-211616Grantor: Premier Property Deve’opment CorporationOrantees: A&B Properties, Inc., et al.Purchase Price: $2,650,000 (cash to seller)

Indicated Unit Rate: $13.36 per sq. ft.$2,650,000 + 198,303 sq; ft.)

$582,162 peracre$2,650,000 + 4.552 acres)

Comments:

Details of this transaction were verified with Rick Stack, a representative of the buyer. According to Mr.Stack, this was an arm’s length transaction involving cash to the seller. The land is planned for developmentwith a neighborhood shopping center. Construction is scheduled to begin in ate 2003.

According to Mr. Stack, the raw land price was low relatiye to comparable transactions as the property hadroad improvementJtraftic signal and topography issues that needed to be addressed. According to Mr. Stack,costs associated with these items raise the land cost to the range of $20 to $22 per square foot.

The property has good frontage along Kunia Road, Kupuohi Street and Kupuna Loop. Topography is generallysloping.

qUALIFICATIONS OF JAN R. MEDUSKY. MAT. CRE

President, Medusky & Co., Inc., Real Estate Consultants311 Hawaii Building, 745 Fort Street, Honolulu, Hawaii

President 11993-1994), Cowell & Ca., Inc.

Licensed Real Estate Broker, State of Hawaii(License No. RB-169 IS)

Member, Appraisal Instinite (MAr), Hawaii Chapter(Certificate No. 7313)

Past President, American Institute of Real Estate AppraisersHonolulu Chapter No. 15

Member, The Counselors of Real Estate (CRE)(Certificate No. 2560)

Chapter Chair, The Counselors of Real Estate I-{avaii Chapter

Hawaii State Certified General Appraiser (CGA-17)

EDUCATION

Culver Military Academy, Culver, Indiana. Graduated with honors, 1964.1968.

Bachelor of Science Degree, U.S. Military Academy, West Point, New York, 1968-1972.

University of Hawaii, Graduate courses in Business and Economics, 1975-1976.

Master of Business Administration Degree, Chaniinade University of Honolulu, 1980.

SPECIAL COURSES

Graduate Real Estate Institute. Courses land H, Honolulu, l979

Stapletcn School of Real Estate, Sales Licensing Cours; Honolulu, 1979.

Credit for the various American Institute of Real Estate Appraisal Courses.

Instructor for various seminars/classes regarding real estate valuation.

Captain, U.S. Army, 1972-1978. Held various positions including Commander, Air Defense Artillery Battery andSeciai Staff Officer, 25th Infantry Division General Staff, Schofield Barracks, Hawaii.

EXFERTENCE

Engaged in real estate consultation and valuation throughout the Pacific Basin since 1979. Geographical areas coveredinclude the four counties of the State of Hawaii, the Territory of Guam, the Federated States of Micronesia, Republicof the Marshall Islands, R.epublic of Palau, Saipan, American Samoa and selected locations on the West Coast of theUnited States Mainland.

Specializes in valuation for litigation purposes, tax appeals, leased fee conversions, arbitations and rent renegotiations.

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QUALIFICATIONS OF EDWARD W. BECKER

Staff Appraiser, Medusky & Co., Inc., Real Estate Consultants311 Hawaii Building, 745 Fort Street, Honolulu, I-Iawaii

EDUCATION

Bachelor of Arts DegreeUniversity of Hawaii at Manoa, Honolulu, HawaiiPolitical Science Major

SPECIAL COURSES

University of Hawaii at Manoa, Small Business Management Program, Real Estate Sales Licensing Course, 1992

State Certification Courses

Foundations of Real Estate Appraisal, 1992- Appraising the Single Family Residence, 1992

Uniform Standards of Professional Appraisal Practice, 1992Real Estate Appraisal Methods, 1993

Credit for the following American Institute of Real Estate Appraisal Courses:

540 - Report Writing and Valuation Analysis510 - Advanced Income Capitalization410 - Standards of Professional Practice, PartA420 - Standards of Professional Practice, Part B

EXPERIENCE

Engaged in real estate research and valuation with Medusky & Co., Inc. (previously known as CoweD & Co., Incj sinceJuly 1993. Geographic areas covered include the City and County of Honolulu and the Counties of Maui, Kauai andHawaii. Types of properties covered include resort, industrial, agrict±urai, residential, shopping centers and variousother commercial properties.

LIISIHX3

MUFI HANNEMANNMAYOR

:EDEPARTMENT OF COMMUNITY SERVIHCitY AND COUNTY OF HONOLULU

71553 ThK,G STREET. SUFTE 3i •

DEBORAH KIM MORIKAWADIRECTOR

MARK K. OTOSENIOR ADVISOR

Memorandum

January 16, 2007

ary Patricia W terhouse, Director of Budget & Fiscal Services

Servicesf

Completion of CDBG Funded Contract and Final Payment RequestFor the ORI Anuenue Hale — Elder Care Project

The following project is submitted for final payment approval. Services related to thesubject contract have been completed and an on-site final monitoring was conducted. TheHCAP was found to be in satisfactory compliance.

Contract Data:Contract Execution Date:Effective Date (NTP):Contract Expiration Date:Actual Completion Date:

Final Cost Data:Account No.:Contract Amount:Amount Paid to Date:Balance:Final Invoice:Remaining Balance to be Lapsed:

November 14, 2005’November 21,2005’November 21, 2006.November 15, 2006

310/4154-06-01 044XS 100,000.00$ 94,167.29.$ 5,832.71$ 5,832.71

The Final Invoice, Non-Gratuity Affidavit, Tax Clearance, Certification of Compliancefor Final Payment, and initial Notice To Proceed are attached for your review. Questionsregarding this matter may be referred to Paul Taniguchi at 591-5552,

To:

From:

Subject:

0

EXHIBIT7

Mary Patricia WaterhouseJanuary 16, 2007Page Two

Your approval is appreciated.

APPROVED:

MARY PATRICIA WATERHOUSEDirector Budget and Fiscal Services

m :i: w ‘-I

Co

F r / Ir•

ORI-ANUENUE HALE, INC.ELDERLY CARE SERVICES PROGRAM

FINAL PROGRAM REPORT

REPORT FOR: JANUARY 2001 to DECEMBER 2001CONTRACT No.: F84461 Page 1 of 2

There was a significant increase in number of senior participants served thisyear, with a cusrent average of 70 seniors and 20 individuals withdevelopmental disabilities on a regular basis at ORI Anuenue Hale.

Quarterly thematic events were held for seniors in the community, whichdrew 1300 seniors from different parts of the island. These thematic eventsincorporated cultural activities, entertainment, and arts/crafts. The eventsalso introduced the different programs offered by ORI Anuenue Hale such asthe Health and Weilness Program, Learning Center, Computer Training, andMusic/Dance Therapy.

This year, the computer classes were increased due to popular demand. Theprogram was able to purchase a new computer and printer plus new softwareand training materials. Additional computers were obtained through otherresources and DSL internet service was actively sought. Unfortunately, theDSL service is still pending due to Verizon Hawaii’s inability to do theconnection at this time. Verizon said that they will continue to see how wecan obtain the services for the seniors.

Music dance therapy was started early this year and after several months,ON Anuenue Hale decided to pursue other program offerings and have thisparticular class take a short break. The seniors did enjoy these sessions andare excited to re-start.

Tai-Chi and Meditation Classes started mid-year and soared. This as well asthe computer classes have been a popular program for the seniors.

ON Anuenue Hale program staff began outreach services to seniors in thecommunity through Health and Wefiness speaking engagements with senior

clubs on health topics/issues; “Foods that Heal” and Healthy Cooking events;in addition to music/dance and art/crafts therapy activities at senior nursinghomes as well as with other senior groups in the community. This outreach

EXHIBIT 8

-

ORI-ANUENUE HALE, NC.ELDERLY CARE SERVICES PROGRAM


REPORT FOR: JANUARY 2001 to DECEMBER 2001CONTRACT No.: F84461 Page 2 of 2

program service benefited an additional 300+ seniors on Oahu. This programis doing well and ON Anuenue Hale’s speakers were asked by the seniors todo more of these speaking engagements for the upcoming year.

The Elderly Affairs Division was also asked to participate in the ONAnuenue Hale Learning Center to provide information to caregivers in thecomnumity who are interested in working with or volunteering to helpseniors. ON Anuenue Hale’s Learning Center also provided valuableinformation to assist family caregivers with elderly family members. Morerequests for outreach assistance from families or individual seniors werereceived, particularly in dealing with family relationships and the heavy loadof caregiving.

Transportation was an issue addressed this year with the leasing of awheelchair-accessible van and a mini-van. These vans addressed one of thetop barriers to the seniors being able to participate in the community, which istransportation.

OR! Anuenue Hale, Inc., is planning to pursue more outreach services toindividual seniors and families with senior members in the community. Weare hopeflul that fimding will be continued for this program, which is greatlyneeded particularly in the Central Oahu and North Shore community.

Community response has been positive and, due to the community’s needsand demands, ON Anuenue Hale is being pro-active in its pursuit to beginand complete its future plans for the elderly and disabled in the community.

Prepared by: Yvonne C. de Luna Date: January 15, 2002

9

&c :t

r.

EXHIBIT

ORI-ANIJENUE HALE, NC.ELDERLY CARE SERVICES PROGRAM


REPORT FOR: JANUARY 2002 to DECEMBER 2002CONTRACT No.: F-92342 Page 1 of 2

The number of participants sewed this year averaged at 85 seniors and 28individuals with developmental disabilities on a regular basis at ORIAnuenue Hale.

Two major senior health fairs were held this year plus three other smallerevents for the purpose of community and health awareness for the seniors.The health fairs incorporated cultural activities, entertainment, arts/craftsand other activities that educate and involve the seniors with theftcommunity. The events included a Health and Weilness Program, LearningCenter Activity and Computer Training.

This year, the computer classes increased due to popular demand. Theprogram was finally able to obtain Roadrunner service for internet capabilityand through the assistance of a volunteer, we were able to have thecomputers networked. The seniors enjoyed using the Internet and learningto e-mail.

Tai-Chi and Meditation Classes continued to have an increasing number ofparticipants. More requests were received and will be accommodated forspealcing engagements with senior groups/clubs, which will be conducted byORI Anuenue Hale trainers. This as well as the computer classes has beenpopular with the seniors.

The outreach services also continued to receive requests. The outreachservices included personal care assistance, companion assistance, counselingand telephone reassurance, advocacy and case management support,transportation to and from the doctor health and weilness visits, and helpwith routine management of finances such as following up that the seniorskeep up with paying theft bills on a timely basis and arranging for an easierway that they can manage theft finances and still remain independent.

.

:‘‘ EXHIBIT9

ORI-ANUENUE HALE, INC.ELDERLY CARE SERVICES PROGRAM

HNAL PROGRAM REPORT

REPORT FOR: JANUARY 2002 to DECEMBER 2002CONTRACT No.: F-92342 Page 2 of 2

Our linkage with the Elderly Affairs Division has been helpful in terms ofinformation and referral support. Symposiums for caregivers of elderlyindividuals, conducted by the AARP and Executive Office ofAging, werehelpful in exposing the seniors and theft families to services and otherresources in the community. The Caregiver Class Program that we linkedwith has been a resource for relief caregivers to families while also servingas a basic introductory course to care-giving for interested individuals in thecommunity and for seniors’ continued learning.

The wheelchair-accessible van, mini-van and another leased vehicle, havebeen important in accommodating the varied transportation needs of theseniors. Transportation to and from community events of large and smallgroups as well as individualized transportation assistance to and from thedoctor, have been the major usage for these vehicles. These vehiclesameliorate one of the top barriers to the seniors being able to participate inthe community.

ORI Anuenue Hale, Inc., would like to continue the different senior servicesthat it offers and are hoping for continued fbnding, especially since there is agreat need in the Central Oahu and North Shore community.

Community response has been positive and, due to the community’s needsand demands, ORI Anuenue Hale continues to be pro-active in its pursuit tobegin and complete its future plans for the elderly and disabled in thecommunity. Groundbreaking was held in November of 2002 andconstruction is expected within the next year, once the fbnding is obtained.

Prepared by: Yvonne C. de Luna Date: January 21, 2003

EXHIBIT

- F’

10

*.

ORI.-ANUENUE HALE, INC.CDBG Expenditure Report

Contract No. F76&20

Salaries & Wages $ 240,097.37Advertising 340.18Consultant Services 36,952.50Contract Services 6,000.00Equipment rental 410.00Insurance - Medical/Dental 8,130.00Insurance - Group Life 1,157.87Insurance - Workmen’s Comp 11,930.90Insurance - TDI 1,351.07Insurance - General/Fire 1,281.25Legal & Accounting 1,549.48Meals 5,783.83Lease of Vehicle 5,995.02Lease of Premises 20,130.00ManagernentlAdmin. Fee 20,000.00Program Activity 2,170.00Payroll Processing 307.11Payroll Taxes - Social Security 14,88603Payroll Taxes - Medicare 3,481.41Payroll Taxes - SUTA 2,739.51Supplies/Materials 13,494.71Utilities 6,795.05

TOTAL EXPENSES $404,983.29

EXHIBIT 10

m w -4

I—-DE

DtrARTMENT OF BUDGET AND FISCAL SERVICt3CITY AND COUNTY OF HONOLULU530 SOUTH KING STREET. ROOM 208 • HONOLULU, HAWAII 96813

PHONE: (808) 768-3900 • FAX (8C8) 768-3179 • INTERNET: ww.sionouIu.gov

MUFI HANNEtiANNRIX MAURER IIIMAYOR

DIRECTOR

MARK IC 010Dpcjry oEaoR

341790

MEMORANDUM

TO: Deborah Kim Morikawa, DirectorDepartment of Community Services

SUBJECT: Disposition of CDBG and HOME Loans

This is in response to your memorandum of November 13, 2009, regarding yourloan forgiveness proposal to address the issue of outstanding CDBG and HOMEProgram loans used to assist public facilities and special needs housing projects.

We generally agree with your assessment that the CDBG and HOME Loansidentified in your attachment are unlikely, now and in the future, to be able to generatethe income required to repay their loans. However, we would recommend furtherreview and discussion on the following matters:

• Of the identified loans, the loan amount outstanding is currently over $9 million,and the City currently receives about $62,000 per year in repayments. Whenloan forgiveness has been requested in the past (e.g., from ORl and ARC),DCS’ position, supported by BFS, was not to forgive long-term loans becausethey represent a potential source of income to the City; and, as such, the Citymust be willing to forgo the possibility of that future income, however remotethe possibility of being repaid.

• Certain projects on the list, notably those that receive Section 8 rentalsubsidies or those in which the City holds a second mortgage, shouldeventually be able to repay their loans. These projects are essentially multifamily rental projects, even though they serve non-elderly special needspopulations. Certain ARC of Hawaii projects, for example, receive Section8 subsidies; and the ARC 10 project, actually did mak a $20,925 paymentout of residual receipts in 2004. The City should not give up its ability tocollect should property be sold in the future.

• To avoid being unfair to projects that have already begun repayments, suchas the Sierra House project, we should consider forgMng loans goingforward, but not forgive repayments already owed to us.

December 18, 2009

EXHIBIT 11

F

MemorandumDisposition of CDBG

and HOME LoansDecember 18, 2009Page Two

The proposal ties loan forgiveness to the CDBG five-year reversion ofassets period, which seems to imply that it is also the City’s intention toinstitute a five-year CDBG national objective period for the listed projects.Such an action needs further discussion because it could affect all CDBGassisted projects, not just the listed projects. HOME assisted projectswould continue to be subject to their respective HOME affordability periods.

If it is the City’s intent to release, upon forgivehess, these projects from theirobligation to comply with CDBG (or HOME, as applicable) programregulations (including achieving a CDBG national objective) or otherrestrictions on use, the City must consider that the obligation to repay a loanand the obligation to achieve a national objective are separate issues. Forexample, forgiving the loan of the Easter Seals Ewa Villages Group I-tomeswill not release Easter Seals’ 35-year Lease obligation to use the grouphomes to benefit disabled youth and adults; and it may or may not releaseEaster Seals of its obligation to comply with CDBG regulations under itsSubrecipient Agreement.

• Because the terms and conditions imposed on the projects throughout theyears are varied and may have been fashioned in consideration of otheragreements with the benefiting agencies, each project must be reviewed ona case-by-case basis to determine the effect of loan forgiveness.

Also, you should be aware that if the loans are written off, it will increase ourCAFR expenses and, therefore, decrease the CAFR “income” by approximately $8.5million. It is not expected to impact our “budgetary process’ as “operating” funds arenot involved:

Finally, organizations that have been diligent and paid off their obligations arelikely to protest and demand equitable treatment should they hear that we are forgivingexisting loans. It may also set a bad precedent wherein future awardees will expect theCity to forgive their obligation if they take a long enough time to pay.

Although it is not likely that we will be able to take action on the loans prior to theend of the calendar year, please let me know if you would like to meet to discuss ourconcerns and recommended actions.

• M rer IIIDirector

RM/HK:ts

EXHIBIT 12

MUFI HANNEMAI4Na&Yoa

CDEPARTMENT CF COftMUNlTY SERVICES

CITY AND COUNTY OF HONOLULU715 SOUTH KjNGSTREET&RTE3II• HowoLtrw4Awn 813 • AREA CC3E 80€ PhONE: 758-7762• FAX 7€€-7792

BFS-CDBG

91710

DEBORAh KIM MORIKAWADIRECtOR

ERNEST Y. MARlINDEPUTY DiRECTOR

November 13, 2009

Rix Maurer Ill, DirectorDepartment of Budget and Fiscal Services

ütøW4 tVWvk4AIDeborah Kim Morikawa, DirectorDepartment of Community Services


-J0 on

c-fl.C>.ro’Mo

(nC,)

This is to propose a framework for the resolution of outstandingCDBG and HOMEprogram loans, between the City and various nonprofit agencies. The Department ofCommunity Services is proposing that existing Community Development Block Grant(CDBG) loans related to special needs housing projects and public facilities be forgiven atthe conclusion of the five year reversion of assets period, which is consistent with the U.S.Department of Housing and Urban Development requirements. We are further proposingthat existing loans for special needs housing projects, undertaken through the HOMEInvestment Partnerships program, be forgiven at the conclusion of the project’s HOMEaffordability period. The rationale for this proposal is that most public facilities and specialneeds housing projects do not generate sufficient income to make loan payments and, infact, require external subsidies to sustain operations. We also suggest that based on thematurity of these loans, the long term prospects for the future repayment is remote.

We do not propose that loans for affordable rental housing projects, including rentalhousing projects for senior citizens, be forgiven at this time. The majority of these loans arezero or low interest (1% to 4%) residual receipt loans that have the potential for futurerepayment when the senior debt is fully amortized or refinanced. The projects also generatesubstantial revenue that could be used to make payments in the future.

Upon your concurrence, we will establish and implement a procedure to forgive theCDBG public facility and CDBG and HOME special needs housing loans described above.Questions regarding this mailer may be directed to Keith lshida at X-7750.

DKM:dk

cc: Gordon Nelson, Deputy Corporation Counsel (w/ attachment)

Attachment

MEMORANDUM

TO:

FROM:

EXHIBIT 12

Community Development Block Grant and HOME LoansPublic Facility and Special Needs Housing

• PROJECT CONTRACTOR / SUBR.ECWIENT AMOUNT

rEaster Seals Society of Hawaii, F-

Easter Seals Ewa Group Homes 49857 435,000.00 432,995.20Opportunities for the Retarded tnc, F

Helemano Village 39875 315,629.45 315,629.45Interest owed on

Helemano Village Opportunities for the Retarded Inc above loan 121,343.95Independent Living TrainingHome for Teen Mothers Hale Kipa, Inc., F-45616 212,351.57 254,196.88Independent Living Training Interest owed onHome for Teen Mothers Hale Kipa, Inc. above loan

— 23,295.56Opportunities for the Retarded Inc., F-

Residential Training Center 58450 812,718.50 812,718.50Interest owed on

Residential Trainin Center 0 ortunities for the Retarded Inc. above loan 356,451.34•

ARC No. loLusitana ARC Hawaii, F-10952 192,111.o 169,266.40

ARC No. 12-EwaEstate ARCHawaii,F-18493 51,343.00 51,343.00Duncan Drive Oahu House Inc. (F-43 116) 412,155.60 73,725.50Edwin Thomas Home Housing Solutions, Inc., F-59080 1,006,000.00 993,256.42

Independent Living Apts Hale Kipa, Inc., F-483 19 366,116.35 167,027.35

Independent Living Waipahu Independent Living Waipahu, F-49847 500,000.00 500,000.O(

Kamehanie Ridge Group Home ARC Hawaii, F-46319 298,410.42— 137,431.79

Pearl City Complex ARC in Hawaii, F-23063 1,800,000.00 1,772,338.11

Wahiawa Complex ARC Hawaii, F-49129 1,389,789.98 1,389,789.98Central Oahu Youth Svc Association

Youth Crisis Center Contract No. F-58440 64,955.0C 3,747.42

Gregory House Hoomanaolana, F-47286 900,000.00 858,482.15Lahilahi Residential SubstanceAbuse Project Hoomau Ke Ola, F-56978 175,000.00

- 175,000.00

Sierra Group Home Mental Help Hawaii, F-36015 431,000.00 405,999.78

EXHIBIT 13

--

I-

DEPARTMENT OF COMMUNITY SERVlCESCITY AND COUNTY OF HONOLULU

715 SOUTh IcING STREET, SURE 311• HONauu Y1AS 96813• AREA CODE tee PHONE 768-7762e Ffrt 758-7792

Mull HAM4EMANN DEBORAH KIM MORIKAWAMAYORDIRECTOR

ERNEST Y. MARTINDEPUTY DIRECTOR

Marchl6,2010

MEMORANDUM

TO: Rix Méurer III, DirectorDepartment of Budget and Fiscal Services

FROM: IDb6rawKim Mbrikawa, DirectorDepartment of Community Services


This memorandum is in follow-up to our letter, dated November 19, 2009,regarding the disposition of CDBG and HOME loans, and in response to your letterdated December 18, 2009. Since our initial communication, we have reviewed severaloutstanding CDBG and HOME loans, and as a pilot project, we have focused on theoutstanding CDBG loan to Opportunities for the Retarded Inc. (ORI), related to theconstruction of its residential training center.

Your memorandum recommended that the City not cancel the outstanding debtfor which there is the possibility of repayment. We generally agree with this positionand have no plans to cancel the debt associated with rental housing projects which aregenerally self supporting through thecollection of rental income and are currentlymaking periodic payments on their City loans, or making payments on senior debt whilethe City subordinated debt remains unamortized. We agree that for many of theseprojects, the prospects for the City to obtain some form of repayment either in the formof residual receipts loan payments, or through a lump sum payment due upon therefinancing of the project remains positive. We note, however, that special needshousing projects and human service projects like the CR1 residential training center,which rely on government or private subsidies to fund operations, do not fall into thiscategory.

It is not our suggestion to automatically release these projects from CDBGor HOME program obligations upon the cancellation of the debt. In the case of aHOME-assisted project, the HOME restrictions required by program rule will need to befollowed. In the case of CDBG-assisted projects where the five year national objective

cXI-IIBIT 13

Rix Maurer Ill, DirectorMarch 16, 2010Page2

period has already lapsed; we are proposing that a new five year national objectiveperiod be imposed as a condition of canceling the outstanding debt.

In instances where there is an underlying lease or longer term land usecovenant, such as a HUD Section 202 use restriction agreement, our proposal is torequire the nonprofit agency to maintain the property in accordance with the CDBGnational objective requirement for a period equal to the length of the term of the lease,use restriction, or other underlying covenant. In the specific case of CR1, the projectsite is subleased to CR1 by the City. We are proposing that CR1 be required to maintainand operate the residential training center in a manner which meets the CDBG nationalobjective of benefiting low and moderate income persons, limited clientele, as stated in24 Code of Federal Regulations, §570.208(a)(2), during the entire term of the amendedsublease. We propose to memorialize this requirement, as well as the cancellation ofthe Øebt through an Amendment, Agreement and Acknowledgement to be executed bythe City and ORI. We have attached a copy of the draft Amendment, Agreement andAcknowledgement for your review and comment.

To date, we have reviewed the documents relating to the CR1 ResidentialTraining Center, the CR1 Housing project, and the Mental Health Kokua Sierra HouseRehabilitation loan. What has become evident is that there are variations in the loandocuments for each project, which will require some modification to the debtcancellation documents on a case by case basis. Notwithstanding these variations, wesuggest that the underlying guidelines of: (1) limiting cancellation only to those specialneeds housing and human service projects which are not self sustaining; and (2)extending the CDBG national objective period for a minimum of five additional years orto a length concurrent with an underlying covenant, should serve as basic programparameters.

We look forward to hearing your comments on these issues and proposedprogram parameters. If you have any questions regarding this matter, please call meat 768-7758.

DKM:ki

Attachment

cc: Tnidi Saito, Deputy Managing DirectorGordon Nelson, Corporation Counsel

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- U.S.Departmerit of Housing and Urban DevelopmentHonolulu Field Office - Region IX

- 500 Ala Moana Boulevard, Suite SAHonouIu, Hawaii 96813-4918wwihud.gov

- espanoLhud.gov

November 25, 2003

Donovan M. Dela CruzChair, City CouncilCity and County of Honolulu rn

• 530S.KingStreet,R0om202.

—i-

• Honolulu, Hawaii 96813 go P1•

.. -; fl CE)• . C,

•‘- rnSubject: Conflict of Interest . •

*- ‘° rn

Dear Chairman Dela Cruz:• •: .

It has recently come to the attention of our office that. a conflict of interest issue,invo1vin City Council members, may have occurred during the Citys budgeting process forCommunity Development Bléck Grant (CDBG) assisted activities. This letter provides guidanceto the City regarding HUD’s Community Planning and Development (CPD) program and conflictof interest issues. It is critically important that the Council understand the requirements of theCPD regulations, since it is the Council that makes final funding decisions for the use of CPDprogrammonies received by the City and County of Honolulu. Regulations for the CDBG fundsare found at 24 CFR 570.611 and provide that:

“The conflict of interest proyision . ..apply to any person who is an employee, agent;consultant, officer or çlected official or appointed official of the recipients,...”

Clearly, the federal regulations apply to the City Council. These regulations furtherrequire:

. .

“that no person... .who exercise or have exercised any functions or responsibilities with• respect to CDBG activities or who are in a position to participate in a decision making

process or gain inside information With regard to such activities, may obtain a financialinterest or benefit from a CDBG-assisted activity, or have a financial interest in anycontract, subcontract, or agreement either fnr themcelves nr thnse with whom they hivehiisiriecc (emphasis added). . .

Similar regulation apply to other CPD program funds received by the City including theHome Investment Partnership Program (HOME), Emergency Shelter Grant Program (ESO) andthe Housing For Persons With Aids Program (HOPWA).

EXHIBIT 15

a. -

I.

.• • I

L

Therefore, at a minimum, federal regulations reqUire that cOuncil members who receivepayment or who are members of an organization’s governing body, refrain from offering forconsideration or voting on a funding measure for that organization. Failure to conform to theseregulations can potentially result in disallowance of a CPD assisted activity.

If you have any questions concerning these regulations or their application please callLynnJ.Lee, Sedior Community Planning and Development Representative at (808) 522-8180,extension 276.

Sincerely,

Mark A. Chandler, Director• Office of Community

•

. Planning and Development

cc:• Council Members

City and County of Honolulu530 S. King Street, Room 202Honolulu, Hawaii 96813

Mr. Ivan Lui-KwanDirectorDepartment of Budget and Piscal ServicesCity and County of Honolulu.530 South King Street, Room #208Honolulu, HI 96813

Mr. Michael AmiiDirectorDepment of Community ServicesCity and County of Honolulu715 South King Street, Suite #311Honolulu,H196813

910IISIHX3

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atf. CC U ua;i’tpp.1

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Su.ranna I? Cheui,g AlEc!.-

Fost,ie/a and PresidentI !!Cfl A%IJF%iUt h)Lt, iC.September 22, 2004 A Rainbow ofOpponisnisies

Mr. & Mrs. Richard LeeKORL Construction, Inc.P.O. Box 1224Pearl City, HI 96782

Atm: Mr. Stephen Wong, Project Manager

Dear Mr. Wong:

Subject: Aloha Gardens Revised Drawings

I am in receipt of your letter dated September 21,2004 submitting your revised price proposal.This is to inform you that the revised price of 55,306,877 as indicated on your breakdown isaccepted. This letter will also serve to confirm:

1. A rnonetazy donation of ninety thousand dollars ($90,000) will be made by KORLConstruction, Inc. to ORI Anuenue Hale, Etc. at the completion of KORLConstruction’s portion ofthe project (Mahalo!)2. Per your request, the following conditions will continue to be included:

a. The owner will indemni& the Contractor for the Grading Permit and NPDESfines and penalties of up to $25,000.00 each.1,. Payment to be made to the Contractor within seven (7) calendar days after receiptof payment by the Owner from the City.c. Special Provision SP-15 in the Request for Proposal dated January 27, 2004 forthe Aloha Gardens Project and Addendum Nos. 1, 2, 3, 4, and 5 shall prevail.We are anxious to get the work started again. Please let us know when KORL Construction willbe able to begin work and the projected schedule for completion.if you have any questions, please.contaet Ann Higa at 622-3929.Sincerely yours,

President and Chief Executive Offiy(

c: CDBG, City & County of)oluluLloyd Sueda, Sueda & A’ésociates64.1510 Kamehameha Hwy. • Wahfawa, Hawaii %786-291 50 Ph: (808) 622-3929 • Fax:(808)621-8227

EXHIBIT 16

EXHIBIT 17

t —

/KORL DNSThUCDON, INCPfl Boz 1224 o&. soa 45546S7Pad Qi$ IV 96252 P-.r (50*) 455.3153

Sept. 21, 2004

*43. Susanfla cheungPresident and Chief Executive officerDPI AnuenC Sale, Inc.64-1510 Xanhameha EIghwayWahiafl. Rawail 96786

Attn: Ns. Ann Rigs, Chief Operating Officer

Dear Ms. Niga:

Subject: Aloha GardenRevised Drawings

As requested, enclosed herewith is a breakdown of our portion •fthe revised subject project, in accordance with your ConsuLtant’srequest form.

I han discussed the conaideratica you requested and management ofKOfl construction, Inc., is willing to make a monetary donation ofninety thousand dollars (*90,000.00) to the Oil Anuenue Rale, tohelp in your programs, at the completion of the project.In accordance with our original contract, we would still need tohave the other conditions or provisions included, which were;

The owner will indemnify the Contractor tot the Grading Permitand NPDES fines and penalties of up to $25,000.Q0 each.“Payment to be made to the Contractor within seven (1)calendar days afler receipt of payment by the Owner from the City.Special Provision SP—l5 in the Request for Proposal datedJanuary 27, 2004 for the Aloha Gardens Project and Addendum Nos. ,3, 3, 4, and S shall prevail”.

Please contact the undersigned, if you have any questions.Very truly yours,KORL Construction, Inc.

Stephen C. L. WcngProject Managerenclosures

File; Ott—i

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EXHIBIT 17

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Community Development Block Grant

Corrective Action Plan to improve contract management and national objectivecompliance by the City and County of Honolulu.

City and County of HonoluluDepartment of Budget and Fiscal ServicesDepartment of Community ServicesJune 2013

Prepared by:

EXHIBIT 18

Table of Contents

• Executive Summary .3

• Introduction t 6

• I-hiD Community Development Block Grant Program 6• Eligible Activities Must Meet National Objectives

Compliance Review

• CDBG Program Administration by City and County of Honolulu: 8• CDRG & HOME Requestfor Proposals

CDBG & HOME Program Responsibilities (• Corrective Action Plan to Address CDBG Program Deficiencies 12

Consolidate and Define Compliance Monitoring Responsibilities

Strengthening City Contract OversightCompliance with Land-Use Regulations

Development ofa Centralized Recods System

• Summary and Additional Correctivè Actions to be Taken Specific to 16

Concerns Raised by H’JD Regarding ORIAH

C

7118/2013 2

Executive Summary

On June 3, 2013, the Honolulu Field Office Region X provided the City and County of

Honolulu (City) with an On-Site Program Monitoring Report identifying findings of program

non-compliance that required corrective action within forty-five (45) days, and concerns of

program deficiencies. The findings and concerns raised, insofar as they relate to the particular

sub-recipient and project (Opportunities and Resources, Inc. Anuenue Hale or ORIAH) that was

the focus of the report, are set forth in a separate City response letter to the U.S. Department of

Housing and Urban Development (l-{UD).

AS

Problems identified within the project management function of the City’s Community

Development Block Grant (CDBG) program include weak enforcement of sub-recipient non

compliance with HUD regulations and City land use ordinance, insufficient construction contract

oversight with the Office of Special Projects (OSP), failure to adhere to HUD regulations on

public notice and an inadequate records system. The deficiencies require immediate attention to

ensure consistent and proper application of feder regulations to all sub-recipients, as well as

City compliance with HUD regulations. :

Within this report the City identifieioperational procedures and resources required to improve

contract managemnt of the program, including the need to:

a. Develop and implement consistent procedures. protocols and policies, invest in a grants

management tool, centralize files and project management, and standardize protocols

both between departments, as well as between units within the same department.

b. Revise monitoring functions through collaborative discussion with both the Department

of Community Services (DCS) and the Department of Budget and Fiscal Services (BFS)

teams. Options for improving the monitoring function are diverse. A final determination

on changes to the monitoring function will be addressed in the scheduled technical

assistance with the National Association for Latino Community Asset Builders

(NALCAB).

7/1 8/2013 3

c. Provide ongoing technical assistance and annual training for all personnel directly

responsible for managing CDBG projects.

Technical assistance from NALCAB is scheduled for August 2013. The NALCAB

team’s assessment provides an opportunity to review all functions relating to

administration of the CDBG program, including monitoring and organizational stmcture.

The history of inconsistent implementation within OSP lends itself to consider

reorganizing with a similar function for both compliance and economies of scale.

The City further identifies protocols and tools required to enforce compliance with HUD

program regulations, including the need to:

a. Ensure the inclusion of asset reversion language in all sub-recipient agreements, and

enforce as needed for non-compliance 64

b. Record national objective-compliance, perforniance-based mortgage on properties to‘S

provide an additional incentive to sub-recipient to achieve compliance.

6’

The City will meet the following benchmarks and deadlines necessary to improve contract

management of CDBG programs, including increased compliance with national objectives.

a. Provide notice of loan forgiveness program to all organizations with outstanding CDBGS

loans by August 1,2013.

b. Acquire and implement software program to provide system for grant/contract

management by November 1, 2013.

c. Notify all sub-recipients in writing of the obligation within the sub-recipient agreement to

provide HUD access to records and that failure to do so could result in disallowance of

7/18/2013 4

funds. Provide HUD with a listing of referenced sub-recipients and a copy of the notice

provided to subrecipients by November 1, 2013.

d. Conduct training on the Copeland “Anti-Kickback” Act 18 USC 874 with all individuals

with direct oversight of CDBG contracts by November 1, 2013.

In summary, the City commits to a collaborative management effort between DCS and BFS to

manage the CDBG program, eliminating management of CDBG projects by OSP, and welcomes

the tecimical assistance opportunity to review national best practices for further enhancements to

the City’s implementation of CDBG program objectives.

7118/2013 5

Introduction

The Monitoring Report — May 2013 issued by the U.S. Department of Housing and Urban

Development (HUD), Honolulu Field Office — Region IX identified various findings that require

corrective action, cited deficiencies in program performance and noted a conflict of interest issue

related to the management of Community Development Block Grant (CDBG) program contracts

and loans.

.4’

In response to the HUD Monitoring Report, the City and County of Honolulu (City) Department

of Community Services (DCS) and Department of Budet and Fiscal Services (BFS) conducted a

comprehensive review of operational procedures, protocols and policies related to the City’s

management of the HUD CDBG program and offers this corrective action plan to: (I) identify

operational procedures and resources required to improve contract management of the program,

(2) identify protocols and tools required to enforce compliance with HUD program regulations.

and (3) identify benchmarks and deadlines necessary to achieve measurable results.

HUD Community Development Block Grant Program

The CDBG program provides Metropolitan Statistical Areas (MSAs) with resources to address a

wide range of community development needs. The CDBG program is one of the longest

continuously run programs at the U.S. Department of Housing and Urban Development, and

provides aniual grants on a formula basis to local governments and States.’

The CDBG entitlement program allocates hinds to MSAs to develop viable communities by

providing decent housing, a suitable living environment, and opportunities to expand economic

opportunities, principally for low- and moderate-income persons. The City and County of

Honolulu qualifies as an MSA.

I http://oor aI.hud.gov/hudooflai UD?srcfproam offices/comm plannineJcommunitvdevelooment/yrograms.

7/18/2013 6

The CDBG entitlement program works to ensure decent affordable housing, to provide services

to the most vulnerable in our communities, and to create jobs through the expansion and

retention of businesses. CDBG is an important tool for helping local govermnents tackle serious

challenges facing their communities.

HUD determines the amount of each CDBG grant by using a formula comprised of several

measures of community need, including the extent of poverty, population, housing

overcrowding, age of housing, and population growth lag in relationship to other metropolitan

areas. Additional factors include efficient and effective useof the CDBG entitlement program:4.

funds.

The MSA must develop and follow a detailed plan that provides for citizen participation. This

integral process emphasizes participation by persons of low or iiioderate income, particularly

residents of predominantly low- and moderate-income neighborhoods, slum or blighted areas.

and areas in which the MSA or grantee proposes to use CDBG funds. The plan must provide

citizens with the following:t

.b4jfr $:- Reasonable and timely access to local meetings;

- An opportunity to review proposed activities and program performance;

- Timely written answers to written complaints and grievances; and

- Identify how the needs of non-English speaking residents will be met in the case of

public hearings where a significant number of non-English speaking residents can be

reasonably expected to participate.2

‘f/portal .hud. aov4,udportj/fl7J1J7c.’tpj offices/comm nlannina/coznmunjtvdevelonuxnijoromams.

7118/2013 7

Eligible Activities Must Meet National Objectives

Over a 1, 2, or 3-year period, as selected by the grantee, not less than 70 percent of CDBG finds

must be used for activities that benefit low- and moderate-income persons. In addition, each

activity must meet one of the following national objectives for the program:

- Benefit low- and moderate-income persons,

- Prevent or eliminate slums or blight, or

- Address community development needs having a particular urgency because existing

conditions pose a serious and immediate threat to the health or welfare of the community

for which other flrnding is not available.3

Compliance Review

The HUD Office of Assistant Secretary for Community Planning and Development administers

the CDBG program and conducts ongoing review for compliance with the primary and national

objectives as provided in 24 CFR §570.901. Routine compliance reviews include on-site

monitoring of CDBG fbnded activities and inspection of supporting documentation of program

beneficiaries served. On-Site Program Monitoring reports are provided to CDBG grantees

documenting observations. During compliance review, ajinding is a determination of non

compliance with a program regulation and requires corrective action, while a concern is a

deficiency in program performance; a concern is not statutory, regulatory, or a program

requirement.

21

CDBG Program Administration by City and County ofHonolulu

Historically, the City and County of Honolulu identified CDBG and HOME funded projects as

line items within the City’s annual Capital Improvement Projects (CIP) budget. The Mayor’s

proposed budget bill included CDBG funded projects, and the Honolulu City Council (Council)

Ibid.

7/18/2013 8

fhrther amended the bill to include additional CDBG fimded projects in the final CIP budget

ordinance. The Council’s non-competitive method of project selection omitted departmental

underwriting, which resulted in the selection of projects not well-conceived to comply with HUD

regulations, and ofprojects not sufficiently advanced to draw down awarded ftinds. thereby

hampering City compliance with HUD’s animal timeliness evaluation. As a consequence, the

HUD Honolulu Field Office mandated that the City change its process for awarding CDBG

funds to non-profit organizations.

In response, the City administration developed a workout p1an the local HUD office that

included the creation of an external CDBG Revie,çonmuttee sd by the staff of both the

Department of Budget and Fiscal Services (BFS) dilkl the Departmenffifljornmunity Services

(DCS). On October 25, 2006 the City Council adopted Resolution 06-316 implementing the

workout plan. The CDBG Review Committee membership ejsists of seven members: three

members appointed by the Mayor, three members aPPoinj by the Council and the committee

chair mutually agreed upon by the Mayor and the Council. Additionally, the current process

limits the Council’s ability to amend the CDBG Review Committee’s individual project

recommendations, which are transmitted in the form of a Draft Action Plan for Council approval

via resolution. -

4ka iWEii N

Currently, utilizing the CDBG priorities established by the Council, the BFS Federal Grants Unit

develois a five-year Consolidated Plan that serves as the framework for the City’s CDBG

program. Arual implementation commeices with issuance of a Request for Proposals (RFP),

followed by review and selection of projects by the external CDBG Review Committee.

Selected projects are included in the City’s annual Action Plan, which requires City Council

approval prior to implementation. Subsequent to City Council approval, BFS executes a grant

agreement with HUD as recipient of CDBG funds. DCS then implements the Action Plan

through execution of sub-recipient agreements with organizations identified within the Action

Plan. Each fiscal year the following timeline is followed:

711 8!2C3 9

Deadline to submit proposals.

CDBC & HOME Request for Proposals

All proposals received by submission date reviewed for eligibilitf for

CDBG and HOME funding and analyzed for feasibility. Evali

documents, summaries and analysis prepared for Selection

City Council approves Selection Committee m

Selection Committee reviews and scores CDBG OME

City’s BFS prepares Draft CDBG/HOtction Plan

projects identified for funding by Selection Committee.

BFS submits Draft Action Plan and

Action Plan to City Council.

Advertiser inviting public to review

The public has 30 days to

Conciusion of 30-day public

Action Plan must be approved b City Council no later than 45 days

prior to the deadline for submittffig Action Plan to HUD.

Deadline for submission of the city’s Final Action Plan to HUD.

Dates are samples of the 2012 schedule. Note that March31 and May15 are annual hard deadlines.

May15

ACTIVITY .BATE4

City issues RFP for CDBG and HOME programs. September 1

October 4

a

Draft Res2lution ap5T6ving Diaft

BFS publishes 1tfjf in Honolulu Star

and eommltn Draft Action Plan.

February 3

Deadline for City Council to approve Vtnal Action Plan. The Final March 31

7/1812013 10

BFS serves as recipient of CDBG funds and is responsible for post-development monitoring.

The Community Based Development Division (CBDD) of DCS implements the CDBG program,

executes and manages the sub-recipient agreements, and provides technical assistance to sub-

recipient agencies. A summary of the shared roles and responsibilities are outlined below:

CDBG & HOME Program Responsibilities

Effective July 1,2013 DCS and SF5 staffjointly monitor during initial compliance period, with BFS assuming primary responsibility after sub-

recipient achieves inilial compliance.

RESPONSIBILITY PRIMARY SECONDARYAGENCY AGENCY

Establish CDBG Priorities City Council -

Develop Consolidated Plan 4FS & DCS -

Develop Request for Proposals 4 P BFS & -

I Coordinate Selection Committee / City Council & -

____________________________________________ Mayor’s Office

Pre-screen Proposals for Eligibility & Prepare ‘.4;& DCS -

Project Summaries for Review Committee

Review and Score Proposals

Recommend Projects 0 ‘

Citizen Patti cipation

Develop Action Plan

Approval of Action Plan

Submit Action Plan to HUD

Execute Grant Agreement with

Contract CDBG Funds

Manage CDBG Contracts DCS BFS

Monitor CDBG Contract Initit’ompliance5 DCS & BFS -

Monitor CDBG Contract Post-Initial Compliance BFS DCS

7/18/2013 11

Corrective Action Plan to Address CDBG Program Deficiencies

On June 3, 2013 the Honolulu Field Office — Region IX provided the City with an On-Site

Program Monitoring report identifyingfindings of program non-compliance that required

corrective action within forty-five (45) days, and concerns of program deficiencies. The

findings and concerns raised, insofar as they relate to the particular sub-recipient and project

(Opportunities and Resources, Inc. Anuenue Hale or ORIAR) that was the focus of the report,4

are set forth in a separate City response letter to HUD.

However, the On-Site Monitoring Report also identified various CDBG program management

issues that should be treated as opportunities to’àve the program. In response to the HTJD

report, the departments responsible for administering and implementing the CDBG program

reviewed operational procedures and offer the foIloc1o ations and plans for action

Consolidate and Define Compliance MoniZtPResponsibilities

The City strives to assist sub-recipients to achieve idhai compliance with HUD’s national

objectives and to sustain compliance throughout the )uired piod. Most sub-recipients are

conscientious and cooperative, but some organizns have difficulty meeting CDBG national

objectives. The problems with the particular subpient (ORIAH) identified in the On-Site

Monitoring Report have led DCS and BFS to areas for strengthening compliance

monitoring responsibilities:

1. From the mid 1990’s to 201 1,the Office of Special Projects (OSP) within DCS managed the

ORIAH (and other) construction projects whereas the Community Based Development

Division managed most CDBG-f’unded construction projects within the DCS.

Effective May 2013 all CDBG projects are centrally located within DC’S Community Based

Development Division.

7/18/2013 12

2. The 2011 transfer and retirement of key personnel in DCS Community Based Development

Division resulted in a change of leadership and confusion over when the DCS monitoring

role ended and the BFS post-development monitoring responsibility began.

Effective July 2013 the DCS and BFS staffjointly monitor projects from the point ofcontract

final payment to the achievement of initial compliance with the HUD national objective, and

to include co-development ofpost-monitoring tools. Once initial compliance is achievea

BFS assumes primary responsibilit-yfor post-monitoring, while DCS remains involved in a

secondary capacity to assist in the event the project requires project management assistance.

DCS and BFS will provide training to ensure understanding and implementation of the joint

monitoring approach is embraced by all team members.

4DCS and BE’S will revise existing procedures to clarft roles and responsibilities between

departments to eliminate potential gaps in the contract management process.

DCS will develop C’DBG program monitoringpolicies andprocedures to include an annual

monitoring schedule and methodology for identjj5.’ing which projects are monitored

Strengthening City Contract Oversight

1. During the construction phase of a CDBG project, the BFS Fiscal Services Branch is

responsible for ensuring that proper documentation supports the sub-recipient’s request for

payment. BFS has adequate procedures in place to prevent duplicate and overlapping

payments. However, responsibility for monitoring the actual construction work and

documenting the work to support the request for payments is the responsibility of DCS. A

greater depth of experience and understanding of construction project management to perform

this function lies within CBDD rather than in the Office of Special Projects.

Effective May 2013 all CDBG projects managed by OSF were transferred to the DC’S

Community Based Development Division for consistent oversight with other CDBG projects.

7/18/2O3 13

CBDD requires adequate documentation to support C’DBG payment requests to include

invoices, schedules ofbudget versus actual expenditures, and construction progress

payments notarized by project principles as appropriate. Payment requests are processed by

C’BDD planners andfurther reviewed by the CBDD Administrator prior to transmittal to

BESfor payment.

2. A comprehensive reporting tool would strengthen contract oversight of CDBG projects, arid

should replace files and status reports maintained by individual CBDD planners. The separate

management of CDBG projects by OSP led to disconnects and lack of comprehensive records

for the CDBG program.

In March 2013 DCS engaged the City’s Department ofInformation Technology to assist with

evaluation ofgrant management tools to address the needfor improved contract oversight,

documentation, monitoring. unUied records management and real-time reporting tools. The

FLUX? Grants Management Software team recently provided on-line product

demonstrationsfor City employees. DCS anticipates implementation of the grants

management-tracking proäm by November 1, 2013.

3. There was a temporary lapse of contract oversight over the ORIAR construction project

when project management ended prior to achievement of initial compliance with HUD

national objectives.

Effective July 2013 the DCS and BFS staffjointly monitor projectsfrom the point ofcontract

final payment to the achievement of initial compliance with the HUD national ob/ective.

Once initial compliance is achievec4 BFS assumes primary responsibilityfor post-monitoring

while DCS remains involved in a secondary capacity to assist in the event the project

requires project management assistance.

4. Oversight over ORIAH’s public service contract failed when the program eligibility and cost

reasonableness were overlooked.

711812013 14

DCS will conduct training on C’DBGprograrn eligibility and cost reasonableness to ensure

regulations are accurately applied on public service contracts.

DC’S will review all current public service contract budgets for compliance with CDBG

program eligibility and cost reasonableness criteria.

Compliance with Land-Use Regulations

There is more in-depth knowledge of the City’s land use regulations in CBDD than in OSP,

which offers an opportunity to strengthen the City contract oversight in this area.

Effective May 2013 all CDBG projects managed by OS? were transferred to the DCS

Community Based Development Division for consistent oversight with other CDBG projects,

and compliance with all City regulatory requirements.

Development ofa Centralized Records System

Developmcnt of a centralized records system to support the CDBG program that spans two

departments and multiple divisions within the DCS department will ensure that the department

can account for all project documents, vi1l mitigate the impact of transfers and retirements of

key personnel upon the department’s institutionafknowledge, and will enhance the ability of the

department to reassign projects or cross-train for organizational efficiencies. Further, a

centralized grants management system will avoid delays in addressing project needs on a timely

basis when a project manager is on leave.

The City shall establish a centralized records system for documenting all grant management

activities. Commencing with FY2013 contracts, all documents generatedfor an annual

Action Plan activity will be maintained with DC’S to provide HUD with a single locationfor

monitoring purposes to include proposal contract, environment, notice-to-proceed

correspondence, monitoring reports, amendments, payment requests, and receipt of

payments. Implementation of the FL UJG( Grants Management tracking program by

November 1, 2013 will assist in centralizing the records system.

7/18/2013 15

Summary andAdditional Corrective Actions to be Taken SpecWe to Concerns Raised by HUD

Regarding ORJAH

Problems identified with the project management function of the City’s CDBG program include

failure to enforce non-compliance with HUD regulations and City land use ordinance.

insufficient construction and public service contract oversight, failure to adhere to HUD

regulations and an inadequate records system. The deficiencies require immediate attention to

ensure consistent and proper application of federal regulations to all sub-recipients, as well as

City compliance with HUD regulations. The City will undertalce the following actions:

1. Identify operational procedures and resources required to improve contract management of

the program:

a. Develop and implement consistent procedures, protocols and policies, invest in a grants

management tool, centralize files and project management, and standardize protocols

both between departments, as well as between units within the same department.

b. Revise monitoring functions through collaborative discussion with both DCS and BFS

teams. Options for improving monitoring include implementation of peer reviews within

CBDD, reviews by BFS internal controls division, or reviews by a dedicated planner

within CBDD monitoring all contracts. Rotating the assignments of long-term projects to

new project managers will ensure a continuing arms length relationship between the sub-

recipients and project managers, protect against complacency and improve outcomes. A

final determination on improvements to the monitoring function will be addressed in the

scheduled technical assistance with the National Association for Latino Community

Asset Builders (NALCAB).

c. Utilize CDBG administrative funds to provide ongoing technical assistance and annual

training for all personnel directly responsible for managing CDBG projects. Technical

assistance from NALCAB is scheduled for August 2013. The NALCAB team’s

assessment provides an opportunity to review all functions relating to administration of

the CDBG program, including monitoring and organizational structure. The history of

7/18/2013 16

inconsistent implementation within OSP lends itself to consider reorganizing with a

similar function for both compliance and economies of scale.

2. Identify protocols and tools required to enforce compliance with HIJD program regulations

a. Ensure the inclusion of asset reversion language in all sub-recipient agreements, and

enforce as needed for non-compliance.

b Record national objecti e-comphance, performat%àsed mortgage on properties to

provide an additional incentive to sub-recipient to achieve cp1iance.

3. Meet certain benchmarks and deadlines necessary to improve contract management of

CDBG programs, including increased compliance with national objectives.

-

a. Provide notice of loan forgivenes program to all organizations with outstanding CDBG

loans by August 1,2013 %b. Acquire and implement software program to provide system for grant/contract

it byNovember 1, 2013.

c. fy all sub-recipients in writing of the obligation within the sub-recipient agreement to

proviF1UD access to records and that failure to do so could result in disallowance of

funds. Provk. HLD with a listing of referenced sub-recipients and a copy of the notice

provided to r4qie by November 1, 2013.

d. Conduct training on the Copeland “Anti-Kickback” Act 18 USC 874 with all individuals

with direct oversight of CDBG contracts by November 1, 2013

7/18/2013 17

In summary, the City commits to a collaborative effort between DCS and BFS to manage the

CDBG program, and welcomes the technical assistance opportunity to review national best

practices for further enhancements to the City’s implementation of CDBG program objectives.

7/18/2013 18

61.1J81HX3

ORIJORIAH - PRIVILEGE LOG (as of 8/16/12)

DATE FROM I TO [ DESCRIPTION I IRIVILEGED BASIS8/25/1997 David C. Robert Agres, Jr., former I Memorandum: Discussion I Attorney Client

Laxson Esq., Director. Department of of proposed amendment to Privilegeformer Deputy Housing and Community 12/22/1989 SubrecipientCorporation Development Loan Agreement. (4 pagesCounsel with routing sheet)

9/17/2002 Chris A. David Z. Arakawa Esq., Memorandum: Request for Attorney ClientDiebling, former Corporation assistance itt clarifying Privilegeformer Acting Counsel language in City ordinanceDirector, for ORI Anuenue HaleDepartment of project. (2 pages)Budget andFiscal Services

6/21/2010 Gordon D. Debbie Kim Morikawa Email communication: Attorney ClientNelson Esq. (cc: Ernie Martin, Keith Response to 6/21/2010 Privilege

Ishida) D.K. Morikawa email to 0.Nelson Esq. (part of email“stream”) re: status of ORIAmendment Agreement.(1 page)

1 1/12/20 10 Keith Ishida Holly M. Kawano, Email communication with Attorney ClientGordon D. Nelson Esq. attached draft Privilege

memorandum: Discussionofprocess for cancellationof promissory notes.Email stream includes two(2) ernails between K.Ishida and 0. Nelson bothdated 11/8/2010, promptedby email inquiry from AnnHiga of ORI to K. Ishidadated 1 1/6/20 10, withregard to such process. (3pages)

EXHIBIT 19

1181HX3

DOCUMENT WITHHELD PURSUANTTO ATTORNEY-CLIENT PRIVILEGE:

DATE I FROM TO DESCRIPTION —

December ]ivm M. Lui David Z. Arakawa, ORI Anuenue Hale12, 2002 Kwan, Acting Corporation Counsel a Transmission of

j Director. BFS revised State Land UsePermit Application forAloha Gardens, datedOctober 2012, inconnection with9/17/02 memorandumrequesting CorporationCounsel assistance inclarifying language inCity ordinance for ORIAnuenue I-tale project.

-J

EXHIBIT 20

Ori honolulu

Education

mayor city

cdbg project

managing director caldwell

oriahs aloha gardens

mayor caidwell

citys cdbg program

mayor kirk caldwell

city personnel involvedin