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UPDATE: Action Postponed Again on Banyan Drive Bill

Posted February 26, 2013, 01:18 PM HST Updated February 27, 2013, 04:08 PM HST
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The Reed’s Bay hotel is among five Banyan Drive properties with a lease expiring in 2015. File photo.

***Updated at 4:10 p.m. Wednesday.***

The Senate Committee on Ways and Means today again deferred action on a bill that would transfer state properties on Hilo’s Banyan Drive to Hawaii County.

The committee was originally scheduled to hear Senate Bill 1361 on Tuesday, but postponed that hearing until today.

It is now scheduled to consider the measure during a meeting beginning at 9:15 a.m. Friday.

The bill was introduced by Sen. Malama Solomon, who represents the area from Hilo to North Kona, and Sen. Donovan Dela Cruz, who represents north-central Oahu, at the request of Big Island Mayor Billy Kenoi, a spokesman for Solomon said.

The Department of Land and Natural Resources, which controls the leases on the nine state parcels and collects more than $800,000 in lease payments, is opposed to the transfer.

Kenoi is in favor of the measure and believes the county could do a better job managing the leases, he said in written testimony submitted to the Senate.

Kenoi also favors cancelling the lease for the land on which the Naniloa Volcanoes Resort and a nine-hole golf course are located, saying that current leaseholder Ken Fujiyama has failed to meet requirements for the renovation and upkeep of the property.

Posted at 1:18 p.m. Tuesday:

Mayor Billy Kenoi supports a bill that would transfer Banyan Drive properties from the state to Hawaii County because it would allow the county to do what he said the state apparently has been unable to do: effectively manage the leases containing hotels and condominiums.

In written testimony submitted today to the Senate Committee on Ways and Means, Kenoi singled out the Naniloa Volcanoes Resort as an example of what is most wrong about Hilo’s hub of tourist activity.

Kenoi believes the lease for the Naniloa should be cancelled.

He said Ken Fujiyama’s company Hawaii Outdoor Tours Inc. has violated two of the conditions of the lease granted in 2006, both of which warrant its termination.

They include the company’s November filing for bankruptcy, and its failure to keep the premises in “good order, condition and repair….”

“We have a deep concern with the deteriorating situation on Banyan Drive in general, and particularly at the Naniloa Volcanoes Resort,” his testimony said.

“As you know, Banyan Drive has traditionally been the hub of East Hawai‘i’s resort activity, which makes it critically important to the economy of the Island of Hawai‘i. When properly managed, this resort area is an economic engine and a job creator that provides benefits to our working families.”

Kenoi said the Department of Land and Natural Resources has an obligation to ensure that the tenants of the Banyan Drive properties comply with the term of their leases.

In the case of the Naniloa, that has not happened, he said.

“We believe the county is in a better position to meet these obligations than DLNR,” Kenoi said.

The bill, Senate Bill 1361, Draft 1, was supposed to be heard today by Ways and Means, but the committee postponed action on the measure until a meeting beginning at 9:15 a.m. Wednesday.

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Kenoi’s testimony details his concerns about the condition of the resort and the resulting impact on the economy.

Since Fujiyama’s company took over the lease on the hotel and golf course seven years ago, “the result has been a disaster for East Hawaii,” the mayor’s testimony said.

“The Kilauea Tower of the resort has been gutted and empty for years, the grounds of the property are a shambles, and the golf course clubhouse is closed,” Kenoi said. “Valuable retail space on the grounds of the resort that could be contributing to the local economy and generating jobs is vacant and closed.

“Despite the lessee’s well-publicized promises to restore the area as a top-quality destination, a lounge adjoining the hotel is usually closed, and the pool on the Banyan Drive side of the property has been drained. Only a fraction of the rooms in the Naniloa have actually been renovated. Since much of the hotel is empty, the facility operates with minimal staff.”

Kenoi said he is concerned that the lingering problems at the Naniloa could jeopardize efforts to bring direct flights to Hilo. Losing those flights would have a ripple effect on the Big Island business community and result in lower revenues to the state from transient accommodation and excise taxes, he said.

Kenoi said the bankruptcy filing makes it “absolutely clear the company does not have the resources required to restore the Naniloa.”

Fujiyama’s bankruptcy filing was seen as way of delaying a foreclosure action filed in October by his primary creditor, North Carolina-based First Citizens Bank & Trust Co.

Meanwhile, the DLNR “vigorously opposes” the bill, according to written testimony submitted today by the agency’s chairman, William Aila Jr.

Aila said the more than $800,000 received annually from leases from the Banyan Drive properties goes to the agency’s Special Land and Development Fund, which is a “critical and increasingly important” funding source for various DLNR functions.

He said those functions include emergency response to natural catastrophes such as fire, rockfalls, floods or earthquakes as well as conservation programs.

“It has also become an important source of state match for federally funded endangered species and invasive species initiatives that otherwise would not go forward,” Aila said.

Aila said his agency has also been seeking improvements on the Banyan Drive properties, but those efforts have been hobbled in the past by state law governing the handling of state leases.

One aspect of that has been leases with approaching expiration dates which have made it difficult for leaseholders to secure financing for improvements.

Five of the nine existing state leases are set to expire in 2015.

However, Act 219, a state law passed in 2011, allows the Board of Land and Natural Resources to extend existing leases up to 55 years for leaseholders who agree to make “substantial improvements.”

Aila said his department has been working toward extending existing leases. He cited as an example the tentative agreement reached in October between the land board and the Hilo Hawaiian Hotel for an extension of its lease in exchange for $5.4 million worth of renovations.

Aila said if the county took over the leases it would be restricted by the same laws that hampered the DLNR until Act 219 was enacted.

“There is no explanation in the bill as to how the county will better be able to manage the properties,” his testimony said.

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