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OFFICE OF THE MAYOR
CITY AND COUNTY OF HONOLULU
530 SOUTH KING STREET, ROOM 300 *
HONOLULU, HAWAII 96813
PHONE: 1808) 768-...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 2 of 15
been achieved. As examples, approximately 40 acres of land were ...
Mr. Mark A. Chandler, Director
July 18, 2013
Page3ofl5
and owned by Campbell Estate for a social services facility. Over t...
Mr. Mark A. Chandler, Director
July 18, 2013
Page4ofl5
ORIAJ-T in order to develop meaningful responses to all of the Find...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 5 of 15
remaining Aloha Gardens land acquired with CDBG finds, including...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 6 of 15
First, the City believes that the document referred to in the fi...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 7 of 15
increased the reported value of those transactions by 25% to ref...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 8 of 15
As stated in the City’s response to Finding 3. the City will rei...
Mr. Mark A. Chandler, Director
July 18, 2013
Page9ofl5
CDBG FINnING 6: LOAN FORGIVENESS
HUB finds that the City made a dec...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 10 of 15
As detailed in the City’s prior monitoring response dated May 7...
Mr. Mark A. Chandler. Director
July 18, 2013
Page 11 of 15
payment or who are members or an organization’s governing body ...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 12 of 15
limited to, individuals that have and had a direct role in the ...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 13 ofl5
2. Regarding the second Corrective Action, the email reflecting ...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 14 of 15
Director, the City’s BFS Director set aside for HUD’s review ce...
Mr. Mark A. Chandler, Director
July 18, 2013
Page 15 of 15
Department of Community Services, Mm.: Director Pam Witty-Oakla...
I.LI8IHX3
i- j
U.S. Department of Housing and Urban Development• Honoluki Field Office — Region IX* *
500 Ala, Mona Boulevard, Suite...
&
2
activities are not meeting CDBG eligible use nd national objective requirements. The City ishereby advised that the Ci...
3
Ms. Holly Kawano
Federal Grants Coordinator
Department of Budget and Fiscal Services
City and County of Honolulu
53.0 So...
SCHEDULE OF FINDINGS AND CONCERNS
ON-SITE MONITORING - CITY AND COUNTY OF HONOLULU
APRIL 11-25,2011
Review Purpose:
U.S. D...
Findings
CPD Finding Ml 1-012 (AC’fl—ORI Anuenue Hale Aloha Gardens Is Not Complying wfthCDI3G Eligible Use andNational Ob...
July 7-10, 2011, the United Methodist Women will hold its 2011 Hawaii School of Christian
Mission.
OR! Day Care for Elderl...
a
ftinded adult day care services, emails between City staff noted compliance issues regarding theuse and beneficiaries of...
2. increase the utilization of the Weliness Center by the elderly and adults withdevelopmentdisabilities by identi&ing and...
Hospice House, the Adult Day Care, and the Food Service. After review of the financial
documentation, HUD confinned that t...
(H
Center and Camp Pineapple 808. Costs incidental to the generation of the income
should be deducted from the CDBG progra...
3. The City failed to establish quality controls to prevent thc manager’s conflict ofinterest, despite having knowledge of...
Concerns
Cpu Concern Ml 1-0 15 (ACT) — E’aloIo Chinese Home’s Documentation of NationalObjective Compliance
Criteria:
CDBG...
Ca use:
City did not monitor Pablo Chinese f-tome and its lessee, Hospice Hawaii, forcompliance with CDBG national objecti...
.LISIHX3
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‘u:.
MEMORANDUM OF UNDERSTAI’.WINW
RYAN]) BETWEEN TilE
CITY AND COUNTY OF HONOLULU AN])
ORI ANIJENUE HALE, INC.
This Memorandum...
1. ORIAN aclcn,owledges that its Subrecipient Agreement with the City requires thatcabins, garden/nursery, farming/agricul...
ELIGIBILITY DOCUMENTATION
9. ORIAB commits to providing documentation ofthe eligibility of all individuals whouse the Weil...
specific incroase in the service proposed, for the City and HOD to deterthire the eligibility of theactivity. This proposa...
EXHIBIT 3
DEPARTMENT OF BUDGET AND FISCAL SERVICES
CITY AND COUNTY OF HONOLULU530 SOUTH KING STREET. ROOM 208 • HONOLULU. FLAWfl S8h...
Memorandum
Raymond Young
November 20, 2012
Page 2
History:
The City and County of Honolulu has invested approximately $7.9...
Memorandum
Raymond Young
November 20, 2012
Page 3
3. Further, in reviewing the detail of federal expenditures, it is uncle...
MEMORANDUM 01? UNDERSTANDINGBY AND BETWEEN THECITY AND COUNTY OF HONOLULU ANDOW ANUENUE HALE, INC.
This Memorandum ofUnder...
1. ORIAN acknowledges that its Subrecipient Agreement with the City requires that
cabins, gardenhiursery, farming/agricult...
ELIGIBILITY DOCtJMmfl’ATION
9. ORIAR commits to providing documentation ofthe eligibility ofall individuals who
use the We...
specific increase in the service proposed, for the City and HUD to determine the eligibility ofthe
activity. This proposal...
— Acquisition, construction, or rehabilitation of property lbr housing, Including
homeownership assistance must qualify un...
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Ori honolulu

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Results of city's internal investigation into ORI Anuenue Hale.

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  1. 1. OFFICE OF THE MAYOR CITY AND COUNTY OF HONOLULU 530 SOUTH KING STREET, ROOM 300 * HONOLULU, HAWAII 96813 PHONE: 1808) 768-4141 FAX: (808) 768-4242 INTERNET: www.honoIuIugçy KIRK CALDWELL EMBER LEE SH:NNMAYOR MANAGING DRECTOR GEORGETTE T. DEEMER DEPUTY MANAGING DIRECTOR Julyl8,2013 Ongira VndVL4 HAflU DELIVERY ati icrc4 +v Mr. Mark A. Chandler, Director 4asU. S. Department of Housing and Urban Development Honolulu Field Office — Region IX u ‘ “41132 Bishop Street, Suite 14003 Honolulu, Hawaii 968 13-4918 Dear Mr. Chandler: Subject: On-Site Program Monitoring Community Development Block Grant Pro gram April 11-25. 2011 and May 2013 Follow-up This responds to your June 3, 2013, letter addressed to Mayor Kirk Caldwell, transmitting the U. 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 City and County of Honolulu (the “City”). The two subrecipients are OR! Anuenue Hale. Inc. (“ORIAR”), and its affiliate, Opportunities and Resources, Inc., formerly known as Opportunities for the Retarded, Inc. (“OPT’), and the findings pertain to ORIAH’s Aloha Gardens Project (the “Project” or “Aloha Gardens”). The Project consists of two facilities, theWellness Center and Camp Pineapple 808 (“Camp Pineapple”). Mayor Caidwell recused himself 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 national objective 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 has I 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!.
  2. 2. Mr. Mark A. Chandler, Director July 18, 2013 Page 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 and furnished; 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 received through 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 Gardens contemplates that the portion of the Project that is most compatible with HUWs national objectives 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 primary purpose 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 (“Helemano Plantation”) for developmentally disabled adults on the 5-acre site of the old Helemano Elementary 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 and developmentally 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
  3. 3. Mr. Mark A. Chandler, Director July 18, 2013 Page3ofl5 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.
  4. 4. Mr. Mark A. Chandler, Director July 18, 2013 Page4ofl5 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 conclude its 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 Pineapple facilities 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 concluded that 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 has concluded that the City will not enforce and take action to ensure CDBG program compliance with 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 $7,924,850 payable to the CDBG program as an account payable in its accounting records for disallowed program costs. 3. Upon receipt of the funds into the City’s local CDBG account, the City must revise the ifilS draws and cancel the Aloha Gardens activities. The funds shall be noted as a return of 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 ability to run a viable program have been repeated over the years, through three prior City administrations and now to this fourth current administration. The past efforts of prior administrations 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.
  5. 5. Mr. Mark A. Chandler, Director July 18, 2013 Page 5 of 15 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, 3 and 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 total development 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.
  6. 6. Mr. Mark A. Chandler, Director July 18, 2013 Page 6 of 15 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 Helemano Plantation 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 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 have been established illegally since the City Council Resolutions that covered Helemano Plantation 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 Gardens project 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
  7. 7. Mr. Mark A. Chandler, Director July 18, 2013 Page 7 of 15 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.
  8. 8. Mr. Mark A. Chandler, Director July 18, 2013 Page 8 of 15 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 which ORL4H will request modification of the SUP to include the surface parking areas within the Entry 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 that include, 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 subrecipient agreements for years prior to 2007. None of these expenditures were mentioned in HUIYs May2011 Letter. Reimbursement should not be required for “questionable” expenditures under subrecipient 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&H administered 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.
  9. 9. Mr. Mark A. Chandler, Director July 18, 2013 Page9ofl5 CDBG FINnING 6: LOAN FORGIVENESS HUB finds that the City made a decision to forgive” OH (an ORIAH affiliate) nearly $1.2 million 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 public notice 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 that currently 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’s Department 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 loan conversion 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
  10. 10. Mr. Mark A. Chandler, Director July 18, 2013 Page 10 of 15 As detailed in the City’s prior monitoring response dated May 7. 2012, the City’s Loan Conversion 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.
  11. 11. Mr. Mark A. Chandler. Director July 18, 2013 Page 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 of Resolution 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
  12. 12. Mr. Mark A. Chandler, Director July 18, 2013 Page 12 of 15 limited to, individuals that have and had a direct role in the oversight of the ORI Aloha Gardens project on the Copeland “Anti-Kickback” Act 18 Usc 874. 3. The City establish a system that will ensure subrecipient compliance with I-lED program requirements, as measured through a decrease in non-compliance HUD program findings for the City and its subrecipients. City Responses: Athough HUD poses this matter as a “Concern” rather than a “Finding,” we have spent considerable 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 monitoring compliance 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 have strengthened 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 monitoring responsibilities. 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.
  13. 13. Mr. Mark A. Chandler, Director July 18, 2013 Page 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
  14. 14. Mr. Mark A. Chandler, Director July 18, 2013 Page 14 of 15 Director, the City’s BFS Director set aside for HUD’s review certain BFS files; however, 11110 has not asked to review such files. Regarding FEUD’s expressed concern as it relates to the City’s assertion of attorney-client privilege with respect to the limited number of documents, the City must respectfully disagree with FEUD’s position, which we interpret as being that the attorney-client privilege does not exist in the context of CDBG monitoring by HUD. In our view, the attorney-client privilege is a bedrock principle of the American legal system, regardless of whether asserted in the CDBG monitoring context. While the City believes that it is important to assert the privilege when applicable and appropriate, 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 the limited purpose of HIJD’s monitoring and that such production would not constitute such a general 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 believe I-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 its counsel to seek its agreement on corrective actions for certain Findings. We look forward to working further with you on the matters mentioned in this letter, Should you have any questions or require additional information, please contact Corporation Counsel Donna Y. L. Leong. Aloha, EMBER LEE SHTNN Managing Director Attachments cc Department of Budget and Fiscal Services, Attn.: Director Nelson Koyangi
  15. 15. Mr. Mark A. Chandler, Director July 18, 2013 Page 15 of 15 Department of Community Services, Mm.: Director Pam Witty-Oakland Department of Corporation Counsel, Attn.: Corporation Counsel Donna Y. L. Leong Mark Bennett, Esq., Counsel for ORI Anuenue Hale, Inc.
  16. 16. I.LI8IHX3
  17. 17. i- j U.S. Department of Housing and Urban Development• Honoluki Field Office — Region IX* * 500 Ala, Mona Boulevard, Suite 3A Ilium Honolulu, Hawaii 96613%4 •J httpjiwww.hud.gov httpWw.espanoLhud.gov May27,2011 The Honorable Peter B. Carlisle Mayor City andCoW of Honolulu 530 South King Street ,-., Honolulu, HI 96813 — C Dear Mayor Carlisle: SUBJECT: On-Site Program Monitoring April 11-25,201! Community Development Block Grant •. U) This letter is to convey the results of the U.S. Department of Housing and Urban Development (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 its subrecipient’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 Resources1 Inc. (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 staffexpressedconcerns 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 Aloha Gardens 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 EXHiBIT 1 ;
  18. 18. & 2 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, Director Office of Community Planning and Development Enclosures cc: Mr. Michael R. Hansen Director Department of Budget and Fiscal Services City and County of Honolulu 530 south King Street, Room #208 Honolulu, H! 96813 Mr. Samuel E.H. Moku Director Department of Community Services City and County of Honolulu 715 South King Street, Suite 311 Honolulu, HI 96813
  19. 19. 3 Ms. Holly Kawano Federal Grants Coordinator Department of Budget and Fiscal Services City and County of Honolulu 53.0 South King Street, Room #208 Honolulu, HI 96813 C
  20. 20. SCHEDULE OF FINDINGS AND CONCERNS ON-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-site monitoring 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 ffinded subrecipient 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.
  21. 21. 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 2
  22. 22. July 7-10, 2011, the United Methodist Women will hold its 2011 Hawaii School of Christian Mission. 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. According to 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 special needs, 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 ‘#ellness Program. • The Health and Weliness Program was an existing program serving adults with developmental disabilitips and providing exercise, recreation, and therapy sessions (movie, cooking, music, dance, and computer); health talks with the doctor and/or nurse, 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 about ability of the ORI Anuenue Hale Aloha Garden to comply with CDBG national objective requirements. 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 satisfj CDBG eligible activity and national objective requirements through a combination economic development low-to-moderate income job creation and public facility presumed benefit for elderly 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 Pineapple 808, 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 about ORI’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’s compliance. 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 3
  23. 23. a 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 subrecipierit agreement 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 conductedppst development monitoring of only five (5) CDBG activities. Of the five, four were’&esk monitoring 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 national objective requirements. 2. The 16,500 square feet Weilness Center and the 36.321 acres property is underutilized. 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 into compliance 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 nonprofit organization in compliance with CDBG record keeping requirements; 4
  24. 24. 2. increase the utilization of the Weliness Center by the elderly and adults withdevelopmentdisabilities by identi&ing and requiring OR! to identify and execute 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! clearly defines the tasks to be performed and the specific increase of the public service 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 quarter beginning 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 the C 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 with 24 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
  25. 25. Hospice House, the Adult Day Care, and the Food Service. After review of the financial documentation, 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 acquire 36.32 1 acres and construct Aloha Gardens, which includes the Weliness Center and Camp Pineapple 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 Weilness Center. 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 CDBG assisted 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 amid constructed with CDBG funds. Corrective Action: I. The City needs to develop a system for tracking and verifying CDBG program income 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 the process, the City needs to review OR] records onagreements with outside organizations 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 U
  26. 26. (H Center and Camp Pineapple 808. Costs incidental to the generation of the income should 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 CDBG finds 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 the proceeds 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 CDBG activities. 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.
  27. 27. 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. 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.
  28. 28. 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 and April 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 9
  29. 29. 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. C 10
  30. 30. .LISIHX3 ‘4 ‘u:.
  31. 31. MEMORANDUM OF UNDERSTAI’.WINW RYAN]) 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 ofSousing 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 CDBO compliance 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 ofthe Project provided to the City under that certain Statement of Assurances in Support ofRequest for Disbursement of Funds dated 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
  32. 32. 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 use limitation. 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 City acknowledges that ORIAH also used a significant amount of fluids from other sources to complete 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 Pineapple 808 from the coverage of CDBG regulations by pursuing a subdivision of the Aloha Gardens property 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 regulatious and 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 quarterly monitoring: 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. -2-
  33. 33. ELIGIBILITY DOCUMENTATION 9. ORIAB commits to providing documentation ofthe 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 Rureauofthe Census’ Current Population Reports definition of’ ‘severely disabled” (hereafter. “elderly persons” and “severely disabled adults”). Those procedures willidentify specific action steps and records that ORJAH shall take or follow in order to comply with CDBG requirements for documenting eligibility. For purposes of this MOU, the definition of 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 procedures for 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 out its CDBG compliance responsibilities regarding recordiceeping and inspection ofrecords while also complying with HIPAA. HIPAA compliance could include, if necessary, having City or HTJD 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 brinng Camp Pineapple 808 in CDBG compliance and assuring that it exclusively serves elderly persons and severely disabled adults. This proposal shall be subject to review and appitval by the City by 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 how ORIAH will increase the utilization of the Welluess Center by the target population of elderly persons and severely disabled adults. The increased utilization of the Welleess Center shall comply 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 fox Elderly and Adults with Disabilities determined by HUD to be ineligible, ORLAH shall, by Judy 15,2011, submit a proposal to the City detailing the eligibility of its proposed use of frnds as a newo increased level of activity. Such proposal must provide enough detail, including the -3-
  34. 34. 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 already reimbursed 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 itselffrom its COBOacbountinthe amount of$66,861.47. PROGRAM INCOME 15. At each quarterly monitoring hereafter ORIAII shall provide to the City a report on program 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 oftheclose 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 ofthe 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 Budget and Fiscal Services ORI ANUENUE HALE, -4- V . - ., — - -• -: - APP AS TO FORM AND LEGALITY Counsel
  35. 35. EXHIBIT 3
  36. 36. DEPARTMENT OF BUDGET AND FISCAL SERVICES CITY AND COUNTY OF HONOLULU530 SOUTH KING STREET. ROOM 208 • HONOLULU. FLAWfl S8h1PHONE: (809) 753900 • FAX (905) 768.31Th • INTERNET: vAcwora*J.gov PETER . CARUSLE MIQk4Aa It KANSEN tAAV0 tIRLCTOR NELSON H. KOYANAGI JR. OEPUFY DIRECTOR November 20, 2012 MEMORANDUM TO: Raymond Young Department of Planning and Permitting FROM: Cheryl Tanabe (1j2tu&’(Ojteabc—-.Department of BudM & FisbMjervices SUBJECT; Comments for Minor Modification to the Site Plan Approved 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. ;I. EXktfl73
  37. 37. Memorandum Raymond Young November 20, 2012 Page 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 requirements specifically 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.
  38. 38. Memorandum Raymond Young November 20, 2012 Page 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-4J Connie Kaneshiro, Chief Fiscal/CIP Analyst p
  39. 39. 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 aicj County of Honolulu (the “City”) and ORI Anuenue Hale. Inc. (“ORIAH”) for the purpose of setting Ibrth the understandings ofthe parties regarding actions to be taken by ORL4H to address findings ofthe U.S. Depaitnent ofHousing and Urban Development (‘BUD’ with respect to ORIAH’s Aloha Gardens Project (the 9’mjecfl and regarding future use ofthe Aloha Garden property. RECITALS 1. 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 the Project 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’s CDBG 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 for Elderly and Adults with Disabilities. 2. While OltiAll believes it is, and always has been, fully in compliance with BUD regulations, the City and OJUAN both acknowledge that in order to avoid repayment by the City of in excess of $7,924,850 to the City’s CDBO account and reimbursement of a 111cc amount by OMAN 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 them of any obligations under Subrecipient Agreement No. 1-84471, dated February 23,2001, as amended 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. - 4. The City and OMAN flitter acknowledge that this MOU is intendedto 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. AGREEMENT consideration ofthe foregoing and ofthe acknowledged necessity to take corrective action to address HIJD’s findings, OIUAH agrees as follows: Qp41TMENT TO CDBC3 COMPLIANCE
  40. 40. 1. ORIAN acknowledges that its Subrecipient Agreement with the City requires that cabins, gardenhiursery, farming/agriculture, elder care activities and vocational fining activities conducted in the Aloha Gardens Project be canied out in a manner that meets CDBG eligibility requirements 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 withrespect to the Weliness Center, including the foregoing use limitaton 4. ORIAH also commits to complying with all CDBG regulations and requirements with respect to Camp Pineapple 808, including the foregoing use limitation, and shall develop ap)an for CDBG compliance as detailed in paragraph 11 below. 5. ORL4H further specifically aclUiowledges that it is the position of HUB and the City that 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 ofUmds from other sources tocomplete the development of Camp Pineapple W8. A full accounting of the funds expended for Camp 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 ofthe 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 such monitorings. 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, and I) Copies of agreements with other organizations and individuals using the facilitiesto include, but not be limited to, rental agreements. -2-
  41. 41. ELIGIBILITY DOCtJMmfl’ATION 9. ORIAR commits to providing documentation ofthe eligibility ofall individuals who use the Weliness Center, Camp Pineapple 808, the outdoor theater, or other CEYBO-assisted portions 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 and adults meeting the Bureau ofthe Census’ Current Population Reports definition of”severely disabled” (hereafter. “elderly persons” and “severely disabled adults”). Those procedures will identi’ 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 definition of a severe disability is as outlined on the attached page 3-9 ofBasically ORG. Refer also to 24 CFR 570.208(aX2XA). CLIENT FILES AND FINANCIAL RECORDS 10. ORIAH.cornmits to maintaining files and financial records and to rrn.Ithig those files available for inspection in accordance with the requirements ofthe Subrecipient Agreement and CDBG regulations. ORIAH commits to working with the City to develop satisfactory procedures for 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 out its CDBG compliance reçonsibilities regarding recordkeeping and inspection of records while also complying with HIPAA. HIPAA compliance could include, ifnecessary, having City orHOD staffsign 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 persons and 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 ofthe Weilness Center by the target population of elderlypersons and severely disabled adults. The increased utilization ofthe Weilness Center shallcomply with CDBG use ofreal property requirements. This utilization plan shall be subjecttoreviewandapproval bytheCity byAagust 1, 20l1.TheplanisalsosuecttoHUD approval fjLIC 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 .3.
  42. 42. specific increase in the service proposed, for the City and HUD to determine the eligibility ofthe activity. 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 as a newer increased public service activity; and (2) HUD agrees on or before August 31, 2Ol that the expenditure was eligible; and (3) HOD allows the City to reimburse itselffrom 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 oftheclose 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 ofBudget and Fiscal Services ORI ANUENUE HALE, APPD AS TO FORM AND LEGALITY:
  43. 43. — Acquisition, construction, or rehabilitation of property lbr housing, Including homeownership assistance must qualify under the housing national objective which will be discussed below In further detail. — Creation or retention ofjobs generafly qualify under the jobs or the area benefit category of 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 undertaken for the purpose of providing or improving permanent residential structures which, upon completion, 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 at affordable rents, where at least 51 percent of the units wifl be occuiiled by WI households; -. Site improvements on publlclyowned land to serve a new apartment structure to be rented 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 be occupied by a LMI household. If the structure contains two units, at least one unit must be LMI occupied. StrUctures with three or more units must have at least 51 percent occupied by WI households. — Rental buildings under common ownership and management that are located on the same or contiguous properties may be considered as a single structure.— For rental housing, occupancy by LMI households must be at affordable rents, consistent with 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, Wg and 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, keeping track 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).
  44. 44. m .1 F- / a’

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