STAND. COM. REP. NO. 1082

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  H.B. No. 827
                                        H.D. 3
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committees on Water, Land, and Hawaiian Affairs and
Economic Development, to which was referred H.B. No. 827, H.D. 3,
entitled: 

     "A BILL FOR AN ACT RELATING TO PUBLIC LANDS,"

beg leave to report as follows:

     The purpose of this measure is authorize the Department of
Land and Natural Resources (DLNR) to issue new leases to existing
lessees in the Banyan Drive resort area in East Hawaii. 

     Testimony in support of the measure was submitted by an
individual and the following organizations:  Banyan Drive
Association, International Longshore and Warehouse Union, Hawaii
Naniloa Hotel, Hawaii Island Contractors' Association, Hawaii
Island Board of Realtors, Inc., Hawaii Island Economic
Development Board, Japanese Chamber of Commerce & Industry of
Hawaii, Destination Hilo, Hawaii Island Portuguese Chamber of
Commerce, and the Hawaii Island Chamber of Commerce.  The Board
of Land and Natural Resources and the Office of Hawaiian Affairs
testified in opposition to the measure.

     Your Committees find that preserving the economic well-being
and viability of the Banyan Drive resort area is in the State's
best interest.  According to the 1998 report of the Special
Hilo/East Hawaii Tourism Group, the Banyan Drive resort area is
the only significant resort area in East Hawaii and the only
resort area in the State where the land is owned entirely by the

 
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State.  Businesses located in this area employ approximately five
hundred people and visitors staying in the Banyan Drive resort
area generate commercial activity in outlying areas. 

     Your Committees further find, however, that with the
majority of the Banyan Drive leases expiring in 2015, the lessees
have little incentive to reinvest their resources to maintain,
improve, or add to their leasehold assets, thereby placing the
future of this integrated resort area into jeopardy.  

     This measure would authorize the DLNR, notwithstanding the
term limits for leases of public lands and the overall public
policy of making public lands available to the highest qualified
bidder at auction, to issue new leases to the existing Banyan
drive resort lessees, subject to certain conditions.  Your
Committees find that allowing an exception to the law for the
existing Banyan Drive area lessees furthers the State's interest
in preserving its assets. 

     Your Committees have amended this measure by:

     (1)  Requiring that new leases issued to the existing Banyan
          Drive resort lessees contain conditions deemed
          appropriate by the DLNR, rather than current standard
          terms and conditions;

     (2)  Requiring that DLNR develop a process to determine
          market demand for the leases, which would include: 

          (A)  An agreement upon the residual replacement value
               of tenant improvements made by the existing
               lessee, to be paid by a successful bidder on the
               lease to the existing lessee;

          (B)  The initiation of a request for proposal (RFP)
               process and putting the lease out to bid if the
               RFP process identifies other entities interested
               in obtaining the lease; and

          (C)  The issuance of a new lease to an existing lessee
               for a maximum fifty-five year term if the lessee
               is the successful bidder at auction or no other
               qualified bidder is found;

     (3)  Providing that the terms of the new lease need not
          consider resort use in establishing fair market rent
          and may include property improvement requirements,
          rather than substantial property improvement
          requirements;

 
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     (4)  Providing that the costs for the issuance of a new
          lease include costs incurred in determining the
          residual replacement value of tenant improvements and
          in conducting the RFP process;

     (5)  Deleting language that authorizes DLNR to promulgate
          rules to effectuate the purposes of this measure,
          including rules that establish terms for the completion
          of substantial improvements for each lease;

     (6)  Providing that the provisions of the measure take
          effect on July 1, 1999, rather than July 1, 2010, and
          be repealed on July 1, 2004; and

     (7)  Making technical, nonsubstantive amendments.

     As affirmed by the records of votes of the members of your
Committees on Water, Land, and Hawaiian Affairs and Economic
Development that are attached to this report, your Committees are
in accord with the intent and purpose of H.B. No. 827, H.D. 3, as
amended herein, and recommend that it pass Second Reading in the
form attached hereto as H.B. No. 827, H.D. 3, S.D. 1, and be
referred to the Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Water, Land, and
                                   Hawaiian Affairs and Economic
                                   Development,



____________________________       ______________________________
LORRAINE R. INOUYE, Chair          COLLEEN HANABUSA, Chair

 
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