REPORT TITLE:
Public Lands; Banyan Drive


DESCRIPTION:
Authorizes the department of land and natural resources to issue
new leases to the existing Banyan Drive lessees, subject to
certain conditions.  Requires the auditor to coordinate the
resolution of public land trust issues.  (HB1909 SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1909
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.D. 2
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC LANDS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1                              PART I.
 
 2      SECTION 1.  The legislature recognizes the unique and
 
 3 critical situation facing resort area lessees on Banyan Drive in
 
 4 Hilo, Hawaii.  With the majority of the leases expiring in 2015,
 
 5 these lessees are faced with the uncertainty of continued
 
 6 tenancy.  Under the current laws, as the end of the lease term
 
 7 nears, the lessees will have fewer incentives to make major
 
 8 investments in improvements to their infrastructure and ensure
 
 9 the long-term maintenance of their facilities.  As a result,
 
10 deterioration of the infrastructure is likely to occur.
 
11      Under this Part, one group of lessees would be exempted from
 
12 the overall public policy of making public lands available to the
 
13 highest qualified bidder at auctions.  The legislature finds that
 
14 except under rare circumstances, state leases have a maximum term
 
15 of sixty-five years.  Upon the expiration of leases, the property
 
16 is made available to bidders via public auction.  This method
 
17 ensures maximum revenue generation for the beneficiaries of the
 
18 public land trust.  The legislature believes, however, that in
 
19 this specific and unique case, an exception to this public policy
 

 
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 1 is justified for the Banyan Drive lessees.
 
 2      This exception is based on the fact that the State owns
 
 3 virtually the entire Banyan Drive resort area, which represents,
 
 4 approximately eighty per cent of total overnight accommodations
 
 5 in east Hawaii.  Banyan Drive is an integrated resort area.  All
 
 6 of the existing structures were built as hotels although not all
 
 7 are in hotel use at this time.  It is important that the entire
 
 8 Banyan area be maintained as a resort area.  Because the State
 
 9 controls so much of the hotel space in east Hawaii, the State has
 
10 a responsibility to ensure that its actions will not have a
 
11 harmful impact on the larger community as a whole.  Should the
 
12 State allow the Banyan Drive resort area to deteriorate,
 
13 including the structures not currently used directly for hotel
 
14 purposes, if and when the tourism market rebounds, east Hawaii
 
15 will not be in a position to respond promptly with adequate hotel
 
16 space.  The negative impact would magnify as ancillary
 
17 industries, dependent on the tourist market, would also suffer.
 
18 Furthermore, approximately five hundred direct resort jobs would
 
19 be affected, as well as many other indirect jobs.
 
20      The legislature finds that while an exception is justified
 
21 regarding the public policy of making public lands available to
 
22 the highest bidder, the legislature strongly feels that the
 
23 lessees should not be subsidized.  It is the intention of the
 

 
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 1 legislature to support the efforts of the State and the county of
 
 2 Hawaii and provide an opportunity for the tourism market to
 
 3 rebound in east Hawaii by ensuring that hotel rooms will still be
 
 4 available.  If the current downturn reflects a more long-term
 
 5 structural shift in the east Hawaii tourism market, then the
 
 6 State should see the resort market adjust, including the
 
 7 possibility that the Banyan Drive properties be put to other
 
 8 uses.
 
 9      The legislature further finds that prudent land management
 
10 dictates that an exception be made in this specific case.  As the
 
11 landowner of virtually the entire Banyan Drive resort area, the
 
12 State has an interest in preserving the significant value of
 
13 these assets as the resort and other facilities represent
 
14 millions of dollars worth of improvements on state land.  Should
 
15 the State allow these assets to deteriorate, the land value will
 
16 decrease, thus lowering the value of all state land in the area.
 
17      The legislature believes that resort area use is the highest
 
18 and best use of these properties at this time.  Due to the
 
19 downturn in the tourism market, demand is very weak for these
 
20 leases as evidenced by the lack of interest shown in the one
 
21 vacant lot where the former Orchid Isle Hotel once stood.  As
 
22 such, it would be unwise to force these leases into auction and
 
23 risk deterioration of the improvements and loss of income should
 

 
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                                     H.B. NO.           H.D. 1
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 1 the existing lessees decide not to continue.
 
 2      Lastly, the legislature finds that the state and county
 
 3 governments are actively attempting to develop east Hawaii as a
 
 4 visitor destination area marketed, among other things, around the
 
 5 University of Hawaii, astronomy, geology/volcanoes, eco-tourism,
 
 6 and culture and the arts.
 
 7      The purpose of this Part is to stimulate tourism in east
 
 8 Hawaii by creating incentives for reinvestment in the resort and
 
 9 other infrastructure of the Banyan Drive resort area in Hilo,
 
10 Hawaii.  This Part authorizes the board of land and natural
 
11 resources to issue new leases to existing lessees of the Banyan
 
12 drive resort area as an integral part of preserving and enhancing
 
13 the tourism base of east Hawaii.
 
14      This Part affects fifteen total leases in the Banyan Drive
 
15 resort area.  Of these fifteen leases, there are ten leases
 
16 covering three resort facilities (Naniloa, Hilo Bay, and Hilo
 
17 Hawaiian), three leases for each of three apartment/condominium
 
18 facilities (Country Club, Bayview Banyan, and Reed's Bay), one
 
19 golf course lease, and one restaurant lease.
 
20      SECTION 2.  Notwithstanding any law to the contrary, the
 
21 department of land and natural resources is authorized to issue
 
22 new leases to the existing Banyan Drive lessees, subject to the
 
23 following:
 

 
Page 5                                                     1909
                                     H.B. NO.           H.D. 1
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 1      (1)  New leases shall contain those conditions deemed
 
 2           appropriate by the department to carry out the purposes
 
 3           of this Part;
 
 4      (2)  The department shall develop a process to ensure that
 
 5           the assumption of no market demand for the leases holds
 
 6           true.  As such, the department may issue a request for
 
 7           proposal or other means to ensure that a fair, open,
 
 8           and competitive process is used to determine
 
 9           competition.  This process shall take into account the
 
10           current fair market value of the tenant-owned
 
11           improvements under the terms of the existing lease.
 
12           The current fair market value shall be negotiated and
 
13           agreed to between the lessee and the lessor.  If the
 
14           current fair market value is agreed upon, the
 
15           department may initiate a request for proposal process
 
16           to reveal whether there are other entities seriously
 
17           interested in obtaining the lease.  If this process
 
18           shows a willing and able bidder, the department shall
 
19           go out for auction with the understanding that the
 
20           successful bidder shall pay the existing lessee the
 
21           current fair market value in full at closing.  If there
 
22           are no qualified entities, or if the lessee is the
 
23           successful bidder, then a new lease may be issued to
 

 
Page 6                                                     1909
                                     H.B. NO.           H.D. 1
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 1           the existing lessee for a term not to exceed fifty-five
 
 2           years; and
 
 3      (3)  If a new lease is issued, then the following may be
 
 4           contained in the lease:
 
 5           (A)  Fair market rent, excluding tenant improvements;
 
 6           (B)  Percentage rent where gross receipts exceed a
 
 7                certain level;
 
 8           (C)  Assignment premium; and
 
 9           (D)  Requirements to substantially improve the
 
10                property.
 
11      SECTION 3.  It is the expressed intent of this Part that the
 
12 legislature not interfere with market forces by subsidizing these
 
13 resort area uses to ensure that the State is receiving a fair
 
14 return from public lands and that investment is made into the
 
15 infrastructure associated with the leases.
 
16      SECTION 4.  The lands eligible for lease under section 2 of
 
17 this Part shall be limited to those existing fifteen state leases
 
18 with infrastructure located in the Banyan Drive resort area.
 
19      SECTION 5.  All costs for the issuance of a new lease,
 
20 including determining the current fair market value and the
 
21 request for proposals, shall be paid for by lessees interested in
 
22 acquiring new leases.
 
23                             PART II.
 

 
Page 7                                                     1909
                                     H.B. NO.           H.D. 1
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 1      SECTION 6.  (a)  The auditor shall coordinate the resolution
 
 2 of the issues and controversies surrounding the public land trust
 
 3 by:
 
 4      (1)  Facilitating the identification of those lands within
 
 5           the public land trust and their assets and natural
 
 6           resources, including mineral rights, water rights,
 
 7           submerged lands, and air space; and
 
 8      (2)  With the cooperation of the department of land and
 
 9           natural resources, the office of Hawaiian affairs, and
 
10           any other state agency and department that uses or
 
11           manages those lands within the public land trust,
 
12           completing a comprehensive inventory and mapping
 
13           database of all lands within the public land trust and
 
14           currently subject to section 5(f) of the Admission Act.
 
15           The inventory shall include:
 
16           (A)  Identification of fast land parcels by tax map key
 
17                number and by original source from which the land
 
18                was obtained;
 
19           (B)  Identification of submerged lands;
 
20           (C)  Identification of all natural resources and other
 
21                appurtenances to the public land trust and to
 
22                lands subject to section 5(f) of the Admission
 
23                Act;
 

 
Page 8                                                     1909
                                     H.B. NO.           H.D. 1
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 1           (D)  Identification of the agency that has legal
 
 2                jurisdiction of each parcel;
 
 3           (E)  Land use and zoning designations;
 
 4           (F)  Program uses (if any);
 
 5           (G)  Terms of any leases or other dispositions;
 
 6           (H)  Revenues generated by amount, category, and
 
 7                source; and
 
 8           (I)  Lands that have been alienated from the public
 
 9                land trust by the Territory and State of Hawaii,
 
10                including lands transferred to the counties and
 
11                the University of Hawaii.
 
12      (b)  The department of land and natural resources shall
 
13 comply with the auditor's request for any information and
 
14 services pertinent to the completion of the inventory.
 
15      (c)  In complying with the requirements of this section, the
 
16 auditor shall be exempt from chapter 103D, Hawaii Revised
 
17 Statutes.
 
18      (d)  The auditor shall submit:
 
19      (1)  A progress report to the legislature no later than
 
20           twenty days prior to the convening of the regular
 
21           session of 2001; and
 
22      (2)  A final report to the legislature by December 31, 2001,
 
23           containing the completed inventory.
 

 
Page 9                                                     1909
                                     H.B. NO.           H.D. 1
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 1      SECTION 7.  There is appropriated out of the general
 
 2 revenues of the State of Hawaii the sum of $       , or so much
 
 3 thereof as may be necessary for fiscal year 2000-2001, for the
 
 4 activities identified in section 6 of this Act; provided that no
 
 5 funds shall be expended unless separately matched on a dollar-
 
 6 for-dollar basis by the office of Hawaiian affairs.
 
 7      The sum appropriated shall be expended by the office of the
 
 8 auditor for the purposes of this Part.
 
 9      SECTION 8.  This Act shall take effect on July 1, 2000;
 
10 provided that Part I shall be repealed on July 1, 2005.