Report Title:

Land leasing practices; study

WHEREAS, a portion of the Waimanalo Ahupua'a is known as the Waimanalo Agricultural Subdivision under Chapter 722 Hawaii Revised Statutes and is representative of agricultural subdivisions in the State of Hawaii; and

WHEREAS, agricultural subdivisions are administered by State agencies, including the Department of Land and Natural Resources (DLNR); and

WHEREAS, DLNR sets ground rent for a leasehold based on the results of independent land appraisals made by Certified Independent Appraisers hired as contractors by DLNR; and

WHEREAS, independent appraisers, in the course of preparing state ordered appraisals, consult readily available publications, such as the Multiple Listing Service (MLS), to find sales data in relation to recent real property sales to use as comparable properties, but are unaware that DLNR's lease files are retained in DLNR's Land Management Division, and are not recorded or filed in the Bureau of Conveyances or otherwise published; and

WHEREAS, the market data approach and other recognized appraisal methods often compare state agricultural lease properties to residential R-5 or R-10 zoned property or other non-comparable properties, producing abnormally high ground rents; and

WHEREAS, this occurs even though each appraisal is reviewed by a DLNR staff appraiser, its Land Manager, and its Chairman to assure compliance with "the standards and instructions to appraisers of the Land Division"; and

WHEREAS, DLNR's practice for setting lease rent contributes to a situation where private lending institutions authorized to give mortgages on state agricultural lands decline to give farmers, nurserymen, and others on state leasehold land mortgages because of the uncertainty of Land Management leases; and

WHEREAS, this practice has increased the dependence of state lease holders on state revolving agricultural loans, resulting in millions of dollars of taxpayer money being dedicated to farm loans; and

WHEREAS, the unnatural rent increases are used by the City and County of Honolulu as a basis for property taxation and influence the property tax rate of properties in the surrounding area, inappropriately inflating the tax burden on state lease holders; and

WHEREAS, although State law and the Constitution of the State of Hawaii protect the right to farm and in general support agriculture, DLNR's appraisal practices and the effects of those practices have proven to be detrimental to agriculture; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-first Legislature of the State of Hawaii, Regular Session of 2001, that the State Auditor, in consultation with the affected private lending institutions, Hawaii's Association of Certified Appraisers, and other interested parties, is requested to review DLNR's process for determining lease rent values and to submit a report of their findings, conclusions, and recommendations to the State Legislature no later than twenty days prior to the 2002 session; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the State Auditor and the Board of the Department of Land and Natural Resources.