Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Water, Land, and Agriculture, to which was referred H.C.R. No. 223, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to request the Department of Land and Natural Resources to authorize the cancellation of certain public leases on Kauai; to issue a new lease on the lands, subject to conditions; and to auction the lands if a willing and able bidder is found for the lands' re-lease who will also pay the lessee the fair market value of the improvements.

Testimony in support of this measure was submitted by Kauai Beachfront Hotel, LLC. Testimony in opposition to this measure was submitted by the Board of Land and Natural Resources.

Your Committee finds that Kauai Beachfront Hotel, LLC, is the lessee under General Lease Nos. S-3840, S-3831, and S-4647 for the premises underlying the Aloha Beach Resort Kauai, formerly the Holiday Inn Sunspree Resort Kauai and the Kauai Beach Resort, (the "premises") located in Wailua, Kauai. Kauai Beachfront Hotel, LLC, has suffered continuous operational losses despite investing more than $15,000,000 in improvements and renovations to the premises since acquiring the leases in 1997.

Despite such losses, the lessee is willing to invest further substantial amounts towards continuing its business operations and redeveloping the premises to avoid the adverse economic consequences that could follow closing the hotel: reduced employment (over one hundred eighty-three jobs), loss of payroll ($2,093,477 per year), increased unemployment expenditures (about $650,000 based on 113 onsite jobs x $220 per week x 26 weeks), and loss of state and county tax revenue. The financing necessary for the lessee's proposed improvements requires longer lease terms than that which remain under the leases or are obtainable by extension of the lease terms under state law.

Your Committee also finds that section 171-61, Hawaii Revised Statutes, authorizes the Board of Land and Natural Resources to cancel an existing lease if the lands can be re-leased for the existing use to a greater economic benefit to the State. Your Committee believes that canceling the leases and issuing a new long-term lease will provide greater economic benefit to the State by permitting the lessee to obtain financing to continue its hotel operations and increase its investment in redeveloping the premises, thereby creating the opportunity for potentially positive economic impacts, including higher lease rents to the State, increased employment and payroll, and higher tax revenues to the State and County of Kauai.

Your Committee finds that the action requested by the measure would benefit the County of Kauai and the State by saving existing jobs and helping to revitalize Kauai's local economy.

As affirmed by the record of votes of the members of your Committee on Water, Land, and Agriculture that is attached to this report, your Committee concurs with the intent and purpose of H.C.R. No. 223, H.D. 1, and recommends its adoption.