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StarBulletin.com

Tower of trouble


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POSTED: Monday, September 14, 2009

For nearly 83 years the 185-foot-tall Aloha Tower lighthouse has stood watch over picturesque Honolulu Harbor, a beacon for tourists and cruise ship visitors.

For some here it stands today as a symbol of government ineptitude. The state agency created nearly 30 years ago to develop the tower and the adjacent waterfront area into an iconic, world-class harbor has floundered, critics say.

Tourists who step off a cruise ship do not have far to walk before their view is obscured by an unsightly power plant, a parking lot and a small park occupied by homeless people.

Aside from a shopping complex built in 1994, every major project given to the Aloha Tower Development Corp. has fallen through. Most recently, an arbitrator ruled that the agency acted in bad faith with a developer, and the bill could eventually cost taxpayers about $3 million.

“;Why do we even have ATDC if they have all these problems?”; asked state Sen. Donna Mercado Kim (D, Kalihi Valley-Halawa), who plans to move to eliminate the agency during next year's legislative session. “;Those people would have been fired years ago in the private sector.”;

ATDC has entered into four development agreements since its creation in 1981 that have resulted in either litigation or termination, Kim said. The agency's only successes have been the opening of Aloha Tower Marketplace and the restoration of Aloha Tower.

Some developers say the area could have been similar to Australia's Sydney Harbor.

“;It would have acted as a wonderful front door for Hawaii,”; said Kenneth Hughes, president and owner of Dallas-based Hughes Development, which wanted to upgrade some of the harbor's more unsightly land. “;The private sector should expect that government is held to a higher standard, and in this instance they did not do that.”;

Hughes' plans called for residential condominiums, stores, hotel and new parking at a cost of about $300 million. The project started in 2004 and ended earlier this year with the arbitrator's decision supporting Hughes' claims that ATDC torpedoed the deal by failing to negotiate.

The state fought the decision in court on the grounds that they simply could not reach terms that were fair.

“;This was a difficult negotiation and complex project that involved many issues,”; wrote Sandra Pfund, the agency's chief executive, in response to questions about the case. “;ATDC tried in good faith to reach an agreement with Hughes.”;

Sticking points included how much rent the developer would pay, how the project would be financed and a lack of response to three of Hughes' offers.

State lawmakers gave the agency a $1.6 million budget for this fiscal year, with no funding provided for the future. It is paid by lease rent revenues, meaning no tax dollars are used.

But taxpayers could be on the hook for a separate sum of $1.6 million under the arbitrator's ruling against ATDC, along with another $1.15 million in the state's own attorney fees and other costs.

On Tuesday, U.S. District Judge David Ezra confirmed the arbitrator's award to Hughes, including more than $903,000 in damages and nearly $700,000 in interest, attorneys' fees and costs, plus 10 percent interest.

“;The biggest losers in this are the people of the state of Hawaii,”; said Jeff Portnoy, Hughes' attorney. “;It's so Hawaii. It's so political. As usual, it's one of the reasons why nobody wants to do business with the state.”;

Hughes faults the agency for a lack of real estate expertise and an unwillingness to hire outside consultants.

Others, like Ted Liu, director of the state Department of Business, Economic Development and Tourism, which oversees ATDC, says the agency could not reach a deal with Hughes because it was looking out for the best interests of the public while trying to negotiate a business agreement at the same time.

“;If government has a role in the redevelopment of Aloha Tower, I believe it's properly within ATDC because I don't think there's any other agency that can do it,”; said Liu. “;I do have questions about what the role of state government should be in the context of redevelopment.”;

If the Legislature decides to abolish ATDC, it would have to decide what government agency would take over responsibility for Hawaii's major harbors modernization project, which will cost more than $840 million over the next few years. ATDC employs 13 people, nine of whom are dedicated to the harbors project.