State Auditor Marion Higa recommends that the state Legislature scuttle the agency created 30 years ago to develop the Honolulu urban waterfront.

In a report released yesterday, Higa said the Aloha Tower Development Corp. is “;flawed, obsolete and mismanaged.”; The agency succeeded in only one step of the envisioned harbor development—the struggling Aloha Tower Marketplace—but saw other prospective developers' residential and retail projects fail, three of them ending in lawsuits, the report said.

“;Despite having nearly three decades to plan and study, the corporation still lacks a focused strategy to achieve its mission,”; Higa wrote. “;Given its poor planning history, the corporation is unlikely to develop the Aloha Tower Project Area and should not be given any more chances to do so.”;

She said the agency should be dismantled by June 2011, with its responsibility for harbor improvements returned to the state Department of Transportation and its development functions assigned to the Hawaii Community Development Authority.

The audit “;does not reflect everything the agency does and is focused on the past,”; said Aloha Tower Executive Director Sandra Pfund. She said clearing out past legal issues has been a priority for the current board and staff.

One such resolution came last year in an arbitrated settlement with a Texas developer whose $300 million plan for hotels, condominiums and stores lost board support. Although the agency had to pay $1.6 million to Hughes Development of Dallas, Pfund pointed out the developer sought $35 million. The arbitrator found that Hughes did not prove it could secure adequate financing or that there was a market for its planned project, she said.

Higa, who conducted the audit last year, found that the development corporation did not have a strategic plan. Pfund said the board approved a strategic plan last month.

“;We are excited about the urban waterfront downtown,”; Pfund said. “;Up to now it has been difficult to develop. Now what is changing is mass transit. The ATDC will play a major role in transit-oriented developments in the downtown and Iwilei areas since two prime mass transit stops are in its jurisdiction.”;

Higa's recommendation echoes state Sen. Donna Mercado Kim, chairwoman of the Ways and Means Committee, who called for the agency's dissolution last year.

Pfund said Higa did not acknowledge legislative support in 2007 and 2008 that gave the agency a role in the state Department of Transportation's Harbors Modernization Plan.

The audit did not reveal irregularities in the agency's financial or general management functions, Pfund said.

“;The current board and staff have made significant management improvements,”; Pfund said, including having an audit done on Aloha Tower Marketplace and tightened enforcement of lease provisions. “;The auditor is silent as to recognizing these improvements.”;