Unpaid Debts: Will The County Of Maui Ever Collect On Its Deferral Agreements?

By Anthony Pignataro

The war in Maui County over deferral agreements is raging again. It flares up now and then through the years, only to dissipate a few weeks later. Silent for the last couple years, the issue began getting discussed a few weeks ago. In fact, county officials are insisting that the problem may even be coming to an actual solution.

A relatively ancient anecdote is in order.

Back in 2002, when the County of Maui first began talking of the Lower Honoapiilani Highway “Phase IV” development between Kahana and Napili, West Maui resident Christopher Salem visited an engineer who worked for the county. Salem, who lived in the area, had some infrastructure improvement ideas: speed control devices, using indigenous stone walls to replace the current steel barricades, and even burying overhead power lines underground to improve the neighborhood’s aesthetics. According to Salem, the engineer looked over his proposal, then said the county had no money to make those kinds of improvements.

“What about the funds from the multiple developer reimbursement agreements along Phase IV?” Salem said he asked.

“Ah, we never collect those,” Salem said the engineer told him.

“Ever?”

“Never.”

Ah, deferral agreements. I had first heard of these a year or two after Salem’s meeting, when I was discussing land development with then-Maui County Council member Jo Anne Johnson (now named Jo Anne Johnson Winer, she went to work in 2011 as the county transportation director). Deferral agreements were one of her perennial bugbears–an itch in the county’s planning/public works/finance nexus that, no matter how much she scratched at it, never seemed to get better.

Put simply, deferral agreements were deals the County of Maui used to strike with those who wanted to divide up their land into three lots or less. The landowners had a choice: pay for whatever sidewalk, pavement, curb or gutter improvements were needed right then, or defer the payment. The practice began in 1974, and was mainly to help local families divide up their land for their offspring without having to become full-fledged developers.

Even simple questions like how many of these agreements exist aren’t simple to answer. According to Maui County Public Works Director David Goode, a mid-2011 search by his office discovered 600 such agreements. That seems great, except that in 2010, his predecessor Milton Arakawa told the Maui County Council Planning Committee that his office found about “1,700” agreements.

“That was before we did our count,” Goode told me. “The previous number, I can only imagine, is an estimate.”

Goode, by the way, was County Public Works Director back in 2002 around the time when Salem first found out that the county “never” collects deferral agreements. A decade later, in 2012, Goode lamented to the County Council during budget hearings how “crazy” the whole situation had gotten.

“[I]n some cases, especially in West Maui, the original three-lot subdivision was a huge piece of land that went halfway up the mountain,” Goode said during an April 19, 2012 budget hearing. “And so there’s a possibility there’s going to be some deferral agreements where theoretically there’s 1,000 different owners and they each owe us $25. I mean it’s getting really crazy.”

In any case, the issuing of these deferral agreements to those building three lots or less ended in 2007 after a number of problems emerged. First, as Salem discovered five years earlier, the county simply didn’t collect any of the deferred monies. The deferral agreements just sat there, without the landowners making any payments, even as county officials actually went ahead and made some of the required infrastructure improvements.

“This is money,” Johnson said at a Nov. 15, 2010 Maui County Council Planning Committee hearing on the matter. “It’s not owed to me. It’s not owed to Public Works. This is taxpayer money that is able to be collected if we would simply send people a bill for their proportionate share of whatever the improvements were made to the frontage abutting their property.”

They did this, county public works officials admitted years later, because they had very little notion of who exactly owed them what. Just how many of these deferral agreements hadn’t yet been paid, how many infrastructure improvements were made without first securing payment–even figuring out how many deferral agreements actually existed–were all unknowns at the County of Maui, even as late as 2010.

“[W]e intend to collect the necessary information on deferral agreements as we need it,” then-Public Works Director Milton Arakawa told the Council’s Planning Committee at a Nov. 15, 2010 hearing (this is the same hearing when he threw out the 1,700 figure that Goode disputes. “There are approximately 4,900 subdivision files at Kalana Pakui and an, an additional 5,800 files in storage. And, of course, not all of these have deferral agreements. So we do not need the information, all of this information, at the current time. And it would take many months of research to find deferral agreements through the 33 years that this provision was in existence.”

As for how much money that added up to, Johnson estimated that the figure would run into the “millions of dollars.”

Councilman Mike Victorino, who at that point had been on the council for four years, admitted during the hearing that he’d known nothing of deferral agreements, and what he was hearing “astonished” him.

“And it’s astonishing that 33 years and some seven Administrations and I don’t know how many Councils in between, this has just languished and languished,” he said, according to the hearing minutes. “And I, I’ll take responsibility, four years, I’ve just heard about it. I’ve never had any idea what the heck was going on. And now, now to have some reality set in, Mr. Chair, it’s astonishing. But this could be millions and millions and millions of dollars that is due this County. And the problem is maybe some people even passed away, you know, people have left, sold it six, seven times, I don’t know.”

Victorino’s last point, about the possibility of properties with deferral agreements on the books getting sold and re-sold, throwing the question of who owed the county what completely askew, was important. At the hearing, Arakawa agreed that property sales since the agreement made it all that more difficult to figure out dollar amounts.

Then Victorino called for action. “But it’s the point that this County is due this money,” he said. “And whether the next Administration takes it on or not I think the, the Council should make it, you know, very much an important issue that we need to work on this problem along with a few others because these are monies that the people of Maui County are owed.”

The next day, The Maui News ran a story on the hearing under the pretty sensational but nonetheless accurate headline “County unpaid for roadwork for decades.” And then, as is often the case where these types of things are concerned, nothing changed. For all his talk of being “astonished,” Victorino apparently didn’t do anything after the hearing (he did not return a phone call for this story).

But Salem, the guy who discovered more than a decade ago the untapped potential of deferral agreements, decided to do something. There were two reasons for this. First, he had also worked as a County Council aide, and was very familiar with both engineering and legislative matters. And second, he owns a house in the Lower Honoapiilani Highway Phase IV area.

In mid-2010, Salem received a letter (dated May 27, 2010) from Public Works Director Arakawa. “[W]e would like to provide you the following “Notice of Intent to Collect,” Arakawa wrote, referring to the fact that a deferral agreement was attached to his house, which was in the Phase IV project area. “As part of this project, the County will be seeking a payment of a pro rata share of roadway improvements as included in the terms of the deferral agreement.”

The letter would have been alarming enough if Arakawa had stopped there. The letter included no due date, but was rather just a warning that such a collection notice would someday come. Deferral agreements are, after all, contingent liens–homeowners who don’t pay them risk foreclosure.

But the letter also stated that the county didn’t actually have a “pro rata share of the costs” to give him. Instead, Arakawa’s letter said, Salem would have to negotiate his final share of the cost with the other original lot owners.

Title companies call that an “open-ended encumbrance”–a bill that, someday, will come due in some amount that’s yet undetermined. Good luck selling a home–much less getting it appraised–with that attached to your deed.

Needless to say, Arakawa’s letter outraged Salem. It was one thing to ask him to pay a bill–that was perfectly reasonable. But to put in writing that someday he’d have to pay an indeterminate amount that he’d have to negotiate himself? That was too much.

“He didn’t have the authority to send that letter,” Salem said. “There is no formula adopted by ordinance for the assessment and collection of these agreements. The county Charter says assessments have to be adopted by the Council.”

Salem, who spent about 15 years working with the County Council (and a few years for County Councilman Sol Kaho’ohalahala),* then wrote up the “Fairness Bill” (dubbed PC-17). The bill, said Salem, would get all the deferment agreements off the county’s books and set up a method of collecting whatever money was still owed to the county. It would develop a formula for assessing and collecting the agreement amounts. He said it was partly based on a similar county parks ordinance.

“There already is an ordinance with parks,” Salem said. “If you develop, you give up land for a park or pay a fee. That came out in 1987, and is exactly what’s needed for deferral agreements.” Of course, Salem said there was a three lots or less exemption built into the parks ordinance as well.

Anyway, the Fairness Bill seemed to be moving along until early December. Then, Salem said, Councilmember Don Couch suddenly killed it. What’s more, the bill was not rolled over to the next council session.

According to Couch, the bill was “auto-filed,” meaning that if a council member didn’t ask for it to come up again during the next term, it was filed away. His reason, he told me, was that the bill simply wasn’t necessary.

“The Department of Public Works is going ahead with deferral agreements where applicable, and not going ahead where nothing is going on. When they come up, I’m guessing a lot of them get rectified.”

Goode agreed. “When the county comes in and does a project, then we would exercise the agreements,” he said. “We’re coming up on our first project now where we’d send out a letter [to those with deferral agreements].” The project, Goode explained, is the Lower Honoapiilani Highway Phase IV development that affects Salem.

As for Salem’s “Fairness Bill,” Goode said it that the County Corporation Counsel’s office had said it wasn’t legal.

“There was discussion on amending the law,” Goode said. “But our attorneys said that you can’t. It’s a done deal and we have to live with it. I don’t think at this point that there’s any way to change the deal. It wouldn’t fly.”

For his part, Salem says he still concludes that the Maui County Charter is clear on this. “The park fee ordinance does have a formula for collection,” he said. “They’re never acknowledging these things. Will they acknowledge them in this year’s budget?”

* This story originally misstated Salem’s work experience with the Maui County Council.