REQUESTING THE AUDITOR TO CONDUCT A PERFORMANCE AUDIT OF THE DEPARTMENT OF HAWAIIAN HOME LANDS' COMMERCIAL LEASE MANAGEMENT PRACTICES, REVENUE OPTIMIZATION, AND RENT COLLECTION PROCEDURES.

SR12

THE SENATE

S.R. NO.

12

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

SENATE RESOLUTION

REQUESTING THE AUDITOR TO CONDUCT A PERFORMANCE AUDIT OF
THE DEPARTMENT OF HAWAIIAN HOME LANDS' COMMERCIAL LEASE MANAGEMENT PRACTICES,
REVENUE OPTIMIZATION, AND RENT COLLECTION PROCEDURES
.

����
WHEREAS, the
Department of Hawaiian Home Lands
("DHHL" or
"the Department")
is responsible for administering approximately
200,000 acres of Hawaiian home lands under the Hawaiian Homes Commission Act of
1920; and

����
WHEREAS, DHHL's
mission is to return native Hawaiians to the land through homestead leasing
while also generating revenue to support its operations and programs; and

����
WHEREAS, pursuant
to Section 204 of the Hawaiian Homes Commission Act, DHHL is authorized to
lease available lands not required for Hawaiian homestead purposes to generate
income for the benefit of the Hawaiian home lands trust; and

����
WHEREAS, DHHL
manages a portfolio of commercial, residential, agricultural, and pastoral
general leases with varying terms and rental rates to generate revenue for
department operations and beneficiary services; and

����
WHEREAS, revenue
generated from general leases of available lands provides critical funding for
DHHL's administrative operations, land development, and services to
beneficiaries; and

����
WHEREAS, in
2019, the State Auditor conducted a comprehensive performance audit of the
Department of Land and Natural Resources' ("DLNR") Special Land and
Development Fund (Report No. 19-12), which examined DLNR's management of more
than 1,600 income-generating properties; and

����
WHEREAS, the
DLNR audit found significant deficiencies in lease management, including the
absence of strategic planning for land portfolio management, failure to collect
delinquent rent, failure to perform annual field inspections, and properties
being leased at substantially below-market rates; and

����
WHEREAS, the
DLNR audit determined that extending just 16 leases in the Kanoelehua
Industrial Area resulted in the State losing approximately $1.6 million in
potential revenue, and that an appraisal of 112 revocable permits showed rents
were nearly $838,000 below market rates; and

����
WHEREAS, similar
lease management challenges could exist within DHHL's commercial lease
portfolio, potentially resulting in lost revenue opportunities that could
otherwise benefit Hawaiian home lands beneficiaries; and

����
WHEREAS, DHHL
currently manages over 1,600 income-generating properties through long-term
leases and revocable permits, generating substantial revenue that is essential
to fulfilling the Department's mission; and

WHEREAS, according to DHHL's
financial statements for fiscal year 2024, the Department recognized
approximately $10,956,000 in general lease revenue and $10,291,000 in lease-related
interest revenue; and

����
WHEREAS, DHHL's
general leases have varying terms extending through July 2084, with some leases
including provisions for rent adjustments based on fair market values at
specified intervals; and

����
WHEREAS, DHHL's
financial audits have not included comprehensive performance assessments of the
Department's lease management practices, strategic planning for revenue
optimization, or effectiveness of rent collection procedures; and

����
WHEREAS, DHHL
serves more than 29,000 beneficiaries on the homestead waitlist, and maximizing
revenue from commercial leases could accelerate the Department's ability to
develop new homesteads and provide services to beneficiaries; and

����
WHEREAS, the
Legislature appropriated $600 million to DHHL through Act 279, Session Laws of
Hawaii 2022, for waitlist reduction, demonstrating a significant public
investment that warrants ensuring all revenue sources are optimized; and

����
WHEREAS, effective
management of DHHL's commercial lease portfolio is critical to fulfilling the
Department's fiduciary duty to native Hawaiian beneficiaries and maximizing the
productivity of trust lands; and

����
WHEREAS, a
comprehensive performance audit would provide the Legislature and the public
with essential information about DHHL's lease management effectiveness,
identify opportunities for revenue enhancement, and ensure accountability in
the stewardship of Hawaiian home lands; and

����
WHEREAS, pursuant
to Section 23-4, Hawaii Revised Statutes, the Auditor may conduct performance
audits, including examination of management controls, fiscal operations, and
efficiency and effectiveness of programs; and

����
WHEREAS, pursuant
to Section 23-5, Hawaii Revised Statutes, the Auditor may examine and inspect
all accounts, books, records, files, papers, and documents and all financial
affairs of every department, office, and agency; now, therefore,

����
BE IT
RESOLVED by the Senate of the Thirty-third Legislature of the State of Hawaii,
Regular Session of 2026, that the Auditor is requested to conduct a
comprehensive performance audit of the Department of Hawaiian Home Lands'
commercial lease management practices, revenue optimization strategies, and
rent collection procedures; and

����
BE IT FURTHER
RESOLVED that the Auditor is requested to examine and include in the audit:

(1) The
Department's strategic planning for long-term management of its commercial
lease portfolio, including asset management plans to optimize revenue
generation while fulfilling public trust obligations;

(2) The
Department's policies, procedures, and administrative rules governing
commercial lease management, including lease negotiation, rent setting, lease
renewals, and rent adjustments;

(3) The
Department's processes for establishing rental rates, including whether rents
are set at fair market value and how frequently rents are adjusted to reflect
current market conditions;

(4) The
extent to which commercial properties are being leased at below-market rates
and the potential revenue impact of any such discrepancies;

(5) The
Department's practices regarding lease extensions and renewals, including
whether competitive processes are utilized and whether lease extensions may
result in foregone revenue opportunities;

(6) The
Department's management of revocable permits, including whether permits are
being used appropriately for temporary arrangements or whether long-term
occupancies under revocable permits may result in below-market compensation;

(7) The
Department's rent collection procedures, including the identification and
collection of delinquent rent, enforcement of lease terms, and effectiveness of
collection efforts;

(8) The
Department's capacity to perform regular field inspections of leased properties
to ensure compliance with lease terms and identify potential lease violations;

(9) The
adequacy of staffing, expertise, and resources within the Department's land
management division to effectively manage the commercial lease portfolio;

(10) Whether
the Department has identified opportunities to enhance revenue through property
consolidation, re-subdivision, conversion of ground leases to space leases, or
other portfolio optimization strategies;

(11) The
Department's tracking and reporting of lease revenues, delinquent accounts, and
allowances for uncollectible amounts;

(12) A
comparison of DHHL's lease management practices with best practices from other
state agencies, including DLNR, and with comparable land management
organizations; and

(13) Any
other matters the Auditor deems relevant to assessing the effectiveness and
efficiency of DHHL's commercial lease management and revenue generation; and

����
BE IT FURTHER
RESOLVED that the Auditor is urged to examine and include in the report whether
the Department's lease management activities are achieving their intended
objectives and whether these activities are being conducted effectively,
efficiently, economically, ethically, and equitably in accordance with the
Department's fiduciary responsibilities to Hawaiian home lands beneficiaries;
and

����
BE IT FURTHER
RESOLVED that the Auditor is requested to provide recommendations for improving
DHHL's commercial lease management practices, enhancing revenue generation from
available lands, and strengthening rent collection procedures to maximize
resources available for homestead development and beneficiary services; and

����
BE IT FURTHER
RESOLVED that the Auditor is requested to submit a report of findings and
recommendations, including any proposed legislation, to the Legislature no
later than twenty days prior to the convening of the Regular Session of 2027;
and

����
BE IT FURTHER
RESOLVED that certified copies of this Resolution be transmitted to the
Auditor, Chairperson of the Hawaiian Homes Commission, Director of the
Department of Hawaiian Home Lands, Governor, and Chairpersons of the Senate
Committee on Hawaiian Affairs and the House Committee on Hawaiian Affairs.

OFFERED BY:

_____________________________

Report Title:
�

Department
of Hawaiian Home Lands; Auditor; Audit; Commercial Leases