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Honolulu Mayor Peter Carlisle‘s administration forgave $1.2 million in city loans to the nonprofit elderly day-care center at the heart of a federal investigation into misuse of $7.9 million in grants, a Civil Beat investigation has found.

Federal investigators last month reported to Carlisle that Wahiawa-based ORI Anuenue Hale, Inc., violated federal Community Development Block Grant rules. Unless the city takes “immediate corrective action,” it may have to return the federal funds.

HUD reported to the city a slew of suspected grant violations at ORI, including:

• Using its Camp Pineapple 808 facility for purposes prohibited by federal grant rules
• Lying about how many people use the ORI Wellness Center
• Using federal monies meant for elderly activities to pay staff salaries
• Refusing to provide federal investigators with documents they requested

Federal investigators blasted the city for failing to monitor ORI’s use of CDBG funds, but they did not mention the loan forgiveness in the May 27 report that details their findings.

In November, city lawyers finalized a deal to forgive two loans, one worth $812,719 and the other worth $350,000.

“There were two loans, and this goes back to the 1990s,” Keith Ishida, the administrator of the city’s Community-Based Development Division, told Civil Beat. “One was for a residence or training staff and one was for infrastructure improvements to their housing complex. We used to give out loans for special-needs housing projects. This was the way for us to guarantee performance in the sense that this was a deposit, and we could kind of call the loan back in.”

Federal investigators singled out Ishida in their report for a potential conflict of interest that they said violated the terms of CDBG grants to the city.

Ishida said forgiving the loans essentially converted them into Community Development Block Grants.

Asked about the extent to which the city reviewed ORI’s performance before agreeing to convert its earlier loans into grants, Ishida said his division looked at the nonprofit’s initial applications for those loan monies but not necessarily its actual performance.

“What I looked at was that the infrastructure project supported a housing project,” Ishida told Civil Beat. “We looked at just the project (applications). I don’t know anything about the Camp 808 thing, I really don’t.”

Ishida says ORI is not the only nonprofit to have loans forgiven. Instead, he says the move was part of a larger plan to forgive old loans to groups that cannot afford to pay back the city.

“Over the years, it’s been pretty apparent to us that most of the special-needs housing projects — like shelters, even — they never have any money,” Ishida said. “What we’ve been in the process of doing is start to convert some of these loans over to grants. It takes them off our books. In retrospect, these loans should have been grants in the first place.”

ORI’s nonprofit tax filings from 2009 show that the company’s net worth at the end of that fiscal year was nearly $16 million, including about $1.3 million in cash or cash equivalents.

The 2009 filing, which ORI provided to Civil Beat and represents the most recent tax record available, also shows that ORI increased its expenses by nearly 50 percent between 2008 and 2009. The nonprofit spent $2.1 million in 2008, and $3.1 million in 2009.

Community Services Director Sam Moku, who took office in February, says he’s “not familiar” with any loans having been forgiven before he was sworn in.

Former Community Services Director Ernie Martin, who is now a City Council member, has refused to discuss his previous role at the helm of the department.

ORI’s program director could not be reached Tuesday afternoon. Keith DeMello, a spokesman for ORI who was hired to handle communications for the nonprofit in the wake of HUD’s investigation, told Civil Beat he was not familiar with the loan forgiveness.

A spokeswoman for the mayor told Civil Beat that Budget and Fiscal Services Director Mike Hansen — not the mayor or managing director — would be the best person to field questions about the loan forgiveness. Hansen was out of the office until Wednesday.

DeMello said ORI is drafting a letter to the city that addresses HUD’s allegations. He said the letter could be ready as soon as Wednesday.

DISCUSSION: *What do you think of the city’s decision to forgive its loans to ORI? Join the conversation.