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The city of Honolulu may have to pay back millions of dollars it received in grants after a federal analysis found that it wasted $10 million on building space that sits empty.

“The city squandered $10 million on abandoned or vacant projects while the island of Oahu struggles with homeless and affordable housing for low-income families,” the U.S. Department of Housing and Urban Development said in a report released last fall.

Though HUD published its analysis in September, the city is still working to meet the requirements to avoid having to pay back millions of dollars in federal funding in March. So far, it looks like the city will pay back at least $60,000 to make up for one abandoned project and improper spending on administrative costs.

The need to repay these funds is part of a broader failure of Mayor Kirk Caldwell’s administration to properly manage funding from the U.S. Department of Housing and Urban Development. The federal agency provides grants to municipalities nationwide that can help provide affordable housing, address homelessness and revitalize poor neighborhoods.

The city already lost nearly $5 million in HUD funding after a monitoring report in November revealed that Honolulu didn’t meet requirements for four separate grants. And the city had to pay back $1.45 million last summer in response to a critical federal audit of the same grants.

Things could get worse.

The vacant building space was supposed to be put to use through the designed to help low- and moderate-income neighborhoods. CDBG grants can be used for many types of projects, including low-income housing, day care facilities and even firetrucks. The funding stream is particularly important in Honolulu, where affordable housing is in extremely short supply and homelessness increases every year.

Mark Chandler, who oversees the HUD grant program in Honolulu, says that the city has until March to put four properties into use. If not, the federal agency may require the city to pay back the money.

So far, the city intends to pay back at least $52,800 associated with one project in Alewa Heights. The money will go back into a federal fund that can be used for other Honolulu housing projects.

The city also has to pay back thousands of dollars after the same analysis found that officials misspent grant money on non-qualifying administrative costs. Chandler said the city estimated it will have to pay back $8,600 to make up for that, but HUD said it still needs to confirm the amount.

The September analysis of the CDBG program analyzed 10 projects worth more than $23 million and found some facilities had been vacant for years. Other projects had no paperwork to show they had been used in accordance with grant regulations.

These four buildings need to be put to full use by March or the city could owe millions. Below are the total grant amounts for each property — the city wouldn’t necessarily need to repay the entire amount:

• $2.69 million for Waipahu Adult Day Care and Child Day Center. HUD said 75 percent of the facility was unoccupied and the city is currently reviewing a lease for a nonprofit.
• $52,800 for Hale Kakoo in Alewa Heights. The building used to serve as an adult day care center, but HUD found the building abandoned and now the city plans to pay the money back.
• $7.94 million for Chinatown Gateway (commercial space). The building was supposed to help revitalize Chinatown, but HUD said nearly all commercial space was empty. The city is looking for new lessees.
• $3.06 million for the Chinatown Community Cultural Center. Part of the building was empty for four years, and now the Honolulu Police Department plans to use that space.

Empty Buildings, Wasted Money

The Waianae Coast Comprehensive Health Center ran an adult day care program called Hale Kakoo in the city’s Alewa Heights facility for eight years. But when federal regulators showed up to inspect the building last year, the facility hadn’t been occupied in four  years.

Caldwell’s spokesman, Andrew Pereira, said in an email that the city isn’t “putting the property back into use because of the difficulties we have had finding a use that is acceptable to both HUD and the neighborhood.”

Pereira said the Department of Budget and Fiscal Services is leading efforts to obtain a current appraisal of the site. The city is required to pay HUD back not simply its initial investment, but the equivalent proportion of the current fair market value of the property.

After paying back the money, the city is considering demolishing the building and turning the land into a park — maybe a dog park.

A much bigger financial concern is that HUD could ask for more than $8 million in CDBG grant money that helped fund the Chinatown Gateway Plaza. The project qualified for the funding because it was supposed to help revitalize Chinatown, a neighborhood made up of residents with low and moderate incomes.

Local real estate analyst Ricky Cassiday said the space could generate thousands of dollars in monthly rent. But Pereira said the soft commercial market has made it hard to rent out the space.

“The market for office/commercial space in Chinatown has been extremely weak, and the city has been trying to market it for quite some time,” he wrote.

HUD also found that 800 square feet of space in the Chinatown Community Cultural Center has been empty for four years.

Similarly, the city received more than $3.2 million to build a nonprofit housing assistance organization called the Pacific Housing Assistance Corp. on 888 Iwilei Road, but HUD concluded that one of the facility spaces had been empty for three years.

Putting Properties Back In Use

Periera said city officials weren’t available for an interview about the situation. But his email said the city is trying to put three of the four properties flagged by HUD into use by the March deadline.

The city is reviewing the possibility of leasing the Waipahu day care center to Hina Mauka, a nonprofit that helps people overcome substance abuse problems. The Honolulu Police Department is in the process of filling up the empty space in the Chinatown Community Cultural Center.

The city is also considering putting a community art center, food court or even a satellite city hall in the vacant space in Chinatown Gateway Plaza. Another option is to convert part of the second floor to residential units, but that would require more resources to manage them.

The efforts are part of a broader overhaul of how the city manages grant money from HUD that involves clarifying responsibilities among departments, bringing in new leadership and improving planning and budgeting.

Chandler said the reforms are promising, but he’s not sure whether the city is on track to meet the March deadline.

“With the city, it’s kind of hard to tell,” he said, noting that sometimes the city will contact HUD and “it will look good and then it will just fall apart.”

“I don’t know why things like that happen with them,” Chandler said. “I’m not sure, we’re waiting to see.”