The cost of a planned 388-lot Hawaiian Home Lands residential development in Upcountry Maui has doubled in three years to nearly $75 million — and that's before any houses have been built.

The history of the project typifies the state Department of Hawaiian Home Lands' 86-year history of long-delayed efforts to make land available to Native Hawaiians.

The land itself is like much of the property bequeathed to DHHL by the federal government in 1920: remote, rugged, breathtakingly beautiful — and dry.

For decades, the property on the slopes of Haleakala in the Kula area of Maui lay fallow and was leased for pennies an acre to non-Hawaiians for cattle and horse grazing.

In the mid-1980s, following a series of searing audits and reports about the ever-growing list of Hawaiians waiting to receive property from DHHL, the department simply distributed 71 two-acre agricultural lot leases in one land tract called Keokea to qualified applicants. But there were no roads, no water, no electricity, no sewers.

Just the land.

Some of the lessees had been waiting decades for land, and four families actually built houses on the raw land.

"Three families moved from O'ahu and built houses, found alternative power sources. They live off the grid," said the Rev. Tasha Kama, president and chief executive of the state Council of Hawaiian Homestead Associations. "It's amazing what they've done."

In the late 1990s, DHHL awarded a $500,000 nonbid consultant contract to SSFM International Inc., to draw up plans for a fully-improved 71-lot agricultural subdivision at Keokea.

SSFM was supposed to finish the job in a year and a half, but the work moved slowly, delayed by both the consultant and the department, according to contract files.

Bids based on SSFM's plans for infrastructure work at Keokea — roads, drainage and the all-important water line — were finally solicited in 2002 but turned out to be prohibitively expensive. The lowest price was $22.4 million. Combined with the cost of the design contract, that put the per-lot cost of the development at more than $326,000.

And houses would still have to be built.

The infrastructure contract was never awarded, but SSFM kept the consulting contract.

In January 2003, Gov. Linda Lingle took office and installed Micah Kane at the helm of DHHL. Lingle and Kane, the former head of the Hawai'i Republican Party, pledged to rid state government of consultant-contract cronyism and to finally get the DHHL to fulfill its commitments to build houses and make land available to Hawaiians.

SSFM was in the middle of what former state Campaign Spending Commission Director Robert Watada called the "pay-to-play-system" of illegal political donations by architectural and engineering firms in Hawai'i.

SSFM President Michael Matsumoto in late 2003 agreed to personally pay a record fine of $303,000 for arranging $425,000 in illegal campaign donations over the previous decade to a variety of Isle politicians, most of them Democrats.

Kane canceled the SSFM contract April 5, 2004. "There was incompetency of design. We decided to terminate the contract and redesign the project," Kane said.

Matsumoto, of SSFM, declined to comment on Kane's statement. "I don't think I want to say anything at all," he said.

Less than a month after the SSFM contract was canceled, Kane assigned the redesign work to Community Planning and Engineering Inc. Cost of the new nonbid contract: $2.23 million.

The award of that DHHL contract and others to Community Planning may have violated a requirement in state procurement law that the selection process be impartial and independent.

Three DHHL employees who selected the company as "best qualified" for its first five nonbid contracts, including the Keokea job, had past ties to the company, according to government records and interviews. All told, the company has received 11 nonbid jobs from DHHL worth nearly $15 million. The Keokea contract is the largest.

Community Planning President Joseph Pickard, who bought a controlling interest in the company in mid-2003, is a major donor and fundraiser for the Hawai'i Republican Party.

PROJECT GROWS

The new Maui contract was much more expensive because it involved a much larger project than envisioned under the earlier DHHL-SSFM plan for Keokea.

The new project combined the Keokea agricultural subdivision with a new 320-unit residential development on another tract of adjacent DHHL property called Waiohuli.

By re-routing the water line and making other on- and off-site improvements available to the adjoining properties, the costs could be spread over a much larger development, Kane said in a June 2004 interview.

Community Planning and Kane estimated, back then, that the infrastructure costs of the new development, built in two phases, would be $35 million — less than $90,000 per lot.

That's not how it has worked out. The new infrastructure cost estimate is $70 million, and that's assuming construction costs flatten or drop over the next few years, Kane said.

The job has now been divided into four phases. The first and largest phase, now under way, involves installation of the water line and infrastructure work for the agricultural subdivision (now reduced to 68 lots) and 80 units of the adjoining development.

The cost of the Phase 1 work, begun in June and being handled by Kiewit Pacific Co., is now nearly $31 million.

Community Planning's consultant contract has increased from $2.23 million to $3.4 million. And the company received a new, $422,000 nonbid contract in March to oversee the Phase 1 infrastructure work.

Kane noted in a recent interview that infrastructure costs, boosted by a large spike in construction prices nationally, have been staggering to the department.

"We cannot continue to bear these major off-site costs because it's just not feasible," he said. "In order for us to succeed in what we're doing, we're going to have to approach development a little bit differently."

That approach means partnering in projects so that DHHL does not "develop in isolation," Kane said.

The department is going it alone at Keokea-Waiohuli. If all goes well, Kane acknowledged, the total cost of work, before any homes are built, will be $74 million, including the consultant fees charged to date by Community Planning.

That's more than twice as much as the company and Kane predicted the work would cost in mid-2004.

"That figure is almost unheard of," said Kama, of the homesteaders association. "There's all this money in the ground, but they haven't even started building homes," she said.

CHALLENGES

Pickard of Community Planning said the price increase is solely attributable to "the (construction) cost escalation that's occurred over the last four years."

The design work has been daunting, Pickard said.

When it does rain in Kula, "there's huge discharges of water in that basin," creating serious drainage problems for the development, said Pickard.

"In fact, my engineers — and some of those guys have been working here for 35 years — said it's the most challenging drainage project that they've ever tackled.

"For many, many years, this (project) has been on the top of the department's wish list. The top. And nobody could lick it. And the reason nobody could lick it was because less-than-capable engineers were out there telling people it's going to cost you $300,000 to develop each lot," Pickard said.

"If they had people like us," he continued, "who know the subdivision business, who really know what they are doing, they could've got this thing built for a reasonable price. And we did it."

Oswald Stender, at-large trustee of the state Office of Hawaiian Affairs with extensive background in land development, wondered about the economic wisdom of spending at least $75 million in nonrecoverable infrastructure costs for a project of fewer than 400 homes.

"There must be something wrong with those numbers," said Stender, former chief executive of the Campbell Estate. "I've never heard of infrastructure costs that high," Stender said.

Those costs will never be directly recovered. The department won't pass those costs on to homeowners.

"Usually, that money gets recouped by the developer when it sells the land and homes," Kama noted. But Kane said that would drive the cost of ownership far out of the reach of qualified applicants.

Reach Jim Dooley at jdooley@honoluluadvertiser.com.