The city has granted a third six-month extension on an application to subdivide land at the Turtle Bay Resort, allowing preparatory work to move ahead but stopping short of giving the owner what it wants — permission to develop the property fully.

The property manager for Oaktree Capital Management said he is happy with the extension, and opponents of the planned hotel expansion said they're not worried.

Given the state's economic downturn, both sides now believe there is little chance the state can purchase the property outright.

Gov. Linda Lingle announced in her State of the State address in January that the state should acquire the property to limit development there and maintain open space. Since then, the governor's Turtle Bay Advisory Working Group has been meeting regularly to figure out how to do that.

But meanwhile, the economy has sputtered, with tourism — the state's No. 1 industry — off significantly, tax collections down and Lingle ordering state belt-tightening across the board and preparing for more drastic cuts should they become necessary.

"How can they even consider appropriating money to buy this thing when we're looking at a $160 million deficit through fiscal year June '09 and a $900 million deficit through 2010?" said Stanford Carr, manager of Turtle Bay Resort and the development plan for the 880 acres there.

The state Department of Budget and Finance has projected a deficit of $162.3 million for this fiscal year and, if state revenues do not increase and spending reductions are not made, the deficit would balloon to $584.5 million after fiscal year 2010 and $903 million after fiscal year 2011.

Lingle's office said she had no updates to report on the state of the plan to purchase Turtle Bay.

The property has been under a cloud of controversy for several years after Oaktree announced it would move forward on plans to develop up to five hotels with 3,500 rooms and condominium units approved in a 1986 agreement with the city. The agreement also called for four public parks, five beach accesses, public parking, job training, childcare facility and highway improvements.

Bob Nakata, with the Defend O'ahu Coalition, which has fought the planned expansion, said he never thought there was any real expectation that the state could buy the property. He noted that the granting of a full subdivision permit would have allowed Oaktree to proceed with the entire project.

"It's not the permit, so it's not the end of the world," Nakata said, referring to approval of an extension of Oaktree's application Friday by the city Department of Planning and Permitting.

Nakata said his group will ask the Land Use Commission to reconsider its request for a hearing, where it will argue that many of the conditions of the owner's 1986 agreement with the city have not been met and that the zoning change based on meeting those conditions should be rescinded.

"More than 20 years later, and they haven't followed through," Nakata said.

Carr said taking 20 years to complete a big project like this is not unusual. He said Kaanapali Resort on Maui has taken more than 50 years to complete and that Ko Olina Resort on O'ahu is still under development after some 20 years.

Financial backers count on development agreements with the county that spell out entitlements, zoning and community benefits, he said. It's a form of collateral, he said.

To cancel the Turtle Bay agreement would set a precedent that would frighten away potential investors.

"If they were to prevail in saying those entitlements are no longer good, what project in Hawai'i will any future lenders lend money on?" Carr said.

He said the permit extension granted by the city allows work to continue and the project to move forward.

Citing Subdivision Rules and Regulations, the city director for the Department of Planning and Permitting said in an e-mail that the new extension was granted four days before a previous six-month extension was to run out.

Henry Eng, planning department director, said under the rules, the city can grant the extension because the applicant complied with the following requirements: Construction plans for the subdivision were approved; the grading permit was issued; and work had begun and was verified by a city inspector Wednesday.

Other conditions that must be met before a final permit can be granted include everything from a well and a wastewater system to developing maps and improving Kuilima Drive.

Work has begun on widening Kuilima Drive from two lanes to four.