Audit tells state: Repay $76 million in fund flap

BY IAN Y. LIND, Star-Bulletin

The financially strapped state government should be required to repay more than $76 million to remedy a decision by former Gov. John Waihee to raid special airport funds for nonairport uses, a federal audit has recommended.

The audit found that the state misused funds, restricted by law to airport purposes, and that the Federal Aviation Administration failed to provide sufficient oversight to identify and prevent the problems.

Robin K. Dorn, regional manager for the inspector general of the U.S. Department of Transportation and leader of the audit team, said the amount involved is "significant" and may increase because interest is accruing.

The audit recommends the state repay $64.4 million in airport funds used to purchase land in Kapolei from Campbell Estate and pay an additional $6.5 million in interest.

The audit also recommended the state refund $5.6 million in federal grants due to a recent legal opinion that the state was not eligible to receive those grants due to a diversion of airport funds to highway use.

Dorn said the audit was released without comment from the FAA because of "a decision at the Washington level that we’re not going to wait endlessly for their response." The FAA now has 60 days in which to provide comments, including proposed corrective actions.

Marilyn Kali, public affairs officer for the state Department of Transportation, declined to answer questions about the audit.

"We will be setting up a meeting to find out how the FAA will respond to the audit recommendations," Kali said in a brief written statement. "Any comments from DOT at this time would be premature."

The audit, released April 28, was particularly critical of the state’s use of airport funds for the 1991 purchase of 161 acres of land in Kapolei, including the site of Hawaii Raceway Park. The audit concluded that state officials knew the land was not needed for airport purposes although they publicly claimed, and have continued to claim, that the acquisition was part of an ongoing expansion of Honolulu International Airport.

When the land purchase agreement was signed in November 1991, the state had already abandoned plans for a land exchange and knew tenants were not interested in moving to the site near Campbell Industrial Park, the audit found.

State transportation officials were "unable to provide documentation to support that the land was needed for airport purposes" when the audit team was in Honolulu last summer, the audit notes.

State records reviewed earlier by the Star-Bulletin indicated that Harold Masumoto, former director of the Office of State Planning and a close Waihee ally, had pushed the use of airport funds for the land purchase despite internal opposition from then-Transportation Director Ed Hirata and warnings from the state’s bond counsel.

The Board of Land and Natural Resources has given transportation officials authority to sell the Kaploei land if necessary to repay the airport fund. The state Land Use Commission is considering a request to change the designation of the Hawaii Raceway Park site from agriculture to "urban", a change likely to bolster the property’s market value.

The second part of the audit focuses on a controversial $250 million fund for highway construction that was created by special federal legislation. Through efforts of Sen. Dan Inouye, Hawaii obtained a unique, one-time exemption from the restrictions on airport-related revenues that allowed $250 million to be shifted from airport to highway use.

The law restricted use of the funds to highway projects "which will facilitate access to an airport" and are located within 10 miles by road of an airport. The law also provides that the state is not eligible for additional federal airport grants in any year in which the funds are spent, or available for, highway use.

Dorn said members of the audit team determined the H-3 interchange at Kahekili Highway in Kaneohe is beyond the 10-mile limit and ineligible for the special airport funds. About $6.9 million had been appropriated for this interchange and $1 million spent as of June 30, 1994, the audit states.

Additional highway projects, including a $2 million replacement of lights along Ala Moana and Vineyard boulevards with more efficient lighting, were also questioned by auditors. According to Dorn, auditors asked whether each project would improve airport access.

"More efficient lighting doesn’t have any impact," Dorn said. "You’re not going to be able to drive any faster or handle more cars because the lights take less energy."

The audit did not address whether these amounts must be refunded.

 Suit claims deal helped Waihee pal

The Kapolei land sale was structured to help Tom Enomoto, the documents suggest

BY IAN Y. LIND, Star-Bulletin

KEY state officials negotiating the 1991 purchase of land in Kapolei privately requested that the deal include benefits for a company involving Tom Enomoto, a close friend and campaign supporter of then-Gov. John Waihee, according to documents made public in a pending lawsuit.

According to the documents, state planning director Harold Masumoto asked for the company to be given a new five-year lease to operate Hawaii Raceway Park, with an option to renew for another five years. The state could not award a similar lease directly without going through a public auction process.

The state’s plan, not made public at the time but conveyed to Enomoto and others, was to later move the racetrack to the nearby ocean-front site of the former Hawaii Meat Co. feedlot, where Enomoto’s company planned a new, privately owned racing facility, the documents say.
The documents were filed in court by attorneys representing the owners of Hawaii Meat Co., who are seeking to recover losses allegedly sustained as a result of the state’s purchase of the land.

Masumoto, reached today, said he hadn’t seen the documents.

"All of this is innuendo. It’s just one side of the story," Masumoto said. "It’s kind of easy to make allegations. To back it up later might be more difficult. When you really go to trial, the whole story will come out."

Waihee and Enomoto could not be reached for comment today.

While negotiations between the state and the landowner, Campbell Estate, were under way, Enomoto and business associates were paying racing-related expenses for Waihee, an avid amateur racer, according to William B. Clutter, the former owner of a racing school at Hawaii Raceway Park.

According to parts of Clutter’s sworn statement, were made public in court filings this week:

In 1990, Robert McFarlane, an Enomoto business associate, paid about $1,000 for the fireproof suit that Waihee wore in his first formal car race.

While in Las Vegas for a western governors conference in November 1990, Clutter arranged for Waihee to drive at a local racetrack. McFarlane, who was also along on the trip, then paid for dinner at "a very fancy French restaurant" for Clutter, his wife, and Waihee and his wife.

In March 1991, McFarlane and Enomoto accompanied Waihee on a trip to Japan, where the governor crashed into a concrete wall while racing a borrowed car. Damages of $1,910 were paid to the car’s Japanese owners by Land Process Service Corp., in which Enomoto and McFarlane are officers.

Also in 1991, Enomoto and McFarlane accompanied Waihee to California, where Clutter arranged for Waihee to drive race cars at Sears Point, a racetrack north of San Francisco.

Clutter also says Enomoto and McFarlane bought a $70,000 sports car, which was made available to Waihee for his personal use.

"I was told by one of Waihee’s bodyguards later that they actually kept the car at Washington Place for, I’m guessing, a couple of weeks until it became too prominent, as it were, having this $70,000 black sports car going in and out of Washington Place. So they moved - subsequently moved the car to, I’m told, Enomoto’s place on Nimitz Highway," Clutter stated.

Similarly, he says, a Mirage Formula race car was set aside for Waihee at Clutter’s racing school.

The $110 million land purchase, the largest ever by the state government, included the racetrack and feedlot sites, along with 1,100 acres of former sugar land. The state used $64.4 million from a special airport fund to finance most of the purchase, claiming the original intention had been to use the racetrack site to exchange with the owners of land along Ualena Street needed for the expansion of Honolulu Airport.

An audit by the Inspector General of the U.S. Department of Transportation, released last month, found the diversion of airport funds was illegal because the Kapolei lands had no airport-related purpose.

Hawaii Raceway Park is operated by Hawaii Motorsports Center, a limited partnership. The general partner is Hawaii Motorsports Investors Inc., whose officers are Enomoto and Michael Oakland.

Masumoto has publicly said the lease to Enomoto’s company was legal because it was not the responsibility of the state. In a letter printed in the Star-Bulletin in July 1993, Masumoto said the lease had been "negotiated and issued" by Campbell before the state’s purchase of the land. "Campbell set the terms and conditions of the lease," Masumoto wrote.

The documents, however, paint a different picture. Campbell Estate executives Clinton Churchill and Jan Burns, who were directly involved in the land sale negotiations, informed Campbell trustees in a September 1991 memo that the state had raised the issue of the racetrack lease.

"We expect that the (state’s) proposal will involve an assignment of the existing lease to a partnership which includes Tom Enomoto," the memo stated.

The memo recommended that the estate agree to the Enomoto lease with a potential 10-year term "as an accommodation to the state . . . "

Enomoto then met privately on the morning of Sept. 30, 1991, with Churchill, Burns, and Masumoto. According to a memo from Enomoto to Oakland written later that same day, an agreement was reached on a lease that would "allow the state to buy the property ‘subject to’ our lease."

The memo also said a side agreement would allow Campbell to cancel the racetrack lease "if the state doesn’t buy the property."

The new lease was approved as part of the sales agreement, and was issued as part of a complex escrow transaction in December 1991. Campbell Estate transferred its ownership to an escrow company, which simultaneously issued the lease to Enomoto’s Hawaii Motorsports Center and assigned the fee interest to the state.

If the land had been transferred directly from Campbell to the state, any lease would have been governed by state law, which requires leases to be awarded through an auction process to the highest bidder. By "accommodating" the state, Campbell Estate made it possible for Enomoto’s company to obtain the lease without bidding.

As early as November 1991, a month before his company signed the lease, Enomoto circulated a proposal for a new "motorsports and auto-related industrial complex" on the 120-acre feedlot site. According to the proposal, the new site would become available because the state intends to develop the Hawaii Raceway Park site for other purposes. State law allows displaced tenants to be granted new leases without bidding.

The state is petitioning the Land Use Commission to change the designation of the raceway park land from agriculture to urban. This would allow it to be rezoned for industrial uses, and could trigger the displacement envisioned by Enomoto’s 1991 proposal.

Pull-out: If the land had been transferred directly from Campbell to the state, any lease would have been governed by state law.