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Oct 30

Viewpoint: Getting it right with County spending

Posted on October 30, 2013 at 12:00 AM by Office of Council Services


Published on The Maui News Oct. 27, 2013
By: Mike White, The Maui News

The price tag: $13 million. The question: Are County taxpayers paying too much?

The County Council is being asked to authorize the purchase of 186 acres in Launiupoko based on a $13 million appraised value that is fundamentally flawed. The land consists of a 148-acre parcel and a portion of a 214–acre parcel.

The valuation is surprising when compared to an appraisal done on the same 214-acre parcel just five years earlier by the same appraiser. The appraised market value in 2007 was just $6.25 million--even though overall prices back then were 40% higher than today. Adjusted to today’s values, the price could be $4.2 million. Twelve years ago, the property was purchased for less than $1.1 million.

It is time for a new appraisal by a second appraiser.

Photo of lot

The first indication something was amiss came when we heard there had been an earlier draft of the appraisal at a much lower value. We requested a copy of the draft from the administration and were told it had been “destroyed”.

We then requested copies of correspondence initiating the job, a copy of the draft that could have been retrieved from the appraiser and copies of subsequent correspondence with instructions on how the appraisal was to be done. The administration refused to provide the committee with the requested documents and until today, has provided no reason for the decision.

After learning of the earlier draft, we took a closer look at the appraisal itself. The appraisal is fundamentally flawed because the client (the county administration) provided the appraiser with certain conditions and assumptions to be used in calculating value. The result, understandably, is an inflated price rather than an estimate of fair market value which would likely have been achieved without such directions.

There are two problems with the appraisal. The first is that the appraiser was told to value the 148-acre parcel as a completed 8-lot subdivision but only deduct estimated construction costs, or a portion of the cost normally used to adjust gross value to arrive at a valid estimate of what the parcel is worth.

The appraisal further states that the “highest and best use” for the 37.7 and 32.7-acre non-developable properties is open space or park use. Yet, both properties are valued using comparable sales of developable lots. These properties account for $5.8 million of the purchase price even though these lots, once subdivided, have NO market value because nothing can be built on them.

On September 20, the council passed a resolution authorizing a reappraisal by the same appraiser, but without relying upon dissimilar land sales, hypothetical conditions, and extraordinary assumptions in valuing the properties. This past week, the appraiser responded, agreeing to do a reappraisal, but indicating it could take up to 90 days, past the December 31 deadline set by the seller.

In the past, the same appraiser completed a reappraisal on the County’s purchase of 63 acres in Paukukalo within a matter of days.

Is the 90-day timeframe part of a strategy to allow the clock to run on the council making an informed decision? And why? If we are going to give a developer a $12 million profit for 12 years of ownership, we should take the time and do everything possible to make sure we have the value right.

It is my understanding the appraisal presented would not be deemed acceptable by a financial institution as a statement of value in a bank-funded transaction. Why, then, should the Council accept it?

The council is being asked to make a $13 million purchase based on only one opinion of value. Even for office purchases or travel arrangements, the council typically requires three quotes. More information is sorely needed.

To provide the appropriate oversight and due diligence, the Council must now move ahead with at least one new appraisal done by a second appraiser without the flawed conditions and assumptions provided by the administration.

Last November, voters approved a Charter amendment declaring it to be the policy of the county to “promote economy, efficiency and improved service in the transaction of the public business in the legislative and executive branches of the county by: (1) Limiting expenditures to the lowest amount consistent with the efficient performance of essential services, activities, and functions.”

A second and separate appraisal is needed to know whether this purchase is prudent. My request to authorize the Council Chair to obtain such an appraisal will be considered at the Budget and Finance Committee meeting on Tuesday.

You, the voters, want the County to spend your hard-earned money wisely. Ensuring the proposed purchase price is fair is the first step toward fulfilling that mandate.

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