Ka Wai Ola - Office of Hawaiian Affairs, Volume 11, Number 6, 1 June 1994 — Revenue bonds open new horizons for OHA [ARTICLE+ILLUSTRATION]

Revenue bonds open new horizons for OHA

by Clayton H.W. Hee Chairman, Board of Trustees OHA took dramatic positive steps with the 1994 Legislature. The "sleeper" of the new laws is

the authorization enabling OHA to issue tax-free revenue bonds. This authorization (eommonIy known as "floating") opens new horizons by aIlowing OHA to leverage its money. Floating tax-free bonds enables projects to be financed

at the cheapest rate in Hawai'i. Anyone else selling bonds on today's market pays an interest rate of around 9 percent (and rising). If OHA was to float the bonds, the interest rate would be around 2 to 2.5 percent lower because it's tax free. On a bond float of S50 million, that equates to an interest saving of between 1 - 1.5 million dollars. Here's how it works. Let's say that OHA wanted to build an affordabIe housing project for kūpuna. After securing the land (in this case let's say the Department of Hawaiian Home Lands or the State of Hawai'i were to enter into a joint project by providing the land), OHA would then initiate the issuance of $25 million in revenue bonds. Onee the bonds were purchased by a bank, $25 million would be available to OHA for the eon-

struction of the project. The debt service (interest and principal repayments) on the revenue bond would be absorbed or repaid from the revenues of the housing pro-

, ject. Not a single pennywou\d be spent from the trust corpus to build kūpuna housing. Here's another idea. Let's say that OHA was to provide a mortgage program that is the cheapest in Hawai'i. Presently, the cheapest affordable

mortgage program is Hula Mae, where any first-time buyer in Hawai'i (meeting certain ineome criteria) ean apply for financing to purchase an apartment, condominium or home. Hula Mae will allow you up to 95 percent of the value of the purchase. The rate is fixed by the bank for 30 years and you ean borrow up to $237,500, providing you meet the minimum ability to make those payments. By floating tax-free bonds, OHA could exceed the already lowest standards of Hula Mae. It could allow Hawaiians who are not able to qualify for Hula Mae because of a laek of minimum ineome or down payment, to obtain a mortgage. lt ean expand the numbers of Hawaiians who will finally be able to buy that home they previously weren't qualified for. Already certain Hawai'i banks

have committed assistance to Hawaiians in another OHA loan program, making all of their branches statewide available. If the mortage program idea becomes reality, Hawaiians could go to any participating bank on any island to apply for the loan. Their people, their computers, their appraisers, their loan processors work for us. The cost isn't free. After all, someone has to pay for the workers. But the cost is about half of what anyone else would pay.

OHA may some day become the biggest "bank," able to access any participating bank's branches statewide. This would save OHA from buying or establishing its own bank, buying space, hiring people, training them, buying computers and paying workers compensation, unemployment, health and retirement costs. It would save the Hawaiian people millions and millions of dollars. As one bank consultant said, "Why would you buy a bank with all of its institutional costs when banks in Hawai'i are so willing to commit their people and expertise virtually for free for Hawaiians?" By issuing tax-free bonds for an OHA "'Ohana Mae" program, OHA ean give Hawaiians the opportunity to purchase their home at the cheapest rate, while becoming the biggest bank in Hawai'i, bar none!