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Drying up development: Maui's shortage of water sources and infrastructure has triggered an uncompromising approach to growth.

Last October, after only a month in office, Maui Water Director Rae Shikuma received a sobering introduction to the county's thirst for improved infrastructure. Attempting to get her bearings, the newly appointed Honolulu transplant consulted a geological report assessing the capacity of the Iao Aquifer, the water table underlying West Maui and Central Maui's main water source. The study indicated that 20 million gallons could be pumped daily from the aquifer without exceeding its capacity to replenish itself through rainfall.

No problem, thought Shikuma. In recent years, the Water Department had pumped a comfortable 17 million gallons per day. But after adding committed building permits to the total amount of water already being utilized, she was startled to find a dangerously high 19 million gallons per day of committed water. While still settling into her new job, Shikuma was suddenly in charge of a water source in danger of permanent damage. "That 20 mgd figure is really just an estimate--it could actually be 19 or 21," says Shikuma. "That made me real nervous."

Her immediate solution to the problem made Maui's business community equally nervous. Shikuma felt she had no choice but to recommend to then-Mayor Hannibal Tavares that he ban the issuance of building permits for Central Maui while her department explored alternative water sources. The 30-day moratorium imposed by Tavares last November 13 (which exempted residential building projects) was renewed once by him and then by his successor, Linda Lingle, who increased the period to 60 days. It expired on March 2 amid Lingle's vows that it would not be reimposed.

But Mayor Lingle may be forced to eat those words in the near future, since a number of short-term water sources have appeared to dry up. Shikuma has instead pushed for the construction of new wells and water lines to access sources in East Maui, the first of which would be completed no sooner than 1993. "That is if everything goes smoothly, which--in my experience of the last six months--never happens," says Shikuma. "This problem is not just going to go away."

The scope of such infrastructure problems is nothing new to Mauians. For years, the island's residents have been grappling with growth-induced problems such as inadequate roads, and sewer and water systems straining to meet demand. Discontent with the situation manifested itself in both public and governmental efforts to manage and even slow growth. But if 1990 and early 1991 are any indication, intolerance of the Valley Island's infrastructure shortfalls has hit the high-water mark.

One need only look at the list of moratoriums and other restrictions imposed or renewed within the past year as evidence of Maui's new, "just-say-no" approach to growth management. Besides the ban on building in Central Maui they include:

* a ban on building permits for new hotels in south and west Maui, enacted in March of this year and effective through December 31, 1992;

* a four-month ban on new golf courses, initially imposed in May 1990 and since thrice-renewed, that expires later this month unless reimposed by the Maui County Council;

* a water-related building moratorium in Kula, initially enacted in 1977 and renewed last month for another two years, and;

* tight restrictions on new sewer hookups in south Maui, which prioritize small residential projects, until planned sewage facility expansions are completed sometime in 1993.

despite the apparent movement toward a crackdown on growth, officials in government assert that the county is not getting tougher on development, but merely trying to manage it until the infrastructure catches up. But they admit for that to happen, the island must take a "tortoise-and-hare" stance. "The moratoriums aren't seen as planning tools but as resting areas while infrastructure is brought up to speed," says Brian Miskae, the county's planning director.

While those in the business community are sympathetic to an updated infrastructure, many still wince at the mention of the M-word. There is fear that moratoriums will be viewed as immovable roadblocks when word reaches outside developers and businesspeople. The island's reputation is already in need of polishing--according to Mike Lyons, Bank of Hawaii regional manager--especially because of the prevalent practice of assessing impact fees and other infrastructural requirements on hotel and residential developers. Although not a formal government policy, penalties imposed on developers are becoming more and more common because of Maui's increasingly problematic growth. The most publicized example is the state government's requirement that Japanese billionaire Gensiro Kawamoto spend $7 million to build a new elementary school for prospective residents of his 1,050-unit residential project in Kihei.

There is no evidence yet that the island's economic climate is scaring away big money. But, say many Maui business leaders, the telegraph sent by the county's efforts to put the brakes on development isn't likely to be ignored. "These moratoriums are a mistake, because they send the message to developers and other investors that they could have their feet jerked out from under them at any moment," says Lyons. "No one is going to want to invest money here if there is even a slight chance that they'll be stopped in their tracks."

Others view the current climate as further evidence that business, after bringing jobs and prosperity to Maui during the last decade, is now being forced to pay for government's inability to keep pace with the island's economic maturation. "Now we're the bad guys," says Joe Donaghy, head of the Maui Contractors Association and president of electrical contracting company Maui Light House Inc. "We're blamed for overcrowding the highways, depleting the water systems and overtaxing the sewer systems, when it's really due to the inadequacies of government in planning for the development."

Whether moratoriums will ultimately have the effect of letting infrastructure catch up with growth is also a question for some in the business community. "When you slap a ban on certain things, the people in charge of infrastructure are off the hook," says Wayne Hedani, president of the Maui Chamber of Commerce. "If you relax the pressure on them to get the job done, it actually prolongs the time it takes for infrastructure to be delivered."

Tourism's slowdown. Despite the halt to new hotel development, the moratorium probably could not have come at a less critical time, as the island's tourism industry struggles with flagging occupancy levels. In February of last year, a poll conducted by the 28-member Maui Hotel Association revealed that the county's hotel operators were expecting occupancies to average a comfortable 75 percent over the next 12 months. Figures for January 1990 had indicated 67 percent occupancies, and optimism that the trend would continue was running high.

Unfortunately, those polled lacked the benefit of a crystal ball, which would have revealed that a mainland recession and the Persian Gulf War were on the way. By January 1991, islandwide occupancies were averaging a devastating 55 percent. "I don't remember the projections ever being off that much," says Lynn Britton, executive director of the Maui Hotel Association.

In Maui's first year-to-year dip in tourist arrivals since the early 1980s, visitors to the island dropped from 2.5 million in 1989 to 2.4 million last year, and was attributed to consumer anxiety in the face of war and recession. The price of hotel accommodations slid as well, with the island's January 1990 average daily room rate of $151.52 falling to $142.32 a year later--a 6.1 percent decrease--while all other islands recorded price growth in the 2 to 4 percent range. Maui has consequently surrendered its dubious distinction as the most expensive county for an overnight stay to its upstart cousin, the Big Island, where properties averaged $147.64 per room in January 1991, according to the accounting firm of Pannell Kerr Forster.

Despite their recent failed attempts to predict the future, Maui's hoteliers are not gun-shy about making optimistic assessments for the rest of the year. With the troops returning from the Persian Gulf and the mainland recession showing signs of improvement, the trickle of Hawaii-bound vacationers is expected to become a steady flow, perhaps as soon as early 1992 or even late 1991. "They'll start to come back. It won't be like flipping a light switch but visitor levels will get back to normal eventually," says Frank Blackwell, president of the Maui Visitors Bureau.

Unfortunately for hotel operators, occupancy levels might be slowed somewhat by three new properties in the next year and a half. The 783-room Grand Hyatt Wailea is slated to open next month, the 413-room Kealani Suites is expected to follow in October, and the 550-room Ritz-Carlton Kapalua is projecting late 1992 debut. Some of their competitors remain optimistic, however, pointing out that the new rooms will be absorbed easily by a returning surge of tourists. "We're expecting to be back close to normal levels by the time those hotels are ready, so they should have a minimal impact if any," says Mike White, chairman of the Maui Hotel Association and general manager of the Kaanapali Beach Hotel. "They may even have a positive impact, because of the added exposure the island will get through their promotional campaigns and advertising," he adds.

Construction's pipeline. Although Maui business leaders oppose moratoriums on non-residential construction projects, the fact is there aren't many such projects in the pipeline anyway. According to Bank of Hawaii statistics, private construction permits on Maui totaled $433 million in 1990, a 36 percent increase over 1989's $316 million. Most of that increase, however, comes from a $92-million permit for the Ritz-Carlton Kapalua, which pushed non-residential construction permits over the $224-million mark, a 109 percent increase over the previous year. With Maui's other large hotel properties pegged for completion later this year, its resort building boom may be over for the time being. "There just isn't anything else in the pipeline after that, and that's a mjaor concern for contractors here," says Donaghy.

But there is no widespread panic among local builders. Two of Maui's signature crises will keep them busy--a severe shortage of affordable housing and the infrastructure shortfall. The duo is expected to keep the island's industry moving along at a steady pace. One of the most promising projects is the state Housing Finance and Development Corp.'s tentatively named Lahaina Master-Planned Community. In addition to 3,663 residential units, the project calls for the construction of parks, schools, churches and commercial facilities as well as infrastructure. Construction of the community is scheduled to begin in August, and will be completed in increments by the year 2000, providing a welcome source of steady work for contractors.

Likewise, in the minds of Mauians, there can never be enough infrastructure improvements, and public construction contracts reflect that sentiment. In 1990, $188 million worth of public construction contracts were awarded--an 84 percent increase over 1989 and the highest total in the island's history. "With the plans that are being made for housing and infrastructure, 1991 will probably be as good for the industry as the past few years," says Donaghy. "Those two areas of construction will take the baton from hotel and condo development."

Real estate's downturn. Optimism over plans for new residential construction shouldn't be limited to the building industry, however. Maui homebuyers may also be in for some good news, thanks to those plans and to a slowdown in the island's real estate market.

The latter appears to be putting the brakes on skyrocketing home and condominium prices. According to the Maui Board of Realtors, average single-family home prices plummeted from $452,084 for the second quarter of 1990 to $336,000 in the fourth quarter. Condo prices followed suit, falling from $244,275 to $237,000. Those numbers are reflective of a lethargy in the market, which began in mid-1990 and is still afflicting the industry. Monthly total sales of single-family homes and condominiums combined dropped from a high of 188 units last May to a mere 50 in February. In addition, total active listings grew from 1,214 last August to 1,866 in February.

With prices apparently slipping and construction shifting its emphasis to residential building, the outlook is brighter that Maui may one day come to grips with its housing shortage. Estimated at 8,000 to 10,000 units--significant considering Maui's population is only 137,000--the shortfall will be relieved in the coming years thanks to a number of planned projects, many of which contain large sections of affordable units. In addition to the state's Lahaina project, 60 percent of which will consist of affordable housing, home-hungry residents will welcome the Maui Lani subdivision, a 3,400-unit project south of Wailuku ranging from executive golf course homes to affordable units developed by Horita Development and partners Bill Mills and Everett Dowling. The state's Lahaina project will break ground in August, with the first homes expected to be completed a year later; Maui Lani's off-site construction should begin late this year and on-site construction launched in early 1992, with the first units available for occupancy in 1993.

Retailing's hanging tough. Maui retailers received a pleasant surprise last year. Retail sales had slowed from 10.6 percent in 1988 to 5.8 percent in 1989, but rebounded in 1990, confounding predictions that Maui's retailing industry was headed for a slump. The island's total retail sales grew 7.6 percent to $926 million between 1989 and 1990.

Despite the strong showing, the county's merchants may find it tough going in 1991, given the troubled state of Maui's visitor industry. Scott Crockford, general manager of the Kaahumanu Center in Kahului, reports that sales for the first quarter were down slightly compared to the first quarter of last year. Jim Davenport, manager of the nearby Maui Mall, says there is a noticeable drop in the buying of big-ticket items and clothing, although total sales at the mall are about even with last year due to increases in food purchases. Nevertheless, both center managers are optimistic that an improving mainland economy and the cessation of hostilities in the Middle East will quickly brighten Maui's retailing picture.

Agriculture's agony. There was no such sunny optimism on the agricultural front. While the perennial nemesis of farmers, bad weather, left the local pineapple crop alone in 1990, worldwide overproduction and resulting lower prices for local harvests contributed to yet another withering year for island growers. Maui Land and Pineapple Co., the county's largest producer of private-label pine, experienced its largest operating loss in the company's history, according to President Joe Hartley.

Equally gloomy about the state of today's market is Stephen Knox, president of Wailuku Agribusiness, who reports operating losses for the firm's pineapple and macadamia nut operations. While mac nut production grew from 2 million pounds in 1989 to 2.5 million last year, Knox said that hike was not enough to keep pace with increased costs. It might have been, says Knox, if blustery winds had not blown down so many of the company's younger trees, hampering efforts to expand the crop. "I think it's safe to say that Maui is not a good island to grow macadamia nuts," says Knox.

The news for the sugar industry was also not as sweet as hoped. After producing the second-best crop in the company's history in 1989--232,079 tons--Hawaiian Commercial and Sugar Co.'s production fell slightly to 225,555 in 1990. The showing at HC&S was largely responsible for Maui County's drop in total sugar output, from 272,324 tons in 1989 to 267,271 tons last year. A big reason for the decline was that the company was forced to reap a crop that was not yet fully mature. This is a side effect of early harvesting in recent years, aimed at protecting the cane against attacks by the corn-stalk bore, an insect which eats young shoots. The less-mature crop harvested today produces less cane per stalk. HC&S Executive Vice President and CEO Richard Cameron, however, says future HC&S harvests will consist of much older cane, and output should begin to grow with each year.

Also growing is the company's importance in meeting Maui's power needs, according to Cameron. HC&S supplied 12 percent of the county's electrical needs in 1990 through the burning of cane refuse, and will supply an even larger portion in 1991 and beyond, thanks to a new contract with Maui Electric Co..

High tech's dreams. Efforts to diversify the county's economic base into high-tech research and development made notable gains this year with the completion of infrastructure and the selling of three lots at the Maui Research and Technology Center in Kihei. Construction on two of the lots is already under way, according to Donald Malcolm, president of the Maui Economic Development Board, the agency responsible for building and managing the high-tech park.

One of the buildings under construction is Double P Partners' 48,000-square-foot structure, which is expected to be completed by November. In late March, Double P was in the process of negotiating 85 percent of the building's space, with prospective tenants including three Fortune 500 firms. Double P had already landed Rockwell International as the building's first major tenant, leasing 15,000 square feet to the high-tech giant. The other 40,000-square-foot building, being built by the state Department of Business, Economic Development and Tourism's High Technology Development Corp., will house a telecommunications center and technical conferencing facilities. "It's taken some time and a lot of hard work to get things off the ground here," says Malcolm. "But we'll begin to see the fruits of our labor very soon."
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Author:Martin, Daniel
Publication:Hawaii Business
Date:May 1, 1991
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