Hawaii businessman and socialite Walter Dillingham built his coral-pink, Italian-style villa on the slopes of Diamond Head crater in the early 1920s.

With its arched walkways, imported olive trees, a swimming pool and stone servants’ quarters, it was a fitting home for the man Time magazine proclaimed in 1929 to be the “No. 1 Tycoon of the Islands.”

Hawaii State Archives

Dillingham had a spectacular view as homes and hotels rapidly took shape down below in Waikiki. It was a scene that, at least for a time, must have pleased him tremendously — he was in many ways responsible for the booming real estate development.

In the 1920s, Dillingham’s Ala Wai Canal project helped Waikiki grow into the business and tourist mecca that it is today, where high-rise hotels crowd the skyline and attract more than 4 million visitors a year.

But it might have been Hawaii’s biggest mistake.

The canal development destroyed vital wetlands and productive tropical agriculture, including farms and fish ponds that had sustained Native Hawaiians for decades. The wetlands, fed by the streams running down from Makiki, Manoa and Palolo, filtered trash and sediment and kept Wakiki’s storied beaches sparkling.

Over the decades, all sorts of pollution — pesticides, heavy metals, sediments and even raw sewage — has flowed into the canal. As Honolulu’s upstream population mushroomed, contamination in the canal has steadily increased and over the years levels of pollution have tested well above limits considered safe. One local man died from bacterial infections he picked up after falling in the water.

But an even bigger problem is looming. A mistake made nearly 100 years ago is putting the economic heart of Hawaii in jeopardy.

Even before the canal was finished in 1927, engineers realized they’d made a serious miscalculation. The two-mile-long waterway was originally envisioned to have two outlets, one on either end, to allow runoff and sedimentation to be flushed into the ocean.

But the eastern outlet, near Kapiolani Park and Kaimana Beach, was abandoned when builders figured out the currents would sweep the contamination west — right onto the treasured Waikiki Beach where luxury hotels had already started attracting wealthy visitors from the mainland. (Click here for a map of the canal area.)

Now, federal flood control experts are worried that a heavy rain could cause the Ala Wai to overflow its sides, creating a fast-moving flood big enough to wipe out Waikiki. They say a major rainstorm and serious flood could put the area from Diamond Head to Ala Moana all the way up to Moiliili under five feet of water. The consequences of such destruction are enormous.

For years, the U.S. Army Corps of Engineers along with state and city officials have been struggling to put in place measures that would prevent disaster. Significant dredging, a deeper channel, a wider McCully bridge, even walls along the canal are being considered.

It’s a $100 million solution at a time when federal money is growing tighter and state and local budgets are paper thin.

Video Ala Wai Canal: Hawaii’s Biggest Mistake?

Civil Beat researched historical documents dating back to the turn of the century and reviewed decades of environmental and engineering studies for this story. We interviewed dozens of federal, state and city officials, as well as business leaders, environmental advocates and neighborhood activists to understand the intricate role the Ala Wai Canal has played — and is continuing to play — in the future of Hawaii. (Click here to watch a video of the canal’s history and here for a slideshow of historic photos.)

Derek Chow, chief of the civil and public works branch at the Corps of Engineers in Honolulu, has been one of those studying the Ala Wai Canal for years.

He doesn’t mince words when it comes to the potential risk to the area he recognizes as “the main economic engine of Hawaii.” He talks earnestly about what could be immense property damage and loss of life from a major swiftly moving flood.

The speed of the water would knock you down, he said in a recent interview with Civil Beat that included about a dozen federal, state and city officials sitting around a conference table at the state Department of Land and Natural Resources to describe their combined efforts to address the situation.

“After the flood you are going to be cleaning up,” said Chow, “and after the cleanup of the flood you are going to be rebuilding.”

The Vision For Waikiki

In 2013, it’s come down to a boardroom full of government officials trying to figure out what to do.

But at the turn of the 20th century, Hawaii’s business and political leaders were much more inclined to worry about how to transform their most valuable beachfront real estate into what some envisioned as a new Southern California, an area that was booming as World War I loomed. The Ala Wai Canal would be the “Venice of the Pacific” — a vision stolen from both the famous landmark of Italy and the rapidly growing California suburb by the same name where newly constructed canals had allowed wetlands to be replaced with solid ground suitable for building.

First, though, Hawaii’s civic leaders needed to do much the same to the vast tracts of land between the golden sand beach and the base of the Manoa, Makiki and Palolo valleys where taro and fish ponds, banana fields and farms flourished.

The intricate farming system tended by Native Hawaiians for centuries had suffered during the 1800s as the population succumbed to western diseases. But by the early 1900s, agriculture and aquaculture were undergoing a renaissance. Increasing numbers of Asians, particularly Chinese, moved in to help tend the fields, which at the time included more than 500 acres of inland rice fields and 15 fish ponds situated along Waikiki.

Act 61, passed by the territorial government three years after the overthrow of the royal monarchy, gave the Board of Health the power to declare land unsanitary and require its owners to pay for upgrades.

In 1904, Lucius Pinkham, a transplant from Massachusetts who’d been in the islands for a few years, was appointed president of the Board of Health. He was managing Walter Dillingham’s hardware store at the time.

He soon began warning that the wetlands, which attracted mosquitoes, were a breeding ground for disease. That problem could be solved, he said, with a canal, which would drain the threatening wetlands. Even better, dredging would provide fill that could be used to raise the land above sea level and make it suitable for building homes.

In a 1906 letter to the board, Pinkham explained that Honolulu desired a population that made “Los Angeles and other towns of Southern California what they are.”

This included people “of private fortune, who seek an agreeable climate and surroundings, and who expend large already acquired incomes rather than those who expect the community to furnish them the opportunity of earning a livelihood and even that of the accumulation of wealth.”

And the most desirous neighborhood for such people, according to Pinkham, was Waikiki:

Other than a few lots on Kalakaua Ave. there are in the Waikiki district hundreds of acres that could be made, at comparatively small cost, exceedingly attractive and desirable by a comprehensive plan under governmental control that must otherwise remain of only agricultural value for rice and banana culture of valueless, or be gradually occupied by a class of population that limited means force onto undesirable and unsanitary land.

Historians debate to what degree leaders of the territorial government really believed that the wetlands posed a health hazard. After all, no disease outbreaks had been tied to the marshy landscape.

But there’s no argument that the primary motive behind the Ala Wai Canal was real estate development.

A City Takes Shape

Waikiki was already on the upswing.

The area’s sandy beaches, gentle surf and groves of coconut trees had long been a favorite residence of alii and were increasingly attracting wealthy westerners and tourists. The plush Moana Hotel opened in 1901, followed a few years later by the Seaside Hotel.

As early as 1912, newspapers were advertising lots for sale on Kalakaua Avenue, along the eastern end of Waikiki. One touted that the area would grow into the “handsomest residence sections of Honolulu,” with future prices doubling and tripling.

That year, Dillingham bought 84 acres on the west end of Waikiki from the Bernice Pauahi Bishop Estate and another 146 acres at the McCully end of Waikiki.

Waikiki beach was already drawing such illustrious visitors as Jack London. And attractions to entice tourists were growing.

An ad for a newly opened lagoon along Waikiki promised amusements to accompany the ideal swimming conditions:

Bowling alleys, shooting galleries, shoot-the-chutes, scenic railways, and Carouselles will appeal in their various ways to the pleasure-seekers, while excellent dancing and roller skating will be afforded in the two big pavilions with their polished floors.

Pollution Is A Century-Old Problem

The leaders of the territorial government also had another problem they were trying to solve. Heavy rains caused streams to swell and flow through Waikiki and into the ocean.

The Apuakehau Stream was seen as particularly noxious. It ran right by the Moana Hotel and during rainstorms would become clogged with mud and debris.

In 1913, Pinkham was appointed governor by President Woodrow Wilson. He continued to push the idea of a canal and in 1917 put together a commission to come up with a plan to construct the waterway and reclaim the surrounding wetlands.

The area to be filled was extensive, spreading from the ocean to King Street and between Kapahulu Avenue and Sheridan Street.

In 1918, the Legislature, under the auspices of Act 61, authorized the Superintendent of Public Works to begin acquiring the necessary land for the canal project. For landowners keen on developing their lots it wasn’t a hardship. But for wetland farmers, who were now required to pay for filling in their lots, it meant the loss of their livelihoods, and often their land. Within two years, almost all of the land had been acquired through purchase or property liens.

Chang Fow, a farmer in the area complained in a letter to his landlord, Bishop Trust Co., that the work was flooding his property and killing his livestock. He was struggling to feed his six children.

(W)hen the lands adjacent to my farm were gradually being filled, the salt water escaped into my fish ponds and killed all of the fishes in them. Then when my flock of five hundred ducks swam about the ponds and ate the dead fishes floating in them, they got ill and died at the rate of about twenty to thirty every day until now I have only about a hundred of them left. The ducks died in such number each day that I have not had time to bury them fast enough and in the course of a day or two worms began to creep out of these carcasses and when my chicken, numbering over a hundred, ate these worms, most of them got sick and perished.

Dillingham Goes To Work

In 1920, Dillingham’s Hawaiian Dredging Co. won the bid to dredge the canal.

Following plans drawn up by the City Planning Commission, Dillingham and his men quickly got to work, scooping out mounds of sediment with his dredging machine, nicknamed “Kewalo,” or in Hawaiian, “place of wailing.”

But there were problems. The dinosaur-like structure that rose about 50 feet in the air couldn’t fit in the 60-foot wide canal that was called for by the engineering plans.

The engineers widened the canal to 150 feet. But then the dredging project was still short of enough material to fill in the wetlands. In 1923 the canal was widened again, to 250 feet.

By mid-1923, the “Kewalo” was making good progress. Lyman Bigelow, the superintendent of public works, announced that the canal had intercepted the Apuakehau Stream “and all the filthy waters which have previously flowed on to this fine swimming beach have been diverted and now flow out to the sea by way of the canal.”

The canal — two miles long, 25 feet deep and 250 feet wide — was finished in 1927. The western end opened into the ocean at the edge of Waikiki Beach.

The eastern outlet, at Kapiolani Park, was never built. Engineers worried that pollution flowing into the ocean would be carried back along Waikiki Beach. Besides, money was running out so the work was wrapped up.

‘The Whole World Knows Waikiki’

As civic boosters had hoped, the canal brought new economic prosperity to the island.

Where there had once been a single grocery store and one restaurant, the Waikiki Tavern, new diners, stores, delis and gas stations bloomed along Kalakaua Avenue. New homes dotted Waikiki’s lush green landscape. And The Royal Hawaiian Hotel, nicknamed the “Pink Palace of the Pacific,” opened its doors for the first time with a black-tie gala attended by more than 1,000 guests.

The development boom was “as remarkable as the emerging of the butterfly from the chrysalis,” according to a story in the Honolulu Advertiser, part of a 16-page spread in 1928 headlined, “The Whole World Knows Waikiki.”

The Hawaii Visitors Bureau reported an explosion of tourists, too, from 8,000 to more than 17,000.

“Waikiki — home of the surfboard, the outrigger canoe and the music boy — is today one of the most famous playgrounds of the world,” the Advertiser proclaimed. “It’s shading palms, protected beach, beautiful hotels, “Flappers,” Acre bungalows and tropical setting make it a district of romance and a swimmers paradise.”

While Waikiki was increasingly becoming a playground for the wealthy, the areas mauka of the canal were also gearing up for development.

The wetlands, duck ponds and acres of green agricultural plots had been replaced by sediment and broken coral. The “useless swamp lands” were now “pregnant with possibilities for development, not only of Waikiki, but of all Honolulu,” the newspaper gushed.

Recreational Oasis

Still, the Ala Wai Canal was far from a “Venice of the Pacific” in the years after its construction. Much of the landscape had been stripped bare, with sediment piled along its embankments.

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But the recreational activities that Pinkham had envisioned were starting to catch hold.

Men sat in chairs set into the embankment to fish. Boat races brought crowds that lined the sides. There was no broad concrete pathway to stroll along as there is today. So people clambered over rocks and bushes to swim and play in the water.

Swimming in the canal never did seem to gain great popularity, however. Perhaps because of the mud.

In 1935, two young girls ventured too far out in the canal and began to sink. George Alama, a 15-year old Boy Scout who was picnicking with his family heard the cries for help and dove five feet deep into the canal to pluck them out. The Boy Scouts of America recognized him nationally for his valor, noting that the rescue was particularly heroic because young Alama could have gotten stuck in the 20-inch-thick muck.

By the 1940s, civic clubs had planted trees around the canal, which was becoming more attractive and a gathering place for the growing Waikiki community.

Peter Apo, a former lawmaker now a trustee at the Office of Hawaiian Affairs, remembers clamming there with his family as a boy.

“It was a very cultural place,” he says. “People fished. In our case, we did clams. You had those fishing piers that ran out and people with crab nets. It was a gathering space.

“People would boat in the canal. It was all people from the neighborhood. It had a very nice sense of community around its use and that’s changed a lot ever since then …

“Waikiki was a real community. I mean people lived in houses there, there were grocery stores, there were clerks, there was a cleaners, there were barber shops, there were places where you bought groceries. So the canal was a part of a whole, real village, so to speak.”

Development Boom

By the 1950s, the economic promise of the Ala Wai Canal was being realized. Pinkham’s vision of Southern California had taken shape. Waikiki was a major tourist destination and the canal had even become a haven for boat racers. In 1956, the Yale Olympic crew trained on the Ala Wai on its way to the games in Melbourne, Australia.

But Waikiki was about to take off again, and this time even its biggest fan, Walter Dillingham, was taken aback.

By the late 1950s, Dillingham’s fortune and political influence had grown to a level unsurpassed in the islands.

“During World War II, when Franklin Roosevelt wanted to know about the situation in Hawaii, he phoned Walter Dillingham,” according to a Time magazine profile. “When President Eisenhower visited the islands, he stepped off his plane, looked about and immediately asked, “Where’s Walter?”

His personal fortune was equivalent to about $1 billion in today’s dollars. In addition to major military construction projects, Dillingham had profited handsomely in real estate development. In 1959, the land on the western edge of Waikiki that he’d bought in 1912 from the Bishop Estate was developed into the Ala Moana shopping center.

The “Big Five” sugar cane companies still maintained a stronghold in Hawaii politics, where the Republican Party dominated through the first half of the 20th century.

But in the mid-1950s, a rising group of Democrats successfully challenged Republican power — and Waikiki and Diamond Head became a battleground in a fight over land that threatened to leave powerful families like Dillingham’s on the sidelines of local politics.

The Democrats took over, promising broad land reform that would break up the large tracts and provide land and housing for ordinary people. But instead of land redistribution, the Democrats ultimately opted for land development.

“Thus rather than cut up the old pie of landed wealth in a different way, the idea was to make the pie grow rapidly and continually by developing land intensively, so that everyone could have more without anyone having to give up anything of significance,” George Cooper and Gavan Daws wrote in “Land and Power in Hawaii.”

“Within as little as three years after winning control of the Legislature, major land deals were being struck between Democratic developers/investors and Republican landowners. In other words, though the landed rich had been the avowed enemies of the Democrats for decades, now, almost overnight, Democrats became their partners in mutually profitable land deals.”

In Waikiki, beach bungalows and single-family homes began giving way to high-rise hotels and apartments.

“To put it impressionistically but accurately, the 1960s were the years when Hawaii, and especially Honolulu, went from rural to urban, from small-town to big-city, from low-rise to high-rise, from modest to gaudy, from slow-paced to hyperkinetic,” according to Cooper and Daws.

The changes in Waikiki were perhaps the most visible representation of this changing Hawaii. But with intensive development also came the seeds of an anti-development movement, as residents protested the loss of green space and crowding of public beaches.

One of these early protesters was Dillingham himself, who’d arguably done the most to allow the development to take place.

“Now intensive development was threatening to lap into his front yard,” wrote Cooper and Daws.

The flawed design of Dillingham’s canal project also was becoming apparent.

Major rainstorms in 1965 and 1967 sent water overtopping the canal’s banks, stranding cars and forcing pedestrians to wade through hub-cap-deep flows on Ala Wai Boulevard and Kalakaua Avenue.

Mud and sediment from the poorly flushed canal built up in the waterway, leaving some areas only a few inches deep. The state dredged the sediment in 1967, dumping it with all its contaminants into the ocean.

A Legacy of Pollution

By the time Apo returned to Oahu in the 1970s, after nearly two decades on the mainland, the community around the canal and in Waikiki had changed dramatically.

“It was totally different when I got back,” he says. “A lot of homes were displaced with apartments and high rises. So the sense of a residential Waikiki did a huge shift from single family homes and duplexes to apartment buildings.

“I know there is a residential Waikiki today, but it is a different kind of residential Waikiki.”

Urbanization brought major pollution problems to the Ala Wai Canal. Runoff from streets and fast-growing growing neighborhoods, including trash and chemicals, flowed downhill from Makiki, Palolo and Manoa into the canal and out into the boat harbor. Mercury, a dangerous pollutant associated with birth defects, was detected in the canal, and attributed to the boat paint used in the Ala Wai Boat Harbor.

Apo says he doesn’t think the clam beds survived the pollution. And by the 1970s there was a general sense that you shouldn’t eat out of the canal.

A 1976 report from the Department of Health warned that the canal water regularly violated fecal coliform counts — an indicator that high levels of bacteria persisted in the waterway.

This didn’t stop the Hawaiian canoe racers from making the canal a prime practice ground. But women were now being cautioned not to shave their legs in case they got cuts that could become infected from the water and paddlers began to complain regularly of skin infections and boils.

The canal was also filling up with muck again. The DLNR dredged it for a second time in 1978. The rotten-egg odor that came out of the muck — caused by the lack of oxygen in the water — is something that residents still complain about.

Development Continues But Attitudes Change

By 1980, the number of hotels in Waikiki numbered 35 and many of the small residential lots hidden by trees and native flora had been replaced by high-rises made of concrete and glass.

But an emerging environmental movement had brought anti-development protests that spilled out onto the grounds of the State Capitol. By the 1980s, protests had reached a crescendo, bringing new construction in Waikiki and Diamond Head to a near standstill that still persists.

The environmental consequences of the city’s rapid development were swirling even stronger in the Ala Wai Canal.

In 1983, a power outage disabled the city’s sewage pumps and officials simply dumped 2.5 million gallons of raw sewage into the Ala Wai Canal. Signs were posted — “Warning Polluted Water” — but area residents, by now accustomed to the idea that the water was polluted, didn’t take much notice.

People continued to fish and crab in the canal and canoe clubs held practices — until they realized that they were paddling through brown, smelly water.

“It’s been polluted all the time,” Marilyn Meyer, the mother of two Lokahi paddlers, told a Honolulu Advertiser reporter at the time. “We know the water is dirty but we didn’t know they dumped raw sewage in here. If the canoes flip over — which they do — sometimes the paddlers swallow the water, especially the novice paddlers.”

In 1991, the Department of Health posted signs warning residents not to swim in the canal. Tests on fish and crabs turned up dangerous levels of lead, prompting additional warnings not to eat out of the canal.

As awareness about the pollution mounted, government officials found themselves under increasing pressure to clean up the canal. Dozens of studies were done and a major community task force pressed into service.

The U.S. Environmental Protection Agency funneled a couple million dollars to community groups for cleanup efforts.

In 2002, the state dredged the canal again, and again deposited most of the contaminated muck in the ocean. But some of the sediment was deemed too toxic and was used as ground fill at the Honolulu airport.

Workers plucked “everything from carpets and tires to car batteries and shopping carts” out of the canal, according to a 2003 Honolulu Advertiser article.

Meanwhile, concerns were growing that a major rainstorm would generate a flood big enough to bury Waikiki, which by now had grown into the state’s major economic engine. In 2001, worried state officials turned to the U.S Army Corps of Engineers for help. For more than a decade, flood control experts have been working to put in place a plan to reduce the impacts of a major flood.

If there were any doubts about the serious situation surrounding the Ala Wai, they were laid to rest in 2006. A broken pipe sent raw sewage flowing onto the streets of Waikiki. Then-Mayor Mufi Hannemann decided to dump 48 million gallons of sewage into the Ala Wai Canal to stop the smelly mess from backing up into hotels, homes and businesses.

The sewage overwhelmed Waikiki beaches for days, leaving the famed waters deserted and paddlers searching for a new place to practice.

Oliver Johnson, a 34-year old Honolulu resident, fell into the Ala Wai Boat Harbor about a week after city officials began dumping the sewage into the canal. A massive bacterial infection claimed his life a few days later.

“I don’t want to be that glib and use him sort of as a martyr for this,” says DeSoto Brown, historian at Honolulu’s Bishop Museum. “But nonetheless, it is an indication of that environmental disaster.”

Contamination won’t get better until the state and city do something about upstream pollution. That means a politically difficult community discussion is in order — cracking down on property owners, big and small, who are major sources of trash, waste and chemicals that run down into the canal every time it rains.

“The Ala Wai is an urban sink,” says Gary Gill, deputy director for environmental health at the Hawaii Department of Health. He tried — unsuccessfully — to get the Legislature to do something about runoff this past session.

“So everything that washes off the land sits in there. And because we don’t have high tides in Hawaii, it doesn’t flush.”

Still, even the serious public health threat hasn’t kept locals away from the iconic canal.

Hundreds of paddlers and boaters make it one of the most used inland waterways in the state.

Despite the fact that the Ala Wai repeatedly falls far short of meeting state safety standards for recreational use, there is no move to prohibit paddling or recreation.

“In the 1990s, the Ala Wai got a lot of attention and a ton of money,” said Robert Harris, executive director of the Hawaii Sierra Club, which also has not pursued environmental cleanup of the canal as actively as it once did. “Now, a lot of that money and attention has faded away.”

Coming Tuesday: Environmental oversight of the canal is lax