The Hawaii Department of Education’s “laissez-faire approach” to implementing a state law meant to offset the cost of building new schools in growing neighborhoods has lost the DOE an estimated $11 million in potential revenue, according to a state audit report released Tuesday.

The DOE’s administration of the 12-year-old “school impact fee” law, has been beset by poor oversight, a “lack of well-defined policies and procedures,” an inconsistent calculation of fees that at times were “based on questionable assumptions” and inexplicable delays, according to the report.

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“It is difficult to pinpoint whether these problems are the result of a lack of resources, lack of planning, or inherent flaws in the law that need to be identified and addressed. Most likely, it is a combination of these,” the 64-page report concludes.

The school impact fee law, passed by the Legislature in 2007, allows the DOE to collect fees from builders of new residential projects in designated districts to fund the construction of additional school facilities to accommodate population growth.

The school impact fee audit, which took place from February 2019 to June 2019, is the first performance analysis of a DOE program by the state auditor since its 2012 report on the DOE’s school bus transportation program.

Similarly to that audit, which lambasted the DOE’s management of the school bus system as “ineffective and unsystematic,” this one is not flattering.

The DOE challenged many of the audit’s key assertions in a Sept. 13 letter to State Auditor Les Kondo, which is attached to the report. But the DOE’s response, the auditor said, does not “address the crux of the issues we identified.”

The report criticizes the DOE for a lack of framework in all stages of implementing the impact fee law, from identifying the impact districts to collecting fees in a timely manner to setting up a separate interest-bearing special fund to hold these cash contributions.

“This laissez-faire approach is reflective of the DOE’s overall attitude toward school impact fees,” the report says.

For instance, the department delegated the task of identifying those areas that require new classrooms within the next 25 years to a sole DOE employee, a land use planner, with little guidance on how to proceed.

Identifying a school impact district is a nuanced and complex undertaking. The DOE has to make that determination based on comprehensive analysis of things like state and county land use, demographic trends and historic projections, according to the audit.

Yet the land planner the DOE tasked with identifying these districts “could not describe the specific procedures used to perform the work,” saying the process of designating such districts “is a matter of being ‘intuitive’ or having a ‘feel’ for the general development climate based on media reports and ‘keeping an ear to the ground,’” the report says.

Based on DOE’s analysis and recommendations, the Hawaii Board of Education has designated five impact fee districts throughout the state where student enrollment is expected to surpass current school capacity within 25 years.

Those districts include Leeward Oahu, the Kalihi-Ala Moana corridor on Oahu, West Maui, Central Maui and West Hawaii on the Big Island.

But the audit raises questions over the selection of some of these districts. In the 4-mile Kalihi-Ala Moana corridor — which covers a portion of the planned rail line — the types of anticipated housing development and value of the land vary widely.

“Instead of designating separate impact fee districts for these widely disparate areas, department planners lumped them together and created separate metrics for luxury residential units and public housing projects,” the report says.

It was within the Kalihi-Ala Moana district where the DOE failed to collect more than $10.7 million in potential fee revenue, according to the audit. Kondo’s office based that figure on an analysis of 32 building permit applications which cover more than 2,800 planned residences, and calculating that number by an impact fee of $3,864 per unit.

Leaving millions of potential impact fee revenue unaccounted for is significant, according to the audit, due to the extremely high costs of building a new school facility. The cost of a new elementary school to the DOE is approximately $80 million, but the department has collected only $5.3 million in fees since the law’s passage, the audit notes, leading Kondo to conclude the law has had “questionable impact.”

But the DOE clearly disagrees. In its Sept. 13 response, it argues such fees play “a vital role in the development of new schools by providing 100 percent of school land and 10 percent of the construction cost for new school facilities.”

The auditor’s recommendations to the DOE include completing an assessment of the staffing and resources required to properly implement the law; creating written policies and procedures to administer the law; a full tracking and accounting of the money paid under the law; and obtaining state Attorney General guidance on any constitutional restrictions associated with impact fees.

The auditor also recommends the Board of Education direct the DOE to submit written reports showing it has satisfied some of the recommendations.

Read the full audit here: