Can Government Avoid Its Responsibilities with LLCs?

by Tom Yamachika, President, Tax Foundation Hawaii

Do you recognize any of these names: Hiʻilei Aloha LLC, Hiʻipaka LLC, and Hoʻokele Pono LLC?

For one thing, all of them have “LLC” in their names. LLC is an abbreviation for Limited Liability Company. A LLC is a legal “person,” something like a corporation but much easier to create and maintain. I could go to our Department of Commerce and Consumer Affairs today, give them a two-page form, and have a newly created LLC in my hands before I left the building. It’s much less effort to create than a kid, and it doesn’t need to be fed every day.

The LLCs that we are talking about today are run by “managers,” which is one of the ways LLCs can be managed. Their managers are Kamana’opono Crabbe, Lisa Victor, and David Laeha. These three individuals are the chief executive, chief operating, and chief financial officers, respectively, of the Office of Hawaiian Affairs (OHA). Obviously, the LLCs are related to OHA, and indeed their financial results are included within OHA’s published financial statements. And these LLCs are not financially insignificant. Hi’ipaka LLC was given sole title to the land containing Waimea Valley on Oahu, some 1,875 acres.

Now, OHA was born out of the 1978 Constitutional Convention. It's a semi-autonomous department with the State of Hawaii that was established by the Hawaii Constitution and chapter 10 of the Hawaii Revised Statutes. It's a $600 million trust that provides millions in grants every year. It has a trust obligation to help the Native Hawaiian community and advocate on their behalf especially when it comes to health, education, culture, land, governance and economic self-sufficiency.

Recently, these LLCs were in the center of controversy. Some members of the public wanted to obtain information about the LLCs’ dealings. The LLC’s attorneys told them to go take a hike, because the laws requiring disclosure of state agency information to the public don’t apply to the LLCs, at least in those attorneys’ minds.

On January 31, OHA’s Committee on Resource Management, consisting of publicly elected Trustees, unanimously moved to order its LLC managers to provide the LLCs’ check registers. The full Board of Trustees confirmed the committee’s action on February 7. As of March 7, Free Hawaii TV reported that the LLC documents still had not been turned over. Meaning that someone has been thumbing his nose at the Board of Trustees.

Isn’t that a great trick? Suppose you were the head of a state agency that was created by the state constitution, and your agency held title to some land. So you create a LLC with you and your top lieutenants as managers, and you drop some money and some land – like a whole ahupua’a – into the LLC. Then you can thumb your nose at state procurement law, state open records law, and other requirements for state agencies by simply noting that an LLC isn’t a state agency. You can spend money when you want and where you want, and you don’t even have to listen to any of those people in the State Capitol, not even the ones who gave you your job, because they aren’t managers of the LLC. That’s even better than a special fund!

My humble reaction? OH MY GOD, YOU MUST’VE FALLEN OFF THE DEEP END! HOW STUPID DO YOU THINK PEOPLE ARE? YOU’D BETTER STOP THIS INSANITY NOW, OR YOU WILL BE IN DEEP DOO-DOO! CAN YOU SAY, “ANKLE SHACKLES”?