Administrative Testimony

Testimony of Kamana‘opono Crabbe, Ph.D

Ka Pouhana, Chief Executive Officer

University of Hawaiʻi Board of Regents Agenda Item X8

APPROVAL OF MAUNA KEA SUBLEASE AND NON-EXCLUSIVE EASEMENT AGREEMENT WITH TMT INTERNATIONAL OBSERVATORY, LLC

February 20, 2014 9:15 a.m., 1st Floor Conference Room

The administration of the Office of Hawaiian Affairs (OHA) offers the following comments regarding the proposed Sublease and Non-Exclusive Easement Agreement (Sublease) with TMT International Observatory, LLC (TIO) for the construction and operation of the Thirty Meter Telescope (TMT), and urges the University of Hawaiʻi (UH) Board of Regents (BOR) to carefully consider these concerns as they may relate to the encumbrance of culturally, environmentally and financially valuable lands on Mauna Kea.

OHA is the constitutionally-established body responsible for protecting and promoting the rights of Native Hawaiians.

OHA has substantive obligations to protect the cultural and natural resources of Hawai‘i for the agency’s beneficiaries.

Accordingly, OHA is required to serve as the principal public agency in the State of Hawai‘i responsible for the performance, development, and coordination of programs and activities relating to native Hawaiians and Hawaiians; assess the policies and practices of other agencies impacting native Hawaiians and Hawaiians; and conduct advocacy efforts for native Hawaiians and Hawaiians.

OHA notes that it received the Sublease for review on February 18, 2014 through calls directly to BOR staff. This lack of reasonable time has not allowed OHA as well as members of the public, who do not have ready access to the Sublease, the opportunity to provide meaningful input on this important item.

OHA appreciates UH’s efforts in moving towards charging more than nominal rent to sublessees at the Mauna Kea Science Reserve. However, OHA expresses the following concerns regarding the proposed Sublease:

The Sublease must provide for meaningful compensation for the use of Mauna Kea’s public land trust lands.

a. UH holds independent trust obligations to require meaningful and equitable compensation to trust beneficiaries from public land trust proceeds.

The Hawai‘i Supreme Court has held repeatedly that the state, in the context of its actions as a trustee, holds “high fiduciary duties normally owed by a trustee to its beneficiaries,” subject to “the most exacting fiduciary standards” and strict judicial scrutiny.

In line with these fiduciary obligations, the Hawaiʻi Supreme Court has adopted three specific trust duties applicable to the state and its agencies as trustees of the public land trust: (1) “the obligation . . . to administer the trust solely in the interest of the beneficiary”; (2) the obligation that the trustee “deal impartially when there is more than one beneficiary”; and (3) the “obligation to use reasonable skill and care to make trust property productive.”

These duties apply when the State or its agencies lease or otherwise dispose of public land trust lands, whether to private entities or other state agencies.These duties also apply equally and independently to all agencies of the state, including the Board of Land and Natural Resources (BLNR) and UH.

Accordingly, BLNR and UH owe a duty of undivided loyalty and good faith to all of the public land trust beneficiaries, requiring appropriate measures to protect the interests of those beneficiaries in an equitable manner.

b. UH’s fiduciary obligations requires due diligence in setting forth annual rent for the Sublease to maximize benefits to the public trust.

While the Sublease includes annual rent which is “based on the incremental value of the major milestones achieved during the construction of the TMT Facilities,” UH does not appear to provide a basis as to how the valuation was determined. As part of its fiduciary duty, UH has a duty of due diligence in managing the trust to maximize the benefit to the beneficiaries.

Therefore, although the Sublease appears to have set the dollar amount based on construction milestones over the course of 11 years, there is nothing in the Sublease that explains how the annual rent was calculated and whether it was based on facts and economic comparisons. For example, the “Background Information” of the Sublease “provides for substantial rent of $1,080,000 per year beginning in year 11 of the Sublease term, when the TMT will be commissioned and in operation (emphasis added).” Moreover, the $1,080,000 per year beginning in year 11 is indicated to be “substantial,” in accordance with the requirement imposed by the BOR and TIO to negotiate in good faith to “secure substantial funding in the form of sublease rent.” However, the Sublease does not set forth any context for what is considered “substantial.” Telescope time sales by sublessees of Mauna Kea lands indicate the substantial value that has been foregone by UH’s practice of issuing nominal, $1.00 rents for telescope subleases. For example, in 2008, Yale University paid Caltech a total of $12 million in exchange for 15 nights of telescope time; this amounts to approximately $80,000 per night. Similarly, minutes from the University of California Observatories Advisory Committee (UCOAC) suggests sales of telescope time to NASA, Swinburne University, the National Science Foundation, and other national and international groups for approximately $90,000 to $100,000 or more per night, for up to a month per year.

These sublessees have sold telescope time without any known payments to BLNR, UH, or OHA, meaning that a significant amount of revenues have been foregone by both UH and the BLNR in issuing nominal sublease rents for the Mauna Kea lands. As Mauna Kea consists of public land trust lands, such foregone revenues would have otherwise benefited all public land trust beneficiaries, through revenues realized by the state, including OHA.

Moreover, these figures provide a starting point to determine the appropriate value of future subleases for telescopes on Mauna Kea. It is expected that because the TMT will be the largest reflecting telescope in the world, the costs for TMT viewing time per night will be valued exponentially more than other telescopes.

In light of the above, OHA recommends the following or similar guidelines for the valuation of future subleases for telescopes on Mauna Kea, including the TMT:

(1) Calculate rent based on fair market value as determined by an independent appraiser;

(2) Require that sublessees pay a certain percentage of its gross receipts from the sale of telescope time;

(3) Require reopening of rent and the percentage of gross receipts from the sale of telescope time periodically, perhaps every 10 years;

(4) Make a finding of good cause based on facts and economic comparisons whenever rent and subleasing is calculated at less than fair market value and provide an explanation as to how the amount of discount was calculated.

These or similar guidelines would give UH the flexibility to use a range of rental rate options in negotiating both the TMT and future subleases, while also allowing the UH to fulfill its independent fiduciary duty to the public trust.

Mahalo nui for the opportunity to comment on this matter.