OHA weighs in on Thirty-Meter Telescope

Administrative Testimony
Testimony of Kamana‘opono Crabbe, Ph.D
Ka Pouhana, Chief Executive Officer

Board of Land & Natural Resources
Submittal Item D-8
CONSENT TO SUBLEASE UNDER GENERAL LEASE NO. S-4191 TO THE UNIVERSITY OF HAWAIʻI, LESSEE, TO TMT INTERNATIONAL OBSERVATORY LLC, SUBLESSEE, KAʻOHE, HĀMĀKUA, ISLAND OF HAWAIʻI, TAX MAP KEY: (3) 4-4-015:009 POR.

JUNE 13, 2014 9:00 a.m. Conference Room 132

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) under General Lease No. S-4191 (Current Master Lease) to the University of Hawaiʻi (UH), and urges the Board of Land and Natural Resources (BLNR) 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 (1). OHA has substantive obligations to protect the cultural and natural resources of Hawai‘i for the agency’s beneficiaries (2). Accordingly, OHA is required to serve as the principal public agency in the State of Hawai‘i (State) 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 (3).

At the outset, OHA notes that many Native Hawaiians consider Mauna Kea to be a place of deep cultural significance, as it is a cultural piko that connects the island-child of Hawaiʻi to the heavens, an “abode of the gods” and a leina, from which souls leap into the spirit world. Mauna Kea is also home to numerous cultural sites – including ahu, kūahu, an adze quarry and Lake Waiau – that continue to support a range of Native Hawaiian practices. The subject area also constitutes “ceded” lands, acquired through the illegal overthrow of the Kingdom of Hawai‘i, to which Native Hawaiians have never relinquished their claims. Finally, the 8.7 acres of land in the subject Sublease area are public land trust lands classified under section 5(b) of the Hawaiʻi Admissions Act, the revenues from which must be dedicated to specific purposes including the betterment of Native Hawaiians.

On July 1, 2009, the OHA Board of Trustees unanimously adopted a resolution in support of “the selection of Hawaiʻi, and Maunakea in particular, for the construction of the new Thirty Meter Telescope Project.” In addition, OHA appreciates the University of Hawaiʻi’s efforts in moving towards charging more than nominal rent to sublessees at the Mauna Kea Science Reserve (MKSR). With this in mind, OHA offers following comments regarding the Sublease for consent by BLNR:

I. The Sublease raises questions of due diligence regarding appropriate compensation for the use of Mauna Kea’s public land trust land, as required by the State’s fiduciary obligations
      a. BLNR and UH hold independent trust obligations to conduct due diligence in ensuring productive use of trust property

OHA reiterates that the lands covered by the Sublease constitute ceded, public land trust land acquired without the consent of the Native Hawaiian people, and are held in trust for the benefit of Native Hawaiians and the public. 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 (4). 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” (5). 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 (6). These duties also apply equally and independently to all agencies of the State, including the BLNR and UH.

    b. The Sublease does not demonstrate that UH and BLNR fulfilled their fiduciary duties in setting “substantial” annual rent for the TMT

Both BLNR and UH have a trust obligation to “use reasonable skill and care to make trust property productive” (7). However, despite the requirement that TMT pay a “substantial” amount for sublease rent, which was imposed by the BLNR as a condition to the issuance of a Conservation District Use Permit (CDUP) (8) for TMT, UH does not provide any justification that the proposed annual rent structure—which the Sublease characterizes as being based on construction milestones—meets this standard. Instead, UH only mentions in an exhibit to the Sublease that the Sublease “provides for substantial rent of $1,080,000 per year beginning in year 11 of the Sublease term” without any justification that the rent is actually “substantial” (9).

OHA notes that neither the CDUP, nor any applicable statute or case law, explains what should be considered a “substantial” amount. In general, courts define “‘substantial rent’ as more than nominal rent[;]” (10) however “the current trend is to define substantial rent as a fair rental value for the premises” (11). OHA reiterates that the Sublease does not set forth any context for what is considered “substantial,” which once again demonstrates that UH has not shown that the proposed annual rent is based on a fair rental value for the land that TMT will be using on Mauna Kea. As BLNR also has an independent fiduciary duty to ensure it has conducted its due diligence in establishing “substantial” annual rent for the Sublease, the DLNR staff submittal provides no further analysis or assurances that such due diligence was conducted.

Instead of an annual rent structure that is substantial, this Sublease appears to charge the minimum rent to carry out TMT’s portion of the Mauna Kea Comprehensive Management Plan. Previously, UH has incorrectly justified the Sublease rent amount by arguing that Act 132
prevents UH from generating revenues beyond the cost of managing the mountain (12). Act 132 specifies that net rents from leases for the use of land and facilities within Mauna Kea lands shall be deposited into the Mauna Kea lands management special fund, and that proceeds from this fund shall be used for “1: [m]anaging the Mauna Kea lands, including maintenance, administrative expenses, salaries and benefits of employees, contractor services, supplies, security, equipment, janitorial services, insurance, utilities, and other operational expenses; and 2: [e]nforcing administrative rules adopted relating to the Mauna Kea lands” (13).

While Act 132 requires that UH use Mauna Kea lease rents for management and enforcement activities on the mountain, it does not prohibit UH from charging fair rental value that may result in revenues above the current minimum cost of managing the mountain. Should fair rental value generate additional revenues, these revenues would be deposited into the special fund thereby expanding the amount of resources available to support the management of the mountain and could be used to cover costs for any unforeseen or emergency management activities that may arise over the course of the Sublease.

Another indicator of “substantial” rental value is the amounts from the sale of telescope time by current sublessees on Mauna Kea. 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 (14). Similarly, minutes from meetings of 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 (15).

These figures provide a starting point to determine the appropriate fair rental 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
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 (16);
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; and
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.

II. Other OHA Concerns over Specific Provisions of the Sublease
    a. Provisions in the Sublease that assume that BLNR will approve a new master lease may place unwarranted pressure on BLNR to issue a new master lease

OHA has concerns regarding the “Term and Termination” provisions of the Sublease as they place a high degree of reliance on the issuance of a new master lease. Sublease Sections 9(a)(2)-(4) include language contingent on a new master lease being approved by BLNR, giving the Sublessee substantial leverage should a new master lease not be issued. However, it is premature to assume that the BLNR will approve a new master lease, given the lack of planning and decision making documents available at this time. OHA has concerns that the Sublease
provisions which are predicated on the issuance of a new master lease may put unwarranted pressure on BLNR to issue a new master lease.

More concerning, however, is Sublease Section 9(b), which would require UH finding other means to ensure the Sublease continues to 2079 if a new master lease is not issued (17). This language creates uncertainty in terms of the obligations of both UH and the Sublessee in the event that a new master lease is not obtained by UH.

    b. BLNR should require periodic reopening of rent if a new master lease is approved to ensure that UH and BLNR fulfill their fiduciary duty

OHA has additional concerns regarding the language in Sublease Section 9(a)(2) which automatically allows the provisions of the Sublease to continue if a new master lease for 65 years is approved and executed between BLNR and UH (18). As mentioned above, both BLNR and UH have an independent trust obligation to “use reasonable skill and care to make trust property productive” (19). Allowing the rent structure set forth in the Sublease to continue for 65 years without renegotiation may not ensure that rent will be “substantial” over the entire course of the extended lease and ties the hands of both UH and BLNR. OHA recommends revising the language of Sublease Section 9(a)(2) to allow for periodic reopening of rent, perhaps every 10 years.

III. Outstanding Issue Related to National Science Foundation Compliance with Section 106 Review for TMT Funding.

OHA is aware of a recent inquiry from the Advisory Council on Historic Preservation (ACHP) to the National Science Foundation (NSF), by letter dated June 4, 2014. The inquiry relates to NSF Cooperative Agreement with Thirty Meter Telescope (NSF Award 0443999) and the compliance of this agreement with the requirements of Section 106 of the National Historic Preservation Act (NHPA), noting that the ACHP has “no record of notifications about this undertaking or determinations of adverse effect to historic properties” (20). This issue was previously raised in comments for the TMT draft environmental impact statement by OHA and other commenters.

Under Section 106 of the NHPA, a federal agency such as the National Science Foundation, must initiate consultation if a proposed federal action is determined to be an “undertaking” (21). The NHPA defines an “undertaking” broadly:

Undertaking means a project, activity, or program funded in whole or in part under the direct or indirect jurisdiction of a Federal agency, including those carried out by or on behalf of a Federal agency; those carried out with Federal financial assistance; and those requiring a Federal permit, license or approval (22).

In past documents, UH has taken the position that TIO has only “received limited funding from the [NSF] for the development of technology that can be used to other telescopes”, that “no Federal agency, including the NSF, has provided or pledged funds for such construction,  operation, or decommissioning”, and that TMT did not constitute an “undertaking” “which is defined as an activity or project carried out under the jurisdiction of a federal agency” (23). This explanation, however, fails to address how NSF Award no. 0443999 does not meet the threshold definition of an “undertaking”, when money is explicitly to be used for “the design and development phase for a 30-meter diameter segmented-mirror, optical/infrared telescope, the Thirty Meter Telescope (TMT)” (24).

Although satisfaction of a Section 106 consultation requirement is outside of the purview of the BLNR, the potential failure to complete this review may place the TMT project in violation of CDUP condition no. 1, “The applicant shall comply with all applicable statutes, ordinances, rules, regulations, and conditions of the Federal, State, and County governments” (25).

Mahalo nui for the opportunity to comment on this matter. For any questions or concerns, please contact Sterling Wong, Public Policy Manager, at 594-1908 or via e-mail at [email protected].

(1) HAW. CONST. ART. XII, § 5
(2) See Haw. Rev. Stat. (“HRS”) Chapter 10 (2009).
(3) HRS § 10-3 (2009). June 13, 2014
(4) See Ahuna v. Department of Hawaiian Home Land, 64 Haw. 327, 640 P.2d 1161 (1982); Pele Defense Fund v. Paty 73 Haw. 578, 837 P.2d 1247 (1992); Office of Hawaiian Affairs v. Hous. & Cmty. Dev. Corp. of Haw., 117 Haw. 174, 177 P.3d 884 (2008), rev’d sub nom. Hawaii v. Office of Hawaiian Affairs, 556 U.S. 163 (2009), on remand sub nom. Office of Hawaiian Affairs v. Hous. & Cmty. Dev. Corp. of Haw., 121 Haw. 324, 219 P.3d 1111 (2009).
(5) Office of Hawaiian Affairs v. Hous. & Cmty. Dev. Corp. of Haw., 117 Haw. at 194, 177 P.3d at 905 (2008) (citing Ahuna, 64 Haw. at 340, 640 P.2d at 1169-1170.).
(6) See Office of Hawaiian Affairs v. Hous. & Cmty. Dev. Corp. of Haw., 117 Haw. 174, 177 P.3d 884 (2008).
(7) Ahuna, 64 Haw. at 340, 640 P.2d at 1169 (1982) (citing Manchester Band of Pomo Indians, Inc. v. U.S., 363 F.Supp. 1238 (N.D.Cal.1973)).
(8) Board of Land and Natural Resource’s April 12, 2013 Findings of Fact, Conclusions of Law and Decision and Order at 125.
(9) Staff Submittal D-8 at 13, Exhibit 6 at 2. June 13, 2014
(10) Casa D’Angelo, Inc. v. A&R Realty Co., 553 N.E.2d 515, 520 (Ind.Ct.App. 1990) (citing In re KDT Industries,
Inc. 30 B.R. 252, 255 (Bnkr.S.D.N.Y. 1983)).
(11) Id. (citing Bastian v. Albertson’s Inc. 102 Idaho 909, 643 P.2d 1079 (1982)).
(12) At the February 20, 2014 BOR meeting, regent’s questioned why there will be no profit in the Sublease for UH. See Minutes of the University of Hawaiʻi Board of Regents’ Meeting of February 20, 2014 at 35. In response, UH Hilo Chancellor Donald Straney explained that under Act 132, UH may not use proceeds from Mauna Kea for anything but managing the mountain and payment to OHA. See Minutes of the University of Hawaiʻi Board of Regents’ Meeting of February 20, 2014 at 37.
(13) HRS § 304A-2170(b) (2009).
(14) Yale pays $12M to use Mauna Kea telescopes, HONOLULU ADVERTISER, March 14, 2009, available at:  http://the.honoluluadvertiser.com/article/2009/Mar/14/ln/hawaii903140333.html. June 13, 2014
(15) See Minutes from the University of California Observatories Advisory Committee Meetings at 45 (Jan. 12, 2007), 46 (April 6, 2007), 50 (Oct. 9, 2009), 51 (March 31, 2010), and 55 (March 19, 2012).
(16) When a private party seeks a State lease, HRS §171-17 does require an appraiser. Best practices require the use of an independent appraiser, especially in a situation where substantial sums are involved.
(17) Sublease Section 9(b) states as follows: Sublessor [UH] agrees to use its best efforts to and will immediately and diligently pursue another means of acquiring sufficient rights to continue to lease the Subleased Premises to Sublessee [TIO] on substantially the same terms and conditions herein, but for an additional term extending to on or about March 31, 2079. June 13, 2014 Staff Submittal D-8 at 46, Exhibit 6 at 7.
(18) See Staff Submittal D-8 at 45, Exhibit 6 at 6.
(19) Ahuna, 64 Haw. at 340, 640 P.2d at 1169 (1982) (citing Manchester Band of Pomo Indians, Inc. v. U.S., 363 F.Supp. 1238 (N.D.Cal. 1973)).
(20) Letter from Charlene Dwin Vaughn, Assistant Director, Federal Permitting, Licensing, and Assistance Section, Advisory Council on Historic Preservation, to Caroline Blanco, Assistant General Counsel, National Science Foundation (June 4, 2014).
(21) 36 C.F.R. § 800.3
(22) 36 C.F.R. § 800.16(y)(emphasis added). June 13, 2014
(23) E.g., University of Hawaiÿi at Hilo, Final Environmental Impact Statement, Vol. 2 – Sec. 8, Thirty Meter Telescope Project, at 32 (May 8, 2010).
(24) Award Abstract #0443999, Enabling a Giant Segmented Mirror Telescope for the United States Astronomical Community (available at
http://www.nsf.gov/awardsearch/showAward?AWD_ID=0443999&HistoricalAwards=false).
(25) See Board of Land and Natural Resource’s April 12, 2013 Findings of Fact, Conclusions of Law and Decision and Order at 122.