Oahu developers face fallout from the Navy’s Red Hill water crisis

The potential water shortage facing urban Honolulu is already threatening to hold up hundreds of units of affordable housing, new residential and commercial projects in Kakaako and a major environmental upgrade to a sewage treatment plant, among other planned developments — a predicament that could have far-reaching effects on the island’s economy.

“It’s causing a dark cloud of uncertainty,” said Stanford Carr, a longtime developer of housing projects in Hawaii and head of Stanford Carr Development, LLC.

“I don’t think people understand the magnitude of the issue at this moment,” he added.

After a November fuel spill from the Navy’s Red Hill fuel facility contaminated the groundwater and drinking water system that serves Joint Base Pearl Harbor-Hickam and surrounding neighborhoods, the Honolulu Board of Water Supply shut down three of its wells to ensure the fuel didn’t migrate into the municipal water system. The primary well, the Halawa shaft, comprises 20% of the water supply for urban Honolulu.

It’s not clear if those wells will ever be brought back online as complicated assessments continue to try to determine the migration patterns of groundwater and whether historic and more recent spills from Red Hill could migrate across the valley where the Halawa shaft sits just a mile away.

As the summer months approach and water usage on Oahu typically spikes, BWS officials have been urging residents to cut back on the amount of water they’re using to stave off mandatory water restrictions from the Aiea-Halawa area to Hawaii Kai, and a potential moratorium on new construction.

Beginning late last year, it also began informing developers that there may not be enough water for their projects. At least 15 projects have received warning letters, according to BWS documents provided to the Honolulu Star-Advertiser.

Many other projects in various stages of development could also be stalled in the event of a moratorium. There are 1,145 pending building permits islandwide that require BWS review, according to Curtis Lum, a spokesman for the Honolulu Department of Planning and Permitting. “We have not limited our report by geographical area because the BWS has said the impact to the water supply in the urban area could have an impact on other parts of the island,” Lum said by email.

Project uncertainty

Planned affordable housing developments make up a significant portion of the projects that have received BWS letters.

The projects include the city’s planned “transitional village” along the Honolulu rail route by Middle Street, which is expected to include 80 to 120 units to help homeless transition into stable housing and another potential affordable housing project in Iwilei. Catherine Taschner, deputy director of Honolulu’s Department of Land Management, said the city is factoring the uncertainty into its analysis of development potential. The projects are in the very early stages of development.

The Hawaii Public Housing Authority and The Michaels Organization have been working to redevelop public housing in Kalihi. The Kuhio Park Terrace Low Rise and Kuhio Homes Redevelopment project is expected to include 625 affordable housing units. That project has also received a BWS letter cautioning that there may not be enough water to support it.

‘Ikenakea Development is looking to develop 50 units of affordable housing on Kekaulike Street, where rent for studios would start as low as $521 a month, with two-bedroom units going for about $1,200 a month. The developer is seeking a tax credit from the state for building low-income housing, but needs BWS to indicate that it will provide the water, said Keegan Flaherty, a development associate with ‘Ikenakea Development.

Flaherty said that despite receiving a response letter from BWS in January saying it could not promise there would be sufficient water, his company has gone ahead and submitted its application to Hawaii Housing Finance and Development Corporation and is hoping that it won’t derail the tax break. The Hale O Kekaulike project is hoping to break ground in July 2023, according to BWS documents.

“Hopefully it gets resolved in the future,” Flaherty said of the water situation.

Dempsey Pacific is planning another 55-unit affordable housing project on Frog Lane.

The Queen’s Medical Center has been planning a $1 billion, 15-year overhaul of its Punchbowl Street campus, which would increase the number of patient beds to 364 from 104. The hospital received a letter from BWS in December warning that it could not guarantee its water system could support the project.

Jason Chang, president of The Queen’s Medical Center, said in a statement that the hospital has its own well that currently supplies 100% of its needs, and it’s not yet clear if water from BWS will be needed for its expansion.

“We’re currently measuring the amount of water our well can produce to determine if the expansion will continue to be supported by our well,” said Chang.

Kamehameha Schools also received a BWS letter regarding the second phase of its Kai‘ulu ‘o Kaka‘ako master plan, which includes more than 3,000 residential units and close to 45,000 square feet of retail space.

Kamehameha Schools spokesman Darren Pai said its not yet clear what the impacts will be to development projects in Kakaako.

“Clearly, the health of the aquifer and clean water for our community need to be our highest priorities,” he said in a statement. “We are actively engaged in conversations with BWS about the impact of the Red Hill fuel spill.”

Hundreds of other planned apartment units along Kapiolani Boulevard could also be affected, according to the BWS documents.

Another city project that could get caught in the crosshairs of water constraints is the city’s Sand Island Wastewater Treatment Plant, which is required to upgrade its facility so that wastewater undergoes a secondary treatment process before being deposited into the ocean. The project must be completed by 2035 to comply with an order by the U.S. Environmental Protection Agency. It’s not clear how much additional water the project may need.

The BWS letters emphasize that there is no moratorium on issuing new or larger water meters, but that it can’t make a final decision on whether there is enough water until a building permit for the project is submitted to the city.

But that uncertainty presents a big risk for developers, who can spend millions of dollars on a project before they get to the stage of applying for a building permit, Carr said. He added that seeking assurance from BWS about the availability of water is typically done by developers to mitigate risk and that without a guarantee of water, projects can’t get a construction loan.

Carr said it’s still a couple of years out before a Kakaako project he’s working on is expected to begin construction, providing a “relatively long runway.” Still, he said he worries. “You just think about the what ifs,” said Carr. “I’m starting to get more grey hair.”

Carr said that for him, the scarier prospect is if the Red Hill facility suffers a bigger failure as Navy officials work to defuel it. The underground facility, which includes 18 active tanks and holds about 180 million gallons of fuel at any given time, is about 80 years old. The Navy is working on a plan to drain those tanks, but regulators and documents provided by the Navy have raised concerns about the safety of the facility’s pipeline system and whether fixes need to be made to safely drain that amount of fuel.

The tanks sit just 100 feet above the aquifer.

David Arakawa, executive director of the Land Use Research Foundation, which lobbies on behalf of developers, said companies are very concerned about the situation. “The Board of Water Supply ultimately has the authority because it is health and safety,” said Arakawa. He said that even projects that have building permits could face restrictions on continued construction.

A high-risk gamble

The Red Hill fuel contamination that sickened residents in November left some 93,000 residents under a “do not drink” water advisory for months. Thousands of military families were moved into Waikiki hotels and the Navy began an elaborate process to test and clean its water distribution system and began flushing the spilled jet fuel out of its Red Hill shaft.

The immediate emergency has already cost the federal government an estimated $1.1 billion. Hawaii Congressman Ed Case has said it could cost billions more as the Navy works to fully remediate the environment, defuel the tanks, permanently shut down Red Hill and relocate the fuel elsewhere in the Indo-Pacific region.

The Navy and BWS water systems are separate, and tests of BWS wells have not detected any fuel contamination. But BWS Chief Engineer and Manager Ernie Lau has warned that if the municipal system were to be contaminated, it could create a much larger crisis than what the Navy has experienced, with about 400,000 residents potentially impacted.

When the Navy shut down its Red Hill shaft in November amid the contamination woes, that risk increased. The Navy and BWS pump their water from the same aquifer, and with the Red Hill shaft closed, Lau has warned there is a higher risk that the Halawa shaft could suck up the spilled fuel. He’s compared it to two straws drinking from the same glass.

BWS has begun to explore the development of a new well to make up for the lost capacity, but it typically takes five to seven years to develop another water source. Lau recently warned that Oahu is expected to be “in this crisis situation for many years.”

Developers have expressed hope that Gov. David Ige would sign an emergency proclamation that could expedite the development of a new well. But a spokesperson for Ige told the Star-Advertiser on Wednesday that there are no plans to do so.

In the meantime, BWS is launching a campaign that includes TV and radio announcements to get residents, businesses and government agencies to reduce their water usage by 10%, which could help stave off the more dire consequences of a water shortage.

Lau for years has warned about the risk the Red Hill tanks pose to the island’s drinking water aquifer. In 2019, he told state lawmakers that the amount of fuel that can be stored in the underground tanks is enough to cover the football field at Aloha Stadium and rise to the height of 500 feet. And while Navy officials were saying that the tanks could safely remain for at least two more decades, Lau was warning that they needed to be retired as quickly as possible.

“At the time, his message and others who voiced their concerns were viewed as unnecessarily alarming,” according to a BWS press release announcing the water conservation campaign. “They were the lone voices in the wilderness.”

—

Track your water usage

Residents and businesses can track their water usage through the Board of Water Supply’s online WaterSmart program at boardofwatersupply.com/watersmart.