In The News
Project grew from federal incentives
March 29, 2006
Honolulu Star-Bulletin
Kukui Gardens, a housing complex on the edge of Chinatown, is the product of an urban redevelopment project competition of the 1960s, when the federal government was pushing financial incentives to encourage private developers to build and operate affordable-housing projects.
In 1966, the Honolulu Redevelopment Agency and the U.S. Department of Housing and Urban Development offered to sell 19.5 acres for the construction of at least 800 low- and moderate-income apartment units for no more than $15 million.
The development would be eligible for financing under a federal mortgage insurance program backed by the Federal Housing Administration commissioner. Under the deal, the developer would have 40 years to repay the mortgage from earnings off the rental property.
Clarence T.C. Ching, a developer who had built affordable housing on Oahu and was also a fundraiser for then-Gov. John Burns, submitted a proposal with a twist. He proposed that if the complex were operated as a nonprofit organization, it would qualify for 100 percent mortgage insurance under the FHA and be tax-exempt. With such a structure, the project could be built entirely with borrowed money and any income would be tax-exempt.
Ching submitted his proposal to the redevelopment agency, explaining that if he won the project, he would organize a charitable trust that would sponsor the project.
On Jan. 19, 1967, Ching was awarded the project. That August, Ching founded the Kukui Gardens Corp. as a private nonprofit corporation, a 501c4 (a social welfare organization) to purchase, develop and operate the rental housing project.
Ching also formed the tax- exempt Clarence T.C. Ching Foundation to satisfy FHA requirements that any future income generated by the rental project would go to charitable purposes.
According to foundation documents, “although the two organizations are legally distinct and separate entities, the activities of Kukui Gardens Corp. are directly related to the Clarence T.C. Ching Foundation.”
According to its incorporation documents, the foundation has no specifically named beneficiaries of the income and is loosely organized for charitable purposes. However, over the last 36 years, millions have gone primarily to the St. Francis Hospital System and two schools established and operated by the Marianist Order of the Catholic Church: St. Louis School and Chaminade University.
The trustees have restraints such as not endangering the foundation’s tax-exempt status.
But a key provision says that if the foundation dissolves, two-thirds of any assets will go to the Marianist Order and the balance to St. Francis.
Under Kukui Gardens’ articles of incorporation, there are 15 directors: Five are designated to be trustees of the foundation, five are to be drawn from the Marianist Center and five from St. Francis.
