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Hale Pai
Pacific American-News Journal

Mei-May 1996 Volume 2 Issue 5

Special: Prime Time Live
Please Tell The Complete Story

By Waimanalo Ray

On April 10, 1996 Prime Time Live aired this supposedly unbiased report of the Bishop Estate. I tried to the best of my ability to accurately transcribe their program.

S.D. Nothing upsets people more when it comes time to pay their taxes, than to see others not paying their fair share. Well, meet a whole list of those others, who pay little or nothing in taxes. They are organizations that are by law tax exempt. Now you may think the Red Cross, the Salvation Army, your church and the like should be. But the ones you are about to see may have a much harder time convincing you that they to should be excused from paying their full share.

TITLE: IN THE NAME OF CHARITY

Produced by: Sheila Hershow, Edited by Ed Eaves.

SHOW: Diamond Head and Royal Hawaiian Hotel

S.D. Prized beachfront land generating millions in rent. But no income taxes for Uncle Sam. Sports leagues that pay huge salaries while enjoying a huge tax break from the federal government. And a major league baseball team owned by a charity with all operating contributions eligible for a tax write-off; it's all perfectly legal but should it be?

P.S. The tax-exempt organizations act like paying taxes is some kind of punishment.

S.D. Paul Strickfus is a tax specialist who spent six years working for the IRS examining tax-exempt organizations.

S.D. To the person making out their taxes and watching this report tonight what does it mean to them?

P.S. Well, it has to mean that they are paying more in tax. Their is no way you can take 10% of the tax base and put it aside and not have the rest of the folks who are still paying taxes not pay more.

S.D. Our story begins here in Hawai`i, home of some of the most expensive real estate in the world The land here in Waikiki beach is worth billions and would you believe that one of the wealthiest landowners here making tens of millions of dollars a year is legally tax exempt. The landholder is called the Bishop Estate. It owns over 367 thousand acres of land in Hawai`i, which includes the Waikiki Beach frontage on which is built the Royal Hawaiian shopping center and the Sheraton Waikiki and Royal Hawaiian Hotels; 300 thousand acres of timberland in Michigan; a 545 million dollar investment in the Wall Street firm Goldman - Sachs; a large interest in two Texas base energy companies; part interest in the Robert Trent Jones golf course near Washington where the President plays; and one special piece of property; the Kamehameha Schools, located high in the hills above Honolulu, the legacy of a Hawaiian Princess.

H.T. The hope was that her people, my people, who were in a terrible state because of disease and depopulation, would be able through the estate, to be educated.

S.D. Haunani-Kay Trask, herself a descendant of Hawaiian royalty, is talking about Princess Bernice Pauahi Bishop who back in 1883 willed her vast land holdings to create schools for Hawaiian children. Thanks to these schools, the Bishop Estates qualifies as a tax-exempt charity; meaning that in 1994 the last year on record, Bishop paid no income tax on net revenue of $303 million dollars (show total $303,636,034).

H.T. They have enormous amounts of money they could definitely spend but they choose not to.

S.D. In 1994 the schools accepted only one out of 8 applicants educating approximately 3000 children. Critics say a charity of this size should do far more, and why doesn't it.

H.T. I think they choose not to accept more because their interest is to speculate on land, to invest, which will return to them profit which then they can divide among the trustees.

S.D. Two of the estates' five trustees are Gerard Jervis and Henry Peters. In 1994 each trustee made $915,238. Under the compensation formula they were actually entitled to twice that much, but agreed to the lesser amount. Each of you made over $900,000 dollars. Is that right. Do you deserve that?

H.P. We think we do.

S.D. Mr. Jervis, if you didn't make that much money, you trustees, couldn't you spend more money on educating Hawaiian children?

G.J. Sam, admittedly that is a large sum of money. We make a lot of money, but this is performance based and if the trust for some reason wasn't performing, that would be reflected in the trustees' commissions.....

S.D. That's true, which would seem to argue the critics' point that the goal is to invest and make, not spend and educate. The trustees see it differently. You're not embarrassed about taking that much money each year.

H.P. No. We realize this is a very, very tough job. Okay......

S.D. Not okay with Haunani-Kay Trask.

S.D. Are you saying that mainly these trustees are just looking out for themselves, feathering their own nest?

H.T. Absolutely! Yes! Absolutely! That's what I'm saying.

S.D. The trustees say they spend $124 million annually on the schools. And plan to spend more.

S.D. But consider the estate's wealth.

S.D. What are it's assets worth?

H.P. The size of our trust is 1.98 billion dollars in, ah, book value.

S.D. 1.98 billion?

H.P. 1.98 billion dollars.

S.D. And impressive figure but actually given the estates' holdings, it appears to be a gross undervaluation. You own sixteen acres of choice property on Waikiki Beach. I've seen it valued at a billion dollars. You argue with that?

H.P. Yes!

G.P. Well, we do because we think that value is a relative thing. And well frankly.....

S.D. In fact, the estate uses Hawaiian land values from 1965. When PrimeTime paid researcher Desmond Burn to comb the records using current values he came up with a figure of 4 and 3/4 billion dollars

($4,716,296,024) for the Bishop Estate, which means there spending on education a percentage far below that of such charitable institutions as Harvard and well below IRS guidelines.

C.T. I think it's wrong!

S.D. Cynthia Thealand the Republican Floor Leader in the Hawaiian State House of Representatives has introduced legislation to cut the trustees' pay.

C.T. I would have no objection with the federal tax - exemption if they were performing their function of educating all children of Hawaiian descent. They have the assets, they have the income, they just lack the will to do it.

S.D. But remember it's all legal.

P.S. Tax avoidance is why we have accountants and attorneys out there. To tax avoid it's perfectly permissible activity, it's done everyday.

S.D. Yes! But, mom and pop can't afford the kinds of attorneys that know how to tax avoid.

P.S. Ah, well I guess. Welcome to America.

S.D. But there's more. Charities often escape paying property taxes as well as income taxes and that's where other taxpayers really take it on the chin.

For example.

From this point on they talk about property taxes not being paid.

PARTICIPANTS:

S.D. Sam Donaldson
P.S. Paul Strickfus
H.T. Haunani-Kay Trask
G.J. Gerard Jervis
H.P. Henry H. Peters
C.T. Cynthia Thealand

Read Waimanalo Ray's Response

 

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Copyright 1996 Hale Pai Pacific American-News Journal
Last modified: February 28, 1998

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