“Captain” Clay, 65, walked calmly to the front of the packed room at the Department of Land and Natural Resources’ Jan. 12 meeting and sat down before a panel of five state Land Use Commissioners to explain exactly what is a Hawaiian “beach boy.” Having spent his life working and playing at the beach, Captain Clay was an undeniable expert, and as the panel soon learned, a dying breed. He’s instructed thousands of people from Hawaii and around the world since 1952 on how to surf, paddle a canoe and read the ocean at Waikiki’s busiest beach. Today, his reminder of the way life on the beach used to be is the giant bronze statue on Kuhio Beach of Duke Kahanumoku, a great Olympic athlete, surfer and Hawaiian man, who Captain Clay described as his friend and mentor. As he pushed back his long sun-bleached blonde hair from his deeply tanned Hawaiian face, Clay, who got the nickname “Captain” because he is a well-known steersman of canoes, reminisced on what Kahanumoku had taught him about life, about being a Hawaiian, and about being a true beach boy.

“We used to greet the visitors, and not only teach them how to surf, but we’d host them, invite them into our homes, treat them to a luau, the kind we made, not bought, and we’d even watch their children. Being a beach boy back then meant truly sharing the Aloha spirit with the people who came to Hawaii,” Captain Clay said, eyes shining as he remembered the way life used to be at the beach.

Today, being a “beach boy” has a whole new meaning, Clay told the Land Use Commissioners, who leaned in, as did the rest of the people in the room, to hear his every word. No longer do beach boys entertain visitors and have them in their homes and take care of their children. He says “beach boy” has come to mean simply someone who spends the day working at the beach.

Though his definition was simple, it was vitally important to everyone in the room who had a stake in the words, which took on new significance when the Legislature in the early 1990s mandated that the state keep “beach boys” running surf stands on state property, but failed to define the term. The beach parcel is leased to “beach boy-run” businesses by the state Department of Land and Natural Resources, with the concession operators paying a flat rent to the state and keeping whatever is left over. (This differs from city concessions that pay a flat rent and 10 percent commission on sales to the city). The Legislature reportedly made this mandate to keep big mainland corporations from forcing out the local Hawaiian operators who appeared at the time to be vulnerable to such a takeover.

A great deal was at stake at this particular state hearing — money, lots of it, and power. The meeting was set to determine if the company — C & K Beach Services — would retain the lucrative state contract it has held for more than 30 years. C & K, owned by Clyde Aikau and Kim Higa, have year after year retained the exclusive right to operate a surf stand concession at the beach where visitors and residents can rent surfboards or other beach related items, take a surf lesson or go for a canoe ride. The stand is grossing by some competitor’s estimates between $800,000 to $1.5 million a year, with the state collecting just $1,170 per month in rent. That kind of income with relatively few expenditures to devour profits (instructors can make as little as $2 per canoe ride and have no benefits so staff costs are relatively low), has attracted many an entrepreneur who want a shot at what has become a gold mine.

But the state, for reasons still unexplained by the Hawaii State Land Use Commission, allowed Aikau and Higa the exclusive contract for at least 30 years without others being allowed to bid competitively. The commission enabled C & K to operate on a month-to-month temporary revocable permit for three decades.

Higa and Aikau also operate one of four coveted city concessions on Kuhio beach. With these two concessions, C & K has and continues to operate two of five of the most well placed and lucrative stands on Waikiki beach — one contract from the city and the other from the state. Their exclusivity and what some feel has been for many years special treatment of C & K and the other three beach operators without open and competitive bidding, has left many beach boys and hopeful concession operators questioning how Aikau and Higa got such an exceptional deal from both the city and the state.

C & K operators defended their exclusive contract in a January 12 state hearing, saying that they are deserving of the concessions because they are a special company with unique qualifications and experienced highly qualified people not found elsewhere.

”Stories of Corruption, Crime, Prevelent in Industry”

Several beach boys privately voiced their concerns to Hawaii Reporter about corruption and crimes they have witnessed all along the beach, and say they long for the day when the concessions will be run as they used to be years ago, by employing quality people with integrity. Along with witnessing criminal acts by some beach boys firsthand, they say life and work on the beach has been eroded and the trust they once had for each other has been lost, along with the Aloha spirit.

Many of the old timers interviewed for this story agree the beach has become a dangerous place. They say they have seen beach boys selling and buying illegal drugs on the beach and can even point to where the drugs are stored at Kuhio beach, just feet from the police station. Some old timers have witnessed younger beach boys stealing jewelry, money and designer clothes from their clients’ bags while their clients are in the water. Many also acknowledge customers are being ripped off by concessionaires who alter prices for rentals and lessons depending on the customer. In other words, if they are non-English speaking customers from Japan, they will likely be charged a higher rate, even though the rates are supposed to be standard and posted.

Worse yet, those who have worked the beach for two or more decades maintain they also have seen at least one city government official on several occasions collect envelopes of cash from some concessionaire operators. They were told by at least one concession operator that the cash was for rental payments to the city. But witnesses say whenever the city was considering putting out the stands for bid, more envelopes of cash would go out, and the threat of competitive bidding would somehow go away, at least temporarily.

It is important to note there have been no indictments or convictions for any of these alleged crimes, with the exception of the indictment of Tony and Aaron Rutledge by the federal government for skimming several hundred thousand dollars in profits and for tax evasion. That case is still pending.

”Contract Arrangement with City Gives Wrong Incentive”

While the state charges its beach boy concessionaire a flat base rent, the city operates differently. City concession operators are supposed to turn in 10 percent of their earnings to the city, plus a base rent, and declare their full income for tax purposes. The problem is with no set method to record the cash coming into the business, no way to ensure all cash is recorded or that the operators are being forthright in their end-of-the-month reports, city administration and the tax departments cannot easily hold them accountable. There is also an incentive to under report earnings in order to pay a lower commission to the city.

On the flip side, the city administration cannot hold its own people accountable if they do in fact, as beach boys have maintained, collect rent in cash — rent that varies month to month. In the case of the city, according to its own records, revenues can exceed $20,000 per month. Most importantly, there is no way to guarantee city officials, operators and employees of the operators are not skimming off cash made at the beach boy stands and other cash businesses, thereby cheating the taxpayers of their rightful share and eliminating the opportunity for other businesses to bid competitively.

Federal and city government investigators questioned by Hawaii Reporter about the wisdom of city officials collecting cash for rent payments say that is not the usual for the city to operate, and is even suspect.

”Old Timers Optimistic”

But the days of alleged crime and corruption may soon be curtailed, which leaves some of the once discouraged old time surfers and operators more optimistic.

*In the case of the city concessions, their files, along with the beach boy concessions and other concessions the city manages, are now being audited by the newly appointed city auditor, Les Tanaka. This will be the first time the office that runs all the city concessions — the Office of Enterprise Services — will be audited by Tanaka, who is the first-ever internal and independent city auditor.

*One city concessionaire still operating on Kuhio beach is being audited by the state Department of Taxation. The state attorney general is investigating the company for alleged skimming of profits and tax evasion.

*At least two of the city concessions were put out for public bid in 2003, though the city has had to announce extensions several times because of legal action pending by two of the operators — C & K and Pacific Beach Service. Both companies filed lawsuits against the city on the same day with the same attorney to stop the procurement from going forward. Pacific Beach Service, also operating as Pacific Beach Serve, is owned by Gibert Hisatake, who was at one time more than $250,000 behind in rent payments to the city. Hisatake, who has held the exclusive beach boy contract for Stand 3 since the mid-1980s under one of the company names above, could have had his city permit revoked for being so far behind on rent. However city officials, for whatever reason, have not opted to take this route and instead let him operate under another name.

*As for the state beach boy concession, there is good news for those wanting to bid on the concession. The state Land Use Commission voted unanimously just days ago to put the concession rights out to public bid. But the decision, or even holding a hearing to vote on the issue, did not come without great controversy.

”State Hearings Expose Problems with Beach Boys Business”

Hawaii Reporter published a story in September 2003 that the state Department of Land and Natural Resources was going to ask the land board to consider putting the state’s Hilton contract out for competitive bid because there was so much interest. At the last minute, however, that meeting was cancelled sparking several calls to Hawaii Reporter from beach boys who said the state would never revoke the permit and C & K would get the contract for another several decades — no matter what potential problems were exposed in print. It looked as if these well-connected beach boys had insight because another hearing was scheduled that was not well publicized. Because so few people attended the rescheduled meeting, the board decided to grant C & K the exclusive contract at the Hilton for another 15 years. The land board also ordered the staff to start preparing the paperwork. C & K owners may have been elated by the news, but those who wanted a shot at operating the stand were furious. They quickly had their lawyers contact the Department of Land and Natural Resources and the land use commission to demand another hearing.

In January 2004, another meeting was held. Instead of presenting the final paperwork for C & K however, the staff offered the board a stern recommendation that the commissioners allow the concession to be put out for competitive bid. The recommendation was inspired in part by the interest and calls and letters from lawyers implying legal action was imminent if their clients were not given an opportunity to compete for the rights to operate the concession.

The meeting was packed with lawyers, beach boy concession operators, entrepreneurs interested in running a concession, and the media. A circus ensued.

C & K’s lawyer, David Bettencourt, began to verbally attack and attempt to discredit every other competitor in the room, making his case that his client should not be subject to competitive bidding because the competitors weren’t worthy or qualified to bid. As if the ringmaster in a circus, Bettencourt used his whip, in this case his mouth, to strike at everyone, starting with Tony and Aaron Rutledge of Star Beachboy Services. The Rutledges, who also operate the Unity House and founded Local 5’s union, were indicted by the federal government in recent months, accused of skimming profits from their city-run beach boy stand and not paying taxes on nearly a half million dollars. Their case has not yet gone to trial. But Bettencourt, a defense attorney, essentially accused them of skimming, even though they have not been convicted, trying to discredit their business before the commission. He then alleged other beach boy concessionaires in the room were not qualified to operate the city stands they now have because they cannot surf or even swim. He then attacked every other beach boy vendor in operation in the state, saying C & K was the only company without some kind of violation and was the only company with quality, well-qualified operators.

Bettencourt and Aikau of C & K then talked about how C & K is helping the handicapped, the young, the Hawaiians, and the unemployed. They also claimed to be the only operator offering employees benefits. However, both former and current employees of C & K interviewed for this story say that C & K did not pay any benefits for them, even though they often worked “sun up to sun down,” considerably more than 20 hours a week, and exclusively for C & K. According to state law, this kind of work schedule would entitle them to health insurance coverage, unemployment insurance, workers comp insurance and possibly other benefits. Aikau denies this and says his workers have benefits.

While Bettencourt verbally lashed out at those operators in the room, some of the beach boy business owners hissed at him and even booed his performance, in some cases shouting out verbal insults at him. One operator, Tommy Kopp, who operates the Palikaiko beach boy concession at Kuhio beach under city jurisdiction, yelled out that Bettencourt should get his own house in order before attacking others, especially considering he was convicted of tax evasion for the years 1995, 1996, 1997, 1998 and 1999. In 2001, Bettencourt was placed on one year of probation, fined $25,000 and required to complete 250 hours of community service after pleading no contest for failing to file his general excise tax returns from 1995 to 1999, according to a report in the ”’Honolulu Star-Bulletin.”’ See the story at: http://starbulletin.com/2001/10/06/news/briefs.html

Bettencourt ignored Kopp, and finally rested his case as to why C & K should not be ousted and why the contract should not be put out for competitive bid. Then the beach boy operators came forward and each asked for the state Hilton stand to be put out to public bid.

At the end of the hearing, before making their final decision, and after listening to the testimony of Captain Clay on what is the definition of a beach boy, one of the land board commissioners said she was disgusted by what she’d witnessed that day. Commissioner Lynn McCrory told the concessionaires, including C & K, that no one in the room met the definition of a beach boy with the exception of Captain Clay. She essentially said the beach boy tradition has gone from one that shares the spirit of Aloha with residents, visitors and others, to a cut-throat industry whose leaders talk bad about each other, try to undermine each other, and litigate when they don’t get their way.

The land board went into a brief executive session to decide whether to put the concession out to public bid, while the beach boy concessionaires and the others interested in bidding went outside to take a break and mingle. Inside, C & K’s counsel was already discussing how the company could further draw out the temporary permit its had for 30 years, possibly for as long as another year.

In the end of the more than three hour hearing, the state Land Use Commission voted unanimously to put the contract out to bid and take the staff’s recommendations. The staff is now preparing the request for proposal documents that will soon be issued. They also will likely be the model for the city’s Request for Proposals for its concessions. Staff members of the Department of Land and Natural Resources that were interviewed for this story say they will do what they can to word the bids to prevent future litigation.

Those in the industry say they will wait to see whether C & K takes the high road and allows the state to put the concession out to bid so C & K and all other interested parties can compete fairly for the operation rights. Or whether C & K will litigate, as its owners have in the case of their city-leased beach boy concession, and do what they can to stop what some in the industry are calling “final justice.” They also hope justice will be brought to those who have taken the “Aloha” out of what it means to be a beach boy.

”’Reach Malia Zimmerman, president and editor of Hawaii Reporter, at mailto:Malia@HawaiiReporter.com”’

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