House lawmakers advanced a bill yesterday that would clear the legal cloud over the long-stalled Hokuli'a luxury home project in Kona, but a key senator said he will block the measure.

The House Economic Development and Business Concerns Committee approved a bill that would declare the Hokuli'a project legal under the state law that governs the use of agricultural lands. The bill stirred outrage among environmentalists, who said it would overturn a Kona court ruling that stopped the controversial Hokuli'a project in 2003.

"This is nothing more than special-interest legislation for an irresponsible developer who was nailed by the 3rd Circuit Court for polluting the water and desecrating burials and avoiding our land-use law, and now the Legislature's going to bail him out at the expense of our agricultural land," said Jeff Mikulina, director of the Sierra Club Hawai'i chapter.

Rep. Jon Riki Karamatsu, chairman of the committee that heard the bill yesterday, said the people who bought lots in Hokuli'a sued Hawai'i County over delays in the project, and that the county could face enormous liability if the lawsuit is successful.

The case might create a precedent for other counties to be sued in connection with land-use decisions, "so that's a big, big cloud over not just the Big Island but potentially other counties," said Karamatsu, D-41st (Waipahu, Village Park, Waikele).

The Economic Development and Business Concerns Committee approved the bill in a unanimous vote after about four hours of public testimony and discussion. Supporters of the bill included Big Island business leaders and landowners, and Mayor Harry Kim.

Opponents included the Office of Hawaiian Affairs and environmental groups such as Life of the Land, Hawai'i's Thousand Friends and The Outdoor Circle.

State Sen. Russell Kokubun, chairman of the Senate Water, Land and Agriculture Committee, said yesterday he reviewed the bill advanced by the House and won't allow it to pass his panel as it is now written.

"I think the intent is to try to address all those who feel that they may be in jeopardy due to the Hokuli'a decision, but that doesn't provide any kind of guidance or any kind of policy direction going forward," Kokubun said. "I will not do anything that only addresses fixing, grandfathering in those existing homes on ag land."

Kokubun, D-2nd (S. Hilo, Puna, Ka'u), said he is confident his Senate colleagues will support his decision. He said he is working on another bill that will address the larger issue of how to regulate dwellings on agricultural lands.

Kona Circuit Judge Ronald Ibarra ruled that the 1,550-acre Hokuli'a project was not appropriate for agricultural lands and that developer 1250 Oceanside Partners should have asked the state Land Use Commission to reclassify the property for urban use before construction began. The judge ordered that all work stop until the LUC either reclassifies the land or declares Hokuli'a to be a legal use of agricultural lands.

The ruling stunned county officials who had approved the development, as well as 1250 Oceanside Partners, which had spent an estimated $300 million on the project. The developer already had begun selling lots, and is appealing Ibarra's ruling to the Hawai'i Supreme Court.

Critics of Ibarra's ruling argue that if it is allowed to stand, thousands of homes across the state that were allowed on agricultural lands would be illegal.

The bill approved by the committee yesterday would declare houses already built on the lowest four classifications of agricultural lands to be permissible under state law. The measure also would cover projects on those lands that have already been approved by county zoning ordinances or where construction has started.

Claude Onizuka, director of community and public affairs for the Hokuli'a developer, said the state should not penalize developers who obtain permits and start construction with the understanding that the projects have been approved. He said the bill would fix the Hokuli'a situation while lawmakers look to correct any mistakes in the case from being repeated in future projects.

In an example of the kind of suspicion that surrounds the dispute, state Rep. Ezra Kanoho, D-15th (Lihu'e, Koloa), asked Alan Murakami, the attorney for the Native Hawaiian Legal Corp., whether there were ever any payments requested of the developer to settle the case.

Murakami, who represented the activists who sued to halt the project, said there was some discussion about the developer giving money to charities but asserted there was never any type of extortion involved in the settlement talks.

Later in the hearing, Kanoho held up a copy of a confidential April 2004 document from Murakami and the lawyer for other plaintiffs in the case to the Hokuli'a developer that outlines $50 million in settlement payments.

The money would go to cultural preservation ($8 million), affordable housing ($10 million), water monitoring ($2 million), sustainable development ($8 million) and school infrastructure and scholarships ($8 million). In addition, the developer was asked to commit 15 percent of gross revenues from its projects to sustain the causes.

The rest of the money would go toward damages to the plaintiffs and attorney fees and costs, including $5 million from the developers and $2 million from Hawai'i County to the Native Hawaiian Legal Corp. The developer was asked to pay $3 million in fees to Robert Kim, the attorney for some of the plaintiffs.

"I said there was never any extortion of this developer, period," Murakami responded, adding that he was distressed that the confidential document was being discussed publicly. West Hawai'i Today, a Big Island newspaper, had mentioned the settlement offer in September 2004.

"I don't blame you for feeling distressed," Kanoho said. "If I was in your position, I would be distressed, too."

Reach Kevin Dayton at kdayton@honoluluadvertiser.com and Derrick DePledge at ddepledge@honoluluadvertiser.com.