A California affordable housing development company has proposed a $239 million rehabilitation of Kuhio Park Terrace and Kuhio Homes that would cost the state nothing up front and preserve 75 percent of the units at the public housing projects for the neediest.

The unsolicited proposal is not being actively pursued because officials have already said they want no public housing units lost in redevelopment. But the plan has spurred plenty of excitement among public housing officials and some advocates, who say it illustrates how redevelopment is a possibility for even the most dilapidated projects. It has also prompted officials to move faster with their revamp plans for the two projects, which have 748 units.

Last week, the Hawai'i Public Housing Authority decided to forgo bringing in a consultant to study redevelopment plans for the public housing projects. Instead, HPHA chairman Travis Thompson is writing a request for redevelopment proposals himself. He said the document will likely be issued as early as next month.

Thompson added he wants to choose a redevelopment firm for Kuhio Park Terrace and Kuhio Homes as early as August, which could mean rehabilitation at the projects could kick off in mid-2010.

That is considerably faster than the timeline the HPHA was working off of last month, when officials hoped to issue a request for proposals in August and choose a developer by January 2010.

"The unsolicited proposal ... gave some really good ideas of the quality of what's possible," Thompson said. "I'm working on the side of let's get going. Let's try this (at KPT) and let's make it a model."

The proposal, from Santa Ana-based development firm Urban Housing Communities, would rehabilitate Kuhio Park Terrace and Kuhio Homes using several funding sources, including federal low-income housing tax credits and tax-exempt private activity bonds.

Under the plan, the state would sell the buildings at Kuhio Park Terrace and Kuhio Homes to Urban Housing with deed restrictions to require affordability and lease the land under the buildings for 55 years. After that period, the state could buy back the projects.

The proposal would not require state appropriations.

Doug Bigley, chief executive officer and president of Urban Housing, said the proposal was submitted to show Hawai'i housing officials how redevelopment is possible even in tough financial times.

Under the proposal, 50 percent of the units at the developments would remain public housing, 25 percent would get Section 8 project-based vouchers (so they would be subsidized) and 25 percent would have slightly higher rents, though they would still be for the poor.

"KPT can be fixed, and we can fix it," Bigley said.

The proposal comes as the state is grappling with how to address claims in a recently filed federal class action lawsuit, which alleges the conditions at Kuhio Park Terrace are well below substandard and points to broken elevators, hot water heaters and sewage lines.

State officials have said they are looking to mixed-income redevelopment, designed to revamp structures and add higher-income apartments to existing projects to bring in more revenue for upkeep, as a solution for as many as seven dilapidated public housing projects.

Many say the alternative is tearing down or selling buildings, especially in these tight fiscal times. Already, the state has a mounting list of backlogged repairs at public housing projects in the Islands.

At KPT alone, which is the largest public housing project in Hawai'i, there is an estimated $67 million in improvement needs right now, according to a 2003 assessment, the most recent.

Public housing administrators and advocates started last year introducing the concept of mixed-income redevelopment to public housing residents, while also pledging that no public housing units would be lost in redevelopment. Thompson said a "one-for-one" replacement is key, given the state's lack of affordable rentals.

But he added that a one-for-one replacement doesn't necessarily have to be on site. That means one project could in theory get smaller, while another one got larger. "As long as you have ... the same number of units," Thompson said recently. "It's been a ground rule."

The Urban Housing proposal does have its critics, though.

Drew Astolfi, lead organizer for Faith Action for Community Equity, which is working on getting the word out about mixed-income development among public housing residents, said the developer's fee under the proposal -about $10 million — is fairly high.

The fee, under the proposal, would be accrued through rents and other income streams over 15 years. He said the state should consider capping the fee at 1 percent to 2 percent of the total rehabilitation costs.

There are also remaining questions about how redevelopment would work, including where people would move when construction is being done and what amount of oversight the state would have over redeveloped sites, which would in theory be partially privatized.

Lowell Kalapa, an affordable housing advocate and Tax Foundation of Hawaii president, said those details can be worked out and said the state would still have lots of say over how a project was run under mixed-income redevelopment, even though the state probably wouldn't own or manage the buildings in a project.

"One of the misconceptions is you're going to get rid of public housing," he said. "This is not taking it out of the public domain, but putting it in private hands so we can attract federal subsidies."