SB2486 SD2

SECTION 1. The purpose of this Act is to address the findings and conclusions of the state auditor's February 19, 2008 financial and management audit of the Moloka‘i irrigation system.

The Moloka‘i irrigation system was designed to fulfill the policy of the Hawaiian Homes Commission Act, 1920, which, pursuant to section 101 of that Act, is "to enable native Hawaiians to return to their lands in order to fully support self-sufficiency for native Hawaiians and the self-determination of native Hawaiians . . . and the preservation of values, traditions, and culture of native Hawaiians."

The purpose of the Moloka‘i irrigation system was to bring under irrigation an area of 13,650 irrigable acres of land, which was dry farmed, thereby increasing and stabilizing the crop yield and economy of the island of Moloka‘i. As originally conceived, the system was designed to serve irrigation water to 13,250 acres of pineapple and four hundred acres of diversified crops. With the completion of the tunnel and supply conduit, an additional 3,150 acres of pineapple and six hundred sixty acres of irrigable diversified cropland were added.

Although the department of land and natural resources was the designated sponsoring agency for the construction, operation, and maintenance of the Moloka‘i irrigation system, the department of Hawaiian home lands and the Moloka‘i ranch benefited.

In 1989, the department of agriculture assumed its duties as custodian of the State's irrigation systems, including the Moloka‘i irrigation system.

The state auditor found the department of agriculture to be remiss in its oversight of the Moloka‘i irrigation system. The auditor stated, "The Department of Agriculture's flawed management endangers agriculture in Moloka‘i." The auditor also found that "[w]hile the department inherited a deteriorating system, it has done little to learn about the system and its contentious history. . . . The department is unable to balance its responsibilities in promoting agriculture, while guaranteeing Hawaiian homesteaders' rights to two-thirds of the water within the MIS ... it also has an obligation to Hawaiian homesteaders as expressed in the Hawaiian Homes Commission Act, 1920. The latter obligation has been set aside to promote agriculture among non-homestead farmers. The growth of agriculture among non-homestead farmers has come at the high cost of exhausting the water resources of the MIS." (emphasis added)

On January 31, 2008, the Hawai‘i Supreme Court reaffirmed in OHA v. HCDCH No. 25570, the State's fiduciary duty as a trustee of the Hawaiian Homes Commission Act. The court stated: "Moreover, we have previously indicated in an analogous case dealing with the Hawaiian Homes Commission Act that the State, as trustee, 'must adhere to high fiduciary duties normally owed by a trustee to its beneficiaries.' Ahuna, 64 Haw. at 338, 640 P.2d at 1168. In describing the scope of the State's relevant fiduciary duties, this court, in Ahuna, analogized such duties to the fiduciary duties of the United States to Native Americans by quoting, with approval, the words of the United States Supreme Court and stated:

Under a humane and self imposed policy which has found expression in many acts of Congress and numerous decisions of this Court, [the Government] has charged itself with moral obligations of the highest responsibility and trust. Its conduct, as disclosed in the acts of those who represent it in dealings with the Indians, should therefore be judged by the most exacting fiduciary standards.

Id. at 339, 640 P.2d at 1169 (quoting Seminole Nation v. United States, 316 U.S. 286, 296-97 (1942)) (brackets and emphases in original) (format altered). In Ahuna, we held that '[t]he use of the term 'most exacting fiduciary standards' imports the notion that [this] court will strictly scrutinize the actions of the government.' Id. at 339, 640 P.2d at 1169. Moreover, we observed that 'the nature of the trust obligations of the [State] toward beneficiaries . . . may be determined by examining well-settled principles enunciated by the federal courts regarding lands set aside by Congress in trust for the benefit of other native Americans[.]' Id. at 339, 640 P.2d at 1168. In particular, we cited three specific trust duties applicable to the State as trustee: (1) 'the obligation . . . to administer the trust solely in the interest of the beneficiary'; (2) the obligation that the trustee 'deal impartially when there is more than one beneficiary'; and (3) the 'obligation to use reasonable skill and care to make trust property productive[.]' Id. at 340, 604 P.2d at 1169-70 (citations omitted)."

The State has a fiduciary duty to native Hawaiians under the Hawaiian Homes Commission Act, 1920 and should therefore be judged by the most exacting fiduciary standards. When one of its state departments breaches the State's fiduciary duty, the State as trustee is liable to its beneficiaries. In addressing the State's fiduciary duty to the Hawaiian Moloka‘i irrigation system user, the state auditor recommended that the State should "consider adding additional homestead farmer seat(s) and develop procedural guidelines on how seats are filled."

The findings of the state auditor confirm that for nineteen years, the department of agriculture has continually breached its fiduciary duty to the native Hawaiians who are the users of the Moloka‘i irrigation system. In addition, the deputy administrator of the department of agriculture recently stated in a legislative hearing that the Moloka‘i irrigation system is the only state irrigation system that generates a profit. All of the other state irrigation systems operate with deficits. This means that the State depends on the Moloka‘i irrigation system to fund the operations of the other state irrigation systems to the Moloka‘i irrigation system's detriment.

The legislature cannot allow the State to continue to breach its fiduciary duty to the native Hawaiian users of the Moloka‘i irrigation system for in doing so the legislature may also be liable for the breach of fiduciary duty. Allowing the Moloka‘i irrigation system user revenue funds to continue to be commingled with other non-trust funds and to be used for non- Moloka‘i irrigation system operations and maintenance fails to comport with fiduciary standards.

Therefore, the intent of this Act is to end the breach of fiduciary duty and to implement the findings, conclusions, and recommendations of the state auditor. The auditor recommends in Section 5(c) and 5(d) of her report: "c. Develop the ability to segregate financial information on a system by system basis, for use as a planning tool and d. Review receivables collection process, and if necessary consider employing more aggressive tactics." (emphasis added) In response to these recommendations, this Act creates a separate subaccount in the irrigation system revolving fund to provide greater transparency and accountability, adds an additional homestead farmer seat to the advisory board, and appropriates funds to further needed repairs and maintenance of the Moloka‘i irrigation system.

SECTION 2. Section 167-22, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There is established the irrigation system revolving fund, into which shall be deposited:

(1) All legislative appropriations to the irrigation system revolving fund; and

(2) All or any portion of the receipts and revenues collected under this chapter, as determined by the board of agriculture, exclusive of the receipts and revenues deposited into the irrigation water development special fund.

There shall be created a sub-account within the revolving fund to facilitate increased transparency to assure the appropriate operation of the revolving fund as it relates to deposits and expenditures for the Molokai irrigation system."

SECTION 3. Section 167-23, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There is established a Molokai irrigation system water users advisory board, to be appointed by the governor under section 26-34. The advisory board shall consist of [~~six members, as follows:~~] seven members, of whom two-thirds shall be Hawaiian homestead farmers who are Molokai irrigation system users, Molokai residents, and active general excise tax licensees. To the extent possible, the board shall be comprised of the following:

(1) [A] Two homestead farmer [~~user~~] users on Molokai;

(2) A nonhomestead farmer user on Molokai;

(3) The [~~designee (by name rather than office)~~] nominee of the Molokai Farm Bureau;

(4) The [~~designee (by name rather than office)~~] nominee of Hikiola Cooperative, Inc.;

(5) The [~~designee (by name rather than office)~~] nominee of the Molokai-Lanai soil and water conservation district; and

(6) The [~~designee (by name rather than office)~~] nominee of the department of Hawaiian home lands.

The members of the advisory board shall serve without compensation, but shall be entitled to reimbursement for necessary expenses while attending meetings and while in the discharge of their duties. For administrative purposes, and pursuant to section 26-35, the advisory board shall be placed within the department of agriculture."

SECTION 4. The Molokai irrigation system water users advisory board, in conjunction with the board of agriculture, shall develop a definition of "homestead farmer". The advisory board shall report to the legislature, no later than twenty days prior to the convening of the regular session of 2009, on the progress made toward implementing the objectives outlined in the "Roadmap to Improvement" document generated as a result of meetings between the Board of Agriculture and the Molokai community. The report shall include a timeline for implementation. The advisory board shall also post its report on the appropriate website of the department of agriculture.

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2008-2009 to further address the repair and maintenance needs of the Molokai irrigation system.

The sum appropriated shall be expended by the department of agriculture for the purposes of this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	2486
TWENTY-FOURTH LEGISLATURE, 2008		S.D. 2
STATE OF HAWAII