SB2136 SD3.DOC

SECTION 1. The legislature finds that in 1978, the state constitution was amended to establish the office of Hawaiian affairs and its board of trustees.

Article XII, sections 4, 5, and 6 of the state constitution provide as follows:

Section 4. The lands granted to the State of Hawaii by Section 5(b) of the Admission Act and pursuant to Article XVI, Section 7, of the State Constitution, excluding therefrom lands defined as "available lands" by Section 203 of the Hawaiian Homes Commission Act, 1920, as amended, shall be held by the State as a public trust for native Hawaiians and the general public.

Section 5. There is hereby established an Office of Hawaiian Affairs. The Office of Hawaiian Affairs shall hold title to all the real and personal property now or hereafter set aside or conveyed to it which shall be held in trust for native Hawaiians and Hawaiians. There shall be a board of trustees for the Office of Hawaiian Affairs elected by qualified voters . . . as provided by law . . . . There shall be not less than nine members of the board of trustees; provided that each of the following Islands have one representative: Oahu, Kauai, Maui, Molokai and Hawaii. The board shall elect a chairperson from its members.

Section 6. The board of trustees of the Office of Hawaiian Affairs shall exercise power as provided by law: to manage and administer the proceeds from the sale or other disposition of the lands, natural resources, minerals and income derived from whatever sources for native Hawaiians and Hawaiians, including all income and proceeds from that pro rata portion of the trust referred to in section 4 of this article for native Hawaiians; to formulate policy relating to affairs of native Hawaiians and Hawaiians; and to exercise control over real and personal property set aside by state, federal or private sources and transferred to the board for native Hawaiians and Hawaiians. The board shall have the power to exercise control over the Office of Hawaiian Affairs through its executive officer, the administrator of the Office of Hawaiian Affairs, who shall be appointed by the board.

Act 273, Session Laws of Hawaii 1980, enacted section 10‑13.5, Hawaii Revised Statutes, to implement the office of Hawaiian affairs' pro rata share and provide that "[t]wenty per cent of all funds derived from the public land trust . . . shall be expended by the office of Hawaiian affairs . . . for the purposes of this chapter."

This legislative directive has led to a series of lawsuits concerning the office of Hawaiian affairs' constitutional pro rata share and the statutory allocation of twenty per cent of all funds that the legislature established to implement article XII, sections 4 and 6, of the state constitution. In Trustees of the Office of Hawaiian Affairs v. Yamasaki, 69 Haw. 154, 737 P.2d 446 (1987), the Hawaii supreme court concluded that it was unable to determine the parameters of section 10-13.5, Hawaii Revised Statutes, because the issue of how the twenty per cent apportionment is formulated was a political question for the legislature to determine.

In response to the Yamasaki decision, the office of Hawaiian affairs and the governor's office entered into lengthy negotiations and submitted to the legislature an agreement to clarify the extent and scope of the twenty per cent portion. The legislature, based on this agreement, enacted Act 304, Session Laws of Hawaii 1990.

In a memorandum dated April 28, 1993, the office of Hawaiian affairs and the State memorialized the results of their negotiations and noted that "[the office of state planning] and [the Office of Hawaiian Affairs] recognize and agree that the amount specified in section 1 hereof does not include several matters regarding revenue which [the Office of Hawaiian Affairs] has asserted is due [the Office of Hawaiian Affairs] and which [the office of state planning] has not accepted and agreed to." These disagreements led to litigation. The office of Hawaiian affairs specified that it was seeking its pro rata share of revenues received by the State based on:

(1) Waikiki Duty Free receipts (in connection with the lease of ceded lands at the Honolulu international airport);

(2) Hilo hospital patient services receipts;

(3) Receipts from the Hawaii housing authority and the housing finance and development corporation for projects situated on ceded lands; and

(4) Interest earned on withheld revenues.

On October 24, 1996, the trial court granted the office of Hawaiian affairs' motion for partial summary judgment on each of its aforementioned claims, finding that:

(1) The State is required to pay the office of Hawaiian affairs its pro rata portion of rents or fees collected from the Duty Free concessions at the State's airports;

(2) The State's activities of providing affordable housing are proprietary in nature and subject to the office of Hawaiian affairs' pro rata share;

(3) Patient service fees, cafeteria sales, and rental income at Hilo hospital "is clearly a proprietary rather than sovereign exercise of power" which does not shield the Hilo hospital's income from being characterized as revenue subject to the office of Hawaiian affairs' pro rata share; and

(4) "The State is required to pay [the Office of Hawaiian Affairs] its pro rata share of the interest earned by the State from ceded land revenues derived from the Public Land Trust."

The State appealed.

On October 27, 1997, the United States Congress enacted the Department of Transportation and Related Agencies Appropriations Act, 1998, Public Law 105-66, which provided that moneys paid for claims related to ceded lands and diverted from airport revenues were not subject to repayment. Public Law 105-66 provided further that nothing in the Act was to affect the obligations of the State of Hawaii to Native Hawaiians in connection with ceded lands, except to make clear that airport revenues may not be used to satisfy those obligations directly. The office of Hawaiian affairs had previously been paid $28,200,000 from airport revenue funds.

On September 12, 2001, the Hawaii supreme court ruled in Office of Hawaiian Affairs v. State of Hawai‘i, 96 Haw. 388, 31 P.3d 901 (2001), ("OHA I") that Act 304, Session Laws of Hawaii 1990, was effectively repealed by its own terms, so that once again, it was necessary for the legislature to clarify the office of Hawaiian affairs' constitutional pro rata share and the statutory allocation of twenty per cent of all funds to be managed and administered by the office of Hawaiian affairs. In its decision, the Hawaii supreme court affirmed Yamasaki, observing:

[T]he State's obligation to native Hawaiians is firmly established in our constitution. How the State satisfies that constitutional obligation requires policy decisions that are primarily within the authority and expertise of the legislative branch. As such, it is incumbent upon the legislature to enact legislation that gives effect to the right of native Hawaiians to benefit from the ceded lands trust. See Haw. Const. art. XVI, section 7. . . . [W]e trust that the legislature will re-examine the State's constitutional obligation to native Hawaiians and the purpose of HRS §10‑13.5 and enact legislation that most effectively and responsibly meets those obligations.

OHA I, 96 Haw. at 401, 31 P.3d at 914 (citations omitted).

On April 28, 2006, the Hawaii supreme court ruled in Office of Hawaiian Affairs v. State of Hawai‘i, 110 Haw. 338, 366, 133 P.3d 767, 795 (2006) ("OHA II"), that consistent with its ruling in OHA I, "it is incumbent upon the legislature to enact legislation that gives effect to the right of native Hawaiians to benefit from the ceded lands trust."

Subsequently, the legislature enacted Act 178, Session Laws of Hawaii 2006 (Act 178), which took effect on June 7, 2006, and specifically acknowledged that "the State's obligation to native Hawaiians is firmly established in the state constitution. (See Haw. Const. art XII)."

While the legislature found that "many complex issues require the legislature's further attention and consideration in the wake of the repeal of Act 304," Act 178 was enacted with a stated purpose of providing "interim measures to ensure that an adequate amount of income and proceeds is made available to the office of Hawaiian affairs from the pro rata portion of the public land trust, for the betterment of the conditions of native Hawaiians." Act 178 carried out this interim purpose by requiring "the income and proceeds from the pro rata portion of the public land trust under article XII, section 6, of the state constitution for expenditure by the office of Hawaiian affairs for the betterment of the conditions of native Hawaiians for each fiscal year beginning with fiscal year 2005-2006 shall be $15,100,000." Specifically, Act 178 noted this interim amount was "[until] further action is taken by the legislature for this purpose." This $15,100,000 was based, in part, on certain ancillary receipts from the state airports.

Subsequently, addressing past-due amounts owed to the office of Hawaiian affairs, Act 15, Session Laws of Hawaii 2012 (Act 15), was enacted to implement an agreement between the State and the office of Hawaiian affairs for the State to convey certain lands in Kakaako makai on Oahu valued at approximately $200,000,000 to allow the State to give effect to the right of native Hawaiians to benefit from the public land trust and to fulfill its constitutional obligations under article XII, sections 4 and 6 of the state constitution for the period between November 7, 1978, up to and including June 30, 2012, relating to the office of Hawaiian affairs' portion of the income and proceeds from the public land trust.

However, Act 15 did not address the State's constitutional obligations under article XII, sections 4 and 6 relating to the office of Hawaiian affairs' pro rata share of the income and proceeds from the public land trust generated after June 30, 2012.

Act 178 remained in effect as an interim legislative measure setting the office of Hawaiian affairs' annual income and proceeds from the public land trust for the betterment of the conditions of native Hawaiians at $15,100,000 beginning in fiscal year 2005-2006, pending further legislative action on the subject.

The legislature also finds that more than a decade has passed since the enactment of Act 178, Session Laws of Hawaii 2006, and that it is now appropriate for the State and the office of Hawaiian affairs to re-examine the annual interim figure of $15,100,000 and to issue a written report to the legislature recommending the annual amount of income and proceeds from the public land trust that the office of Hawaiian affairs shall receive annually, including any additional amounts or the transfer of lands to the office of Hawaiian affairs that may be warranted under the circumstances.

The purpose of this Act is to establish a public land trust revenues committee whose function shall be to study and make written recommendations on the proposed annual amount of interim income and proceeds from the public land trust that the office of Hawaiian affairs shall receive annually, including any proposed recommendations for additional amounts or the transfer to the office of Hawaiian affairs of lands that may be warranted under the circumstances.

SECTION 2. Section 26-8, Hawaii Revised Statutes, is amended to read as follows:

"§26-8 Department of budget and finance. (a) The department of budget and finance shall be headed by a single executive to be known as the director of finance.

(b) The department shall:

(1) Undertake the preparation and execution of the executive budget of the state government;

(2) Conduct a systematic and continuous review of the finances, organization, and methods of each department of the State to assist each department in achieving the most effective expenditure of all public funds and to determine that such expenditures are in accordance with the budget laws and controls in force;

(3) Have custody of state funds and be responsible for the safekeeping, management, investment, and disbursement thereof; and

(4) Administer state debts.

(c) The functions and authority heretofore exercised by the bureau of the budget (except for insurance management, surplus property management, and central purchasing transferred to the department of accounting and general services) and the funds custody, cash management, debt management, and administering of veterans loan functions of the treasurer as heretofore constituted are transferred to the department of budget and finance established by this chapter.

(d) The employees' retirement system as constituted by chapter 88 is placed within the department of budget and finance for administrative purposes. The functions, duties, and powers, subject to the administrative control of the director of finance, and the composition of the board of trustees of the employees' retirement system shall be as heretofore provided by law.

(e) There is established within the department of budget and finance a public land trust revenues committee consisting of:

(1) The governor or the governor's designee, who shall serve as chairperson of the committee;

(2) The president of the senate or the president's designee;

(3) The speaker of the house of representatives or the speaker's designee; and

(4) The chairperson of the board of trustees of the office of Hawaiian affairs or the chairperson's designated trustee.

(f) The public land trust revenues committee shall study and develop recommendations on the proposed annual amount of interim income and proceeds from the public land trust that the office of Hawaiian affairs shall receive annually.

(g) No later than sixty days prior to the convening of each regular session, the public land trust revenues committee shall submit a report to the legislature containing its findings, recommendations, and proposed legislation, if any, regarding the proposed annual amount of interim income and proceeds from the public land trust that the office of Hawaiian affairs shall receive annually, including, if recommended, any additional income or proceeds and the transfer of lands to the office of Hawaiian affairs warranted under the circumstances."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	2136
TWENTY-NINTH LEGISLATURE, 2018		S.D. 3
STATE OF HAWAII