Payments on ceded lands may resume

By Johnny Brannon
Advertiser Staff Writer

A plan to restore the state's blueprint for key payments to the Office of Hawaiian Affairs is making strong headway in the Legislature, following a Supreme Court decision that struck down an earlier formula.

If approved, the plan would assure OHA millions of dollars each year from revenue streams connected to "ceded lands" — former crown and Hawaiian government property ceded to the United States on annexation and back to Hawai'i upon statehood — and could help protect the arrangement from future court challenges.

The legislation, SB 1151, would re-establish a requirement that 20 percent of the money earned through leases of ceded land go to OHA, which manages a trust worth more than $300 million for the benefit of Hawaiians. The payments have averaged about $15 million per year in the past.

But the bill, which was written by OHA and has passed the Senate, would leave some thorny and enduring questions unanswered.

It would not clarify whether the state should deduct expenses — the cost of buildings, infrastructure, operations and maintenance — before coming up with a net income figure to make the payments. Nor would it decide whether OHA is entitled to additional money related to the operation of Honolulu airport, which is partly on ceded land.

Both issues have long been disputed.

Some believe the state has short-changed non-Hawaiian taxpayers by transferring gross revenue to OHA without accounting for investments and costs that make the cash flow possible.

And OHA has argued that the state cheats it out of money collected from stores that operate in connection with the airport, as well as other enterprises.

Cayetano stopped payments

"Lingle has no understanding of what is involved if OHA is given 20 percent off the top," former Gov. Ben Cayetano said. Advertiser library photo

Former Gov. Ben Cayetano tried to broker a final settlement of the disputes, and halted the payments while the high court reviewed the state's appeal of a lawsuit filed by OHA.

Cayetano offered to settle the case in 1999 by paying $251 million to OHA and granting the agency direct ownership of 360,000 acres of revenue-producing land. The settlement would have precluded future claims.

OHA's trustees split over the offer and it was rejected. The majority said Hawaiians were owed much more, and denounced the proposed deal as a sell-out.

But the Supreme Court ruled in 2001 that a 1990 state law mapping out a payment structure conflicted with federal law and must be thrown out. The court recommended that state lawmakers create a new formula for providing money to OHA, but that did not happen during the last legislative session.

Nevertheless, Gov. Linda Lingle ordered the payments resumed last month, and transferred to OHA a $2.8 million "first" installment. The administration says a less-defined portion of state law, created in 1980, allows the payments while the Legislature considers a new formula.

"What we are going to do is calculate it the same way it was calculated before the payments were stopped by former Governor Cayetano," Attorney General Mark Bennett said. "We believe that the state is obligated to fulfill its duty to Native Hawaiians, and we believe the executive order that Governor Lingle issued is consistent with both that obligation and state law."

The 1980 law is vague as to what forms of ceded land income should go to OHA, which the repealed 1990 law had partly clarified. The new legislation would specify that OHA is entitled to lease revenue, but not money from sources such as taxes, licensing fees, fines and federal grants.

OHA administrator Clyde Namu'o said the Lingle administration had taken a good first step by resuming the payments, but that the new law is needed.

"It's certainly better than the way it was before, when we were getting nothing, and we appreciate the governor's responsiveness," he said. "Our sense it that the order will withstand a legal review, but in an abundance of caution, it would be good to establish a new law that gives more clarity."

Lingle's move questioned

Gov. Linda Lingle ordered the payments resumed last month. Advertiser library photo

"Entering into an agreement with OHA by executive order for future payments is meaningless unless approved by the Legislature," he said. "Moreover, to enter into any agreement for payments to OHA without any kind of meaningful analysis is unwise, to say the least."

The question of whether the state's expenses should be deducted from ceded land revenue before the payments are made is especially troublesome, he said.

"Lingle has no understanding of what is involved if OHA is given 20 percent off the top," Cayetano said. "It's amateur hour at the State Capitol."

Bennett said there are important questions that need to be resolved by lawmakers, but that the payments could legally resume in the meantime and are based on past practices.

A separate bill, HB 295, would establish a legislative task force with OHA to study whether the state should deduct expenses from future payments, and other difficult questions.

A main focus of the panel would be "the apparent arbitrary rationale in enacting" the section of state law that the administration is basing the resumed payments on, according to the bill, sponsored by House Democrats.

The law "has and continues to foster questions of fairness with respect to 20-percent payments on revenues largely from capital improvements to which OHA made no contribution," the bill states. "Fairness would appear to indicate an amendment."

Clarification sought

The bill, which has passed the House, also calls for the task force to consider whether the state still needs to develop a comprehensive inventory of ceded lands, structures, leases, and income. The panel would recommend next steps to the Legislature in 2004.

OHA has long contended that a clear land inventory would show that the state should be paying up to twice as much each year. The state auditor concluded in 2001 that it would cost at least $18.5 million to set up a computerized inventory, however, and the idea stalled.

Namu'o said such data is still needed, but that the payments should not be held up until then.

"There is a need for us to understand what parcels are generating income, how much the income is, and whether the parcels are charging market rate for leases," he said.

Before the payments were stopped, state departments that generate income from leases of land identified as ceded were to deduct 20 percent of that revenue for OHA.

But there has been no centralized accounting of the payments and they were not routinely audited. And some land is not included because the history of its ownership is not as clear or is subject to differing legal interpretations, officials say.

Another bill sponsored by OHA, HB 1307, would provide it additional money for the time between the Supreme Court decision and Lingle's order to resume the payments.

The bill, which has passed the House, would tap 12 state sources for a total of more than $9.5 million. The breakdown gives a snapshot view of where ceded land revenue comes from. The bill seeks:

• $5,509,560 from the harbor special fund;
• $2,041,852 from the general fund;
• $975,801 from the boating special fund;
• $456,124 from the state parks special fund;
• $157,523 from the special land and development fund;
• $132,568 from the natural energy laboratory special fund;
• $108,322 from the foreign-trade zones special fund;
• and lesser amounts from the agricultural park special fund, beach restoration special fund, community development revolving fund, educational facilities special fund, parking control fund, and water resource management fund.

Two additional bills, which would transfer money based on Honolulu airport income to OHA, stalled in House and Senate committees.

OHA has long sought a share of the revenue the state collects from businesses that operate in connection with the airport, including the Duty Free Waikiki outlet. A controversial 1996 court ruling could have required back payments of up to $1.2 billion, but the state appealed the decision.

Then an act of Congress banned the diversion of any airport revenue to OHA, but forgave earlier payments that federal auditors concluded were improper.

The new federal law created the conflict upon which the Supreme Court based its decision to throw out the state's 1990 payment formula and send the issue back to the Legislature.

The stalled bills, HB 80 and SB 476, would require the state to pay OHA an amount equal to a 20-percent cut of the money earned through the airport, but to appropriate it from other state sources. Neither bill has moved since early February.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com or 525-8070.