The state is "very close" to settling a lawsuit over alleged abuse of gay and transgender wards at the Hawai'i Youth Correctional Facility, with the state pledging to change its policies at the youth prison and pay $625,000 to resolve the case.

The American Civil Liberties Union sued the state last year on behalf of three wards who said they were physically and emotionally abused by guards because of their sexual orientations.

One of the wards is a lesbian, another is a male-to-female transgender, and the third is gay, according to the state attorney general's office.

The wards in the lawsuit, described in court only by initials to protect their privacy, said they were targeted because of their sexual orientation or perceptions about their sexual orientation.

The gay and transgender youths also claimed to be victims of harassment by other youths at the prison, and said correctional officers at the facility watched but did not intervene "in any meaningful manner," according to the attorney general's office.

Lois Perrin, legal director for the ACLU of Hawai'i, declined to discuss the settlement because it has not been finalized.

Deputy Attorney General John Molay said the state is not admitting to any wrongdoing in the case, but said the two sides have agreed on the $625,000 settlement.

Of that money, $600,000 would go to the former wards and the ACLU, and $25,000 will be spent on a contract with Oregon juvenile justice expert Marty Beyer to help the state draft new policies to deal with sexual orientation at the youth prison, Molay said.

"We are going to create new policies and procedures to protect the civil rights of lesbian, gay, bisexual and transgender wards," he said.

U.S. District Judge Michael Seabright last year issued a preliminary injunction in the case, ordering that youth corrections officers cannot abuse, harass or unfairly treat juvenile wards based on their sexual orientation.

Molay said the settlement agreement will "closely mirror" the terms of Seabright's order in the case, which prohibited the state from discriminating against the youths based on their sexual orientation.

The order also instructs that the state should not isolate those youths except for emergencies to protect them from harassment and abuse, and that corrections officers should not use derogatory language toward wards because of their sexual orientation.

The order also requires that prison staff must stop other wards from using such terms, and requires the state to discipline employees who violate the order.

Under Seabright's order, the state is also required to investigate and respond to complaints by juveniles who allege discrimination and harassment based on sexual orientation.

The U.S. Department of Justice and the state have reached an agreement that will give officials here three years to correct serious problems at the Hawai'i Youth Correctional Facility and avoid federal intervention.

In February, the state entered into a separate agreement with the U.S. Department of Justice to address violations uncovered during an inspection of the youth prison in October 2004.

The report said the facility was in a "state of chaos" and lacked safeguards to protect the juveniles, a violation of their constitutional rights.

Federal officials have said the state has been working to correct the violations, and the agreement gave the state three years to make the necessary improvements.

A court-appointed monitor will oversee those improvements in areas ranging from staffing to healthcare, educational services and protection of wards from abuse.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com.