by H. William Burgess and Sandra Puanani Burgess
Hawaii Bar Journal, July 2001, pp. 9-15.
(c) 2001 Hawai'i State Bar Association
(footnotes are indicated by / Thus /4 indicates footnote #4)
From its inception in 1898, the primary goal
of Hawaii’s public land trust was public education.
The Annexation Act of 1898 required that the
United States hold all revenues or proceeds of
the ceded lands, with certain exceptions, “solely
for the benefit of the inhabitants of the Hawaiian
Islands for educational and other public
purposes.”
However, twenty-three years ago, through
the Constitutional Convention of 1978 and
subsequent legislation, the State of Hawaii shifted
this priority. It ordered the diversion of a “pro rata
share” of ceded lands revenues and proceeds to
“the betterment of native Hawaiians” through a
newly created state agency, the Office of
Hawaiian Affairs (“OHA”). One consequence was
to take all of the net income from the ceded
lands and divert it from public education to OHA.
Another consequence was to convert what had
been a race-neutral public trust to one that
treated beneficiaries differently based on their
ancestry.
The resulting tensions in public priorities
provoked a number of lawsuits in state and
federal courts. The most significant of these, at
least in terms of public dollar amounts at stake, is
OHA v. State,
/1
now pending in the Hawaii
Supreme Court. This case graphically illustrates
OHA’s profound economic and other
consequences for the State of Hawaii, its public
schools, and its citizens.
THE HISTORICAL BACKGROUND.
The “ceded lands” are the 1.8 million acres
of public lands owned by the government of
Hawaii that, upon annexation in 1898, were
“ceded” to the United States with the requirement
that all revenues or proceeds of the lands, except
for those used for civil, military or naval purposes
of the United States or assigned for the use of
local government, “shall be used solely for the
benefit of the inhabitants of the Hawaiian Islands
for educational and other public purposes.”
/2
In 1898, about thirty percent of the
inhabitants of Hawaii were of Hawaiian ancestry,
and the remaining seventy percent were of other
ancestry.
/3
Nothing in the Annexation Act gave native
Hawaiians or any other racial group any special
interest in the ceded lands or any special right to
the income or proceeds, beyond that which was
given to all other inhabitants of Hawaii as
beneficiaries of the public land trust.
Nor did native Hawaiians, merely by virtue
of their ancestry, have any special entitlement to
the income or proceeds of the public lands of the
Kingdom of Hawaii. Everyone born in the
Kingdom (except children of foreign diplomats)
was a native-born subject of the Kingdom. The
government of the Kingdom of Hawaii actively
encouraged immigration and offered immigrants
easy naturalization and full political rights. For
example, the Civil Code of 1858
/4
provided that
“[e]very foreigner so naturalized shall be deemed
to all intents and purposes a native of the
Hawaiian Islands ... and ... shall be entitled to all
the rights, privileges and immunities of an
Hawaiian subject.”
/5
RETURN OF CEDED LANDS.
In 1959, when Hawaii became a State, the
United States transferred title to these lands, less
those parts retained by the United States for
national parks, military bases and other public
purposes, to Hawaii, with the requirement in the
Admission Act that the State hold them “as a
public trust” for “one or more” of five purposes:
“for the support of public schools and other
public educational institutions”; “for the
betterment of the conditions of native Hawaiians
as defined in the Hawaiian Homes Commission
Act,” i.e., fifty percent or more blood quantum;
“for the development of farm and home
ownership”; “for the making of public
improvements”; and “for the provision of lands for
public use.”
Some claim that the Admission Act created
a “special trust relationship,” gave “native
Hawaiians” (i.e., those of fifty percent or more
blood quantum) some special rights to the ceded lands, or “guaranteed” that they receive some
share of the income or proceeds separate from or
greater than the share of other citizens of Hawaii.
However, the Admission Act does not
require that any part of the ceded lands, or
income or proceeds be used in any one year, or
ever, for native Hawaiians or for any particular one
of the other permitted purposes.
Indeed, if the United States Congress, when
it enacted the Admissions Act, had tried to give
preference to one group of beneficiaries of the
public land trust, the attempt would have been
invalid. The United States had the right to use or
occupy parts of the lands for civil, military or naval
purposes and to assign parts of the lands for the
use of local government. It held the rest as
trustee “solely for the benefit of the inhabitants of
the Hawaiian islands for educational and other
public purposes.”
/6
Nothing “compelled” the
federal government, in transferring those lands
back to Hawaii in 1959, to require the State to
give preference to native Hawaiians. The
opposite is true. The United States’ fiduciary duty
compelled it to administer the trust impartially.
/7
Permanently favoring one small racial group
among the beneficiaries is not impartiality.
Furthermore, if Section 5(f) of the
Admission Act were construed to require Hawaii
to change its public trust to a racial one, such a
construction would violate the equal footing
doctrine and would be invalid.
All States, old and new, stand on an equal
footing; that is, they have equality of constitutional
right and power, each competent to exercise the
sovereignty not delegated to the United States by
the Constitution itself.
/8
A State’s equality of constitutional right and
power may not be hampered by any
Congressional enactment even if accepted upon
admission.
/9
In Coyle v. Smith,
/10
the Supreme
Court invalidated a restriction on the change of
location of the State capital, a condition that
Congress had imposed as a condition for the
admission of Oklahoma.
< quote > As to matters strictly of State
cognizance the legislative power
of the State is complete,
unhampered by any congressional
enactments even if accepted
upon the admission of the State,
for each State is admitted on an
“equal footing” with the others. < endquote >
/11
The first sentence of the Hawaii Admission
Act includes the statement that “the State of
Hawaii is declared admitted into the Union on an
equal footing with the other States in all respects
whatever.” However, construing section 5(f) to
require Hawaii to favor a particular group to the
detriment of the other beneficiaries would restrict
the State’s power to determine for itself, like other
States can, the best use of its own public lands
and the best allocation of the income and
proceeds from its public lands. The Constitution
does not delegate that power to the federal
government. These are matters strictly of State
cognizance so that Hawaii is “unhampered by any
congressional enactments even if accepted upon
the admission of the State.”
/12
CEDED LANDS INCOME GOES TO DEPARTMENT
OF EDUCATION
From 1959 to 1978, the State of Hawaii
channeled most of the ceded lands income to
the Department of Education.
/13
That use of the income from the ceded
lands complied with the Hawaii Admission Act,
because the support of the public schools is one
of the five permitted purposes. It also complied
with the United States Constitution and the
Hawaii Bill of Rights, because it benefited all of
the children of Hawaii who attended public
schools without regard to their race or ancestry.
OHA CREATED.
In 1978, Hawaii’s Constitution was
amended to create OHA. Payments of the
income from the ceded lands to the Department
of Education ceased.
TWENTY PERCENT TO OHA.
In 1980, the Hawaii Legislature, by Act 273,
provided that twenty percent of all funds derived
from the public land trust would be expended by
OHA.
The rationale for twenty percent was
apparently that the 1959 Admission Act had
specified five permissible purposes, one of which
was for the betterment of the condition of native
Hawaiians. Therefore, OHA should receive one
fifth or twenty percent of the income.
Apparently, the Legislature did not consider
it important that OHA is required to use this
ceded lands income solely for “native Hawaiians”
(fifty percent or more Hawaiian blood count) who
make up only about five percent of Hawaii’s
population.
Thus, in 1980, the Legislature changed the
terms of the public land trust so as to
permanently give twenty percent of the funds
derived from the public lands trust to a group
selected only on the basis of their race or
ancestry and who make up only about five
percent of the public.
By this act, the State, as trustee of the public
lands trust, committed itself to violate its fiduciary
duty to ninety-five percent of the public, that is
the about 1.1 million citizens of Hawaii who have
less than fifty percent or no Hawaiian blood.
LEGISLATURE DEFINES “REVENUES.”
In 1990, Act 304 defined “revenue” from
which OHA is to share as “all proceeds, fees,
charges, rents or other income . . . derived from
any . . . use or activity, that is situated upon and
results from the actual use of lands comprising
the public land trust.” This act that apparently has
been interpreted to calculate OHA’s “pro rata
share” on the gross revenues rather than on the
net after expenses further compounded the
breach of the State’s fiduciary duty to ninety-five
percent of Hawaii’s citizens.
/14
Act 304 also mandated that OHA and the
State Department of Budget and Finance
negotiate the amounts payable to OHA for the
years 1980 through 1991.
1993 SETTLEMENT.
In 1993, after extensive discussions, the
Legislature considered a proposal for payment of
about $130 million, including interest, for the
years 1980 through 1991, supported by both
OHA and the State. State officials, including the
Director of the Department of Budget and
Finance, testified that such amount would “settle”
or constitute “paying the full amount” of OHA’s
claims to revenues from the ceded lands for
1980-1991.
/15
OHA did nothing to dispel this
understanding but rather confirmed it. The
Legislature, by Act 35, then authorized and
appropriated the amount in general obligation
bond funds to be paid to OHA for this purpose.
/16
In April 1993, after Act 35 was enacted,
OHA and an official from the Office of State
Planning (“OSP”) signed a Memorandum, stating
in part that “OSP and OHA recognize and agree
that the amount specified in Section 1 hereof
does not include several matters regarding
revenues which OHA has asserted is due to OHA
and which OSP has not accepted and agreed
to.”
/17
The official from the OSP who signed the
memorandum had no apparent authority to
change the terms of the settlement, which had
been agreed to by the Department of Budget and
Finance and OHA and submitted to and acted
upon by the Legislature.
In June 1993, the $130 million was paid to
OHA for its share of the ceded lands revenues for
1980 through 1991.
1994 OHA SUIT.
In January 1994, OHA commenced suit,
/18
seeking payment of additional amounts going
back to 1980, arising from receipts of the Waikiki
DutyFree shop, public housing, the Hilo Hospital,
and investment earnings on unpaid “revenue.”
In October 1996, Circuit Court Judge Daniel
G. Heely granted OHA’s motion for partial
summary judgment, ruling that OHA is entitled to
a twenty percent share of each of the items in
question.
The State appealed to the Hawaii Supreme
Court.
/19
The case was briefed. At the oral
argument heard on April 20, 1998, the court
urged the parties to settle. On July 28, 1998, the
court stayed proceedings until December 1,
1998, while the State and OHA discussed
settlement. On April 16, 1999, OHA made a
final offer to accept $304.6 million in settlement
of claims for past revenues. The State offered
$251.3 million to settle all claims once and for all,
a global settlement. On April 27, 2000, the OHA
board voted to end settlement talks with the
State.
/20
Media accounts have estimated that, if
Judge Heely’s decision is affirmed, between $300
million and $1.2 billion may be payable to OHA
for the period 1980 through 1991, apparently in
addition to the $130 million already paid to settle
OHA’s claims for that period.
These figures boggle the mind. If OHA’s
“pro rata share” is twenty percent, then, obviously,
the “pro rata share” of the DOE, UH or other
public agencies must be four times that amount
(or eighty percent of the total moneys generated
from the ceded lands). So, if $250 million
received by the State from the ceded lands for
those prior years is available to be awarded to
OHA, then $1 billion must be available to go to
the DOE or the UH or other public agencies for
those same years. If the State’s ceded lands
account holds $1 billion for OHA’s share for those
years, then it must hold $4 billion for its other
public agencies for those years
20% OF GROSS REVENUES OR NET AFTER
EXPENSES?
Calculating OHA’s twenty percent share on
the gross revenues rather than the net after
expenses apparently arrives at these staggering
amounts.
Revenues from the ceded lands do not just
drop like rain from the heavens, nor do they
spring up naturally from the ground. The State
has to spend money to generate those revenues.
For example, at Hilo Hospital, in order to
earn revenues from services to patients, the State
has to pay salaries to doctors and nurses and
staff, buy and maintain and repair and replace x-ray
machines, computers and other equipment,
pay for electricity, gas, telephone and water, and
other operating, overhead and administrative
expenses. The State undoubtedly borrowed
money, through issuance of bonds, to build and
make improvements to Hilo Hospital and has to
pay that money back with interest.
It is important to know the actual revenues
that the State, as trustee of the public land trust,
receives from the ceded lands, as well as the
expenses the State incurs in connection with
those lands and in generating those revenues
before making or agreeing to any “pro rata”
distribution to any beneficiaries. Under general
trust law, beneficiaries are only entitled to receive
shares of net income, not gross.
We have asked for this information.
/21
But
the State has declined to furnish it, saying the
negotiations with OHA are confidential.
/22
THE STATE MAY FACE
ECONOMIC DISASTER.
If the State is, in fact, paying OHA twenty
percent of the gross revenues, OHA is probably,
actually, receiving more than one hundred
percent of the net income from the ceded lands.
Most businesses never achieve a twenty percent
profit. Government agencies operating parks,
roads, public schools and universities, airports,
harbors, public rental, housing and housing
development programs and hospitals could
probably never generate net income (i.e., gross
revenues less expenses) of anywhere near twenty
percent.
To illustrate the consequences of using
gross revenues for the calculation, suppose a
woman of Hawaiian ancestry by her will leaves a
ten-acre parcel of vacant land in trust for her two
young children, a boy and a girl, each being an
equal beneficiary. The vacant land generates no
revenues, so the trustee decides to subdivide the
property into five lots and lease the lots. To do
so, he must build a road. The trustee borrows
$12,000 to build a road and pay the expenses of
subdivision. He then leases the five lots for total
rent of $10,000 per year. The trustee has to pay
back the loan principal at the rate of $3,000 per
year and incurs expenses of maintaining and
repairing the road, landscaping, interest,
insurance, accounting, attorneys fees, and trustee
fees of another $3,000 per year. The gross
revenues of the trust are therefore $10,000. The
income, after expenses and debt service, is
$4,000 per year.
Suppose one of the beneficiaries, the young
boy, hires a lawyer to demand that the trust pay
the boy $5,000 per year as his fifty percent of the
pro rata share of the trust revenues. Such a
demand would clearly not be right.
To pay $5,000 per year to the boy, the
trustee would have to pay him the entire $4,000
net income (leaving no share for the girl) and
then either borrow $1,000 or give the boy
$1,000 worth of the land. If that continued for
enough years, the trust would become insolvent,
or the boy would finally have all the land. The
girl, an equal beneficiary, would receive no benefit
at all from the trust; and, if she were in the same
shoes as over a million of Hawaii’s citizens, she
would even have to pay taxes to the trustee
annually, so the Trustee could repay the money
he had borrowed to pay the boy.
Funny as it sounds, that seems to be pretty
much what is now happening here in the State of
Hawaii. The State is apparently paying OHA for its
“pro rata share,” twenty percent of the gross
revenues from the ceded lands. Since that figure
probably exceeds the entire net income, nothing
is left for public education or any other public
purpose. The State borrowed over $130 million
in 1993 to pay OHA; and, at least based on
media reports, the State negotiators were and still
might be considering giving OHA ceded lands
worth hundreds of million dollars to settle the
pending lawsuit.
The over-one-million citizens of Hawaii who
do not happen to have fifty percent or more
blood quantum are receiving no income
whatsoever from the public lands trust, despite
the fact that each of them has (or had up until
1980 when the Legislature set OHA’s pro rata
share as twenty percent) as much right to benefit
from the ceded lands as any native Hawaiian. To
make matters worse, those over-one-million
citizens will have to pay taxes for years into the
future so that the State can repay the moneys it
has borrowed to pay OHA. If the State transfers
land to OHA or borrows more millions to pay
OHA, and if that practice continues for long
enough, the State of Hawaii will eventually
become insolvent, or OHA will end up with all the
ceded lands.
The economic and social consequences are
already being felt.
The editorial page of the Sunday January 3,
1999 Honolulu Advertiser discussed the latest
numbers from the United States Census Bureau
that show that Hawaii from 1997 to 1998 lost
the highest percentage of its residents to other
states among all the fifty states. The editorial said
it is clear where the movement is coming from:
recent graduates in search of good jobs and mid-career
working families who have become
exhausted by the struggle to keep up in Hawaii. It
then went on to say what, to us, is the most
disturbing part:
< quote > There are real reasons for the
exodus: the relative lack of
opportunity here compared with
robust job and home ownership
opportunities in other states. But
there are also psychological
reasons: a fear that Hawaii is
sliding from bad to worse; a
concern that the Island qualities
that make the struggle
worthwhile are being lost. < endquote >
The illogic of giving all the net income to
OHA is compounded by the fact that OHA is
required to use these funds, not for all Hawaiians,
but solely for “for the betterment of Native
Hawaiians,” as defined in the HHCA (fifty percent
or more Hawaiian blood). As discussed earlier,
they are only about 5% of our population.
Now there’s the Rice case.
/23
That decision
struck down a racial restriction on voting in
Hawaii’s statewide elections for OHA trustees. In
Rice, the Court held that the definition of
“Hawaiian” established a racial classification, and
that the state law, by depriving Hawaii’s other
citizens of the right to vote because of their race,
violated the Fifteenth Amendment to the United
States Constitution. Recently, the Federal district
court in Hawaii, relying on the Rice decision, held
that a state law that permitted only “Hawaiians” to
seek or hold office as OHA trustees also violated
the U.S. Constitution.
/24
Other suits based on Rice
have since been filed to overturn other state law
entitlement programs for persons of Hawaiian
ancestry.
Given all these concerns, should public
school children have been deprived of a source
of funds so that a bureaucracy for less than 5%
of the population can receive constitutionally
questionable extra benefits? Statewide
enrollment for the public schools in a recent year
was 187,395.
/25
In addition, the University of
Hawaii system served 71,000 to 72,000 students
in credit and non-credit programs during Fall
1998.
All parents of children in the public schools
(including those of Hawaiian ancestry) and all
those who think public education is important to
Hawaii’s economy should stand up and demand
that this giveaway to OHA be stopped.
Such payments to OHA, whether in cash or
in land, may be disastrous to the state, not only
financially, but morally and socially.
What is at issue is public land and public
money, your land and your money, the land and
money needed to educate children, to run the
state, to care for those in need, based on need
rather than ancestry, and to provide the
opportunity to achieve prosperity and better lives
for all of Hawaii’s citizens, Hawaiian and non-Hawaiian
alike.
_____________________ FOOTNOTES
1
S.Ct. No. 20281.
2
Annexation Act (sometimes referred to as the Newlands
Resolution), 30 Stat. 750 (1898). Such a special trust was
recognized: in 1899, by the Attorney General of the United
States in 22 Op. Atty. Gen. 574 (1899); by the Hawaii
Supreme Court: “Excepting lands set aside for federal
purposes, the equitable ownership of the subject parcel and
other public land in Hawaii has always been in its people.
Upon admission, trusteeship to such lands was transferred to
the State, and the subject land has remained in the public
trust since that time.” State v. Zimring, 58 Hawaii 106, 124,
125 (1977); and by the State Attorney General, Opinion July
7, 1995 to Governor Benjamin J. Cayetano from Margery S.
Bronster, Attorney General: “Section 5 [Admission Act]
essentially continues the trust which was first established by
the Newlands Resolution in 1898, and continued by the
Organic Act in 1900.”
3
See Robert C. Schmitt, Demographic Statistics of Hawaii:
1778-1965. (Honolulu, 1968).
4
Civil Code of 1858, §432.
5
See also Hanifin, To Dwell on Earth in Unity; Rice, Arakaki,
and the growth of citizenship and voting rights in Hawaii,
https://www.angelfire.com/hi2/hawaiiansovereignty/HanifinCitiz
en.
6
Att’y. Gen. Op. July 17, 1995, fn. 1, supra.
7
Restatement of Trusts, (Second) §183; Pele Defense Fund v.
Paty, 837 P.2d 1247, 1263 fn 18(1992).
8
Escanaba Co. v. Chicago, 107 U.S. 678, 689 (1883); Utah
Div. of State Lands v. United States, 482 U.S. 193 (1987),
accord Amici Curiae Brief by attorneys general including
Corinne K.A. Watanabe, then Attorney General of Hawaii.
9
Pollard’s Lessee v. Hagen, 44 U.S. (3 How.) 212(1845).
10
221 U.S. 559 (1911)
11
In re Island Airlines, 44 Haw. 634, 642, 361 P.2d 390
(1961).
12
In re: Island Airlines, supra.
13
Final Report of the Public Land Trust, Legislative Auditor Dec.
1986; see also 808 Haw. Att’y Gen, Op., 1980 WL 26216
(July 8, 1980).
14
OHA recognizes the windfall it receives from Act 304. OHA’s
financial statements for years ending June 30, 1996 and 1997
show on page 35 that, on November 4,1996, $ 1 million was
allocated to an advertising campaign to “Protect 304.”
15
See Appellant’s (the State’s) Amended Opening Brief filed
May 6, 1997 in OHA v. State, S. Ct. No. 20281, pages 30 -33.
16
Id.
17
Id.
18
OHA v. State, Civil No. 94-0205-01, First Circuit Court.
19
S.Ct. No. 20281.
20
Honolulu Star-Bulletin articles, April 20, 27 & 28, 1999.
21
Ex. 3 to Motion to Intervene 4/29/99 in OHA v. State,
supra.
22
Id., Ex. 4.
23
Rice v. Cayetano, 528 U.S. 495 (2000).
24
Arakaki v. State, Haw. No. CV-00-00514 HG-BMK
(September 19, 2000), appeal pending 9th Cir. No. 00-
17213.
25
Hawaii DOE, Statistical Research & Analysis Section.
H. William Burgess practiced law in Hawaii
for 35 years until he retired in 1994. His wife,
Sandra Puanani Burgess, who is of part
Hawaiian ancestry, was one of the plaintiffs in
Arakaki v. State which invalidated the racial
restriction on eligibility for the OHA.
H. William Burgess practiced law in Hawaii for 35 years until he retired in 1994. His wife, Sandra Puanani Burgess, who is of part Hawaiian ancestry, was one of the plaintiffs in Arakaki v. State which invalidated the racial restriction on eligibility for the OHA board.
GO BACK TO OTHER TOPICS ON THIS WEBSITE