A brief chronology of Hawaii and its public lands
1898 – Hawaii “cedes” public lands to U.S. to be held in trust for Hawaii’s inhabitants for educational and other public purposes.
The “ceded lands” are the public lands (formerly called the “Crown” lands and “Government” lands) held  by the Republic of Hawaii that, upon annexation in 1898, were “ceded” to the United States with the requirement that all revenues or proceeds, except for the lands used for civil, military or naval purposes of the U.S. or for local government “shall be used solely for the benefit of the inhabitants of the Hawaiian Islands for educational and other public purposes”.
In 1898 about 30% of the inhabitants of Hawaii were of Hawaiian ancestry and the remaining 70% were of other ancestry. Source: Robert C. Schmitt. Demographic Statistics of Hawaii: 1778-1965. (Honolulu, 1968). See Native Hawaiian Data Book: Tables 1.1 and 1.d.
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.
1959 – U.S. returns ceded lands to Hawaii to be held by State in trust for “one or more” of five purposes.
In 1959, when Hawaii became a State, the United States transferred title to these lands (less those parts retained by the U.S. for national parks, military bases and other public purposes) back 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., 50% 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”.)
It has been argued that the Admission Act gave native Hawaiians (i.e., those of 50% 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 so provide. It 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, it would have been invalid. The U.S. 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 and it held the rest as trustee “for the inhabitants of the Hawaiian islands for educational and other public purposes”. A trustee cannot arbitrarily change the terms of the trust instrument (in this case, the annexation act) so as to permanently prefer one class of beneficiaries over other beneficiaries. As trustee, the U.S. would have had no right to permanently bestow extra benefits on native Hawaiians. They now comprise about 5% of Hawaii’s population. Giving them extra benefits would have violated the fiduciary duty of the U.S. as trustee to the other beneficiaries, i.e., the approximately 95% of Hawaii’s citizens who do not have 50% or more Hawaiian blood quantum.
1959 to 1978 – State channels income from ceded lands to Department of Education
From 1959 to 1978 the practice of the State of Hawaii was to channel the income of the ceded lands by and large to the Department of Education. Final Report of the Public Land Trust, Legislative Auditor Dec. 1986; see also 80-8 Haw. Att’y Gen, Op., 1980 WL 26216 (July 8, 1980).
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 U.S. 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.
1978 – Hawaii’s Constitution amended. Creates OHA. Income from ceded lands no longer goes to Department of Education.
In 1978 Hawaii’s Constitution was amended to create OHA. Payments of the income from the ceded lands to the Department of Education ceased.
1980 – Legislature sets OHA’s share at 20%. Result: 20% of ceded lands revenue goes to agency for the benefit of 5% of population.
In 1980, the Hawaii Legislature enacted Section 10-13.5 H.R.S. setting OHA’s “pro rata share” at “twenty percent of all funds derived from the public land trust”.
The rationale for 20% 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, and therefore OHA should receive one fifth or 20% of the income.
Apparently the Legislature did not take into account or did not consider it important that OHA is required to use this income solely for the approximately 52 thousand “native Hawaiians” (50% or more Hawaiian blood count) who make up only about 5% of Hawaii’s population.
Here is the basis for our estimate that native Hawaiians make up only about 5% of Hawaii’s population:
The most recent census taken by the U.S. Bureau of the Census in 1990 showed 138,742 persons of Hawaiian ancestry, or about 13% out of a total State population of 1,108,229. These data were derived from answers to questionnaire item 4, which was asked of all persons and reflects self-identification. “Hawaiian” was defined in the census to include persons who indicated their race as “Hawaiian” as well as persons who identified themselves as Part Hawaiian or Native Hawaiian. Native Hawaiian Data Book 1998: Table 1.8
If we assume (as OHA suggests in Table 1.14 of the Native Hawaiian Data Book) that 1-in-3 have 50% to 99% blood quantum and 1-in-25 have 100% blood quantum, the total number of “native Hawaiians”, i.e., with 50% or more Hawaiian blood quantum, would be about 52,000 or about 5% of the total State population of 1,108,229.
Thus, in 1980, the Legislature changed the terms of the public land trust so as to permanently give 20% of the funds derived to a group selected only on the basis of their race or ancestry and who make up only about 5% of the public.
By this act, the Legislature required the State, as trustee of the public lands trust, to violate its fiduciary duty to 95% of the public, i.e., the about 1.1 million citizens of Hawaii who have less than 50% or no Hawaiian blood.
1990 – Legislature defines “revenues”, mandates B&F and OHA to negotiate.
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 which 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 95% of Hawaii’s citizens.
OHA recognizes the windfall it receives from Act 304. OHA’s financial statements for years 6/30/97 and 96 show on page 35 that on 11/4/96 $ 1million was allocated to an advertising compaign to “Protect 304”. OHA is a State agency. Is there any other State agency which spends State money to “protect” its own funding? Can you imagine the Department of Education, which used to receive the income from the ceded lands, spending $1 million for advertising?
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 of $130 million for 1980 – 1991, supported by B&F & OHA, approved by Legislature and paid to OHA.
In 1993, after extensive discussions, a proposal for payment of about $130 million, including interest, for the years 1980 through 1991, supported by both OHA and the State, was submitted to the Legislature. 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. 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.
In April 1993, after Act 35 was enacted, OHA and an official from the Office of State Planning (“OSP”) signed a Memorandum which stated in part “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.”
The official from the Office of State Planning who signed the memorandum had no authority, to our knowledge, 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 sues for more for same period, 1980 – 1991
In January 1994 OHA commenced a lawsuit, OHA v. State of Hawaii, seeking payment of additional amounts going back to 1980 arising from receipts of the Waikiki duty-free shop, public housing, the Hilo Hospital and investment earnings on unpaid “revenue”.
October 1996. Circuit Court Judge Daniel G. Heely granted OHA’s motion for partial summary judgment, ruling that OHA is entitled to a 20% share of each of the items in question.
The State appealed and the Hawaii Supreme Court has deferred ruling while the State and OHA try to settle.
Media accounts estimate 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 in addition to the $130 million already paid to settle OHA’s claims for that period.