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    If OHA gets 20%

    (back to Essentials)

    If the State is in fact paying OHA 20% of the gross revenues, that means OHA is probably actually receiving more than 100% of the net revenue from the ceded lands. Most businesses never achieve a 20% profit. It is highly unlikely that government agencies operating parks, roads, public schools and universities, airports, harbors, public rental, housing and housing development programs and hospitals could achieve net revenues (i.e., gross revenues less expenses) of anywhere near 20%.

    To illustrate the consequences of using gross revenues for the calculation, let us suppose a woman of Hawaiian ancestry by her will leaves a 10 acre parcel of vacant land in trust for her two young children, a boy and a girl, with 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 it is necessary to 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 and the net revenues, after debt service, are $4,000 per year.

    Let us then 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 50% pro rata share of the trust revenues. Would that be right? Of course not. To pay $5,000 per year to the boy, the Trustee would have to pay him the entire $4,000 net revenue (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 end up with 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 about 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”, 20% of the gross revenues from the ceded lands. Since that probably exceeds the entire net revenues, 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 are now considering giving OHA ceded lands worth hundreds of million dollars to settle the pending lawsuit.

    The one million citizens of Hawaii who do not happen to have 50% or more blood quantum are receiving no benefit whatsoever from the public land trust despite the fact that each of them has (or had up until 1980 when the Legislature set OHA’s pro rata share as 20%) as much right to benefit from the ceded lands as any native Hawaiian. To make matters worse, those 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 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.

    Earl Anzai, Director of Finance, signed an affidavit in OHA v. State on October 24, 1996 about the effect of Judge Heely’s rulings on the State’s fiscal condition. He said, among other things, questions and requests for additional information about the rulings have come from two nationally recognized securities agencies, Moody’s and Standard & Poor’s. In paragraph 5 of his affidavit, Mr. Anzai said,

    All of this gives me reason to believe that ratings presently assigned to outstanding general obligation and revenue bonds could be reviewed and downgraded. Ratings for pending and future offerings could also be lower, and pending and future offerings may need to be sold at higher rates of interest, irrespective of market conditions.

    In 1998 Moody’s downgraded Hawaii’s general obligation debt rating from Aa3 to A1, a rating that placed Hawaii near the bottom of Moody’s state ratings nationwide. See Honolulu Advertiser, front page Sunday January 3, 1999.

    The editorial page of the same issue of the Honolulu Advertiser discussed the latest numbers from the U.S. Census Bureau which show that Hawaii from 1997 to 1998 lost the highest percentage of its residents to other states among all the 50 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,

    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.