A group of native Hawaiians suing the state of Hawaii to unlock funds for homesteading state lands says the state "violated" the terms of a trust by not settling 8,000 applicants for homesteads on 200,000 acres of land set aside by the federal government in 1921 for the benefit of native Hawaiian people.

At issue in the case -- which is working its way through the federal courts -- is a morass of federal and state laws governing the execution of agreements with native Hawaiians and other native American groups, as well as the proceeds from the sale or lease of some of Hawaii's most valuable property, including most of the state harbors and airports.

The plaintiffs, the Hou Hawaiians and their chief Maui Loa, are seeking restitution of up to $1 billion from the state. They say the money was generated by the contested Hawaiian homelands since the federal government turned over responsibility for homesteading native Hawaiians to the Hawaiian government when the islands became a state in 1959.

The 200,000 acres of homestead lands were given to the state of Hawaii as part of a bigger group of public lands turned over by the federal government, and part of the court case concerns the legal tangles created by legislative ambiguity over whether the homestead lands should be treated any differently than the state's public lands.

The Hou claim that proceeds collected from leases on the lands since 1959 should have been spent by the state to help settle qualified applicants, some of who have waited over 30 years to get a homestead. As part of their suit the Hou also are asking for an accounting of all funds derived by the state from the sale of minerals and airport and harbor operations conducted on the contested homelands.

Only 3,000 applicants had been settled on 25,000 acres since the program was first initiated over 60 years ago, largely because of the lack of funds for improvements to the land that would be needed before homesteads could be established. The state has said recently that it does not have money available to fund the necessary improvements, estimated at costing $250 million.

"The state's pleas of poverty flies in the face of the fact that 1.6 acres of revenue-producing federal land were ceded to the state by the federal government at statehood under the specific condition that the ceded land's revenues be used to better the conditions of native Hawaiians and place as many of them as possible on homestead farms and residential land," said Chief Maui Loa. "The state seems to be able to find . . . millions of dollars for other pet projects when they're desired, but why . . . not a single, solitary penny for native Hawaiian homesteads?"

The native Hawaiians are suing in federal court on the basis of a federal law that allows native American tribes to sue if they have not been able to get cooperation from state or local governments. They argued their case before the Ninth U.S. Circuit Court of Appeals two weeks ago, asking that the appeals court overturn a district court decision handed down last year that said the plaintiffs did not have grounds to sue the state in federal court.

In a press release issued by the Hou, they claim that if the court does not uphold the validity of the 1959 Hawaii Admission Act that set aside the land for the purpose of settling native Hawaiians, it would be "tantamount to breaking all treaties with Indian and Alaskan tribes."

The state argued before the appeals court April 4 that the Hou did not have standing to sue in federal court because they are not Indians and do not have the same rights as other native American groups. The state also said that the native Hawaiians have no "right" to the proceeds from the homelands and, therefore, no grounds for charging that the state has violated its trust.

"Congress authorized or encouraged the state to use the funds to better the conditions of native Hawaiians as one of the five purposes for public lands in the Hawaii Admissions Act but did not require the state to use the proceeds for native Hawaiians," said Hawaii attorney general Michael A. Lilly in presenting the state's case to the appeals court. "Thus, plaintiffs had no right to any of the funds they sought."

The state also said it has fulfilled its obligation to native Hawaiians because constitutional changes effective in 1981 have funneled $10 million over the last four years to the semi-independent Office of Hawaiian Affairs, which has used the money for projects benefitting native Hawaiians. None of the money, however, has been used for settling families on homestead land.

The Hou Hawaiians are just one tribe, or "ohana," of native Hawaiians that have organized and elected leaders over the past decade in efforts to improve the lives of the dwindling numbers of native Hawaiians.

When Captain James Cook discovered the Hawaiian islands in 1778 there were more than 300,000 native Hawaiians. Today, there are only about 300 Hawaiians of 100 percent native ancestory left, and only 30,000 that can claim even 50 percent Hawaiian blood.

A survey of native Hawaiians done in 1975 by Alu Like Inc., a statewide nonprofit organization, found that over half had no reportable income. Of those that did, nearly one-third made less than $4,000 a year.

While half of native Hawaiians reported owning their own homes, Alu Like found that many of those homes were "quite modest," and located on subsidized or leased land. In general, however, native Hawaiians are a dispossessed group, with many living in tents on public beaches or in home-made shacks in state forests.

Congress, recognizing in 1921 that the native Hawaiians would soon be extinct if something was not done, passed the Hawaiian Homes Commission Act to give native Hawaiians the opportunity to "rehabilitate" their race by the "sweat of their brow." That program was designed to lease government-owned land to native Hawaiians for 99-year periods, to allow the Hawaiians to set up homesteads for farming.

In 1959 the U.S. government deeded the 200,000 acres of Hawaiian homelands to the state and set up the state Department of Hawaiian Home Lands to continue the homestead program and manage the land in a public trust for the benefit of Hawaiians of 50 percent native ancestry.

While all parties seem to agree that the original intent of the 1921 legislation was to provide land that native Hawaiians could homestead as farms, the state of Hawaii now contends that it did not break that trust by transferring some of the land, including the harbors and airports, to other state agencies or by leasing it at nominal rates to non-Hawaiian interests.

The state says that by using the land for the benefit of the general public and earmarking some money for native Hawaiian projects, it has met the terms of the trust.

But the Hou argue that $10 million over 25 years is only a drop in the bucket compared with the estimated $75 million a year collected by the state from the land originally deeded to the state, which would include 25,000 acres of homelands transferred to other state agencies since 1959. The Hou say they are entitled to between 20 and 50 percent of those funds because they are the primary beneficiaries of the trust.

"For the state to say it has met its responsibility to native Hawaiians by spending $10 million since 1959 is a farcical contention," said Joseph Gephardt, an attorney with the D.C. law firm of Dobrovir and Gephardt, which is representing the Hou Hawaiians. "The original homelands would generate about $110 million a year today in leases, while the portion that is left under the authority of DHHL only generates between $6 million and $10 million a year, of which native Hawaiian programs get 20 percent."

When the federal government turned over control of the land to the state to manage and settle native Hawaiians, it reserved some supervisory and enforcement responsibilities. The Hawaii Admission Act states that the terms of the Hawaiian Homes Commission Act cannot be changed without congressional consent, that any exchange of the Hawaiian homelands must be approved by the secretary of the Interior, and that the United States may bring suit if Hawaii should breach its trust to the native Hawaiians.

The Hou sent letters to the Justice and Interior departments in 1980 requesting the federal government pressure the state to fulfill its charge to settle the 8,000 applicants on the waiting list. In October of 1980 the Hou filed a lawsuit in U.S. District Court against Justice, compelling Justice to bring a breach of trust suit against the state of Hawaii.

In a letter from Cecil D. Andrus, then secretary of the interior, to Hawaii Gov. George Ariyoshi, the Interior Department said there had been many trust and legal violations, including transfer of homelands to other agencies. Andrus' letter said that if the state did not initiate action soon to rectify the situation the federal government would sue. The state and federal government then agreed to form a task force to look into the problem of the Hawaiian homelands, and the Hou agreed to have their case dismissed without prejudice.

The task force, made up of three federal officials and eight Hawaiians appointed by Ariyoshi, concluded its study in 1983 and proposed a program for settlement of the native Hawaiians through the expenditure of $50 million a year for the next five years to provide roads, sewers and improvements to the land. The state of Hawaii and the federal government were each asked to allocate $25 million a year to the project.

Since the task force recommendations were issued two years ago, however, neither Hawaii nor the federal government has appropriated the necessary funds. While a bill is pending in the Hawaii legislature to earmark some funds for the homestead program, it does not yet have the support of the governor.

Federal sources say that, with the present deficit-cutting climate on Capitol Hill, it is "not realistic" to expect any federal funds to be appropriated. However, the Department of Housing and Urban Development has indicated it might be willing to insure mortgages for homesteaders through the Federal Housing Administration insurance program.

It is unlikely, however, that mortgage insurance will help many of the native Hawaiians on the homestead list, said Gephardt, because the real "stumbling-block is the lack of improvements to the land." Gephardt said that he did not think more than 250 of the native Hawaiians would even qualify for the FHA insurance, because most of them would not be able to repay mortgages at current interest rates.

Interior Secretary William Clark wrote the Hou in May of 1984 that he did not think it was appropriate at that time for the federal government to sue the state of Hawaii for breach of the trust because it was less than two years since the task force issued its report. He did say, however, that he would follow their case "with special interest."

"The state is promoted through native Hawaiians, through their aloha spirit and commercials of handsome native Hawaiians, but at home they are segregated and alienated from their land," said Gephardt. "Every day native Hawaiian land rights are being eroded, and it continues. That is what the Hou are trying to fight."