As legislators slice the state budget to cope with revenue shortfalls, the Office of Hawaiian Affairs, sitting atop its $300 million trust fund, has become a target.

The Senate's version of the budget for the next two years cuts to zero the Hawaiian agency's general fund allocation, which totaled $3 million last year.

“;It's not because we want to cut them unfairly, but OHA has the resources that can sustain them in this biennium,”; said Senate Ways and Means Chairwoman Donna Mercado Kim. “;We have so many groups out there that have no source of funds, no trust funds to fall back on, and still their budgets are being cut.”;

But three agencies that received $1.9 million of that money under contracts with OHA fear the move could have drastic consequences, potentially shutting out Hawaiians with less than 50 percent ancestry from public-interest lawyers and some social services.

“;If they eliminate the general fund match, then our services would be restricted to Hawaiians of 50 percent or more blood,”; said Mahealani Wendt, executive director of the Native Hawaiian Legal Corp., which focuses on native land and traditional rights. “;That's very worrisome. Our clients are at risk.”;

The nonprofit law firm depends on OHA for 90 percent of its funding, with half from general funds and half OHA trust money. The agency would have to lay off half its staff and drop half its clients if the general funds are eliminated, Wendt said. Its cases range from restoring stream flow to taro farmers to protecting Hawaiian families' claims to ancestral lands.

Another nonprofit, Alu Like Inc., depends on OHA for a much smaller fraction of its budget, but would also have to trim the social safety net it provides to needy Hawaiians. Na Pua Noeau, an enrichment program for Hawaiian students, would lose roughly a third of its budget and might have to close offices on some islands, director David Sing said.

The three agencies and their clients are holding a news conference tomorrow at the Capitol to highlight their concerns.

While the Senate wants to eliminate general funding for OHA, the House has proposed a 20 percent cut, in line with reductions faced by other state agencies. Budget conferees from the House and Senate met Friday night without resolving the issue.

The $3 million in general funds are separate from the $15 million in ceded lands revenue that the state pays OHA annually. That money remains intact.

“;Without continued general funding, OHA will not be able to carry out its mission,”; OHA Administrator Clyde Namuo told the House Finance Committee. “;Historically, the general funds have been used to obtain and leverage funding for services to those Hawaiians who have less than 50 percent Hawaiian ancestry.

“;OHA cannot make up the general funds shortfall by using Native Hawaiian Trust Funds,”; Namuo said.

Like the rest of the state, OHA has seen its assets dwindle, with a portfolio that was once $450 million now reduced to $300 million. Because its policy is to spend no more than 5 percent of the average market value of its trust fund, it is already having to reduce operations, grants and contracts budgeted for next year, Namuo said.

“;At this time, our beneficiaries need more assistance, they are looking for more help, plus the state is cutting a lot of their services,”; said Richard Pezzulo, OHA's chief financial officer.

Kim said the 5 percent spending policy could be adjusted upward. She also pointed to an unexpected windfall of $2 million that OHA received last year. The Native Hawaiian Legal Corp. was awarded the money as attorneys' fees from developer 1250 Oceanside Partners in settling the Hokulia case, in which it sued alleging damage to burials, historic sites and coastal waters.

The federal government required the law firm to turn the money over to OHA last year, and it is now in OHA's trust account.