LINDA LINGLE  GOVERNOR

STATE OF HAWAII DEPARTMENT OF THE ATTORNEY GENERAL COMMERCE AND ECONOMIC DEVELOPMENT DIVISION 425 QUEEN STREET HONOLULU, HAWAII 96813 (808) 586-1180 FAX (808) 586-1205

MARK J. BENNETT ATTORNEY GENERAL RICHARD T. BISSEN, JR. FIRST DEPUTY ATTORNEY GENERAL

The Honorable David Y. Ige
Senator, 16^th District
The Twenty-Second Legislature
State of Hawaii
State Capitol, Room 215
Honolulu, Hawaii  96813

Dear Senator Ige:

Re: Legislative Auditor’s Authority to Audit Public, Educational, and Governmental Access Organizations

I. Question Presented

Specifically, you asked the following question:

“Does the Legislative Auditor have legal authority to perform financial and management audits on the transactions, accounts, programs, and performance of the PEGs?”

Based on our current understanding of the facts involving the PEGs, we answer your question in the affirmative.

A. Jurisdiction of the Legislative Auditor

   The duties of the Legislative Auditor are described in Hawaii Revised Statutes (“HRS”) §23-4.  Subsection (a) provides in relevant part as follows:

“The auditor shall conduct postaudits of the transactions, accounts, programs, and performance of all departments, offices, and agencies of the State and its political subdivisions.  The postaudits and all examinations to discover evidence of any unauthorized, illegal, irregular, improper, or unsafe handling or expenditure of state funds or other improper practice of financial administration shall be conducted at least once in every two years after the close of a fiscal year. . .”
(emphasis added).

“[A]ll executive departments, boards, commissions, bureaus, offices, agencies, and all independent commissions and other establishments of the state government (excepting the legislature) and all quasi-public institutions and all courts which are supported in whole or in part by, or which handle state or public funds”.
(Emphases added).

     Although the phrase “other establishments of the state government” is not defined in HRS chapter 23 and is not clarified in the legislative history of HRS § 23-1, the term “establishment”³ is defined as “the act of establishing or state of being established”.⁴ “Establish” is further defined as “to bring into being; found”.⁵ Thus, if the State “established” the PEGs and the PEGs are supported in whole or in part by State or public funds, the Legislative Auditor would appear to have jurisdiction to conduct postaudits of the PEGs under HRS §§ 23-1 and 23-4.

B. Description of the PEGs

1. OIP Opinion Letter No. 02-08

     The issue addressed by OIP in OIP Opinion Letter No. 02-08 was whether Olelo: The Corporation for Community Television (“Olelo”) and Ho’ike: Kauai Community Television, Inc. (“Ho’ike”) were subject to the requirements of the UIPA in HRS chapter 92F.  The OIP reviewed: (1) whether Olelo and Ho’ike were created by government, (2) whether the functions performed by Olelo and Ho’ike are government functions, (3) the level of government funding, and (4) the extent to which government controls Olelo and Ho’ike⁶ to determine whether these PEG entities fell within the definition of an “agency”⁷ under HRS § 92F-3.⁸ We will briefly discuss and review some of the facts and findings contained in OIP’s opinion that pertain to the issue before us.

2. “Establishments of the State government”

     As we understand it, PEGs are non-profit corporations that administer PEG access channels across the State, and provide the public with access to PEG facilities and channels.  Currently, there are four PEG access organizations in the State: (1) Olelo on Oahu, (2) Ho’ike on Kauai, (3) Na Leo O’ Hawaii, Inc. (“Na Leo”) on Hawaii, and (4) Akaku-Maui Community Television, Inc. (“Akaku”) on Maui.

     Like OIP⁹, we found no constitutional provision, statute, administrative rule, nor executive order that created or established the PEGs.  However, to determine whether the PEGS were “established” by the State of Hawaii (“State”), we must review the history of the PEGs and examine the relationship between the State and the PEGs.

     HRS chapter 440G governs the provision of cable television services in the State, and gives the Director of the Department of Commerce and Consumer Affairs (“Director” or “DCCA”) the authority to issue cable franchises to cable operators.¹⁰ Under HRS § 440G-8.2(f), a cable operator is required to designate three or more channels for public, educational, or governmental use¹¹, and this requirement is also specified in the cable operator franchises or “Decisions and Orders” issued by the Director.  In these Decisions and Orders, the Director recognizes that there is a demand for public, educational, and governmental access, and requires the cable operator to set aside activated channels for public, educational, and governmental access; pay PEG access fees¹²; and pay capital funds for facilities and equipment for PEG use on an annual basis.¹³ In the initial Decisions and Orders for Oahu and Kauai, the Director has the specific authority to appoint a majority of the board members of the PEGs.¹⁴

     After the cable television franchises were issued, the Director appointed Access Planning Committees to make recommendations for the creation and implementation of not-for-profit organizations to manage PEG access channels, facilities, equipment, and funding.¹⁵ In accordance with the recommendations made by the Access Planning Committees, the PEGs were created to manage the PEG access finances and to operate the PEG facilities, channels, and other resources.¹⁶

     The Director subsequently entered into Agreements with the PEGs (“PEG Agreements”) to manage and operate the PEG access facilities, equipment, and channels¹⁷, and appointed or assisted in appointing the initial board of directors of the PEGs.¹⁸ Under the bylaws of the PEGs, the Director has the authority to appoint and remove a majority of the directors of the PEGs.¹⁹

     Because the Decisions and Orders set forth the Director’s power to appoint a majority of the directors of Olelo and Ho’ike, the Director requires the cable operator to pay PEG access fees and capital funds for facilities and equipment for PEG use on an annual basis, and the Director appointed the Access Planning Committees and initial board of directors of Oleo and Ho’ike as specified in the PEG Agreements, the OIP concluded that the Director took governmental action and created Olelo and Ho’ike as private not-for-profit corporations.²⁰

     The DCCA confirmed that the Director created or assisted in the creation of Olelo and Ho’ike, and informed us that the Director took similar governmental action to create or assist in the creation of Na Leo and Akaku as private not-for-profit corporations.  Thus, based on the above, we believe that the PEGs may be considered “establishments of the State government” for purposes of HRS § 23-1.

 3. “State or public funds”

     As stated above, the Decisions and Orders issued by the Director require the cable operator to pay the PEGs a PEG access fee and capital funds for PEG facilities and equipment.  This is a condition of doing business as a cable operator in the State, and this type of PEG funding scheme has been held to function much like a tax or licensing fee.  See e.g., Demarest v. Athol/Orange Community Television, Inc., 188 F. Supp. 2d 82, 91 (D. Mass. 2002).²¹   Under the PEG Agreements, the PEGs receive and hold, as restricted funds, the amounts paid by the cable operator to support PEG access.²², and agree to perform all services, duties, responsibilities, and obligations under the PEG Agreements in exchange for the fees from the cable operator.²³ It is our understanding that the PEGs are funded almost entirely from the PEG access fees prescribed by the Director.²⁴ In addition, the PEG Agreements are terminable at will by the Director, and are automatically terminated whenever the cable operator’s franchise terminates.²⁵ Once a PEG Agreement is terminated, the PEG access organization is required to relinquish all claims to the PEG access fees, facilities and equipment fund, and the access facilities and equipment; and must transfer the balances in its accounts and all access facilities and equipment to the DCCA.²⁶ As an example, Olelo’s 38,101 square foot building that was purchased with the PEG access fees will revert to the State when Olelo’s PEG Agreement is terminated.²⁷ Thus, the DCCA has a continuous claim to the funds it requires the cable operator to pay the PEGs.²⁸

     Because the Director requires the cable operators to pay PEG access fees and other capital contributions to the PEGs, these fees and contributions constitute the majority of funding for the PEGs, and these fees and contributions and facilities and equipment purchased with these fees and contributions must be turned over to the DCCA when the PEG Agreements are terminated, we concur with the OIP’s conclusion that the PEG access fees may be considered public funds even if the money is not channeled through the State’s general fund or through another State fund.²⁹ We therefore believe that the PEG access fees can be construed to be “public funds” for purposes of HRS § 23-1.

IV. Conclusion

     Based on the foregoing and our current understanding of the facts, we believe that the PEGs may be considered “establishments by the State government” that “are supported in whole or in part by, or which handle state or public funds” under HRS § 23-1.  Accordingly, it is our opinion that the PEGs fall within the term “departments, offices, and agencies” of the State for purposes of HRS § 23-4, and the Legislative Auditor has jurisdiction to conduct postaudits of the transactions, accounts, programs, and performance of the PEGs.³⁰
 

     If you have any questions on the above, please do not hesitate to contact me at (808) 586-1180.
 

Very truly yours,
 

Rodney J. Tam
Deputy Attorney General

APPROVED:
 

Mark J. Bennett
Attorney General
 
 

“It shall be the duty of the auditor to conduct post-audits of the transactions, accounts, programs and performance of all departments, offices and agencies of the State and its political subdivisions.”

See also, HRS § 23-5(a) (Supp. 2002), which provides in relevant part that:

“The auditor may examine and inspect all accounts, books, records, files, papers, and documents and all financial affairs of every department, office, agency, and political subdivision.”
(Emphasis added).

³      Under HRS § 1-14 (1993):

“The words of a law are generally to be understood in their most known and usual signification, without attending so much to the literal and strictly grammatical construction of the words as to their general or popular use or meaning”.

⁴      Random House Webster’s Dictionary 223 (1993).

⁵      Random House Webster’s Dictionary 223 (1993).

⁶      See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 10.

⁷      For purposes of HRS chapter 92F, an “agency” is defined as:

“[A]ny unit of government in this State, any county, or any combination of counties; department; institution; board; commission; district; council; bureau; office; governing authority; other instrumentality of state or county government; or corporation or other establishment owned, operated, or managed by or on behalf of this State or any county, cut does not include the nonadministrative functions of the courts of this State.”
(Emphasis added).

Haw. Rev. Stat. § 92F-3 (1993).

⁸      The OIP only evaluated Olelo and Ho’ike under HRS chapter 92F, and in a subsequent opinion, the OIP stated that “Olelo is an “agency” only insofar as it is required to respond to requests for records in accordance with the UIPA and its administrative rules”.  See, OIP Opinion Letter No. 03-04, April 8, 2003, at pages 4 and 7.

⁹     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 11.

¹⁰      We understand that there currently is only one cable operator in the State of Hawaii: Time Warner Entertainment Co., LP.

¹¹     See also, Hawaii Administrative Rules §§ 16-131-32, 16-131-33, and 16-131-34 (1991).

¹²      We understand that all of the Decisions and Orders require the cable operator to pay PEG access operating fees to the PEGs based on a percentage of the cable operator’s annual gross revenues.  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 27-32.

¹³     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 11.

¹⁴     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 12.

¹⁵     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 12.

¹⁶       See, page 2 of Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s July 1, 1996 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement.

¹⁷      See, Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s June 17, 1999 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement. See also, OIP Opinion Letter No. 02-08, September 6, 2002, at page 13.

¹⁸      See, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 12-13 for Olelo and Ho’ike.  With respect to Akaku and Na Leo, the DCCA informed us that the Director assisted in appointing their initial boards of directors.

¹⁹      See, article VI, sections 6.2 and 6.10 of Olelo’s January 18, 2002 Bylaws; article VI, sections 6.2 and 6.10 of Hoike’s August 22, 2002 Bylaws; and article VII, sections 7.2 and 7.10 of Na Leo’s September 24, 1998 Bylaws.  With respect to Akaku, the Director has the authority to appoint all of the directors except one (see, article VI, sections 6.2 and 6.10 of Akaku’s August 28, 2002 Bylaws).  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 2, and 14-17.

²⁰      See, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 2, 13, 14, and 32.

²¹      See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 28 and 32.

²²     See, paragraph D of Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s June 17, 1999 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement. See also, OIP Opinion Letter No. 02-08, September 6, 2002, at page 31.

²³      See, paragraph G of Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s June 17, 1999 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement.  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at page 31.

²⁴      We confirmed this with the DCCA.  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 2, 28, and 33.

²⁵      See, paragraph M of Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s June 17, 1999 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement.  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 18 and 19.

²⁶     See, paragraph N of Olelo’s December 24, 1998 PEG Agreement, Ho’ike’s August 25, 1999 PEG Agreement, Akaku’s June 17, 1999 PEG Agreement, and Na Leo’s June 17, 1999 PEG Agreement.  See also, OIP Opinion Letter No. 02-08, September 6, 2002, at pages 19 and 31.

²⁷     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 31.

²⁸     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 31.

²⁹     See, OIP Opinion Letter No. 02-08, September 6, 2002, at page 32.

³⁰      We note that our opinion only addresses whether the PEGs are subject to the Legislative Auditor’s jurisdiction under HRS §§ 23-1 and 23-4, and should not be construed as a determination that the PEGs are State agencies for all purposes.  In addition, we express no opinion on whether the PEGs are agencies for purposes of the UIPA or the Sunshine Law in HRS chapter 92.