Hawaii-2024-HB373-Introduced

PART I

SECTION 1. The legislature finds that in most federal agencies and in many state, territorial, and local jurisdictions, administrative adjudications take place within agencies that combine regulatory, enforcement, prosecutorial, and adjudicatory authority in a single agency. However, the legislature finds that this combination of functions in some cases may compromise the integrity of administrative adjudications and is often perceived as unfair by the litigants opposing the agencies.

The legislature also finds that the conflict of interest inherent in the same agency acting as both prosecutor and judge has led to the establishment of state central hearing agencies, also known as central panels. In central panels, an independent administrative judge presides over the administrative litigation and is completely independent of the agency prosecutorial functions. Roughly twenty-nine state and local jurisdictions, including New York City, Chicago, Cook County, Illinois, and the District of Columbia, have addressed this conflict by creating a single independent central hearing agency.

The legislature further finds that the American Bar Association House of Delegates approved a model act creating a state central hearing agency on February 3, 1997, to guide states that wished to create central panels. The American Bar Association enunciated this goal of separation in section 1‑2(a), which states that the "Office of Administrative Hearings is created as an independent agency in the Executive Branch of State Government for the purpose of separating the adjudicatory function from the investigatory, prosecutory and policy-making functions of agencies in the Executive Branch."

The American Bar Association model act, as well as the current practices in most central panel states, authorizes the central panel to hear all contested cases that arise from a non‑exempt agency. Central panel states report that state legislatures continue to expand and confer additional jurisdiction on existing central panels. Likewise, the American Bar Association model act and nearly all current central panel states authorized some or all final decision-making authority in the central panel administrative law judges.

The legislature further finds that in an effort to improve the efficiency of contested case hearings, the legislature passed Act 110, Session Laws of Hawaii 2019, which required the legislative reference bureau to conduct a study on existing administrative hearings processes and the potential for a centralized office of administrative hearings. The report was published in January 2020 and compiled data on various contested case hearings in the State and data from other jurisdictions across the nation.

The legislature believes a centralized office of administrative hearings can benefit the State as it has the potential to reduce costs and create a more efficient adjudication process for people of the State. However, the legislature recognizes the need to balance a central office with the complexity of contested cases and the various subject matter expertise that is required to fairly adjudicate these cases. Therefore, the legislature finds that creating a pilot project to establish a semi-centralized office of administration that is responsible for just a few state departments to start will better prepare for a potential transition to a completely centralized office of administrative hearings if the pilot program is extended or becomes permanent.

Accordingly, the purpose of this Act is to establish an office of administrative hearings responsible for hearing contested cases of the department of budget and finance, department of land and natural resources, and department of taxation.

PART II

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

Office of administrative hearings

§ -1 Scope of chapter. (a) Except as provided in subsection (b) and notwithstanding any other law to the contrary, beginning on July 1, 2024, this chapter shall apply to the following departments and attached agencies that adjudicate contested cases:

(1) Department of budget and finance;

(2) Department of land and natural resources; and

(3) Department of taxation.

(b) This chapter shall not apply to:

(1) Agencies in the political subdivisions of the State;

(2) The legislature;

(3) The judiciary;

(4) The office of the governor; or

(5) The office of the lieutenant governor.

§ -2 Office of administrative hearings established; jurisdiction. (a) There is established the office of administrative hearings within the department of accounting and general service for administrative purposes only. The office of administrative hearings shall be an independent agency in the executive branch of state government for the purpose of separating the adjudicatory function from the investigatory, prosecutory, and policymaking functions of agencies in the executive branch.

(b) Except as otherwise provided in this chapter, the office of administrative hearings shall have jurisdiction to resolve all contested cases of the appropriate department and its attached agencies, unless the head or governing body of the agency from which the case arises hears the case without delegation or assignment to a hearings officer.

§ -3 Chief hearings officer; in general. (a) The office of administrative hearings shall be headed by a chief hearings officer who shall be appointed by the governor without regard to chapter 76, subject to the advice and consent of the senate. The chief hearings officer shall be appointed for a term of years and shall serve until a successor is appointed. Unless otherwise disqualified, the chief hearings officer shall be eligible for reappointment, subject to the advice and consent of the senate. The chief hearings officer may be removed by the governor only for good cause after due notice and an opportunity to be heard in a hearing conducted pursuant to chapter 91.

(b) The chief hearings officer shall be an attorney licensed to practice in the State for a minimum of five years. The chief hearings officer shall devote full time to the duties of the office of administrative hearings and shall not engage in the private practice of law.

(c) The chief hearings officer shall be paid a salary not to exceed the salary of circuit court judges established pursuant to section 603-5.

(d) The chief hearings officer shall, prior to beginning a term of office, take an oath of office before a notary public or other officer empowered to administer oaths. The chief hearings officer shall be subject to the code of conduct for hearings officers adopted pursuant to section ‑4.

(e) The chief hearings officer may employ staff subject to chapter 76.

§ -4 Chief hearings officer; powers and duties. (a) The chief hearings officer shall:

(1) Supervise the office of administrative hearings;

(2) Appoint and remove hearings officers in accordance with this chapter;

(3) Assign hearings officers in any case referred to the office;

(4) Protect and ensure the decisional independence of each hearings officer;

(5) Establish and implement standards and specialized training programs and provide materials for hearings officers;

(6) Provide and coordinate continuing education programs and services for hearings officers, including research, technical assistance, and technical and professional publications;

(7) Compile and disseminate information and advise of changes in the law relative to the duties of hearings officers;

(8) Adopt a code of conduct for hearings officers;

(9) Monitor the quality of state administrative hearings through the provision of training, observation, feedback and, when necessary, discipline of hearings officers who do not meet appropriate standards of conduct and competence, subject to paragraph (4);

(10) Submit an annual report on the activities of the office to the governor and legislature no later than twenty days prior to each regular session; and

(11) Adopt rules pursuant to chapter 91 necessary to carry out the purposes of this chapter.

(b) The chief hearings officer may:

(1) Serve as a hearings officer in a contested case;

(2) Establish qualifications for the selection of hearings officers;

(3) Furnish hearings officers on a contractual basis to governmental departments and agencies other than those required to use their services under this chapter;

(4) Accept and expend funds, grants, bequests, and services from any public or private source for purposes related to the office;

(5) Enter into agreements and contracts with any public or private agencies or educational institutions; and

(6) Create specialized subject matter divisions within the office.

§ -5 Hearings officers; qualification; tenure; scope of employment. (a) Hearings officers shall be appointed by the chief hearings officer pursuant to section ‑(4)(a)(2) and shall be subject to chapter 76. The hearings officers of any agency to which this chapter applies shall become employees of the office of administrative hearings and shall be subject to administrative supervision by the chief hearings officer.

(b) A hearings officer appointed pursuant to this section shall be an attorney licensed to practice in the State for a minimum of five years; provided that persons serving as hearings officers as of July 1, 2024, shall be exempt from this requirement. A hearings officer shall devote full time to the duties of the office of administrative hearings and shall not engage in the private practice of law, unless serving as a part-time hearings officer.

(c) Hearings officers shall be paid a salary not to exceed the salary of district court judges established pursuant to section 604-2.5.

(d) Hearings officers shall, prior to beginning a term of office, take an oath of office before a notary public or other officer empowered to administer oaths. Hearings officer shall be subject to the code of conduct for hearings officers adopted pursuant to section ‑4 and shall not take actions inconsistent with the duties and responsibilities of a hearings officer.

(e) A hearings officer may be removed, suspended, demoted, or subject to disciplinary or adverse actions including any action that might later influence a reduction in force, only after due notice and an opportunity to be heard in a hearing conducted pursuant to chapter 91 and a finding of good cause by the merit appeals board established under section 76-47.

(f) A hearings officer shall not be responsible for, or subject to, the supervision, direction, or influence, whether direct or indirect, of an officer, employee, or agent engaged in the performance of investigatory, prosecutory, or policy making functions for an agency.

§ -6 Powers of hearings officers. A hearings officer shall have the power to:

(1) Issue subpoenas;

(2) Administer oaths;

(3) Control the course of the proceedings;

(4) Engage in, or encourage the use of, alternative dispute resolution methodologies, as appropriate;

(5) Order a party, a party's attorney, or other authorized representative, to pay reasonable expenses, including attorney's fees, incurred by another party as a result of bad faith actions or tactics that are frivolous or solely intended to cause unnecessary delay; and

(6) Perform other necessary and appropriate acts in the performance of the hearings officer's duties under this chapter.

§ -7 Cooperation of state government agencies; audits; selection of hearings officers. (a) All agencies of state government shall cooperate with the chief hearings officer in the discharge of the duties of the office of administrative hearings.

(b) The office of administrative hearings shall be subject to audit by the state auditor pursuant to section 23-4.

(c) Except in arbitration or similar proceedings as otherwise provided by law, in this chapter, or in rules adopted under this chapter, an agency shall not select or reject a particular hearings officer for a particular proceeding.

§ -8 Designation of additional hearings officers. If the office of administrative hearings is unable to assign a hearings officer in response to an agency referral, the chief hearings officer shall designate in writing an individual to serve as a hearings officer in a particular proceeding before the agency; provided that the individual shall meet the qualifications for a hearings officer as established by the office.

§ -9 Decision-making authority; final; proposed. (a) The assigned hearings officer shall render the final decision and order of the agency, which shall not be subject to agency review, unless otherwise specified in the laws governing the agency.

(b) Except as provided under subsection (a), the hearings officer shall issue a proposed decision, unless the agency authorizes the issuance of a final decision and order, which shall be subject to judicial review as provided in chapter 91.

(c) If a matter is referred to the office of administrative hearings by an agency, the referring agency shall take no further adjudicatory action with respect to the proceeding, except as a party litigant; provided that the office has jurisdiction over the proceeding. Nothing in this subsection shall be construed to prevent an appropriate interlocutory review by the agency nor an appropriate termination or modification of the proceeding by the agency.

§ -10 Proposed decisions and orders. In reviewing a proposed decision or order received from the hearings officer, the agency head or governing body of the agency shall not modify, reverse, or remand the proposed decision of the hearings officer except for specified reasons in accordance with law. Judicial review of agency decisions shall be conducted in accordance with section 91-14."

PART III

SECTION 3. Section 6E-10.5, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) and (b) to read:

"(a) If the board of land and natural resources determines that any person has violated or is violating this chapter, or any rule adopted pursuant to this chapter, the board shall serve written notice by certified mail or personal service upon the alleged violator or violators specifying the alleged violation and may include with the notice:

(1) An order specifying a reasonable time during which that person shall be required to take such measures as may be necessary to correct the violation and to give periodic progress reports;

(2) An order imposing penalties provided in section 6E-11.6; and

(3) An order that the alleged violator or violators appear before the [~~board~~] office of administrative hearings established under chapter for a hearing at a time and place specified in the notice or to be set later and answer the charges complained of.

(b) If the board determines that any person is continuing to violate this chapter or any rule adopted pursuant to this chapter after having been served notice of violation, the board shall serve written notice by certified mail or personal service upon the alleged violator or violators specifying the alleged violation. With the notice, the board:

(1) Shall order the alleged violator or violators to submit a written schedule within thirty days specifying the measures to be taken and the time within which the measures shall be taken to bring that person into compliance with this chapter or any rule adopted thereunder. The board shall accept or modify the submitted schedule within sixty days of receipt of the schedule. Any schedule not acted upon after sixty days of receipt by the board shall be deemed accepted by the board;

(2) Shall order the alleged violator or violators to cease and desist from the activities that violate this chapter or any rule adopted [~~thereunder,~~] under this chapter, if that person does not submit a written schedule to the board within thirty days. This order shall remain in effect until the board accepts the written schedule;

(3) May impose penalties as provided in section 6E-11.6; and

(4) May order the alleged violator or violators to appear before the [~~board~~] office of administrative hearings established under chapter for a hearing to answer the charges issued, at a time and place specified in the notice or otherwise set by the board."

2. By amending subsections (d) and (e) to read:

"(d) Any order issued pursuant to this chapter shall become final, unless the person or persons named therein requests in writing, [~~not~~] no later than twenty days after notice of violation and order is served, a hearing before the [~~board.~~] office of administrative hearings established under chapter . Upon request for a hearing, the [~~board~~] office of administrative hearings shall require that the alleged violator or violators appear before the [~~board~~] office for a hearing to answer the charges issued, at a time and place specified in the notice or otherwise set by the [~~board.~~] office.

Any penalty imposed pursuant to this chapter shall become due and payable twenty days after the notice of penalty is served, unless the person or persons named therein requests in writing a hearing before the [~~board.~~] office of administrative hearings. Whenever a hearing is requested on any penalty imposed pursuant to this chapter, the penalty shall become due and payable only upon completion of all review proceedings and the issuance of a final order confirming the penalty in whole or in part.

(e) Any hearing conducted pursuant to this section shall be conducted as a contested case under chapter 91. If, after a hearing held pursuant to this section, the [~~board~~] office of administrative hearings established under chapter finds that a violation or violations has occurred, the [~~board~~] office shall:

(1) Affirm or modify any penalties imposed;

(2) Modify or affirm the order previously issued; or

(3) Issue an appropriate order or orders for the prevention, abatement, or control of the violation or for the taking of [~~such~~] other corrective action as may be appropriate.

Any order issued after a hearing may prescribe timetables for necessary action in preventing, abating, or controlling the violation. If, after a hearing on an order or penalty contained in a notice, the [~~board~~] office of administrative hearings finds that no violation has occurred or is occurring, the [~~board~~] office shall rescind the order or penalty."

3. By amending subsection (g) to read:

"(g) In connection with any hearing held pursuant to this section, the [~~board~~] office of administrative hearings established under chapter may subpoena the attendance of witnesses and the production of evidence on behalf of all parties."

SECTION 4. Section 88-82, Hawaii Revised Statutes, is amended to read as follows:

"§88-82 Petition for contested case hearing regarding disability retirement or accidental death benefits; attorney's fees and costs. (a) A member or applicant who is not satisfied with the preliminary decision of the board to grant or deny an application for disability retirement benefits or accidental death benefits based on the certifications and findings of the medical board may file a petition for contested case hearing with the [~~board~~] office of administrative hearings established under chapter within sixty days after receiving written notification of the preliminary decision of the board.

(b) If the member or applicant is the prevailing party in the contested case, and disability retirement or accidental death benefits are awarded to the member or applicant by the [~~board~~] office of administrative hearings or court of the appropriate jurisdiction under section 88-75, 88-79, 88-85, 88-284, 88-285, 88-286(c), 88-334, 88-336, or 88-339, the member or applicant shall be paid reasonable attorney's fees together with any costs payable by the system. The attorney's fees and costs shall be subject to the approval of the [~~board~~] office of administrative hearings established under chapter or approval by a court of appropriate jurisdiction after evidence has been provided by the member or applicant regarding the reasonableness of the claimed attorney's fees and costs."

SECTION 5. Section 174C-5, Hawaii Revised Statutes, is amended to read as follows:

"§174C‑5 General powers and duties. The general administration of the state water code shall rest with the commission on water resource management. In addition to its other powers and duties, the commission:

(1) Shall carry out topographic surveys, research, and investigations into all aspects of water use and water quality;

(2) Shall designate water management areas for regulation under this chapter where the commission, after the research and investigations mentioned in paragraph (1), shall consult with the appropriate county council and county water agency, and after public hearing and published notice, finds that the water resources of the areas are being threatened by existing or proposed withdrawals of water;

(3) Shall establish an instream use protection program designed to protect, enhance, and reestablish, where practicable, beneficial instream uses of water in the State;

(4) May contract and cooperate with the various agencies of the federal government and with state and local administrative and governmental agencies or private persons;

(5) May enter, after obtaining the consent of the property owner, at all reasonable times upon any property other than dwelling places for the purposes of conducting investigations and studies or enforcing any of the provisions of this code, being liable, however, for actual damage done. If consent cannot be obtained, reasonable notice shall be given prior to entry;

(6) Shall cooperate with federal agencies, other state agencies, county or other local governmental organizations, and all other public and private agencies created for the purpose of utilizing and conserving the waters of the State, and assist these organizations and agencies in coordinating the use of their facilities and participate in the exchange of ideas, knowledge, and data with these organizations and agencies. For this purpose, the commission shall maintain an advisory staff of experts;

(7) Shall prepare, publish, and issue printed pamphlets and bulletins as the commission deems necessary for the dissemination of information to the public concerning its activities;

(8) May appoint and remove agents, including [~~hearings officers and~~] consultants, necessary to carry out the purposes of this chapter, who may be engaged by the commission without regard to the requirements of chapter 76 and section 78-1;

(9) May hire employees in accordance with chapter 76;

(10) May acquire, lease, and dispose of such real and personal property as may be necessary in the performance of its functions, including the acquisition of real property for the purpose of conserving and protecting water and water related resources as provided in section 174C-14;

(11) Shall identify, by continuing study, those areas of the State where salt water intrusion is a threat to fresh water resources and report its findings to the appropriate county mayor and council and the public;

(12) Shall provide coordination, cooperation, or approval necessary to the effectuation of any plan or project of the federal government in connection with or concerning the waters of the State. The commission shall approve or disapprove any federal plans or projects on behalf of the State. No other agency or department of the State shall assume the duties delegated to the commission under this paragraph; except that the department of health shall continue to exercise the powers vested in it with respect to water quality, and except that the department of business, economic development, and tourism shall continue to carry out its duties and responsibilities under chapter 205A;

(13) Shall plan and coordinate programs for the development, conservation, protection, control, and regulation of water resources, based upon the best available information, and in cooperation with federal agencies, other state agencies, county or other local governmental organizations, and other public and private agencies created for the utilization and conservation of water;

(14) Shall catalog and maintain an inventory of all water uses and water resources; and

(15) Shall determine appurtenant water rights, including quantification of the amount of water entitled to by that right, which determination shall be valid for purposes of this chapter."

SECTION 6. Section 174C-11, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) [~~The chairperson may appoint hearings officers, not subject to chapter 76, to~~] Hearings officers appointed under section -5 shall hear and reach a preliminary decision on any matter concerning the implementation or administration of the state water code [~~which~~] that the commission may refer to the hearings officers by rule or otherwise.

(b) In assigning matters to hearings officers, the [~~chairperson~~] chief hearings officer appointed under section ‑3 shall make the assignments in a manner [~~which~~] that ensures [~~that~~] the hearings officers will develop familiarity and expertise with given geographic areas."

SECTION 7. Section 231-7.5, Hawaii Revised Statutes, is amended to read as follows:

"§231-7.5 Expedited appeals and dispute resolution program. (a) The [~~department~~] office of administrative hearings established under chapter shall [~~be authorized to~~] implement an administrative appeals and dispute resolution program that shall expeditiously resolve all tax, penalty, interest, fine, assessment, and other such disputes between the department and the taxpayer or return preparer. The [~~director or the director's designee, who shall report directly and be answerable solely to the director, shall serve as an independent appeals officer and~~] chief hearings officer appointed under section ‑3 or a hearings officer appointed under section ‑5 shall be authorized to compromise, settle, or otherwise resolve any dispute on any basis, including hazards and costs of litigation, considering equally the position of the taxpayer and the department on an impartial basis. The [~~independent appeals officer~~] chief hearings officer or hearings officer shall not be influenced by any department tax compliance initiatives and policies, or loss of revenue to the State. Decisions of the [~~independent appeals~~] chief hearings officer or hearings officer shall be in writing stating the facts, analysis, and conclusions in support, which shall be provided to the taxpayer and return preparer. Persons who currently serve or have served in the previous five years as an auditor, audit supervisor or manager, collector, collection supervisor or manager, district manager or supervisor, or tax compliance administrator, shall not be eligible to [~~be the director's designee.~~] serve as a hearings officer under this section.

(b) Notwithstanding any other law to the contrary, including tax appeal procedures set forth under chapter 232, a taxpayer shall be eligible to petition the [~~department~~] office of administrative hearings established under chapter once for participation in the administrative appeals and dispute resolution program after issuance of a notice of proposed assessment; provided that if a taxpayer has filed a tax appeal with the tax appeal court or other court, the taxpayer shall first be required to obtain the approval of the [~~director~~] chief hearings officer appointed under section ‑3 and permission from the respective court prior to petitioning the [~~departmen~~t] office of administrative hearings established under chapter for participation. The [~~director~~] chief hearings officer appointed under section ‑3 shall have the right to deny a petition for cause.

(c) The [~~department~~] office of administrative hearings established under chapter shall adopt procedures to carry out the purposes of this section, including procedures relating to ex parte communications between the [~~director or the director's designee~~] chief hearings officer appointed under section ‑3 or a hearings officer appointed under section ‑5 and other [~~department~~] office of administrative hearings personnel to ensure that such communications do not compromise or appear to compromise the independence of the administrative appeals and dispute resolution program.

(d) The [~~director of taxation~~] chief hearings officer appointed under section ‑3 may appoint [~~an administrative appeals officer~~] a hearings officer appointed under section ‑5 as necessary to administer this section, and perform other duties as directed by the [~~director. The administrative appeals officer shall be exempt from chapter 76 and may be a legal or accounting professional;~~] chief hearings officer; provided that an individual appointed under section -5 may be an attorney licensed to practice in the State or an accounting professional; provided further than no individual appointed under [~~this~~] section ‑5 to administer this section shall render legal services reserved to the attorney general under chapter 28."

SECTION 8. All rights, powers, functions, and duties of agencies in the department of budget and finance, department of land and natural resources, and department of taxation, as pertaining to this Act, are transferred to the office of administrative hearings established by section 2 of this Act.

All employees who occupy civil service positions and whose functions are transferred to the office of administrative hearings by this Act shall retain their civil service status, whether permanent or temporary. Employees shall be transferred without loss of salary, seniority (except as prescribed by applicable collective bargaining agreements), retention points, prior service credit, any vacation and sick leave credits previously earned, and other rights, benefits, and privileges, in accordance with state personnel laws and this Act; provided that the employees possess the minimum qualifications and public employment requirements for the class or position to which transferred or appointed, as applicable; provided further that subsequent changes in status may be made pursuant to applicable civil service and compensation laws.

Any employee who, prior to this Act, is exempt from civil service and is transferred as a consequence of this Act may retain the employee's exempt status, but shall not be appointed to a civil service position as a consequence of this Act. An exempt employee who is transferred by this Act shall not suffer any loss of prior service credit, vacation or sick leave credits previously earned, or other employee benefits or privileges as a consequence of this Act; provided that the employees possess legal and public employment requirements for the position to which transferred or appointed, as applicable; provided further that subsequent changes in status may be made pursuant to applicable employment and compensation laws. The chief hearings officer may prescribe the duties and qualifications of these employees and fix their salaries without regard to chapter 76, Hawaii Revised Statutes.

PART IV

SECTION 9. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2023-2024 and the same sum or so much thereof as may be necessary for fiscal year 2024-2025 for the establishment of the office of administrative hearings.

The sums appropriated shall be expended by the department of accounting and general services for the purposes of this Act.

PART V

SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 11. This Act shall take effect on July 1, 2023; provided that part III shall take effect on July 1, 2024; provided further that on July 1, 2026, this Act shall be repealed and sections 6E-10.5, 88-82, 174C-5, 174C-11, and section 231-7.5, Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day prior to the effective date of part III of this Act.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	373
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII