Hawaiʻi’s special funds have always been a bit of a paradox. They offer a stable way to pay for parks, harbors and other programs that generate their own revenue. But they also occupy a shadowy corner of our state’s finances with billions of taxpayer dollars sitting with little oversight.

Their reliability depends on how they’re managed and, more importantly, how they’re held accountable. We have strict rules about how funds should operate and how they’re reported, but rules are only valuable if they’re enforced.

Over the past few months, I’ve written about various special funds, and one question seems to recur: If the rules aren’t followed, what can anyone do about it?

The Tax Foundation of Hawaii is trying to answer that question with a new lawsuit against the state.

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“We’ve been saying for years and years that special funds reduce transparency, that they circumvent expenditure controls in the state constitution, but all we did was talk. Now we’re trying to do something more than talk,” said Tom Yamachika, the foundation’s president.

Finding A Test Case

At the center of the case is the Dam and Appurtenance Improvement or Removal Grant Program, created in 2023 to help private landowners repair or remove aging dams.

The purpose and the value of the program were clear. Many private landowners can’t afford the cost of maintaining, repairing or dismantling dams, projects that can be crucial to the state’s food security and agricultural industry. As increasingly severe weather heightened fears of dam failures and serious flooding, the state stepped in with $10 million to help owners take action.

But when the Department of Land and Natural Resources wasn’t able to finalize grant rules in time, they warned lawmakers that the funds could lapse.

Under Hawaiʻi’s constitution, general fund appropriations expire after a set period to ensure money isn’t indefinitely tied up. In response, the Legislature passed a bill in 2024 creating the special fund, effectively giving the department more time to spend the money.

It may have seemed like a reasonable workaround, but it also highlights the broader accountability problem that Yamachika and others have raised.

Hawaiʻi law sets out specific criteria for special funds. To qualify, a fund must demonstrate a clear financial need, a direct connection between the source of the money and its use, and the capacity to be financially self-sustaining. However, the Dam and Appurtenance Improvement or Removal Grant Program Special Fund was funded entirely through general fund appropriations with no clear means of becoming self-sustaining.

The State Auditor’s Office flagged this in a 2024 report, stating that the fund did not meet statutory requirements. Despite that, the Legislature moved forward — as it did with other special funds that same year, including the Automated Speed Enforcement Systems Program Fund and the Apostilles and Certifications Fund, which also failed to meet the criteria according to the auditor’s analysis.

Many Funds Don’t Meet Standards

If this sounds familiar, it should. From 2019 to 2025, the auditor’s office identified more than $250 million sitting in special and revolving funds that didn’t meet legal standards. But the auditor’s findings are only advisory. The office has no enforcement power, and the Legislature has no obligation to act on its recommendations.

That’s part of what the Tax Foundation hopes to change with this lawsuit.

“This dam special fund is not the only one out there,” Yamachika said. “Some of them are good. Some of them meet standards, some of them don’t. But I think if we are able to achieve some success in the lawsuit, then people are going to start taking the legislative auditor’s reports more seriously. They’re going to start looking at special funds more seriously.”

The lawsuit argues that the dam fund not only violates the state’s statutory criteria but also undermines key constitutional safeguards. According to the Tax Foundation’s complaint, by shifting money into a special fund, the state sidestepped both the general fund’s expenditure ceiling and the requirement that appropriations lapse after a set period.

To be clear, this lawsuit isn’t about whether dam owners should receive help. The grant program’s goals are in the public interest. Nor is the lawsuit an attack on all special funds. As Yamachika acknowledged, funds that collect user fees and spend them on clearly linked services can be useful and appropriate tools.

The concern is about how those tools are used and who has the power to enforce the rules.

If the court sides with the Tax Foundation, the case could set a precedent for legal action when legislative checks fail. It won’t resolve every concern about special funds, but it could give taxpayers a new mechanism to demand accountability.

A spokeperson for the Department of the Attorney General, which will defend the state in court, declined to comment on the lawsuit, citing the pending litigation.

Civil Beat’s reporting on the Hawaiʻi State Legislature is supported in part by the Donald and Astrid Monson Education Fund.