Senate leaders have reached a tentative agreement with House counterparts and the state Office of Hawaiian Affairs on the agency's funding for 2010-11.

Under the tentative agreement reached Wednesday night, OHA will receive $2.5 million in each of the next two years from the state general fund, in addition to the $15.1 million it has been receiving annually as its share of revenues derived from the use of ceded lands.

In exchange, OHA agreed to turn over to the state about $1.2 million of the $2 million OHA received in a settlement tied to a lawsuit involving the Hokuli'a development in Kona.

The agreement reached should ease the worries of three nonprofit groups that provide legal, educational and social services to Hawaiians — the Native Hawaiian Legal Corp, Na Pua No'eau and Alu Like. The three agencies say the money is critical to their operations.

Those agencies, two of which still must request the money from OHA through a bid process, may still see some cuts in their budgets, but likely not to the extent they had feared.

The Hokuli'a settlement money was a major point of contention. Senate leaders had criticized OHA and the Native Hawaiian Legal Corp. for not reporting the $2 million, calling it a "windfall" for the agency.

OHA had originally proposed that it receive $3 million in general funds.

But as they have with other state agencies in trying to resolve the state's budget crunch, both houses of the Legislature proposed cuts to the OHA budget.

The House had proposed that OHA take a 20 percent cut from the $3 million, reasoning that other agencies are also getting a 20 percent cut. Lawmakers agreed to cutting OHA by about 20 percent.

The Senate had proposed OHA not get any of the $3 million, reasoning that with the $15.1 million in ceded land revenues factored in, a $3 million cut was something OHA could easily absorb. They had also pointed to the $2 million in Hokuli'a settlement money.

But OHA officials argued that the state is obligated to pay the $15.1 million it receives in ceded lands revenues and that it should not be factored as part of the general funds it receives. It also argued that some believe ceded land revenues should go to helping only people with at least 50 percent Hawaiian blood.

OHA also said that its one-time $400 million investment portfolio had shrunk to about $300 million in the last year.

Richard Pezzulo, OHA's chief financial officer, said that of the $3 million it sought, $1.1 million went to OHA administrative staff. Na Pua No'eau was to get $790,000, the Native Hawaiian Legal Corp. $644,000 and Alu Like about $505,000.