REPORT TITLE:
State bonds

DESCRIPTION: 
Authorizes issuance of general obligation bonds.  Exempts State
bonds from the requirement of perfecting security interests in
government collateral. (HB2151 HD1)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2151
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO STATE BONDS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 39, Hawaii Revised Statutes, is amended
 
 2 by adding a new part to be appropriately designated and to read
 
 3 as follows:
 
 4                   "PART   .  SECURITY INTERESTS
 
 5      §39-    Definitions.  Whenever used in this part, unless a
 
 6 different meaning clearly appears from the context:
 
 7      "Authorizing statute" mean any statute that authorizes the
 
 8 issuance of bonds.
 
 9      "Bonds" means any bonds, notes, and other instruments of
 
10 indebtedness, or lease, lease purchase, or certificates of
 
11 participation, or other evidence of indebtedness for which a
 
12 security interest is granted or a pledge made upon revenue or
 
13 other property to provide for payment or security.
 
14      "Governmental unit" means the State of Hawaii, and any state
 
15 department, board, commission, officer, authority, agency, public
 
16 corporation, instrumentality, or the judiciary.
 
17      "Measure" means any act, certificate, resolution, statute,
 
18 or other enactment authorizing the issuance of bonds or
 
19 authorizing an indenture with respect to bonds pursuant to an
 
20 authorizing statute.
 

 
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 1      §39-    Perfection of a security interest.  Any security
 
 2 interest created by a governmental unit pursuant to any
 
 3 authorizing statute is perfected by the adoption of the measure
 
 4 or measures from the date on which the measure takes effect
 
 5 without the need for any physical delivery, filing, or recording
 
 6 in any office.
 
 7      §39-    Priority of a security interest.  The priority of
 
 8 any security interest created by a governmental unit shall be
 
 9 governed by the contractual terms set forth in the measure or
 
10 measures, including the terms of any indenture or any other
 
11 agreement approved by the measure or measures, adopted by the
 
12 governmental unit.  No security interest having priority over an
 
13 existing security interest may be created in violation of the
 
14 terms of an existing measure governing outstanding bonds.
 
15      §39-    Enforcement of a security interest.  The terms of
 
16 any applicable authorizing statute shall govern the enforcement
 
17 of any security interest to the extent that the authorizing
 
18 statute contains express provisions relating to enforcement or
 
19 authorizes a governmental unit to contract with respect to
 
20 enforcement."
 
21      SECTION 2.  Declaration of findings with respect to the
 
22 general obligation bonds authorized by this Act.  Pursuant to the
 
23 clause in article VII, section 13 of the state constitution,
 
24 which states:  "Effective July 1, 1980, the legislature shall
 

 
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 1 include a declaration of findings in every general law
 
 2 authorizing the issuance of general obligation bonds that the
 
 3 total amount of principal and interest, estimated for such bonds
 
 4 and for all bonds authorized and unissued and calculated for all
 
 5 bonds issued and outstanding, will not cause the debt limit to be
 
 6 exceeded at the time of issuance," the legislature finds and
 
 7 declares as follows:
 
 8      (1)  Limitation on general obligation debt.  The debt limit
 
 9           of the State is set forth in article VII, section 13 of
 
10           the state constitution, which states in part:  "General
 
11           obligation bonds may be issued by the State; provided
 
12           that such bonds at the time of issuance would not cause
 
13           the total amount of principal and interest payable in
 
14           the current or any future fiscal year, whichever is
 
15           higher, on such bonds and on all outstanding general
 
16           obligation bonds to exceed: a sum equal to twenty
 
17           percent of the average of the general fund revenues of
 
18           the State in the three fiscal years immediately
 
19           preceding such issuance until June 30, 1982; and
 
20           thereafter, a sum equal to eighteen and one-half
 
21           percent of the average of the general fund revenues of
 
22           the State in the three fiscal years immediately
 
23           preceding such issuance."  Article VII, section 13 also
 
24           provides that in determining the power of the State to
 

 
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 1           issue general obligation bonds, certain bonds are
 
 2           excludable, including "reimbursable general obligation
 
 3           bonds issued for a public undertaking, improvement or
 
 4           system but only to the extent that reimbursements to
 
 5           the general fund are in fact made from the net revenue,
 
 6           or net user tax receipts, or combination of both, as
 
 7           determined for the immediately preceding fiscal year"
 
 8           and bonds constituting instruments of indebtedness
 
 9           under which the State incurs a contingent liability as
 
10           a guarantor, but only to the extent the principal
 
11           amount of such bonds does not exceed seven per cent of
 
12           the principal amount of outstanding general obligation
 
13           bonds not otherwise excluded under said article VII,
 
14           section 13.
 
15      (2)  Actual and estimated debt limits.  The limits on
 
16           principal and interest of general obligation bonds
 
17           issued by the State, actual for fiscal year 1999-2000
 
18           and estimated for each fiscal year from 2000-2001 to
 
19           2002-2003, are as follows:
 
20            Fiscal            Net General
21             Year            Fund Revenues          Debt Limit
22 
23           1996-1997           3,115,264,737                   
24           1997-1998           3,195,967,036                   
25           1998-1999           3,254,256,686                   
26           1999-2000           3,087,808,000        589,871,788
27           2000-2001           3,137,140,000        588,178,623
28           2001-2002           3,153,478,000        584,550,956
29           2002-2003        (not applicable)        578,336,270
30 

 
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 1           For fiscal years 1999-2000, 2000-2001, 2001-2002, and
 
 2           2002-2003, respectively, the debt limit is derived by
 
 3           multiplying the average of the net general fund
 
 4           revenues for the three preceding fiscal years by
 
 5           eighteen and one-half per cent.  The net general fund
 
 6           revenues for fiscal years 1996-1997, 1997-1998, and
 
 7           1998-1999 are actual, as certified by the director of
 
 8           finance in the Statement of the Debt Limit of the State
 
 9           of Hawaii as of July 1, 1999, dated November 24, 1999.
 
10           The net general fund revenues for fiscal years 1999-
 
11           2000 to 2002-2003 are estimates, based on general fund
 
12           revenue estimates made September 3, 1999, by the
 
13           council on revenues, the body assigned by article VII,
 
14           section 7 of the state constitution to make such
 
15           estimates, and based on estimates made by the
 
16           department of budget and finance of those receipts,
 
17           which cannot be included as general fund revenues for
 
18           the purpose of calculating the debt limit, all of which
 
19           estimates the legislature finds to be reasonable.
 
20      (3)  Principal and interest on outstanding bonds applicable
 
21           to the debt limit. 
 

 
 
 
 
 
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 1           (A)  According to the department of budget and finance,
 
 2                the total amount of principal and interest on
 
 3                outstanding general obligation bonds, after the
 
 4                exclusions permitted by article VII, section 13
 
 5                of the state constitution, for determining the
 
 6                power of the State to issue general obligation
 
 7                bonds within the debt limit as of July 1, 1999, is
 
 8                as follows for fiscal year 2000-2001 to fiscal
 
 9                year 2006-2007:
 
10                 Fiscal                       Principal
11                  Year                      and Interest
12 
13                2000-2001                    352,508,780
14                2001-2002                    367,994,493
15                2002-2003                    411,766,053
16                2003-2004                    396,607,168
17                2004-2005                    408,282,994
18                2005-2006                    399,897,654
19                2006-2007                    412,331,653
20 
21                The department of budget and finance further
 
22                reports that the amount of principal and interest
 
23                on outstanding bonds applicable to the debt limit
 
24                generally continues to decline each year from
 
25                fiscal year 2003-2004 to fiscal year 2017-2018
 
26                when the final installment of $44,962,638 shall be
 
27                due and payable.
 

 
 
 
 
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 1           (B)  The department of budget and finance further
 
 2                reports that the outstanding principal amount of
 
 3                bonds constituting instruments of indebtedness
 
 4                under which the State may incur a contingent
 
 5                liability as a guarantor is $191,000,000, all or
 
 6                part of which is excludable in determining the
 
 7                power of the State to issue general obligation
 
 8                bonds, pursuant to article VII, section 13 of the
 
 9                state constitution.
 
10       (4) Amount of authorized and unissued general obligation
 
11           bonds and guaranties and proposed bonds and guaranties.
 
12           (A)  As calculated from the state comptroller's bond
 
13                fund report as of October 31, 1999, adjusted for:
 
14                (i)  Appropriations to be funded with general
 
15                     obligation bonds and reimbursable general
 
16                     obligation bonds as provided in Act 91,
 
17                     Session Laws of Hawaii 1999 (the General
 
18                     Appropriations Act of 1999), to be expended
 
19                     in fiscal year 2000-2001;
 
20               (ii)  Appropriations to be funded by reimbursable
 
21                     general obligation bonds as provided in Act
 
22                     151, Session Laws of Hawaii 1999 (Relating to
 
23                     Hawaii Hurricane Relief Fund Bonds) to be
 
24                     expended in fiscal year 1998-1999;
 

 
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 1              (iii)  Appropriations to be funded by general
 
 2                     obligation bonds as provided in Act 156,
 
 3                     Session Laws of Hawaii 1999 (the Judiciary
 
 4                     Appropriations Act of 1999);
 
 5               (iv)  The issuance of $____________ in general
 
 6                     obligation bonds of 2000, Series CR; 
 
 7                (v)  Appropriations to be funded by reimbursable
 
 8                     general obligation bonds as provided in House
 
 9                     Bill No. ____ (Relating to Agriculture), in
 
10                     the amount of $____________;
 
11               (vi)  Lapses proposed in House Bill No. ____ (the
 
12                     Supplemental Appropriations Act of 2000) in
 
13                     the amount of $____________; and
 
14              (vii)  Lapses proposed in House Bill No. ____ (the
 
15                     Judiciary Supplemental Appropriations Act of
 
16                     2000) in the amount of $____________; the
 
17                     total amount of authorized but unissued
 
18                     general obligation bonds and reimbursable
 
19                     general obligation bonds is $____________.
 
20                     The total amount of general obligation bonds
 
21                     previously authorized and unissued and the
 
22                     general obligation bonds authorized in this
 
23                     Act is $____________.  The total amount of
 
24                     general obligation bonds and reimbursable
 
25                     general obligation bonds previously
 

 
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 1                     authorized and unissued and the general
 
 2                     obligation bonds authorized in this Act is
 
 3                     $____________.
 
 4           (B)  As reported by the department of budget and
 
 5                finance, the outstanding principal amount of bonds
 
 6                constituting instruments of indebtedness under
 
 7                which the State may incur a contingent liability
 
 8                as a guarantor is $____________, all or part of
 
 9                which is excludable in determining the power of
 
10                the State to issue general obligation bonds,
 
11                pursuant to article VII, section 13 of the state
 
12                constitution.  The total amount of guaranty
 
13                authorized by House Bill No. ____ (Relating to the
 
14                Hawaii Capital Loan Program) is $_____________,
 
15                and is herein validated.  The total amount of
 
16                guaranties previously authorized and the
 
17                guaranties validated by this Act is $____________.
 
18      (5)  Proposed general obligation bond issuance.  As reported
 
19           in the budget for the fiscal period 1999-2000 to 2002-
 
20           2003, the State proposes to issue $200,000,000 in
 
21           general obligation bonds during the remainder of fiscal
 
22           year 1999-2000, and $350,000,000 during the second half
 
23           of fiscal years 2000 to 2001, $150,000,000 during the
 
24           second half of fiscal year 2000-2001, $150,000,000
 

 
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 1           during the first half of fiscal year 2001-2002,
 
 2           $150,000,000 during the second half of fiscal year
 
 3           2001-2002, $100,000,000 during the first half of fiscal
 
 4           year 2002-2003, and $350,000,000 during the second half
 
 5           of fiscal year 2002-2003.  It has been the practice of
 
 6           the State to issue twenty-year serial bonds with
 
 7           principal repayments beginning the third year, and
 
 8           interest payments commencing six months from the date
 
 9           of issuance and being paid semiannually thereafter.  As
 
10           reported by the department of budget and finance, the
 
11           bonds will be maturing in substantially equal annual
 
12           installments of principal and interest.  It is assumed
 
13           that this practice will be applied to the bonds which
 
14           are proposed to be issued.
 
15      (6)  Sufficiency of proposed general obligation bond
 
16           issuance to meet the requirements of authorized and
 
17           unissued bonds, as adjusted, and bonds authorized by
 
18           this Act.  From the schedule reported in paragraph (5),
 
19           the total amount of general obligation bonds that the
 
20           State proposes to issue during the fiscal period 1999-
 
21           2000 to 2002-2003 is $1,400,000,000.  The total amount
 
22           of $1,400,000,000 that is proposed to be issued through
 
23           fiscal year 2002-2003 is sufficient to meet the
 
24           requirements of the authorized and unissued bonds, as
 

 
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 1           adjusted, and the bonds authorized by this Act, the
 
 2           total amount of which is $1,395,874,929, as reported in
 
 3           paragraph (4).  Thus, taking into account the amount of
 
 4           previously authorized and issued bonds and bonds
 
 5           proposed in the budget versus the amount of bonds that
 
 6           is proposed to be issued by June 30, 2003, the
 
 7           legislature finds that in the aggregate, the amount of
 
 8           bonds is sufficient to meet these requirements.
 
 9      (7)  Bonds excludable in determining the power of the State
 
10           to issue bonds.  As noted in paragraph (1), certain
 
11           bonds are excludable in determining the power of the
 
12           State to issue general obligation bonds.
 
13           (A)  General obligation reimbursable bonds can be
 
14                excluded under certain conditions.  It is not
 
15                possible to make a conclusive determination as to
 
16                the amount of reimbursable bonds that are
 
17                excludable from the amount of each proposed bond
 
18                issued because:
 
19                (i)  It is not known exactly when projects for
 
20                     which reimbursable bonds have been authorized
 
21                     in prior acts and in this Act will be
 
22                     implemented and will require the application
 
23                     of proceeds from a particular bond issue; and
 

 
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 1               (ii)  Not all reimbursable general obligation bonds
 
 2                     may qualify for exclusion.
 
 3                However, the legislature notes that with respect
 
 4                to the principal and interest on outstanding
 
 5                general obligation bonds, according to the
 
 6                department of budget and finance, the average
 
 7                proportion of principal and interest that is
 
 8                excludable each year from calculation against the
 
 9                debt limit is 6.97 per cent for the ten years from
 
10                fiscal year 2000-2001 to fiscal year 2009-2010.
 
11                For the purpose of this declaration, the
 
12                assumption is made that five per cent of each bond
 
13                issue will be excludable from the debt limit, an
 
14                assumption that the legislature finds to be
 
15                reasonable and conservative.
 
16           (B)  Bonds constituting instruments of indebtedness
 
17                under which the State incurs a contingent
 
18                liability as a guarantor can be excluded but only
 
19                to the extent the principal amount of such
 
20                guaranties does not exceed seven per cent of the
 
21                principal amount of outstanding general obligation
 
22                bonds not otherwise excluded under subparagraph
 
23                (A) of paragraph (7); and provided that the State
 
24                shall establish and maintain a reserve in an
 

 
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 1                amount in reasonable proportion to the outstanding
 
 2                loans guaranteed by the State as provided by law.
 
 3                According to the department of budget and finance
 
 4                and the assumptions presented herein, the total
 
 5                principal amount of outstanding general obligation
 
 6                bonds and general obligation bonds proposed to be
 
 7                issued, which are not otherwise excluded under
 
 8                article VII, section 13 of the state constitution
 
 9                for fiscal years 1999-2000, 2000-2001, 2001-2002,
 
10                and 2002-2003 are as follows:
 
11                                      Total Amount of
12                                 General Obligation Bonds
13                                 Not Otherwise Excluded by
14                                  Article VII, Section 13
15               Fiscal Year       of the State Constitution
16 
17                1999-2000               3,309,433,537
18                2000-2001               3,600,550,972
19                2001-2002               3,667,655,955
20                2002-2003               3,843,443,582
21 
22           Based on the foregoing and based on the assumption that
 
23           the full amount of a guaranty is immediately due and
 
24           payable when such guaranty changes from a contingent
 
25           liability to an actual liability, the aggregate
 
26           principal amount of the portion of the outstanding
 
27           guaranties and the guaranties proposed to be incurred,
 
28           which does not exceed seven per cent of the average
 
29           amount set forth in the last column of the above table
 

 
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 1           and for which reserve funds have been or will have been
 
 2           established as heretofore provided, can be excluded in
 
 3           determining the power of the State to issue general
 
 4           obligation bonds.  As it is not possible to predict
 
 5           with a reasonable degree of certainty when a guaranty
 
 6           will change from a contingent liability to an actual
 
 7           liability, it is assumed in conformity with fiscal
 
 8           conservatism and prudence, that all guaranties not
 
 9           otherwise excluded pursuant to article VII, section 13
 
10           of the state constitution will become due and payable
 
11           in the same fiscal year in which the greatest amount of
 
12           principal and interest on general obligation bonds,
 
13           after exclusions, occurs.  Thus, based on these
 
14           assumptions and on the determination in paragraph (8),
 
15           the aggregate principal amount of the portion of the
 
16           outstanding guaranties, which must be included in
 
17           determining the power of the State to issue general
 
18           obligation bonds, is $0.
 
19      (8)  Determination whether the debt limit will be exceeded
 
20           at the time of issuance.  From the foregoing and on the
 
21           assumption that all of the bonds identified in
 
22           paragraph (5) will be issued at an interest rate of 6.0
 
23           per cent as reported in the Budget, it can be
 
24           determined from the following schedule that the bonds
 
25           that are proposed to be issued, which include all
 

 
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 1           authorized and unissued bonds previously authorized, as
 
 2           adjusted, general obligation bonds and instruments of
 
 3           indebtedness under which the State incurs a contingent
 
 4           liability as a guarantor authorized in this Act, will
 
 5           not cause the debt limit to be exceeded at the time of
 
 6           such issuance:
 
 7                                                Greatest Amount
 8       Time of Issuance                           and Year of
 9       and Amount to Be       Debt Limit       Highest Principal
10        Counted Against       at Time of         and Interest
11          Debt Limit           Issuance     on Bonds and Guaranties
12 
13    Remainder FY 1999-2000
14         $190,000,000        $589,871,788  $423,101,970 (2002-2003)
15     1st half FY 2000-2001
16         $332,500,000        $588,178,623  $443,051,970 (2002-2003)
17     2nd half FY 2000-2001
18         $142,500,000        $588,178,623  $451,601,970 (2002-2003)
19     1st half FY 2001-2002
20         $142,500,000        $584,550,956  $455,876,970 (2002-2003)
21     2nd half FY 2001-2002
22         $142,500,000        $584,550,956  $464,426,970 (2002-2003)
23     1st half FY 2002-2003
24          $95,000,000        $578,336,270  $459,374,614 (2004-2005)
25     2nd half FY 2002-2003
26         $285,000,000        $578,336,270  $479,324,614 (2004-2005)
27 
28      (9)  Overall and concluding finding.  From the facts,
 
29           estimates, and assumptions stated in this declaration
 
30           of findings, the conclusion is reached that the total
 
31           amount of principal and interest estimated for the
 
32           general obligation bonds authorized in this Act, and
 
33           for all bonds authorized and unissued, and calculated
 
34           for all bonds issued and outstanding, and all
 
35           guaranties, will not cause the debt limit to be
 
36           exceeded at the time of issuance.
 
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 1      SECTION 3.  The legislature finds the bases for the
 
 2 declaration of findings set forth in this Act reasonable.  The
 
 3 assumptions set forth in this Act with respect to the principal
 
 4 amount of general obligation bonds that will be issued, the
 
 5 amount of principal and interest on reimbursable general
 
 6 obligation bonds that are assumed to be excludable, and the
 
 7 assumed maturity structure shall not be deemed to be binding, it
 
 8 being the understanding of the legislature that such matters
 
 9 shall remain subject to substantial flexibility.
 
10      SECTION 4.  Authorization for issuance of general obligation
 
11 bonds.  General obligation bonds may be issued as provided by law
 
12 in an amount that may be necessary to finance projects authorized
 
13 in House Bill No. 1900 (the Supplemental Appropriations Act of
 
14 2000), and House Bill No. 2650 (the Judiciary Supplemental
 
15 Appropriations Act of 2000), passed by this regular session of
 
16 2000, and designated to be financed from the general obligation
 
17 bond fund and from the general obligation bond fund with debt
 
18 service cost to be paid from special funds; provided that the sum
 
19 total of the general obligation bonds so issued shall not exceed
 
20 $____________.
 
21      Any law to the contrary notwithstanding, general obligation
 
22 bonds may be issued from time to time in accordance with section
 
23 39-16, Hawaii Revised Statutes, in such principal amount as may
 

 
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 1 be required to refund any general obligation bonds of the State
 
 2 of Hawaii heretofore or hereafter issued pursuant to law.
 
 3      SECTION 5.  The provisions of this Act are declared to be
 
 4 severable and if any portion thereof is held to be invalid for
 
 5 any reason, the validity of the remainder of this Act shall not
 
 6 be affected.
 
 7      SECTION 6.  In printing this Act, the revisor of statutes
 
 8 shall substitute in section 2 and section 4 the corresponding act
 
 9 numbers for bills identified therein.
 
10      SECTION 7.  This Act shall take effect upon its approval.