REPORT TITLE:
Entertainment; Loan Program


DESCRIPTION:
Creates the Hawaii television and film development board, the
Hawaii television and film development special fund, and the
Hawaii television and film development loan guarantee program.
Appropriates funds.  (HB2959 HD3)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2959
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 3
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE ENTERTAINMENT INDUSTRY.



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

 1      SECTION 1.  The legislature finds that film and television
 
 2 productions in Hawaii provide an invaluable source of
 
 3 advertisement and promotion for the State.  Over the last four
 
 4 years, Hawaii's film and television industry has experienced
 
 5 double-digit growth.  It is a $100,000,000 per year industry in
 
 6 terms of production expenses, and contributes $15,000,000 per
 
 7 year in state tax revenues.  Within the next five to ten years,
 
 8 there is the potential for film and television in Hawaii to grow
 
 9 to a $300,000,000 per year industry, generating $45,000,000 in
 
10 tax revenues.
 
11      To maximize film and television exposure, it is absolutely
 
12 essential to provide film and television producers with financial
 
13 incentives and assistance to encourage them to produce their
 
14 projects in Hawaii.
 
15      The legislature further finds that the most effective way to
 
16 provide such incentives is to create a special fund and
 
17 guaranteed loan program which can be selectively administered to
 
18 provide grants and loans for television and film productions that
 
19 promote Hawaii.  Under the direction of an appointed board, the
 
20 fund and loan program will provide needed assistance and
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1 facilitate the acquisition of production capital for film and
 
 2 television producers, while ensuring and protecting the State's
 
 3 interests in the process.
 
 4      The purpose of this Act is to assist Hawaii's television and
 
 5 film industry to promote Hawaii to the world.
 
 6      SECTION 2.  Chapter 201, Hawaii Revised Statutes, is amended
 
 7 by adding a new part to be appropriately designated and to read
 
 8 as follows:
 
 9         "PART  .  HAWAII TELEVISION AND FILM DEVELOPMENT
 
10                      LOAN GUARANTEE PROGRAM
 
11      §201-A  Definitions.  As used in this part:
 
12      "Board" means the Hawaii television and film development
 
13 board.
 
14      "Eligible Hawaii project" means an entertainment project in
 
15 which at least     per cent of the budget for the production
 
16 costs, excluding salaries and costs for the producer, director,
 
17 writer, screenplay, and actors in the project, is dedicated for
 
18 the purchase or lease of goods or services from a vendor or
 
19 supplier who is located and doing business in the State.
 
20      "Fund" means the Hawaii television and film development
 
21 special fund.
 
22      "Hawaii lender" means a financial institution that is
 
23 located or has a branch office in Hawaii.
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1      "Program" means the Hawaii television and film development
 
 2 loan guarantee indemnity program administered by the board under
 
 3 this part.
 
 4      §201-B  Hawaii television and film development board.(a)
 
 5 There is established the Hawaii television and film development
 
 6 board.  The board shall be attached to the department of
 
 7 business, economic development, and tourism for administrative
 
 8 purposes only.  The board shall administer the Hawaii television
 
 9 and film development loan guarantee indemnity program and the
 
10 Hawaii television and film development special fund established
 
11 under this part.
 
12      (b)  The board shall be composed of seven members appointed
 
13 by the governor pursuant to section 26-34 for staggered four-year
 
14 terms.  Three members shall be appointed from a list of nominees
 
15 submitted by the president of the senate and three from a list of
 
16 nominees submitted by the speaker of the house of
 
17 representatives.  The director of business, economic development,
 
18 and tourism or the director's designee shall serve as an ex
 
19 officio member.  The chairperson and vice chairperson of the
 
20 board shall be selected by the board by majority vote.  Four
 
21 members shall constitute a quorum, whose affirmative vote shall
 
22 be necessary for all actions by the board.  The members shall
 
23 serve without compensation but shall be reimbursed for expenses,
 

 
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 1 including travel expenses, necessary for the performance of their
 
 2 duties.
 
 3      (c)  All members shall possess a current working knowledge
 
 4 of the film, television, or entertainment industry.  Of the seven
 
 5 members:
 
 6      (1)  One member shall be a resident of the island of Hawaii,
 
 7           Kauai, Maui, or Molokai;
 
 8      (2)  One member shall possess industry-based financial
 
 9           expertise; and
 
10      (3)  One member shall possess a marketing or promotions
 
11           background.
 
12      (d)  The board may hire     staff members, including an
 
13 executive secretary, who shall be exempt from chapters 76, 77,
 
14 and 89.  Staff salaries shall be set by the board and be
 
15 comparable to other state positions with similar qualifications
 
16 and duties and shall be payable from the fund.
 
17      §201-C  Hawaii television and film development special fund.
 
18 (a)  There is established in the state treasury the Hawaii
 
19 television and film development special fund into which shall be
 
20 deposited:
 
21      (1)  Appropriations by the legislature;
 
22      (2)  Donations and contributions made by private individuals
 
23           or organizations for deposit into the fund;
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1      (3)  Grants provided by governmental agencies or any other
 
 2           source;
 
 3      (4)  The repayment of loan principal, payment of interest,
 
 4           or fees for loans made under this part;
 
 5      (5)  Any proceeds from the realization of collateral
 
 6           provided under the program; and
 
 7      (6)  Any other amounts received from loan guarantees
 
 8           approved for issuance under this part.
 
 9      (b)  The fund shall be used by the board to provide grants
 
10 or loans under this part to assist in:
 
11      (1)  The production of eligible Hawaii projects;
 
12      (2)  Attracting non-Hawaii based production companies to
 
13           develop eligible Hawaii projects; and
 
14      (3)  Funding eligible Hawaii projects under agreements with
 
15           any state or county agency or other public or private
 
16           organization;
 
17 that is in compliance with criteria established by the board by
 
18 rules adopted pursuant to chapter 91.
 
19      §201-D  Hawaii television and film development loan
 
20 guarantee indemnity program.(a)  The board shall administer a
 
21 program to guarantee a certain amount of one or more qualified
 
22 Hawaii project production loans under section 201-E as a means to
 
23 facilitate access to capital for the production of entertainment
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1 in Hawaii.  The board may approve the issuance of a guarantee of
 
 2 a qualified Hawaii project production loan or loans for the
 
 3 production of more than one eligible Hawaii project by a single
 
 4 producer.
 
 5      (b)  The board shall not approve the issuance of a loan
 
 6 guarantee except upon approval of an application submitted with
 
 7 the approval of a Hawaii lender who has agreed to make a
 
 8 qualified Hawaii project production loan.
 
 9      (c)  For each guarantee, the board shall determine:
 
10      (1)  The maximum guarantee amount; and
 
11      (2)  The terms and conditions relating to the guarantee.
 
12      (d)  An action or claim under a loan guarantee shall be
 
13 brought not later than three years after the date on which the
 
14 board approves the issuance of the guarantee.
 
15      (e)  The guarantee amount approved for issuance by the board
 
16 under this part shall not exceed the lesser of:
 
17      (1)        per cent of the total amount of the qualified
 
18           Hawaii project production loan; or
 
19      (2)  $       .
 
20      §201-E  Qualified Hawaii project production loan.  To
 
21 qualify as a Hawaii project production loan, the loan:
 
22      (1)  Shall be in an amount not to exceed the lesser of:
 

 
 
 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1           (A)        per cent of the total cost to produce the
 
 2                entertainment project; or
 
 3           (B)  $       ;
 
 4      (2)  Shall be made by a Hawaii lender under a written loan
 
 5           agreement that:
 
 6           (A)  Is entered into with a borrower to finance the
 
 7                production of an eligible Hawaii project;
 
 8           (B)  May be conditioned on the approval for the
 
 9                issuance of a loan guarantee under this part;
 
10           (C)  Requires that the loan be secured by:
 
11                (i)  A security interest on the eligible Hawaii
 
12                     project to be financed by the loan and
 
13                     proceeds and receivables due from the
 
14                     project; and
 
15               (ii)  A security or other interest in a
 
16                     distribution agreement covering the eligible
 
17                     Hawaii project, an irrevocable letter of
 
18                     credit, a presale agreement covering the
 
19                     project, a certificate of deposit, a
 
20                     marketable security, or other instrument that
 
21                     meets all requirements and is secured in the
 
22                     manner and to the extent provided by rule
 
23                     adopted by the board pursuant to chapter 91;
 

 
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 1                and
 
 2           (D)  Meets any other requirement prescribed by the
 
 3                board;
 
 4           and
 
 5      (3)  May include a written agreement between the borrower
 
 6           and the board, as the representative of the State, that
 
 7           as consideration for the loan made under this part, the
 
 8           borrower shall share any royalties, licenses, titles,
 
 9           rights, or any other monetary benefits that may accrue
 
10           to the borrower as a result of the loan with the State,
 
11           pursuant to terms and conditions established by the
 
12           board by rule pursuant to chapter 91.
 
13      §201-F  Application for loan guarantee.(a)  An application
 
14 for a loan guarantee under the program shall:
 
15      (1)  Contain the names and addresses of the Hawaii lender
 
16           and the borrower who is the subject of the loan;
 
17      (2)  Contain a certification by the borrower that the
 
18           project is an eligible Hawaii project;
 
19      (3)  Be accompanied by:
 
20           (A)  A certification by the Hawaii lender that:
 
21                (i)  The Hawaii lender has reviewed the
 
22                     application;
 

 
 
 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1               (ii)  The budget for the total cost to produce the
 
 2                     eligible Hawaii project as disclosed in the
 
 3                     application is the same as the budget for the
 
 4                     total cost to produce the project that was
 
 5                     disclosed to the Hawaii lender for the
 
 6                     purpose of determining whether to make the
 
 7                     loan; and
 
 8              (iii)  The information contained in the application
 
 9                     is not contrary to the information submitted
 
10                     to the Hawaii lender in connection with the
 
11                     loan;
 
12           (B)  A copy of the loan agreement described by section
 
13                201-E(2); and
 
14           (C)  A copy of a distribution agreement or other
 
15                instrument described in section 201-E(2)(C)(ii) as
 
16                appropriate;
 
17           and
 
18      (4)  Contain any other information required by the board.
 
19      (b)  The board shall charge an application fee in a
 
20 reasonable amount not to exceed $100 to cover the cost of
 
21 processing the application.
 
22      (c)  On receipt of an application, the board shall verify
 
23 the information contained in the application and may conduct
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1 investigations as necessary to make a determination regarding
 
 2 information provided in the application.
 
 3      (d)  The board may contract with a private company to
 
 4 perform any of the board's duties under subsection (c) and to
 
 5 submit a written report of the company's findings to the board.
 
 6      (e)  The board shall not approve an application submitted
 
 7 under this section unless it is complete and meets the
 
 8 requirements of this section.
 
 9      §201-G  Indemnity requirement.  For each eligible Hawaii
 
10 project to be produced with the proceeds from a loan guaranteed
 
11 under the program, the borrower for the project shall provide an
 
12 indemnity against loss in an amount equal to the full amount of
 
13 the loan guarantee.  The indemnity shall be issued to the board
 
14 as the beneficiary of the indemnity by an insurance company,
 
15 surety company, or financial institution that is:
 
16      (1)  Licensed and authorized to do business in the State;
 
17           and
 
18      (2)  Approved by the board.
 
19      §201-H  Surety bond for completion of project.  A borrower
 
20 shall file with the board a surety bond indemnifying the State,
 
21 the lender, and the entity providing indemnity under section
 
22 201-G against loss that results from the eligible Hawaii project
 

 
 
 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1 not being completed by the date and for the budget certified to
 
 2 the board in the application required by section 201-F.
 
 3      §201-I  Issuance of loan guarantee.  The board shall not
 
 4 approve the issuance of a loan guarantee under the program
 
 5 unless:
 
 6      (1)  The loan for which the guarantee is sought meets the
 
 7           qualifications of a Hawaii project production loan
 
 8           under section 201-E;
 
 9      (2)  The board approves the application for the loan
 
10           guarantee;
 
11      (3)  The board has received the application fee required by
 
12           section 201-F(b); and
 
13      (4)  The indemnity requirements of section 201-G, the surety
 
14           bond requirements of section 201-H, and any other bond
 
15           or insurance requirements prescribed under this part or
 
16           by board rule have been satisfied.
 
17      §201-J  Rulemaking authority.  The board shall adopt rules
 
18 pursuant to chapter 91, that shall include:
 
19      (1)  Terms and conditions for a security interest or other
 
20           pledge of collateral to be provided to a Hawaii lender
 
21           as security for any default of a loan guaranteed under
 
22           the program;
 

 
 
 
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 1      (2)  Procedures for the enforcement of obligations owed and
 
 2           pledges of collateral provided to the board under the
 
 3           program; and
 
 4      (3)  Rules necessary to effectuate this part.
 
 5      §201-K  Violation; penalty.(a)  A person violates this
 
 6 part if the person signs an application or submits to the board a
 
 7 document the person knows is false in any material respect with
 
 8 the intent of causing the board to issue a loan guarantee under
 
 9 the program.
 
10      (b)  An offense under this section is a class C felony.
 
11      §201-L  Limitations in program.(a)  Not more than $
 
12 of guarantees issued under this program shall be outstanding at
 
13 any one time.
 
14      (b)  The liability of the board for a loan guarantee for a
 
15 project shall be limited to the amount of the indemnity provided
 
16 for the project under section 201-G.
 
17      §201-M  Annual report.  The board shall submit a report to
 
18 the governor and the legislature at least twenty days prior to
 
19 the convening of each regular session of the legislature.  The
 
20 report shall include:
 
21      (1)  The name and addresses of all borrowers that have
 
22           applied to the board for a loan guarantee under the
 
23           program and their respective Hawaii lenders;
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1      (2)  The names and addresses of all borrowers and their
 
 2           respective Hawaii lenders that have been approved to
 
 3           receive a loan guarantee under the program;
 
 4      (3)  The amount of the loan guarantee approved by the board
 
 5           to each applicant described by paragraph (2); and
 
 6      (4)  Any other information relating to the program that may
 
 7           be requested to be included in the report.
 
 8      §201-N  Gifts and grants.  The board may solicit and accept
 
 9 gifts, grants, and donations from any source for the purposes of
 
10 this part which shall be deposited into the fund."
 
11      SECTION 3.  Section 235-17, Hawaii Revised Statutes, is
 
12 amended by amending subsection (a) to read as follows:
 
13      "(a)  There shall be allowed to each taxpayer subject to the
 
14 taxes imposed by this chapter, an income tax credit which shall
 
15 be deductible from the taxpayer's net income tax liability, if
 
16 any, imposed by this chapter for the taxable year in which the
 
17 credit is properly claimed.  The amount of the credit shall be up
 
18 to [four]       per cent of the costs incurred in the State in
 
19 the production of motion picture or television films.  The
 
20 director of taxation shall specify by rule a schedule of
 
21 allowable tax credits based on the principle that greater tax
 
22 credits shall be allowed for greater benefits to the state
 
23 economy.
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1      In the case of a partnership, S corporation, estate, or
 
 2 trust, the tax credit allowable is for production costs incurred
 
 3 by the entity for the taxable year.  The cost upon which the tax
 
 4 credit is computed shall be determined at the entity level.
 
 5 Distribution and share of credit shall be determined by rule.
 
 6      If a deduction is taken under section 179 (with respect to
 
 7 election to expense depreciable business assets) of the Internal
 
 8 Revenue Code of 1986, as amended, no tax credit shall be allowed
 
 9 for those costs for which the deduction is taken.
 
10      The basis for eligible property for depreciation of
 
11 accelerated cost recovery system purposes for state income taxes
 
12 shall be reduced by the amount of credit allowable and claimed."
 
13      SECTION 4.  There is appropriated out of the tourism special
 
14 fund a sum equal to any transient accommodations tax revenues
 
15 deposited into the fund during fiscal year 1999-2000 that are in
 
16 excess of the $60,000,000 special fund ceiling established in
 
17 part II, section 3, item A2 of Act 91, Session Laws of Hawaii
 
18 1999, or so much thereof as may be necessary for fiscal year
 
19 2000-2001 to be deposited into the Hawaii television and film
 
20 development special fund.
 
21      The sum appropriated shall be expended by the department of
 
22 business, economic development, and tourism for the purposes of
 
23 this Act.
 

 
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                                     H.B. NO.           H.D. 3
                                                        
                                                        

 
 1      SECTION 5.  In codifying the new part added by section 2 of
 
 2 this Act, the revisor of statutes shall substitute appropriate
 
 3 section numbers for the letters used in designating the new
 
 4 sections in this Act.
 
 5      SECTION 6.  Statutory material to be repealed is bracketed.
 
 6 New statutory material is underscored.
 
 7      SECTION 7.  This Act shall take effect upon its approval;
 
 8 provided that:
 
 9      (1)  Section 4 shall take effect on July 1, 2000; and
 
10      (2)  Section 3 shall apply to taxable years beginning after
 
11           December 31, 1999.