REPORT TITLE:
Hawaii Hurricane Relief Fund


DESCRIPTION:
Repeals the Hawaii hurricane relief fund effective 1/1/2002.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            
HOUSE OF REPRESENTATIVES                H.B. NO.346        
TWENTIETH LEGISLATURE, 1999                    
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE HAWAII HURRICANE RELIEF FUND.



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

 1      SECTION 1.  The legislature finds that there is a need to
 
 2 repeal the Hawaii hurricane relief fund.
 
 3      The legislature also finds that the situation in Hawaii
 
 4 giving rise for the need of a fund has changed dramatically since
 
 5 the creation of the fund in 1993.  In that year, after Hurricane
 
 6 Iniki devastated the island of Kauai, the property insurance
 
 7 market was practically nonexistent.  Property owners could not
 
 8 obtain insurance no matter how much they were willing to pay.
 
 9 This in turn effectively shut down the State's real estate
 
10 market.  Property could not be purchased or transferred without
 
11 insurance.  With the insurance industry on the verge of collapse,
 
12 the real estate industry was also threatened.  In addition, the
 
13 worldwide reinsurance markets, which are not regulated, reacted
 
14 strongly to a number of worldwide disasters, including Hurricanes
 
15 Andrew and Iniki, and reinsurance rates were extremely high.  The
 
16 Hawaii hurricane relief fund was therefore created in an effort
 
17 to encourage private insurers to resume writing homeowner's
 
18 insurance policies in Hawaii, since it was nearly impossible to
 
19 obtain a mortgage without property insurance.  The fund was
 

 
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 1 therefore intended to bridge the gap that was not being fulfilled
 
 2 by private industry.
 
 3      In contrast to the chaos in Hawaii's insurance and real
 
 4 estate industries in 1993, the situation in 1999 has changed
 
 5 significantly.  Property insurance in Hawaii is now highly
 
 6 competitive.  With reinsurance more easily available, private
 
 7 insurers are now better able to assume the risk of hurricane
 
 8 damage.  These private insurers are now able to cover nearly one
 
 9 hundred per cent of hurricane related claims, as opposed to the
 
10 hurricane relief fund, which, because it has a finite amount of
 
11 money and a huge liability, cannot cover all of its claims.
 
12 Lower reinsurance rates and a more competitive market have
 
13 allowed more insurers to enter the market who are willing to
 
14 cover hurricane risks, thereby benefiting consumers by a drop in
 
15 cost of insurance policies.
 
16      The legislature further finds that the Hawaii hurricane
 
17 relief fund was originally created as a temporary measure, in
 
18 order to bridge the gap until Hawaii's insurance market became
 
19 more competitive.  That in fact has happened, as more private
 
20 insurers are offering to cover hurricane risks.  The fund has
 
21 therefore successfully served its intended purpose as originally
 
22 envisioned by the legislature.
 

 
 
 
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 1      The legislature is concerned, however, that repealing the
 
 2 fund outright will throw the market back into turmoil, returning
 
 3 Hawaii to the situation existing in 1993.  Therefore, rather than
 
 4 providing for the immediate repeal of the fund, this Act provides
 
 5 for a three-year transition period to gradually scale back the
 
 6 operations of the fund, culminating in the repeal of the fund
 
 7 after sufficient confidence has been restored in Hawaii's
 
 8 insurance industry.
 
 9      SECTION 2.  Section 36-27, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "§36-27  Transfers from special funds for central service
 
12 expenses.  Except as provided in this section, and
 
13 notwithstanding any other law to the contrary, from time to time
 
14 the director of finance, for the purpose of defraying the
 
15 prorated estimate of central service expenses of government in
 
16 relation to all special funds, except the:
 
17      (1)  Special summer school and intersession fund under
 
18           section 302A-1310;
 
19      (2)  School cafeteria special funds of the department of
 
20           education;
 
21      (3)  Special funds of the University of Hawaii;
 
22      (4)  State educational facilities improvement special fund;
 

 
 
 
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 1      (5)  Convention center capital special fund under section
 
 2           206X-10.5 and the convention center operations special
 
 3           fund under section 206X-10.6;
 
 4      (6)  Special funds established by section 206E-6;
 
 5      (7)  Housing loan program revenue bond special fund;
 
 6      (8)  Housing project bond special fund;
 
 7      (9)  Aloha Tower fund created by section 206J-17;
 
 8     (10)  Domestic violence prevention special fund under section
 
 9           321-1.3;
 
10     (11)  Spouse and child abuse special account under section
 
11           346-7.5;
 
12     (12)  Spouse and child abuse special account under section
 
13           601-3.6;
 
14     (13)  Funds of the employees' retirement system created by
 
15           section 88-109;
 
16     (14)  Unemployment compensation fund established under
 
17           section 383-121;
 
18    [(15)  Hawaii hurricane relief fund established under chapter
 
19           431P;
 
20     (16)] (15)  Hawaii health systems corporation special funds;
 
21    [(17)] (16)  Boiler and elevator safety revolving fund
 
22           established under section 397-5.5;
 

 
 
 
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 1    [(18)] (17)  Tourism special fund established under section
 
 2           [201B-11]; and
 
 3    [(19)] (18)  Department of commerce and consumer affairs'
 
 4           special funds;
 
 5 shall deduct five per cent of all receipts of all other special
 
 6 funds, which deduction shall be transferred to the general fund
 
 7 of the State and become general realizations of the State.  All
 
 8 officers of the State and other persons having power to allocate
 
 9 or disburse any special funds shall cooperate with the director
 
10 in effecting these transfers.  To determine the proper revenue
 
11 base upon which the central service assessment is to be
 
12 calculated, the director shall adopt rules pursuant to chapter 91
 
13 for the purpose of suspending or limiting the application of the
 
14 central service assessment of any fund.  No later than twenty
 
15 days prior to the convening of each regular session of the
 
16 legislature, the director shall report all central service
 
17 assessments made during the preceding fiscal year."
 
18     SECTION 3.  Section 36-30, Hawaii Revised Statutes, is
 
19 amended by amending subsection (a) to read as follows:
 
20     "(a)  Each special fund, except the:
 
21     (1)   Transportation use special fund established by section
 
22           261D-1;
 

 
 
 
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 1     (2)   Special summer school and intersession fund under
 
 2           section 302A-1310;
 
 3     (3)   School cafeteria special funds of the department of
 
 4           education;
 
 5     (4)   Special funds of the University of Hawaii;
 
 6     (5)   State educational facilities improvement special fund;
 
 7     (6)   Special funds established by section 206E-6;
 
 8     (7)   Aloha Tower fund created by section 206J-17;
 
 9     (8)   Domestic violence prevention special fund under section
 
10           346-7.5;
 
11     (9)   Spouse and child abuse special account under section
 
12           346-7.5;
 
13     (10)  Spouse and child abuse special account under section
 
14           601-3.6;
 
15     (11)  Funds of the employees' retirement system created by
 
16           section 88-109;
 
17     (12)  Unemployment compensation fund established under
 
18           section 383-121;
 
19    [(13)  Hawaii hurricane relief fund established under chapter
 
20           431P;
 
21     (14)] (13) Convention center capital special fund established
 
22           under section 206X-10.5 and the convention center
 
23           operations special fund established under section 206X-
 
24           10.6;
 

 
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 1    [(15)] (14) Hawaii health systems corporation special funds;
 
 2           and
 
 3    [(16)] (15) Tourism special fund established under section
 
 4           [201B-11];
 
 5 shall be responsible for its pro rata share of the administrative
 
 6 expenses incurred by the department responsible for the
 
 7 operations supported by the special fund concerned."
 
 8     SECTION 4.  Section 39-51, Hawaii Revised Statutes, is
 
 9 amended as follows:
 
10     1.  By amending the definitions of "revenue" and "revenue
 
11 bonds" to read:
 
12     ""Revenue" means the moneys collected, including any moneys
 
13 collected from the State or any department, or any county or
 
14 board, agency, or instrumentality thereof, from the rates,
 
15 rentals, fees, and charges prescribed for the use and services
 
16 of, and the facilities and commodities furnished by, an
 
17 undertaking or the use and services and benefits of a loan
 
18 program[; provided that the term shall include all insurance
 
19 premium payments, assessments, surcharges, investment earnings,
 
20 and all other income of the Hawaii hurricane relief fund].
 
21     "Revenue bonds" means all bonds payable solely from and
 
22 secured by the revenue, or user taxes, or any combination of
 
23 both, of an undertaking or loan program or any loan made
 

 
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 1 thereunder for which bonds are issued and as otherwise provided
 
 2 in this part[; provided that the term shall include all bonds
 
 3 issued by the director of finance under the authority of section
 
 4 10(a), Act 339, Session Laws of Hawaii 1993, as amended, for the
 
 5 purposes of the hurricane bond loan fund.]"
 
 6     2.  By repealing the definition of "policy of hurricane
 
 7 property insurance":
 
 8     [""Policy of hurricane property insurance" means a policy or
 
 9 endorsement of insurance issued by the Hawaii hurricane relief
 
10 fund under section 431P-10."]
 
11     SECTION 5.  Section 39-52, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13     "§39-52  Declaration of policy.  It is declared to be the
 
14 policy of the State that any department acquiring, purchasing,
 
15 constructing, reconstructing, improving, bettering, or extending
 
16 an undertaking or establishing or administering a loan program
 
17 pursuant to this chapter [or providing policies of hurricane
 
18 property insurance to the general public,] shall manage the
 
19 undertaking[,] or loan program[, or the Hawaii hurricane relief
 
20 fund] in the most efficient manner consistent with sound economy
 
21 and public advantage, and consistent with the protection of
 
22 bondholders."
 

 
 
 
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 1     SECTION 6.  Section 39-54, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3     "(a)  The issuance of revenue bonds for the acquisition,
 
 4 purchase, construction, reconstruction, improvement, betterment,
 
 5 or extension of any undertaking[;] or the establishment and
 
 6 administration of any loan program authorized by law[; or the
 
 7 coverage of policies of hurricane property insurance issued by
 
 8 the Hawaii hurricane relief fund] shall be authorized:
 
 9     (1)   By a resolution or resolutions of the governing body of
 
10           the department, which may be adopted at the same
 
11           meeting at which the same are introduced by a majority
 
12           of all the members of the governing body of the
 
13           department then in office, and shall take effect
 
14           immediately upon filing with the director of finance;
 
15           or
 
16     (2)   By a certificate or certificates of a department head,
 
17           which shall take effect immediately upon filing with
 
18           the director of finance."
 
19     SECTION 7.  Section 39-60, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21     "§39-60  Covenants in resolution or certificate authorizing
 
22 issuance of revenue bonds.  Any resolution or certificate
 
23 authorizing the issuance of revenue bonds pursuant to this part
 
24 may contain covenants as to:
 

 
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 1     (1)   The purpose or purposes to which the proceeds of sale
 
 2           of the revenue bonds shall be applied and the use and
 
 3           disposition thereof;
 
 4     (2)   The use and disposition of the revenue of the
 
 5           undertaking[, the Hawaii hurricane relief fund,] or the
 
 6           loan program for which the revenue bonds are to be
 
 7           issued, or the user taxes derived therefrom, or both
 
 8           revenue and user taxes, to the extent pledged to the
 
 9           payment of the revenue bonds, including the priority of
 
10           payments from the revenue and the creation and
 
11           maintenance of reserves and the investment thereof;
 
12     (3)   The issuance of other or additional revenue bonds
 
13           payable from the revenue of the loan program[, the
 
14           Hawaii hurricane relief fund,] or of the undertaking,
 
15           or the user taxes derived therefrom, or both revenue
 
16           and user taxes, to the extent pledged to the payment of
 
17           the revenue bonds;
 
18     (4)   The operation, maintenance, and repair of the
 
19           undertaking or the administration, operation, and
 
20           maintenance of the loan program[, or the Hawaii
 
21           hurricane relief fund];
 
22     (5)   The insurance to be carried on an undertaking or on the
 
23           security for [the Hawaii hurricane relief fund, or] a
 

 
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 1           loan program and the use and disposition of insurance
 
 2           proceeds, the insurance policies being by this section
 
 3           authorized to be carried, and no undertaking shall have
 
 4           recourse to the state insurance fund for the repair or
 
 5           replacement of any property in the undertaking, or for
 
 6           payment of claims under chapter 386 (relating to
 
 7           workers' compensation);
 
 8     (6)   Books of account and the inspection and audit thereof;
 
 9           and
 
10     (7)   The terms and conditions upon which the holders of the
 
11           revenue bonds or any proportion of them or any trustee
 
12           therefor shall be entitled to the appointment of a
 
13           receiver by any court of competent jurisdiction, which
 
14           court shall have jurisdiction in the proceedings, and
 
15           which receiver may enter and take possession of the
 
16           undertaking, operate, maintain, and repair the same,
 
17           enforce or foreclose loans made under a loan program,
 
18           impose and prescribe rates, rentals, fees, or charges,
 
19           collect, receive, and apply all revenue, and receive
 
20           and apply all user taxes, thereafter arising therefrom
 
21           in the same manner and to the same extent as the
 
22           department itself might do;
 

 
 
 
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 1 provided that all covenants shall be subject to review by the
 
 2 governor; and provided further that the provisions of this
 
 3 section with respect to user taxes shall be applicable only if
 
 4 the legislature in the specific act or acts authorizing the
 
 5 issuance of the revenue bonds has provided that the revenue bonds
 
 6 may be paid from and secured by the user taxes derived from an
 
 7 undertaking.
 
 8     The provisions of this part and any resolution or certificate
 
 9 shall be a contract with the holder or holders of the revenue
 
10 bonds.  The duties of the department, its governing body and
 
11 department head, pursuant to this part, and any resolution or
 
12 certificate shall be enforceable by any bondholder, by mandamus
 
13 or other appropriate suit, action, or proceeding in any court of
 
14 competent jurisdiction."
 
15     SECTION 8.  Section 39-62, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17     "§39-62  Use of revenue and user taxes by any undertaking[,]
 
18 or loan program[, or the Hawaii hurricane relief fund].  Whenever
 
19 any revenue bonds have been issued pursuant to this part for an
 
20 undertaking[,] or a loan program, [or the Hawaii hurricane relief
 
21 fund,] the revenue, or the user taxes, or combination of both, of
 
22 the undertaking, loan program, or fund from which the revenue
 
23 bonds are payable and by which they are secured shall be
 

 
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 1 deposited in a special fund and shall be appropriated, applied,
 
 2 or expended in the amount necessary therefor for the following
 
 3 purposes and in the order of priority as the department shall
 
 4 provide in the resolution or certificate authorizing the issuance
 
 5 of revenue bonds pursuant to this part:
 
 6     (1)   To pay when due all revenue bonds and interest thereon
 
 7           issued for the undertaking[,] or loan program, [or the
 
 8           Hawaii hurricane relief fund] for the payment of which
 
 9           the revenue, or user taxes, or combination of both, is
 
10           or shall have been pledged, charged, or otherwise
 
11           encumbered, including reserves therefor;
 
12     (2)   To pay or provide for the payment of the cost of
 
13           operation, maintenance, and repair of the undertaking,
 
14           or to pay or provide for the payment of administering,
 
15           operating, and maintaining the loan program, including
 
16           reserves therefor;
 
17     (3)   For such purposes, within the jurisdiction, powers,
 
18           duties, and functions of the department, including the
 
19           creation and maintenance of reserves, as shall have
 
20           been covenanted in any resolution or resolutions or
 
21           certificate or certificates of the department providing
 
22           for the issuance of revenue bonds;
 

 
 
 
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 1     (4)   To reimburse the general fund of the State for all bond
 
 2           requirements for general obligation bonds which are or
 
 3           shall have been issued for the undertaking[,] or loan
 
 4           program, [or the Hawaii hurricane relief fund,] or to
 
 5           refund any general obligation bonds, except insofar as
 
 6           the obligation of reimbursement has been or shall be
 
 7           canceled by the legislature, the bond requirements
 
 8           being the interest on term and serial bonds, sinking
 
 9           fund for term bonds, and principal of serial bonds
 
10           maturing the following year;
 
11     (5)   To provide for betterments and improvements to the
 
12           undertaking or expansion of the loan program [or the
 
13           Hawaii hurricane relief fund], including reserves
 
14           therefor; and
 
15     (6)   To provide special reserve funds and other special
 
16           funds as are or may be created by law.
 
17 The appropriation, application, or expenditure of amounts
 
18 deposited in the special fund pursuant to this section shall be
 
19 accounted for on a fiscal year basis.  Unless and until adequate
 
20 provision has been made for the foregoing purposes, the State
 
21 shall not have the right to transfer to its general fund or any
 
22 special fund or to apply to any other purposes any part of the
 
23 revenue or user taxes pledged to the payment of revenue bonds of
 
24 the undertaking or loan program."
 

 
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 1     SECTION 9.  Section 431:13-104, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (g) to read as follows:
 
 3     "(g)  Nothing in this section shall prevent a person who
 
 4 lends money or extends credit from assisting a mortgagor,
 
 5 borrower, or purchaser in obtaining homeowners insurance where
 
 6 the borrower requests such assistance in writing.  [Nothing in
 
 7 this section shall prevent a person who lends money or extends
 
 8 credit from referring a mortgagor, borrower, or purchaser to the
 
 9 Hawaii hurricane relief fund.]"
 
10     SECTION 10.  Section 219.1 of the Hawaiian Homes Commission
 
11 Act of 1920, as amended, is amended by amending subsection (b) to
 
12 read as follows:
 
13     "(b)  Notwithstanding any law to the contrary, the department
 
14 either alone or together with any other governmental agency, may:
 
15     (1)   Form an insurance company, association (nonprofit or
 
16           otherwise), pool, or trust;
 
17     (2)   Acquire an existing insurance company;
 
18     (3)   Enter into arrangements with one or more insurance
 
19           companies; or
 
20     (4)   Undertake any combination of the foregoing; upon such
 
21           terms and conditions and for such periods, as the
 
22           commission shall approve, to provide homeowner
 

 
 
 
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 1           protection, including hurricane coverage, for lessees
 
 2           participating in such undertaking.  Such undertaking
 
 3           shall be subject to the provisions of [chapter 431P,
 
 4           including but not limited to section 431P-10(b), and]
 
 5           chapter 431."
 
 6     SECTION 11.  Chapter 431P, Hawaii Revised Statutes, is
 
 7 repealed.
 
 8     SECTION 12.  The insurance commissioner shall provide for the
 
 9 internal restructuring and scaling back of the Hawaii hurricane
 
10 relief fund on an incremental basis until its repeal on July 1,
 
11 2002.  The purpose of restructuring shall be to prevent
 
12 disruption and turmoil in Hawaii's insurance markets and provide
 
13 a smooth transition culminating in the repeal of the fund.  The
 
14 insurance commissioner may contract with a private consultant to
 
15 create a transition plan for this purpose, who shall be exempt
 
16 from chapters 76 and 77.  The commissioner and the consultant
 
17 shall work with affected government and private entities as
 
18 necessary to provide an orderly transition, including but not
 
19 limited to representatives of the private insurance industry in
 
20 Hawaii that have an interest in providing hurricane insurance,
 
21 and may hold hearings on each of the islands and receive
 
22 testimony for this purpose.  The insurance commissioner shall
 
23 submit an interim report containing findings and recommendations,
 

 
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 1 including any proposed legislation, to the legislature and the
 
 2 governor no later than twenty days before the convening of the
 
 3 regular session of 2000, and a final report to the legislature
 
 4 and the governor no later than twenty days before the convening
 
 5 of the regular session of 2001.
 
 6     SECTION 13.  The provisions of the amendments made by this
 
 7 Act to the Hawaiian Homes Commission Act of 1920, as amended, are
 
 8 declared to be severable, and if any section, clause, or phrase,
 
 9 or the application thereof to any person or circumstance is held
 
10 ineffective because there is a requirement of having the consent
 
11 of the United States to take effect, then that portion only shall
 
12 take effect upon the granting of consent by the United States and
 
13 the effectiveness of the remainder of this Act or the application
 
14 thereof shall not be affected.
 
15     SECTION 14.  This Act shall take effect on July 1, 2002;
 
16 provided that:
 
17     (1)   Section 12 of this Act shall take effect on July 1,
 
18           1999; and 
 
19     (2)   The amendments made to sections 36-27 and 36-30 in
 
20           sections 2 and 3 of this Act shall not be repealed when
 
21           those sections are reenacted on July 1, 2000, pursuant
 
22           to section 13 of Act 216, Session Laws of Hawaii 1997,
 
23           or pursuant to section 9 of Act 142, Session Laws of
 
24           Hawaii 1998.
 
25 
 
26                              INTRODUCED BY:______________________