REPORT TITLE: 
Individual Development Account


DESCRIPTION:
Establishes an Individual Development Account to promote
entrepreneurship, education, housing, and self-sufficiency for
welfare recipients and low-income individuals.  (HB487 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        487
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
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                     A BILL FOR AN ACT

RELATING TO INDIVIDUAL DEVELOPMENT ACCOUNTS.



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

 1      SECTION 1.  The legislature finds that an individual
 
 2 development account (IDA) is a special savings account program
 
 3 designed to:
 
 4      (1)  Provide individuals and families, especially those with
 
 5           limited financial means, an opportunity to accumulate
 
 6           assets;
 
 7      (2)  Facilitate and mobilize savings;
 
 8      (3)  Promote post-secondary education, vocational training,
 
 9           homeownership, and micro-enterprise development;
 
10      (4)  Stabilize families; and
 
11      (5)  Build communities.
 
12      Members of Hawaii's private sector, nonprofit organizations,
 
13 and government recognize that IDAs are among the most promising
 
14 anti-poverty ideas to emerge in the last few decades.  In an
 
15 effort to expand awareness of these accounts, these organizations
 
16 have joined together to form the Hawaii IDA collaborative.
 
17 Partners in this new initiative include Parents and Children
 
18 Together, Waimanalo Community Development Corporation, Maui
 
19 Economic Opportunity, Mutual Housing Association of Hawaii, the
 

 
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 1 Consuelo Zobel Alger Foundation, Bank of Hawaii, Hawaii Community
 
 2 Loan Fund, the Legal Aid Society of Hawaii, American Friends
 
 3 Service Committee, the state department of human services,
 
 4 WorkHawaii, and the department of community services of the city
 
 5 and county of Honolulu.
 
 6      The legislature further finds that Hawaii residents are
 
 7 already beginning to benefit from IDAs, such as:
 
 8      (1)  Through a partnership between the Waimanalo Community
 
 9           Development Corporation and the housing and community
 
10           development corporation of Hawaii, up to thirty-four
 
11           public housing residents will be able to purchase a
 
12           newly reconstructed unit using moneys the residents
 
13           have saved in these accounts;
 
14      (2)  The Mutual Housing Association of Hawaii and the
 
15           Pacific Housing Assistance Corporation have similar
 
16           programs on Kauai and Oahu, respectively; and
 
17      (3)  Focusing on savings for business start-up, Parents and
 
18           Children Together, in partnership with Bank of Hawaii
 
19           and the city and county of Honolulu, runs a nationally
 
20           recognized IDA program on Oahu.
 
21      The purpose of this Act is to promote the growth of IDAs by:
 
22      (1)  Establishing IDAs and giving tax incentives to
 
23           encourage private sector support of an IDA match; and
 

 
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 1      (2)  Making an appropriation to be used as matching funds.
 
 2      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 
 3 a new chapter to be appropriately designated and to read as
 
 4 follows:
 
 5                             "CHAPTER
 
 6                  INDIVIDUAL DEVELOPMENT ACCOUNTS
 
 7      §   -1  Definitions.  As used in this chapter:
 
 8      "Eligible educational institution" means:
 
 9      (1)  An institution described in sections 481(a)(1) or
 
10           1201(a) of the Higher Education Act of 1965 (20 U.S.C.
 
11           1088(a)(1) or 1141(a)), as such sections are in effect
 
12           on the date of the enactment of this chapter; and
 
13      (2)  An area vocational education school defined in
 
14           subparagraph (C) or (D) of section 521(4) of the Carl
 
15           D. Perkins Vocational and Applied Technology Education
 
16           Act (20 U.S.C. 2471(4)), as such sections are in effect
 
17           on the date of the enactment of this chapter.
 
18      "Fiduciary organization" means an organization that serves
 
19 as an intermediary between an individual account holder and the
 
20 financial institution holding the individual's IDA account funds.
 
21 Fiduciary organizations may include: 
 
22      (1)  One or more not-for-profit organizations described in
 
23           section 501(c)(3) of the Internal Revenue Code and
 

 
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 1           exempt from taxation under section 501(a) of such Code;
 
 2           or 
 
 3      (2)  State or local government agencies submitting an
 
 4           application jointly with another organization. 
 
 5      Nothing in this definition shall be construed as preventing
 
 6 an organization described in paragraph (2) from cooperating with
 
 7 a financial institution or for-profit community development
 
 8 corporation to carry out the purposes of this chapter.
 
 9      The fiduciary organization's responsibilities may include:
 
10      (1)  Marketing participation;
 
11      (2)  Soliciting matching contributions;
 
12      (3)  Counseling program participants; and
 
13      (4)  Conducting required verification and compliance
 
14           activities.
 
15      "Financial institution" means an organization authorized to
 
16 do business pursuant to chapter 412, or under federal laws
 
17 relating to financial institutions, and includes a bank, trust
 
18 company, savings bank, building and loan association, savings and
 
19 loan company or association, and credit union.
 
20      "Household" means adults related by blood, marriage, or
 
21 adoption, or who are unrelated but have maintained a stable
 
22 family relationship together over a period of time, and
 
23 individuals under eighteen years of age related to the above
 

 
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 1 adults by marriage, blood, or adoption, who are living together.
 
 2 Living together refers to domicile as evidence by the parties'
 
 3 intent to maintain a home for their family and does not include a
 
 4 temporary visit.
 
 5      "Individual development account" means:
 
 6      (1)  An account used exclusively for the purpose of paying
 
 7           the qualified expenses of an eligible individual or
 
 8           family; or
 
 9      (2)  An optional, earnings bearing, subsidized, tax-
 
10           benefitted account that may be used for high return
 
11           investments as determined by the fiduciary
 
12           organization. 
 
13      "Post-secondary educational expenses" means:
 
14      (1)  Tuition and fees required for the enrollment or
 
15           attendance of a student at an eligible educational
 
16           institution; and 
 
17      (2)  Fees, books, supplies, and equipment required for
 
18           courses of instruction at an eligible educational
 
19           institution. 
 
20      "Qualified acquisition costs" means the costs of acquiring,
 
21 constructing, or reconstructing a residence and shall include any
 
22 usual or reasonable settlement, financing, or other closing
 
23 costs.
 

 
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 1      "Qualified business" means any business that does not
 
 2 contravene any law or public policy. 
 
 3      "Qualified business capitalization expenses" means qualified
 
 4 expenditures for the capitalization of a qualified business
 
 5 pursuant to a qualified plan.
 
 6      "Qualified expenditures" means inclusion in a qualified
 
 7 plan, including capital, plant, equipment, working capital, and
 
 8 inventory expenses. 
 
 9      "Qualified plan" means a business plan or a plan to use a
 
10 business asset purchased, that:
 
11      (1)  Is approved by a financial institution, a micro-
 
12           enterprise development organization, or a nonprofit
 
13           loan fund having demonstrated fiduciary integrity; 
 
14      (2)  Includes a description of services or goods to be sold,
 
15           a marketing plan, and projected financial statements;
 
16           and 
 
17      (3)  May require the eligible individual to obtain the
 
18           assistance of an experienced entrepreneurial advisor. 
 
19      "Qualified principal residence" means a principal residence
 
20 (within the meaning of section 1034 of the Internal Revenue Code
 
21 of 1986), the qualified acquisition costs of which do not exceed
 
22 one hundred per cent of the average area purchase price
 

 
 
 
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 1 applicable to such residence (determined in accordance with
 
 2 paragraphs (2) and (3) of section 143(e) of such Code).
 
 3      §  -2  Eligible individuals.(a)  The income of the
 
 4 household of the IDA holder shall not exceed eighty per cent of
 
 5 the area household median income.
 
 6      (b)  The individual shall enter into an IDA agreement with a
 
 7 fiduciary organization.
 
 8      §  -3  Fiduciary organizations.(a)  Fiduciary
 
 9 organizations shall serve as an intermediary between IDA holders
 
10 and financial institutions holding accounts.  The fiduciary
 
11 organization's responsibilities may include:
 
12      (1)  Marketing participation;
 
13      (2)  Soliciting matching contributions;
 
14      (3)  Counseling program participants; and
 
15      (4)  Conducting verification and compliance activities.
 
16      (b)  Locally-based organizations shall enter into a
 
17 competitive process for the right to become fiduciary
 
18 organizations for a portion of the State matching dollars that
 
19 would be authorized initially.  Fiduciary organization proposals
 
20 shall be evaluated and participation rights awarded on the basis
 
21 of such items as:
 
22      (1)  Their ability to market the program to potential IDA
 
23           holders and potential matching fund contributors; 
 

 
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 1      (2)  Their ability to provide safe and secure investments
 
 2           for IDAs;
 
 3      (3)  Their overall administrative capacity, including:
 
 4           (A)  Certifications or verifications required to assure
 
 5                compliance with eligibility requirements;
 
 6           (B)  Authorized uses of the accounts matching
 
 7                contributions by individuals or businesses; and
 
 8           (C)  Penalties for unauthorized distributions; 
 
 9      (4)  Their capacity to provide financial counseling and
 
10           other related services to potential participants; and 
 
11      (5)  Their links to other activities designed to increase
 
12           the independence of individuals and families through
 
13           high return investments, including homeownership,
 
14           education and training, and small business development.
 
15      (c)  If the State approves an application to fund an IDA
 
16 project under this section, the State shall, not later than one
 
17 month after the date of the enactment of this Act, authorize the
 
18 applicant to conduct the project for five project years in
 
19 accordance with the approved application and this section.
 
20      (d)  For each IDA program approved under this section, the
 
21 State shall make a grant to the qualified entity or collaboration
 
22 of entities authorized to conduct the project on the first day of
 

 
 
 
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 1 the project year in an amount not to exceed $100,000 per year for
 
 2 five years.
 
 3      (e)  From among the individuals eligible for assistance
 
 4 under the Hawaii IDA program, each selected fiduciary
 
 5 organization shall select the individuals whom the fiduciary
 
 6 organization deems to be best suited to receive such assistance. 
 
 7      §  -4  Penalties.(a)  The fiduciary organization shall
 
 8 establish a grievance committee and a procedure to hear, review,
 
 9 and decide in writing any grievance made by an IDA holder who
 
10 disputes a decision of the operating organization that a
 
11 withdrawal is subject to penalty.
 
12      (b)  Each fiduciary organization shall establish regulations
 
13 as are necessary, including prohibiting eligibility for further
 
14 assistance under an IDA project conducted under this chapter, to
 
15 ensure compliance with this chapter if an individual
 
16 participating in the IDA project moves from the community in
 
17 which the project is conducted or is otherwise unable to continue
 
18 participating in the project. 
 
19      §  -5  Death.  In the event of an account holder's death,
 
20 the account may be transferred to the ownership of a contingent
 
21 beneficiary.  An account holder shall name contingent
 
22 beneficiaries at the time the account is established and may
 
23 change beneficiaries at any time.  If the named beneficiary is
 

 
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 1 deceased or otherwise cannot accept the transfer, the moneys
 
 2 shall be transferred to the IDA match fund of the fiduciary
 
 3 organization.
 
 4      §  -6  Financial institutions.(a)  Financial institutions
 
 5 shall be permitted to establish IDAs pursuant to this chapter.
 
 6 The financial institution shall certify to the fiduciary
 
 7 organization, on forms prescribed by same and accompanied by any
 
 8 documentation required by it, that such accounts have been
 
 9 established pursuant to all the provisions of this chapter and
 
10 that deposits have been made on behalf of the account holder.
 
11      (b)  A financial institution establishing an individual
 
12 development account shall: 
 
13      (1)  Keep the account in the name of the account holder; 
 
14      (2)  Permit deposits to be made in the account by the
 
15           following, subject to the indicated conditions: 
 
16           (A)  The account holder; or
 
17           (B)  A contribution made on behalf of the account
 
18                holder.  Such deposits may include moneys to match
 
19                the account holder's deposits.
 
20      §  -7  Welfare reform.  The department of human services
 
21 shall collaborate with IDA fiduciary organizations to ensure that
 
22 the accounts as provided for in this chapter, including any
 
23 earned interest, will be disregarded in the determination of
 

 
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 1 benefits account holders may receive from the department of human
 
 2 services.
 
 3      The department of human services shall establish rules to be
 
 4 aligned with IDAs within three months after the approval of this
 
 5 Act.
 
 6      §  -8  Matches.(a)  The State shall match an amount of up
 
 7 to $100,000 per calendar year for IDAs.
 
 8      (b)  Not more than a dollar-for-dollar match of state funds
 
 9 to account holder deposits shall be deposited into any IDA in a
 
10 given year.  
 
11      §  -9  Tax exemption.  All moneys contributed into an IDA,
 
12 including state and private matches, individual savings, and
 
13 interest earned, shall be exempt from taxation.
 
14      §  -10 Tax credit.(a)  Individuals, organizations, or
 
15 businesses contributing matching funds for IDAs shall receive a
 
16 tax credit equal to fifty per cent of the amount contributed.
 
17      (b)  Individuals, organizations, and businesses seeking the
 
18 tax credit can contribute a matching share to designated
 
19 individuals or contribute to a fiduciary organization and permit
 
20 it to allocate the funds to all of its participants on a
 
21 proportionate basis.
 
22      (c)  The administrator of the fiduciary organization, with
 
23 the cooperation of the participating organizations, shall
 

 
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 1 maintain records of the names of contributors and the total
 
 2 amount each contributor contributes to an IDA match fund for the
 
 3 calendar year.
 
 4      (d)  The state shall provide no more than $1,000,000 in tax
 
 5 credits for private individuals, businesses, and organizations
 
 6 contributing funds to IDA programs.
 
 7      §  -11  Administration; evaluation; information; reporting.
 
 8 (a)  The fiduciary organization running an IDA program shall have
 
 9 sole authority over the administration of the project.  The state
 
10 may prescribe only such regulations with respect to demonstration
 
11 projects under this chapter as are necessary to ensure compliance
 
12 pursuant to this chapter.
 
13      (b)  Each IDA program shall annually report the number of
 
14 accounts, the amount of savings and matches for each account, the
 
15 uses of the account, and the number of businesses, homes, and
 
16 educations purchased, as well as other information as may be
 
17 required for responsible operation of the program. 
 
18      (c)  The fiduciary organization shall submit to the
 
19 legislature its findings and recommendations no later than twenty
 
20 days prior to the convening of each legislative session.
 
21      (d)  Selected fiduciary organizations may use no more than
 
22 ten per cent of state funds as appropriated under this Act to
 
23 cover administrative costs in any given year."
 

 
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 1      SECTION 3.  There is appropriated out of the general
 
 2 revenues of the State of Hawaii the sum of $100,000 or so much
 
 3 thereof as may be necessary for fiscal year 1999-2000 and the sum
 
 4 of $100,000 or so much thereof as may be necessary for fiscal
 
 5 year 2000-2001 to implement and manage the IDA program.
 
 6      The sums appropriated shall be expended by the department of
 
 7 budget and finance for the purposes of this Act.
 
 8      SECTION 4.  If any provision of this Act, or the application
 
 9 thereof to any person or circumstance is held invalid, the
 
10 invalidity does not affect other provisions or applications of
 
11 the Act which can be given effect without the invalid provision
 
12 or application, and to this end the provisions of this Act are
 
13 severable.
 
14      SECTION 5.  This Act shall take effect upon its approval,
 
15 except for section 3 which shall take effect on July 1, 1999.