REPORT TITLE:
Individual Develop. Accts.


DESCRIPTION:
Establishes an Individual Development Account (IDA) to promote
entrepreneurship, education, and self-sufficiency for welfare
recipients and low-income individuals; provides tax credit for
contributions to IDAs.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        817
THE SENATE                              S.B. NO.           S.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 to
 
 3 shelter interest income and allow low-income individuals to
 
 4 accumulate capital for business start-up, education, or job
 
 5 training.  It is modeled after the federal individual retirement
 
 6 account (IRA) program, which promotes tax incentives to encourage
 
 7 individuals to save for retirement, thus reducing potential
 
 8 dependence on public funds.  Similar to the IRA, the IDA is
 
 9 designed to promote individual savings for personal financial
 
10 development, including entrepreneurship.
 
11      Hawaii residents are already benefiting from IDAs.  Through
 
12 a partnership between the Waimanalo Community Development
 
13 Corporation and the Housing and Community Development Corporation
 
14 of Hawaii, as many as thirty-four public housing residents will
 
15 be able to purchase their newly reconstructed units with money
 
16 the residents have saved in IDAs.  The Mutual Housing Association
 
17 of Hawaii and the Pacific Housing Assistance Corporation have
 
18 similar programs on Kauai and Oahu, respectively.  Focusing on
 
19 savings for business start-up capital, Parents and Children
 

 
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 1 Together, in partnership with Bank of Hawaii and the City and
 
 2 County of Honolulu, operates a nationally recognized IDA program
 
 3 on Oahu.
 
 4      Your legislature further finds that IDAs, through savings,
 
 5 investment, and accumulation of assets:
 
 6      (1)  Provide individuals and families, especially those with
 
 7           limited means, an opportunity to accumulate assets;
 
 8      (2)  Facilitate and mobilize savings;
 
 9      (3)  Promote post-secondary education, vocational training,
 
10           home ownership, and microenterprise development; and
 
11      (4)  Stabilize families and build communities.
 
12      The purpose of this Act is to establish an individual
 
13 development account program with tax incentives to encourage both
 
14 welfare recipients and low-income individuals to pursue
 
15 education, job training, or to build capital to become an
 
16 entrepreneur.
 
17      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
18 by adding a new section to be appropriately designated and to
 
19 read as follows:
 
20      "§235-    Income tax credit for contributions to individual
 
21 development accounts and to fiduciary organizations.  (a)  There
 
22 shall be allowed as a credit against income taxes owed under this
 
23 chapter an amount equal to fifty per cent of moneys contributed
 

 
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 1 by any taxpayer as matching funds to an individual development
 
 2 account established under section 346-  (b), or to a fiduciary
 
 3 organization established under section 346-  (e), for deposit
 
 4 into a specified individual account.
 
 5      (b)  If the tax credit claimed by the taxpayer under this
 
 6 section exceeds the amount of the income tax payments due from
 
 7 the taxpayer, the excess of credit over payments due shall be
 
 8 refunded to the taxpayer; provided that the tax credit properly
 
 9 claimed by a taxpayer who has no income tax liability shall be
 
10 paid to the taxpayer; and provided that no refunds or payments on
 
11 account of the tax credit allowed by this section shall be made
 
12 for amounts less than $1.
 
13      (c)  The director of taxation shall prepare such forms as
 
14 may be necessary to claim a credit under this section, may
 
15 require proof of the claim for the tax credit, and may adopt
 
16 rules pursuant to chapter 91.
 
17      (d)  All of the provisions relating to assessments and
 
18 refunds under this chapter and under section 231-23(c)(1) shall
 
19 apply to the tax credit under this section."
 
20      SECTION 3.  Chapter 346, Hawaii Revised Statutes, is amended
 
21 by adding a new section to be appropriately designated and to
 
22 read as follows:
 
23      "§346-     Individual development account.  (a)  There is
 

 
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 1 established a financial instrument known as an individual
 
 2 development account.
 
 3      (b)  An individual development account shall be in the name
 
 4 of an individual account holder:
 
 5      (1)  Who is receiving public assistance as defined in
 
 6           section 361-1;
 
 7      (2)  Whose household income is     per cent or less of the
 
 8           federal poverty level; and
 
 9      (3)  Who has not been convicted in a court of law of any act
 
10           of fraud or abuse with respect to any public assistance
 
11           program.
 
12      (c)  Deposits to an individual development account may be
 
13 made by:
 
14      (1)  The individual account holder;
 
15      (2)  A nonprofit organization; or
 
16      (3)  Individual contributors.
 
17      (d)  The department shall adopt rules under chapter 91,
 
18 regarding the establishment and administration of individual
 
19 development accounts, the criteria a nonprofit organization must
 
20 satisfy before making deposits to individual development
 
21 accounts, and penalties for fraud or abuse with respect to the
 
22 individual development account.
 
23      (e)  The department shall contract, in accordance with
 

 
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 1 chapter 103D, with one or more fiduciary organizations to serve
 
 2 as intermediaries between individual development account holders
 
 3 and financial institutions holding deposits of individual account
 
 4 holders to administer individual development accounts.  A
 
 5 fiduciary organization shall:
 
 6      (1)  Provide financial counseling to individual development
 
 7           account holder;
 
 8      (2)  Solicit matching contributions on behalf of an
 
 9           individual development account holder;
 
10      (3)  Conduct any verification and compliance activities as
 
11           may be required;
 
12      (4)  Select a Hawaii financial institution, as defined in
 
13           section 412:1-109, for each individual development
 
14           account holder to establish an individual development
 
15           account; provided that the fiduciary organization shall
 
16           consult with the Hawaii financial institution to
 
17           determine the optimal investment mechanism for the
 
18           account funds;
 
19      (5)  Investigate for possible fraud or abuse when:
 
20           (A)  There is evidence or other reason to believe that
 
21                income sources for an account holder's deposits
 
22                were previously available to the account holder
 
23                but undeclared during application or subsequent
 

 
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 1                redetermination for public assistance; or
 
 2           (B)  Individual contributions to an account should have
 
 3                been declared as income or child support payments
 
 4                or represent proceeds from illegal activities.
 
 5      As used in this subsection, "fiduciary organizations" means
 
 6 a not-for-profit organization under section 501(c)(3) of the
 
 7 Internal Revenue Code of 1986, as amended, that is exempt from
 
 8 taxation under section 501(a) of the Internal Revenue Code, or a
 
 9 partnership of a not-for-profit organization and a state or
 
10 municipal government agency.
 
11      (f)  Individual development accounts shall earn interest at
 
12 rates that are no less than saving account rates.
 
13      (g)  The balance of an individual development account at any
 
14 one time shall not exceed $           .  Total deposits to an
 
15 individual development account over the life of the account shall
 
16 not exceed $          .  Deposits from income earned by an
 
17 individual account holder shall not exceed $           per month.
 
18      (h)  The account holder receiving public assistance from the
 
19 department may withdraw moneys from the individual development
 
20 account for:
 
21      (1)  Educational costs at an accredited institution of
 
22           higher education that are paid directly to the
 
23           institution;
 

 
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 1      (2)  Training costs for an accredited, licensed, or
 
 2           certified training program that are paid directly to an
 
 3           eligible education institution;
 
 4      (3)  Purchase costs for a first home to be used as a
 
 5           qualified principal residence by the account holder.
 
 6           These costs shall be paid directly to the persons or
 
 7           organizations to which the amounts are due; or
 
 8      (4)  Business capitalization expenses paid directly to a
 
 9           business capitalization account, which is held in a
 
10           federally-insured financial institution.  The business
 
11           capitalization account shall be restricted to use
 
12           solely for qualified capitalization expenses.
 
13      (i)  Unless the moneys would have been otherwise disregarded
 
14 from an income calculation, the department shall consider
 
15 withdrawals from an individual development account, for purposes
 
16 other than those established in subsection (h), by an account
 
17 holder as income in the month that it is withdrawn.
 
18      (j)  The department shall disregard from an account holder's
 
19 earned income calculation      per cent of a deposit made to an
 
20 individual development account from the proceeds of an account
 
21 holder's earned income.  The maximum monthly disregard under this
 
22 subsection shall not exceed $          .
 
23      (k)  Subject to the limitations prescribed in this section,
 

 
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 1 deposits made into an individual development account and the
 
 2 account balance, including interest earned, shall be disregarded
 
 3 by the department in determining the account holder's eligibility
 
 4 for public assistance or any other assistance.  If an account
 
 5 holder with an individual development account experiences any
 
 6 break in eligibility for public assistance, and then subsequently
 
 7 reapplies for public assistance, the department shall consider
 
 8 any remaining account moneys, unless otherwise excludable, as
 
 9 countable assets and shall not disregard, for purposes of
 
10 eligibility, future deposits into an individual development
 
11 account.
 
12      (l)  The account holder shall name contingent beneficiaries
 
13 at the time the account holder establishes the account and may
 
14 change beneficiaries at any time after the account is
 
15 established.  If the named beneficiary is deceased or otherwise
 
16 cannot accept the transfer, the moneys shall be deemed unclaimed
 
17 property.
 
18      (m)  A holder of an individual development account who is no
 
19 longer receiving public assistance from the department may
 
20 withdraw deposited moneys from the account for any purpose."
 
21      SECTION 4.  New statutory material is underscored.
 
22      SECTION 5.  This Act shall take effect upon its approval.