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 film and development loan guarantee program.
Also appropriates funds.  (HB2959 HD2)

 
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                                                           2959
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
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.  Purpose and Finding.  The legislature finds that
 
   2  film and television productions in Hawaii provide an invaluable
 
   3  source of advertisement and promotion for our State.  Over the
 
   4  last four years, Hawaii's film and television industry has
 
   5  experienced double-digit growth.  It is a $100,000,000 per year
 
   6  industry in terms of production expenses and contributes
 
   7  $15,000,000 per year in State tax revenues.  Within the next five
 
   8  to ten years, there is the potential for Hawaii's film and
 
   9  television industry to grow to a $300,000,000 per year industry,
 
  10  with $45,000,000 in tax revenues.
 
  11       If the State wishes to make use of film and television
 
  12  exposure, it is absolutely essential to provide film and
 
  13  television producers with financial incentives and assistance to
 
  14  encourage them to produce their projects here.
 
  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 that 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
 

 
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   1  fund and loan program would be able to provide needed assistance
 
   2  and facilitate the acquisition of production capital for film and
 
   3  television producers, but still ensure and protect the State's
 
   4  interests in the process.
 
   5       The purpose of this Act is to assist the television and film
 
   6  industry to promote Hawaii to the world.
 
   7       SECTION 2.  Chapter 201, Hawaii Revised Statutes, is amended
 
   8  by adding a new part to be appropriately designated and to read
 
   9  as follows:
 
  10                 "PART  .  HAWAII TELEVISION AND FILM DEVELOPMENT
 
  11                 LOAN GUARANTEE PROGRAM.
 
  12       §201-A  Definitions.  As used in this part:
 
  13       "Board" means the Hawaii television and film development
 
  14  board;
 
  15       "Eligible Hawaii project" means an entertainment project in
 
  16  which at least     per cent of the budget for the production
 
  17  costs, not including salaries and costs for the producer,
 
  18  director, writer, screen play and actors in the project, is
 
  19  dedicated for the purchase of goods purchased or leased or
 
  20  services purchased, leased, or employed from a vendor or supplier
 
  21  who is located and doing business in Hawaii;
 
  22       "Fund" means the Hawaii television and film development
 

 
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   1  special fund;
 
   2       "Hawaii lender" means a financial institution that is
 
   3  located in or has a branch office in Hawaii;
 
   4       "Program" means the Hawaii television and film development
 
   5  loan guarantee program administered by the board under this part.
 
   6       §201-B  Hawaii television and film development board.  (a)
 
   7  There is established the Hawaii television and film development
 
   8  board.  The board shall be attached to the department of
 
   9  business, economic development, and tourism for administrative
 
  10  purposes only.  The board shall administer the Hawaii television
 
  11  and film development loan guarantee program and the Hawaii
 
  12  television and film development special fund established under
 
  13  this part.
 
  14       (b)  The board shall be composed of seven members appointed
 
  15  by the governor pursuant to section 26-34 for staggered four year
 
  16  terms.  Two members shall be appointed from a list of nominees
 
  17  submitted by the president of the senate and two from a list of
 
  18  nominees submitted by the speaker of the house of
 
  19  representatives.  The director of business, economic development,
 
  20  and tourism or designee shall serve as an ex-officio member.  The
 
  21  chairperson and vice chairperson of the board shall be selected
 
  22  by the board by majority vote.  Three members shall constitute a
 

 
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   1  quorum, whose affirmative vote shall be necessary for all actions
 
   2  by the board.  The members shall serve without compensation but
 
   3  shall be reimbursed for expenses, including travel expenses,
 
   4  necessary for the performance of their duties.
 
   5       (b)  Members shall possess a current working knowledge of
 
   6  the film, television, or entertainment industry.  One member
 
   7  shall be a resident of a neighbor island, one member shall
 
   8  possess industry-based financial expertise, and one member shall
 
   9  possess a marketing or promotions-oriented background.
 
  10       (c)  The board may hire     staff members, including an
 
  11  executive secretary, who shall be exempt from chapter 76, 77, and
 
  12  89.  Staff salaries shall be set by the board and be comparable
 
  13  to other State positions with similar qualifications and duties
 
  14  and shall be payable from the fund.
 
  15       §201-C  Hawaii television and film development special fund.
 
  16  (a)  There is established in the state treasury the Hawaii
 
  17  television and film development special fund into which shall be
 
  18  deposited:
 
  19       (1)  Appropriations by the legislature;
 
  20       (2)  Donations and contributions made by private individuals
 
  21            or organizations for deposit into the fund;
 
  22       (3)  Grants provided by governmental agencies or any other
 

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

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

 
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   1                 entertainment project; or
 
   2            (B)  $       ; and
 
   3       (2)  Be made by a Hawaii lender under a written loan
 
   4            agreement that:
 
   5            (A)  Is entered into with a borrower to finance the
 
   6                 production of an eligible Hawaii project;
 
   7            (B)  May be conditioned on the approval for the
 
   8                 issuance of a loan guarantee under this part;
 
   9            (C)  Requires that the loan be secured by:
 
  10                 (i)  A security interest on the eligible Hawaii
 
  11                      project to be financed by the loan and
 
  12                      proceeds and receivables due from the
 
  13                      project; and
 
  14                (ii)  A security or other interest in a
 
  15                      distribution agreement covering the eligible
 
  16                      Hawaii project, an irrevocable letter of
 
  17                      credit, a presale agreement covering the
 
  18                      project, a certificate of deposit, a
 
  19                      marketable security, or other instrument that
 
  20                      meets all requirements and is secured in the
 
  21                      manner and to the extent provide by rule
 
  22                      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       (3)  May include a written agreement between the borrower
 
   5            and the board, as the representative of the State, that
 
   6            as consideration for the loan made under this part, the
 
   7            borrower shall share any royalties, licenses, titles,
 
   8            rights, or any other monetary benefits that may accrue
 
   9            to the borrower as a result of the loan, with the State
 
  10            pursuant to terms and conditions established by the
 
  11            board by rule pursuant to chapter 91.
 
  12       §201-F  Application for loan guarantee.  (a)  An application
 
  13  for a loan guarantee under the program shall:
 
  14       (1)  Contain the names and addresses of the Hawaii lender
 
  15            and the borrower who is the subject of the loan;
 
  16       (2)  Contain a certification by the borrower that the
 
  17            project is an eligible Hawaii project;
 
  18       (3)  Be accompanied by:
 
  19            (A)  A certification by the Hawaii lender that:
 
  20                 (i)  The Hawaii lender has reviewed the
 
  21                      application;
 
  22                (ii)  The budget for the total cost to produce the
 

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

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

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

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

 
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   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] eight 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
 

 
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   1  economy.
 
   2       In the case of a partnership, S corporation, estate, or
 
   3  trust, the tax credit allowable is for production costs incurred
 
   4  by the entity for the taxable year.  The cost upon which the tax
 
   5  credit is computed shall be determined at the entity level.
 
   6  Distribution and share of credit shall be determined by rule.
 
   7       If a deduction is taken under section 179 (with respect to
 
   8  election to expense depreciable business assets) of the Internal
 
   9  Revenue Code of 1986, as amended, no tax credit shall be allowed
 
  10  for those costs for which the deduction is taken.
 
  11       The basis for eligible property for depreciation of
 
  12  accelerated cost recovery system purposes for state income taxes
 
  13  shall be reduced by the amount of credit allowable and claimed."
 
  14       SECTION 4.  There is appropriated out of the general
 
  15  revenues of the State of Hawaii the sum of $1, or so much thereof
 
  16  as may be necessary for fiscal year 2000-2001 to be deposited
 
  17  into the Hawaii television and film development special fund.
 
  18       SECTION 5.  The director of finance is authorized to issue
 
  19  general obligation bonds in the sum of $    , or so much thereof
 
  20  as may be necessary for fiscal year 2000-2001 for the purposes of
 
  21  this Act.
 
  22       SECTION 6.  The sum appropriated in section 4 shall be
 

 
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   1  expended by the department of business, economic development, and
 
   2  tourism for the purposes of this Act.
 
   3       SECTION 7.  In codifying the new sections under section 2 of
 
   4  this Act, the revisor of statutes shall substitute appropriate
 
   5  section number of the letters in designating the new sections in
 
   6  this Act.
 
   7       SECTION 8.  Statutory material to be repealed is bracketed.
 
   8  New statutory material is underscored.
 
   9       SECTION 9.  This Act shall take effect upon its approval;
 
  10  provided that section 4, 5, and 6 shall take effect on July 1,
 
  11  2000; provided further that section 3 shall apply to taxable
 
  12  years beginning after December 31, 1999.
 

 
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