Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Transportation, Military Affairs, and Government Operations, to which was referred S.B. No. 1166 entitled:

begs leave to report as follows:

The purpose of this measure is to allow counties, in the issuance of general obligation bonds, to acquire policies of insurance and enter into banking arrangements.

Testimony in support of this measure was received from the McCorriston Miller Mukai MacKinnon LLP.

This measure facilitates the ability of counties to issue general obligation bonds (GO bonds) as a means to finance public improvements. GO bonds are an essential source of funding for counties to build public facilities. These projects need to be cost-effective, so it is important that counties are able to manage interest costs and limit potential risks associated with interest rate fluctuations in the municipal bond market.

Elsewhere in the country, interest rate swaps and other similar contractual arrangements have proven to be an effective means by which local government agencies can manage the interest costs and risks associated with their bond issues. Unfortunately, there is no express authorization under Hawaii law for our counties to utilize these types of contractual arrangements in connection with their general obligation or revenue bond issues. Consequently, the counties have not been able to determine that such arrangements are permissible under Hawaii law.

This measure, if enacted, would make it possible for our counties to utilize interest rate swaps and other similar contractual arrangements in the structuring of general obligation bonds issued under Chapter 47, Hawaii Revised Statutes. This would enhance the counties' ability to finance needed public improvements on a more cost-effective basis and thereby help to ease the burden which the counties' residents and businesses must bear with respect to the costs of these improvements.

As affirmed by the record of votes of the members of your Committee on Transportation, Military Affairs, and Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1166 and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.