HB35

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

CORPORATE ACCOUNTABILITY FOR TAX EXPENDITURES ACT

§ -1 Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Base years" means the first two complete calendar years following the effective date of a recipient receiving development assistance.

"Date of assistance" means the commencement date of the assistance agreement, which triggers the period during which the recipient is obligated to create or retain jobs and continue operations at a specific project site.

"Default" means that a recipient has not achieved the recipient's job creation, job retention, or wage or benefit goals, as applicable, during the prescribed period.

"Department" means, unless otherwise noted, the department of business, economic development, and tourism or any successor agency.

"Development assistance" means:

(1) Tax credits and tax exemptions (other than given under tax increment financing) given as an incentive to a recipient pursuant to an initial certification or an initial designation made by the department;

(2) Grants or loans given to a recipient as an incentive to a business organization;

(3) All programs and tax credits designed to promote large business relocations and expansions.

"Development assistance" does not include tax increment financing, participation loans, or financial transactions through statutorily authorized financial intermediaries in support of small business loans and investments or given in connection with the development of affordable housing.

"Development assistance agreement" means any agreement executed by the state granting body and the recipient setting forth the terms and conditions of development assistance to be provided to the recipient consistent with the final application for development assistance, including the date of assistance, submitted to and approved by the state granting body.

"Full-time, permanent job" means either:

(1) The definition of "full-time, permanent job" in the legislation authorizing the programs described in the definition of development assistance in this chapter; or

(2) If there is no such definition, then "full-time, permanent job" as defined in administrative rules implementing that legislation; provided that the administrative rules were in place prior to the effective date of this chapter. On and after the effective date of this chapter, if there is no definition of "full-time, permanent job" in either the legislation authorizing a program that constitutes economic development assistance under this chapter or in any administrative rule implementing the legislation that was in place prior to the effective date of this chapter, then "full-time, permanent job" means a job in which the new employee works for the recipient at a rate of at least thirty-five hours per week.

"New employee":

(1) Means:

(A) The definition of "new employee" in the legislation authorizing the programs described in the definition of development assistance in this chapter;

(B) If there is no such definition, then "new employee" as defined in administrative rules implementing that legislation; provided that the administrative rules were in place prior to the effective date of this chapter; or

(C) If, on and after the effective date of this chapter, there is no definition of "new employee" in either the legislation authorizing a program that constitutes economic development assistance under this chapter nor in any administrative rule implementing the legislation that was in place prior to the effective date of this chapter, then "new employee" means a full-time, permanent employee who represents a net increase in the number of the recipient's employees statewide.

(2) Includes an employee who previously filled a new employee position with the recipient who was rehired or called back from a layoff that occurs during or following the base years.

(3) Does not include any of the following:

(A) An employee of the recipient who performs a job that was previously performed by another employee in this State, if that job existed in this State for at least six months before hiring the employee; and

(B) A child, grandchild, parent, or spouse, other than a spouse who is legally separated from the individual, of any individual who has a direct or indirect ownership interest of at least five per cent in the profits, capital, or value of any member of the recipient.

"Part-time job" means:

(1) The definition of "part-time" in the legislation authorizing the programs described in the definition of development assistance in this chapter;

(2) If there is no such definition, then "part-time job" as defined in administrative rules implementing that legislation; provided that the administrative rules were in place prior to the effective date of this chapter; or

(3) If, on and after the effective date of this chapter, if there is no definition of "part-time job" in either the legislation authorizing a program that constitutes economic development assistance under this chapter or in any administrative rule implementing the legislation that was in place prior to the effective date of this chapter, then "part-time job" means a job in which the new employee works for the recipient at a rate of less than thirty-five hours per week.

"Recipient" means any business that receives economic development assistance. For the purpose of this chapter, "business" means any corporation, limited liability company, partnership, joint venture, association, sole proprietorship, or other legally recognized entity.

"Retained employee" means:

(1) The definition of "retained employee" in the legislation authorizing the programs described in the definition of development assistance in this chapter;

(2) If there is no such definition, then "retained employee" defined in administrative rules implementing that legislation; provided that the administrative rules were in place prior to the effective date of this chapter; or

(3) If, on and after the effective date of this chapter, there is no definition of "retained employee" in either the legislation authorizing a program that constitutes economic development assistance under this chapter or in any administrative rule implementing the legislation that was in place prior to the effective date of this chapter, then "retained employee" means any employee defined as having a full-time or full-time equivalent job preserved at a specific facility or site, the continuance of which is threatened by a specific and demonstrable threat, which shall be specified in the application for development assistance.

"Specific project site" means that distinct operational unit to which any development assistance is applied.

"State granting body" means the department, any department or agency that provides development assistance that has reporting requirements under this chapter, and any successor agencies to any of the preceding.

"Temporary job" means:

(1) The definition of "temporary job" in the legislation authorizing the programs described in the definition of development assistance in this chapter;

(2) If there is no such definition, then "temporary job" as defined in administrative rules implementing that legislation; provided the administrative rules were in place prior to the effective date of this chapter; or

(3) If, on and after the effective date of this chapter, there is no definition of "temporary job" in either the legislation authorizing a program that constitutes economic development assistance under this chapter or in any administrative rule implementing the legislation that was in place prior to the effective date of this chapter, then "temporary job" means a job in which the new employee is hired for a specific duration of time or season.

"Value of assistance" means the face value of any form of development assistance.

§ -2 Unified economic development budget. (a) For each fiscal year ending on or after June 30, 2007, the department of taxation shall submit an annual unified economic development budget to the legislature. The unified economic development budget shall be due within three months after the end of the fiscal year and shall report all types of development assistance granted during the prior fiscal year, including:

(1) The aggregate amount of uncollected or diverted tax revenues resulting from each type of development assistance provided by law under title 14, as reported to the department of taxation on tax returns filed during the fiscal year; and

(2) All state development assistance.

(b) All data contained in the unified economic development budget presented to the legislature shall be government records.

(c) The department of taxation shall submit a report of the amounts in subsection (a)(1) to the department of business, economic development, and tourism, which may append the report to the unified economic development budget rather than separately reporting the amounts.

§ -3 Standardized applications for state development assistance. (a) All final applications submitted to the department or any other state granting body requesting development assistance shall contain, at a minimum:

(1) An application tracking number that is specific to both the state granting agency and to each application;

(2) The office mailing addresses, office telephone number, and chief officer of the granting body;

(3) The office mailing address, telephone number, four-digit standard industrial classification number, and the name of the chief officer of the applicant or authorized designee for the specific project site for which development assistance is requested;

(4) The applicant's total number of employees at the specific project site on the date that the application is submitted to the state granting body, including the number of full-time, permanent jobs, the number of part-time jobs, and the number of temporary jobs;

(5) The type of development assistance and value of assistance being requested;

(6) The number of jobs to be created and retained or both created and retained by the applicant as a result of the development assistance, including the number of full-time, permanent jobs, the number of part-time jobs, and the number of temporary jobs;

(7) A detailed list of the occupation or job classifications and number of new employees or retained employees to be hired in full-time, permanent jobs, a schedule of anticipated starting dates of the new hires and the anticipated average wage by occupation or job classification and total payroll to be created as a result of the development assistance;

(8) A list of all other forms of development assistance that the applicant is requesting for the specific project site and the name of each state granting body from which that development assistance is being requested;

(9) A narrative, if necessary, describing why the development assistance is needed and how the applicant's use of the development assistance may reduce employment at any site in Hawaii; and

(10) A certification by the chief officer of the applicant or the chief officer's authorized designee that the information contained in the application submitted to the granting body contains no knowing misrepresentation of material facts upon which eligibility for development assistance is based.

(b) Every state granting body either shall complete, or shall require the applicant to complete, an application form that meets the minimum requirements as prescribed in this section each time an applicant applies for development assistance under this chapter.

(c) The department shall have the discretion to modify any standardized application for state development assistance required under subsection (a) for any grants that are not given as an incentive to a recipient.

§ -4 State development assistance disclosure. (a) Beginning February 1, 2009, and each year thereafter, every state granting body shall submit to the department copies of all development assistance agreements that it approved in the prior calendar year.

(b) For each development assistance agreement for which the date of assistance has occurred in the prior calendar year, each recipient shall submit to the department a progress report that shall include, but not be limited to, the following:

(1) The application tracking number;

(2) The office mailing address, telephone number, and the name of the chief officer of the granting body;

(3) The office mailing address, telephone number, four-digit standard industrial classification number or successor number, and the name of the chief officer of the applicant or authorized designee for the specific project site for which the development assistance was approved by the state granting body;

(4) The type of development assistance program and value of assistance that was approved by the state granting body;

(5) The applicant's total number of employees at the specific project site on the date that the application was submitted to the state granting body and the applicant's total number of employees at the specific project site on the date of the report, including the number of full-time, permanent jobs, the number of part-time jobs, and the number of temporary jobs, and a computation of the gain or loss of jobs in each category;

(6) The number of new employees and retained employees, if any, the applicant stated in its development assistance agreement, or in its application, would be created by the development assistance, categorized by full-time, permanent, part-time, and temporary status;

(7) A declaration of whether the recipient is in compliance with the development assistance agreement;

(8) A detailed list of the occupation or job classifications and number of new employees or retained employees to be hired in full-time, permanent jobs, a schedule of anticipated starting dates of the new hires, and the actual average wage by occupation or job classification and total payroll to be created as a result of the development assistance;

(9) A narrative, if necessary, describing how the recipient's use of the development assistance during the reporting year has reduced employment at any site in the State; and

(10) A certification by the chief officer of the applicant or the chief officer's authorized designee that the information in the progress report contains no knowing misrepresentation of material facts upon which eligibility for development assistance is based.

(c) The state granting body, or a successor agency, shall have full authority to verify information contained in the recipient's progress report, including the authority to inspect the specific project site and inspect the records of the recipient that are subject to the development assistance agreement.

(d) By June 1, 2009, and by June 1 of each year thereafter, the department shall compile and publish all data in all of the progress reports in both written and electronic form.

(e) If a recipient of development assistance fails to comply with subsection (b), the department, within twenty working days after the reporting submittal deadlines set forth in:

(1) The authorizing legislation;

(2) The implementing administrative rules; or

(3) Specific provisions in development assistance agreements pertaining to the development assistance programs,

shall suspend, within thirty-three working days, any current development assistance to the recipient under its control and shall be prohibited from completing any current, or providing any future, development assistance until the department receives proof that the recipient has complied with the requirements of subsection (b).

(f) The department shall have the discretion to modify the information required in the progress report required under subsection (b), consistent with the disclosure purpose of this section for any grants that are not given as an incentive to a recipient business organization.

§ -5 Recapture. (a) All development assistance agreements shall contain, at a minimum, the following recapture provisions:

(1) That the recipient shall:

(A) Make the level of capital investment in the economic development project specified in the development assistance agreement; and

(B) Create or retain, or both, the requisite number of jobs, paying not less than specified wages for the created and retained jobs, within and for the duration of the time period specified in the legislation authorizing, or the administrative rules implementing, the development assistance programs and the development assistance agreement;

(2) If the recipient fails to create or retain the requisite number of jobs within and for the time period specified in the legislation authorizing, or the administrative rules implementing, the development assistance programs and the development assistance agreement, the recipient shall be deemed to no longer qualify for the state economic assistance and the applicable recapture provisions shall take effect;

(3) If the recipient receives state economic assistance and fails to create or retain the requisite number of jobs, as determined by the legislation authorizing the development assistance programs or the administrative rules implementing such legislation, or both, within the requisite period of time, the recipient shall be required to pay to the State the full amount of any state tax exemption that is received;

(4) If the recipient receives a grant or a loan and fails to create or retain the requisite number of jobs for the requisite time period, as provided in the legislation authorizing the development assistance programs or the administrative rules implementing such legislation, or both, or in the development assistance agreement, the recipient shall be required to repay to the State a pro rata amount of the grant. That amount shall reflect the percentage of the deficiency between the requisite number of jobs to be created or retained by the recipient and the actual number of jobs in existence as of the date the department determines the recipient is in breach of the job creation or retention covenants contained in the development assistance agreement. If the recipient of development assistance ceases operations at the specific project site, during the five-year period commencing on the date of assistance, the recipient shall repay the entire amount of the grant or accelerate repayment of the loan back to the State;

(5) If the recipient receives a tax credit, the development assistance agreement shall provide that:

(A) If the number of new or retained employees falls below the requisite number set forth in the development assistance agreement, the credit shall be automatically suspended until the number of new and retained employees equals or exceeds the requisite number in the development assistance agreement;

(B) If the recipient discontinues operations at the specific project site during the first five years of the ten-year term of the development assistance agreement, the recipient shall forfeit all credits taken by the recipient during the five-year period; and

(C) In the event of a revocation or suspension of the credit, the department shall contact the director of taxation to initiate proceedings against the recipient to recover wrongfully exempted state income taxes, and the recipient shall promptly repay to the department of taxation any wrongfully exempted state income taxes. The forfeited amount of credits shall be deemed assessed on the date the department contacts the department of taxation and the recipient shall promptly repay to the department of taxation any wrongfully exempted state income taxes.

(b) The director of business, economic development, and tourism may elect to waive enforcement of any contractual provision arising out of the development assistance agreement required by this chapter, based on a finding that the waiver is necessary to avert an imminent and demonstrable hardship to the recipient that may result in the recipient's insolvency or discharge of workers. If a waiver is granted, the recipient shall agree to a contractual modification, including recapture provisions to the development assistance agreement. The existence of any waiver granted pursuant to this subsection, the date of the granting of the waiver, and a brief summary of the reasons supporting the granting of the waiver shall be disclosed consistent with this section.

(c) Beginning June 1, 2008, the department shall annually compile a report on the outcomes and effectiveness of recapture provisions by program, including but not limited to:

(1) The total number of companies that receive development assistance as defined in this chapter;

(2) The total number of recipients in violation of development agreements with the department;

(3) The total number of completed recapture efforts;

(4) The total number of recapture efforts initiated; and

(5) The number of waivers granted.

This report shall be disclosed consistent with section -4."

SECTION 2. In codifying the new sections added by section 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 3. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	35
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII