SB1911

SECTION 1. The legislature finds that the United States space industry began to flourish soon after World War II, fueled by the expertise of former German rocket scientists and military funding. Driven by national security interests and the Russian sputnik, the federal government created the National Aeronautics and Space Agency (NASA), a civilian government agency, to lead a program of space exploration, which culminated in the landing of American astronauts on the moon in 1969.

All space work, both military and civilian, use rockets to boost various types of payloads into space. In the early days, launch vehicles were used only once and not recovered for reuse. This "expendable launch vehicle" system proved expensive. As a result, NASA opted for a system in the early 1970s that deployed a space shuttle intended to be reused for up to a hundred launches and recoveries. As the space shuttle system replaced the expendable launch vehicle system, American production of one-use only launch vehicles declined. Nonetheless, in the 1980s, the idea of commercializing launch services and putting privately-owned payloads such as communications satellites into space, rather than relying solely on NASA, was championed by then-president Reagan. However, because NASA proved that its space shuttle program was reliable and because it aggressively set launch prices low in response to competition from Arianespace, the European Space Agency's expendable launch vehicle program with launch facilities in South America, plans for developing private launch facilities in America foundered. In effect, the federal government was then subsidizing the launch of private cargo into space to compete with the European Space Agency while discouraging the development of a domestic commercial space launch industry.

Later, the twin tragedies of the Challenger and Columbia disasters in 1986 and 2003 sharply refocused attention on the reliability of the space shuttle system and the wisdom of relying solely on one space launch system. For example, NASA's planned thirty or so launches for 1986 and 1987 were delayed or cancelled for two years, incurring massive losses. Expendable launch vehicle systems, including Arianespace's system, have become attractive again for the many military, civilian, commercial, and foreign cargos that need to be launched. Furthermore, NASA no longer accepts foreign or commercial cargos for launch, with certain exceptions, in order to create a market for American commercial launch services. In addition to commercial and scientific payloads both domestic and foreign, the potential domestic launch market includes military-related contracts.

In Hawaii, as far back as the early days of NASA, the State has been considered a possible site for a space launch facility. In the middle of the Pacific Ocean, Hawaii is the only location in the country from which satellites can be launched into any orbital inclination without having to fly over populated areas. Cape Canaveral, home of the Kennedy Space Center, has similar advantages but Hawaii is completely, not partially, surrounded by ocean waters. Barking Sands, the home of the Pacific Missile Range Facility, encompasses forty-two thousand square miles of sea and air space and has minimal encroachments including air and sea travel routes. Where a launch company would need to build and maintain two separate launch pads and crews to place payloads into any orbit (one at Vandenberg Air Force Base in California for polar launches and one at Cape Canaveral in Florida for equatorial launches), a single pad and crew in Hawaii would provide the same capability. In the early 1990s, a single launch complex cost about $150,000,000 to build and about $7,000,000 to maintain annually. In addition, the cost to transport equipment, payloads, and personnel from coast to coast would be eliminated. Avoiding this duplication in cost would be a significant advantage for any potential launch company.

Furthermore, compared to Cape Canaveral, Hawaii's low latitude is more efficient for launches into geosynchronous orbits. The close a site is to the equator, the more it can take advantage of the boost from the Earth's rotation when launching payloads into equatorial orbit. Launches from higher altitudes require additional propellant to perform extra maneuvers to achieve equatorial orbit. Thus, Hawaii's lower altitude enables heavier payloads to be launched that extend the lifetimes of vehicles up to twenty per cent or more because the extra fuel a Hawaii-launched vehicle carries can be saved for on-orbit use rather than for maneuvering just to get into equatorial orbit. Compared to an equivalent launch from Tanegashima, Japan, a satellite launched from Hawaii would have its useful lifetime extended by more than twenty-three per cent.

Hawaii's location in the Pacific also means that its business day overlaps with those of cities in North America, Asia, and Australia and fiber optic cable connects the United States mainland and Asia through Hawaii.

From a commercial perspective, a Hawaii launch facility also has comparative advantages. Because there are no commercial launch facilities in this country, all U.S.-based launch companies must use government ranges and facilities at Cape Canaveral and Vandenberg Air Force Base, and thus be subject to:

(1) The government's ability to preempt commercial launches;

(2) The lack of subsequent agreements to establish firm prices for range use; and

(3) The degree to which liability is placed on the commercial launch service provider, their subcontractors, and customers.

Since Hawaii's launch facility would be commercial rather than military, launch companies would have greater control over schedules, prices, regulatory structures, and liabilities.

The State's moderate climate, where squall lines, thunderstorms, and lighting strikes are very rare, also permits more launches per year than from mainland facilities.

The establishment of a space launch facility in Hawaii will create high-level, high-income, non-minimum wage jobs that will significantly support and expand the State's tax revenue base. These jobs will help to further diversify Hawaii's economy away from the visitor industry and further strengthen the State's technology and space industry sectors. A Hawaii space and technology center or launch facility would help to stem the educational brain drain by offering jobs in electronic, chemical, and industrial engineering, computer sciences, communications, telemetry, astronomy, and various fields of research and development to our educated young workers who can then remain and work in a place they call home.

In the past, there have been rocket launches in Hawaii. In the 1960s, as part of the Air Force Western Testing Range, a thirty-three acre facility near South Point on the Big Island was the site of several rocket launches primarily for weather sampling and rocket testing purposes. However, usage declined in the 1970s and the parcel was declared surplus land by the federal government in 1981.

After an abortive attempt to establish a commercial space launch facility near South Point in 1982, interest in the idea was renewed again by the late Senator Spark Matsunaga in 1986, who proposed establishing an international space center in Hawaii to stimulate international cooperation in the development of space for peaceful purposes. Interest in the concept was grounded in and supported by the existence of a significant space and technology industry in Hawaii mainly revolving around the various astronomical observatories located on the islands of Hawaii and Maui.

The Pacific Missile Range Facility is a rocket launch site at Barking Sands on the western shore of the island of Kauai operated by the United States Navy that includes testing missile defense systems. The facility is the world's largest instrumented multi-environment range capable of supporting surface, subsurface, air, and space operations simultaneously. This capability allows range users extraordinary flexibility in planning and conducting realistic multi-participant, multi-threat operations to train crews, evaluate tactics, and test weapon systems.

In 1997, the United States Navy proposed testing a new defense against short-range ballistic missiles at the Barking Sands beginning in 1999, an addition of only a half-dozen launchings at a facility that averages eighty launches a year. The proposal was protested on political, environmental, and cultural grounds, deeming it a search for imaginary new enemies, an intrusion on the breeding grounds for monk seals and green sea turtles, and an affront to burial grounds at the nearby Nohili dunes. The earlier Strategic Target System (STARS), the long-range missile defense system, had also been protested on similar grounds at Barking Sands although only four of the planned forty payloads ever materialized. Then-governor Cayetano supported the expanded launches and cited benefits for the Kauai economy in the form of jobs and an infusion of federal moneys. Kauai county officials considered the Barking Sands range as the largest and most stable economic element on the island and reported that in 1996, the facility contributed $45,000,000 in wages and salaries, $8,200,000 in construction spending, $41,000,000 in contracts, $12,000,000 in purchases, $3,100,000 in utility payments, and $4,000,000 in military and civilian contractor visits. As for jobs, in 1996 the Barking Sands labor force consisted of nine hundred workers of which the great majority, seven hundred eighty-seven, was civilian.

One prominent characteristic of space launch sites is that they must be surrounded by vast areas of "non-encroachment". That is, launch sites must guard against intentional or inadvertent intrusion into its operating spaces by unauthorized individuals or by vehicles entering by air, land, or sea. The Barking Sands facility is a prime example. Located on the western shore of Kauai, its missile tracking and telemetry operations need to have vast areas surrounding the base clear of air and sea routes as well as underwater traffic. Cape Canaveral and Vandenberg Air Force Base, the two government space launch sites, also operate using large non-encroachment zones. Because these zones are protected areas, they serve a dual purpose and have attained significant environmental value as wildlife sanctuaries and have contributed to the preservation of not only endemic species but the land itself surrounding the launch sites.

Launching rockets into space produces certain by-products such as chemicals, propellants, and combustion products released during launch. However, these pale in comparison both in volume and severity with volcanic emissions from the Big Island. Another potential environmental effect could be acoustic and shock wave overpressure levels in areas affected by the launch. However, launch sites require large non-encroachment areas and would likely be located in isolated geographic areas where such acoustic effects would be minimized. One environmental effect appears difficult to mitigate if a launch site is located on the island of Hawaii: potential light and radio frequency interference with astronomy instrumentation on the Big Island's observatories.

A 1987 study commissioned by the State asserted that a space launch facility in the State would require sufficient undeveloped land to accommodate four launch pads and a safety buffer zone of at least 2.9 miles. Wherever the eventual launch facility is located, it will put to use a significant portion of presently unproductive lands. If sited on the Big Island, it would help to maximize the use of, and breathe life into, Hilo harbor and airport.

The study identified eight general locations capable of launching payloads into both polar and equatorial orbits without flying over local populated areas. Eleven secondary criteria were used to assess each area's ability to support launch-related operations including:

(1) Geologic conditions;

(2) Archeology;

(3) Land availability and ownership;

(4) Residential and other development patterns;

(5) Transportation access and the ability to service launch facility infrastructure needs;

(6) Environmental issues;

(7) Social issues;

(8) Cultural issues;

(9) Impact on astronomical observations;

(10) Air traffic; and

(11) Sea traffic.

The study concluded that the southern portion of the Kau district of the Big Island is the preferred location.

The purpose of this Act is to realize the full potential for developing Hawaii's space industry by establishing space opportunity zones to accommodate the entry into the State of space qualified businesses, including space launch companies, with a minimum of red tape.

The intent of the legislature is to have the groundwork prepared in anticipation of the entry of qualified businesses that are willing and able to invest in the State to develop Hawaii's space industry by having certain areas in the respective counties designated as space opportunity zones, with all the necessary environment impact statements performed and in place, and by expediting the issuance of necessary county permits, in consultation with the respective counties through their active participation in an advisory committee.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

SPACE opportunity ZONES

§ -1 Purpose. The purpose of this chapter is to realize the full potential for developing Hawaii's space industry, especially by putting to use otherwise unproductive land, by accommodating the entry into the State of qualified businesses by providing for the establishment of space opportunity zones.

§ -2 Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Department" means the department of business, economic development, and tourism.

"Director" means the director of business, economic development, and tourism.

"Establishment" means a single physical location where a space business conducts operations. A qualified business may include one or more establishments, any number of which may be in a space opportunity zone.

"Full-time employee" means any employee for whom the employer is legally required to provide employee fringe benefits.

"Qualified business" means any space business that is:

(1) Authorized to do business in this State;

(2) Qualified under section -8; and

(3) Engaged in operating a business within the definition of "space business".

"Space business" means any business that is involved with conducting operations in space ore space-related activities including a facility that launches various payloads into space, but that does not include terrestrial observatories, pursuant further to rules adopted under section -3 by the department of business, economic development, and tourism.

"Space opportunity zone" means an area:

(1) Designated by the director of business, economic development, and tourism under this chapter in consultation with the space opportunity zone advisory committee;

(2) That is within the jurisdiction of a county government; and

(3) That is eligible for the benefits under this chapter.

"Taxes due the State" means income taxes due under chapter 235.

§ -3 Space opportunity zone designation; consultation with space opportunity zone advisory committee; rules. (a) The director, in consultation with the space opportunity zone advisory committee, shall:

(1) Designate areas within the State as space opportunity zones;

(2) Establish criteria for determining which areas qualify as space opportunity zones;

(3) Determine what types of space businesses shall be approved for each designated space opportunity zone;

(4) Determine the number of areas in each county that may be designated as space opportunity zones; and

(5) Set the period of time an area shall remain a designated space opportunity zone.

(b) The director shall adopt rules in accordance with chapter 91 to carry out the effect of this chapter, including rules to clarify the definition of "space business" pursuant to section ‑2.

§ -4 Environmental impact statement; county issuance of permits; reports. (a) The director shall:

(1) Perform the necessary environmental impact statement or statements for the type of space business approved by the director in a designated space opportunity zone; and

(2) Cooperate with the relevant county in which a designated space opportunity zone is located to expedite the issuance of all necessary county permits by June 30, 2008.

(b) The director shall submit annual reports evaluating the effectiveness of this chapter, including any recommendations for legislation to the legislature and the governor.

§ -5 Government assistance; prohibition. There shall be no duplication of existing state tax incentives to qualified businesses that locate in a space opportunity zone.

§ -6 Rules; consultation with county. The department, in consultation with each relevant county, shall adopt rules in accordance with chapter 91 to implement this chapter, including rules relating to health, safety, building, planning, zoning, and land use, which shall supersede all other inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in a space opportunity zone. Rules adopted under this section shall follow existing law, rules, and ordinances as closely as is consistent with standards meeting minimum requirements of energy efficiency, health, and safety. The department may provide by rule that lands within a space opportunity zone shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed, or provide other restrictions on the use of the zone.

§ -7 Space opportunity zone advisory committee. (a) There is established a space opportunity zone advisory committee, to be placed within the department for administrative purposes. The advisory committee shall consist of six members appointed by the governor pursuant to section 26-34 as follows:

(1) One member knowledgeable in the space industry from the department of business, economic development, and tourism, who shall serve as chairperson;

(2) One member representing the office of Hawaiian affairs; and

(3) Four members representing each of the mayors of the respective counties.

(b) Members shall not be compensated but shall be reimbursed for necessary expenses, including travel expenses, incurred in the course of carrying out their duties.

§ -8 Eligibility; qualified business; sale of property or services. (a) Any space business may be eligible to be designated a qualified business for purposes of this chapter if the space business:

(1) Begins the operation of a space business within a space opportunity zone;

(2) During each taxable year has at least per cent of its space opportunity zone establishment's gross receipts attributable to the active conduct of a space business within the space opportunity zone;

(3) Increases its average annual number of full-time employees by at least per cent by the end of its first tax year of participation; and

(4) During each subsequent taxable year at least maintains that higher level of employment.

(b) A space business also may be eligible to be designated a qualified business for purposes of this chapter if the space business:

(1) Is actively engaged in conducting a space business in an area immediately prior to an area being designated a space opportunity zone;

(2) Meets the requirements of subsection (a)(2); and

(3) Increases its average annual number of full-time employees employed at the space business's establishment or establishments located within the space opportunity zone by at least per cent annually.

(c) After designation as a space opportunity zone, each qualified business in the zone shall submit annually to the department an approved form supplied by the department that provides the information necessary for the department to determine if the space business qualifies as a qualified business. The approved form shall be submitted by each business to the governing body of the county in which the space opportunity zone is located, then forwarded to the department by the governing body of the county.

(d) The form referred to in subsection (c) shall be prima facie evidence of the eligibility of a space business for the purposes of this section.

(e) Any business conducted by a space business outside of a space opportunity zone shall not be included in the determination of gross receipts attributable to the active conduct of a space business under subsection (a)(2).

§ -9 State business tax credit. (a) The director shall certify annually to the department of taxation the applicability of the tax credit provided in this chapter for a qualified business against any taxes due the State. Except for the general excise tax, the credit shall be:

(1) Eighty per cent of the tax due for the first tax year;

(2) Seventy per cent of the tax due for the second tax year;

(3) Sixty per cent of the tax due for the third year;

(4) Fifty per cent of the tax due the fourth year;

(5) Forty per cent of the tax due the fifth year;

(6) Thirty per cent of the tax due the sixth year; and

(7) Twenty per cent of the tax due the seventh year.

Any tax credit not usable shall not be applied to future tax years.

(b) When a partnership is eligible for a tax credit under this section, each partner shall be eligible for the tax credit provided for in this section on the partner's income tax return in proportion to the amount of income received by the partner from the partnership. Any qualified business having taxable income from the active conduct of a space business, both within and without the space opportunity zone, shall allocate and apportion its taxable income attributable to that production. Tax credits provided for in this section shall only apply to taxable income of a qualified business attributable to the active conduct of a space business within the space opportunity zone.

(c) In addition to any tax credit authorized under this section, any qualified business shall be entitled to a tax credit against any taxes due the State in an amount equal to a percentage of unemployment taxes paid. The amount of the credit shall be equal to:

(1) Eighty per cent of the unemployment taxes paid during the first year;

(2) Seventy per cent of the taxes paid during the second year;

(3) Sixty per cent of the taxes paid during the third year;

(4) Fifty per cent of the taxes paid during the fourth year;

(5) Forty per cent of the taxes paid during the fifth year;

(6) Thirty per cent of the taxes paid during the sixth year; and

(7) Twenty per cent of the taxes paid during the seventh year.

(d) Tax credits provided for in subsection (c) shall only apply to the unemployment tax paid on employees employed at the qualified business' establishment or establishments located within the space opportunity zone. Any tax credit not usable shall not be applied to future tax years.

§ -10 State general excise and use tax exemptions. The director shall certify annually to the department of taxation that any qualified business is exempt from the payment of general excise taxes on the gross proceeds from the conduct of a space business within a space opportunity zone. The director shall also certify annually to the department of taxation that any qualified business is exempt from the use tax for purchases by the qualified business. The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from the general excise tax for construction within a space opportunity zone performed for a qualified business within a space opportunity zone. The exemption shall extend for a period not to exceed seven years.

§ -11 Local incentives. A county may propose local incentives to be made available in a space opportunity zone, including:

(1) Reduction of permit fees;

(2) Reduction of user fees;

(3) Reduction of real property taxes; and

(4) Regulatory flexibility, including, but not limited to:

(A) Special zoning districts;

(B) Permit process reform;

(D) Other public incentives,

which shall be binding upon the locality upon designation of the space opportunity zone.

§ -12 Termination of space opportunity zone. Upon designation of an area as a space opportunity zone, the proposals for regulatory flexibility, tax incentives, and other public incentives specified in this chapter shall be binding upon the county governing body to the extent and for the period of time specified by the director pursuant to section ‑3. If the county governing body is unable or unwilling to provide any of the incentives set forth in section ‑11 or other incentives acceptable to the director, and the director has not adopted rules pursuant to section ‑6 that supersede inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction in a space opportunity zone, then the space opportunity zone shall terminate. Qualified businesses located in the space opportunity zone shall be eligible to receive the state tax incentives provided by this chapter even though the zone designation has terminated. No space business may become a qualified business after the date of zone termination."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ , or so much thereof as may be necessary for fiscal year 2007-2008, and the same sum, or so much thereof as may be necessary for fiscal year 2008-2009, for the department of business, economic development, and tourism, to implement chapter , including the designation of space opportunity zones and performing required environmental impact statements.

The sums appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 5. This Act shall take effect upon approval except that section 3 shall take effect on July 1, 2007.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	1911
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII