HB2944.DOC

SECTION 1. Section 211F-3, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) The governing body of the corporation shall be a board of directors consisting of twelve members to be appointed by the governor for staggered terms pursuant to section 26-34 as follows:

(1) Three to be appointed directly by the governor;

(2) Three to be appointed from a list of nominees from the general public submitted by the president of the senate; and

(3) Three to be appointed from a list of nominees from the general public submitted by the speaker of the house of representatives,

and shall be selected on the basis of their knowledge, skill, and experience in the scientific, business, or financial fields. Members of the board shall have knowledge or experience in venture or seed capital, or investment funds. The director of business, economic development, and tourism, a member from the board of the high technology development corporation appointed by the governor, and a member from the board of the natural energy laboratory of Hawaii authority appointed by the governor, or their designated representatives, shall serve as ex officio voting members. Not more than two of the six members of the board appointed from the lists of nominees submitted by the president of the senate and the speaker of the house of representatives, during their term of office on the board, shall be employees of the State. All appointed members of the board shall continue in office until their respective successors have been appointed."

2. By amending subsection (e) to read as follows:

"(e) A board member shall not participate in any corporation decision to invest in, purchase from, sell to, borrow from, loan to, contract with, or otherwise deal with any person with whom or entity in which the board member has a substantial financial interest. In addition, no board member shall vote at any board meeting where the board member has any other conflict of interest. The board member shall disclose the conflict of interest, in its general nature, prior to the vote on that matter. The minutes of the meeting shall record the substance of the disclosure of the conflict of interest."

SECTION 2. Section 211G-12, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a), (b), and (c) to read:

"(a) The State shall issue tax credits to the corporation that may be transferred or otherwise used to reduce the tax liability of any taxpayer pursuant to chapter 235 [or], 241, or 431:7-202. The total amount of tax credits that may be issued, and which may be transferred pursuant to this chapter by the corporation is [~~$36,000,000~~] ____________. Upon compliance with subsection (b), the credits shall be freely transferable by the corporation to transferees and by transferees to subsequent transferees; however, the tax credits so transferred by the corporation shall not be exercisable before [~~July 1, 2005~~] ________, nor after July 1, 2030. The corporation shall not transfer tax credits except in conjunction with a legitimate call on a corporation guarantee. The corporation shall immediately notify the president of the senate, the speaker of the house of representatives, and the governor in writing if any tax credit is transferred by the corporation in conjunction with a legitimate call on a corporation guarantee; provided that the corporation shall not be required to make that notification for transfers to subsequent transferees.

(b) [~~Subject to the annual authorization by the legislature, the~~] The corporation may transfer tax credits under this section up to the annual amount allowed under subsection (c). [~~Legislative authorization for the tax credits shall be by a separate legislative act.~~]

(c) The corporation shall determine the amount of individual tax credits to be transferred pursuant to this chapter and may negotiate for the sale of those credits subject only to the limits imposed by this chapter. The corporation shall limit the transfer of tax credits that may be claimed and used to reduce the tax otherwise imposed by chapter 235 [or], 241, or 431:7-202 for one fiscal year (including any tax credits that are carried over by a taxpayer from a prior fiscal year and used to reduce taxes otherwise imposed in the current fiscal year, as permitted in subsection (g)) to not more than an aggregate total of [~~$12,000,000~~] ____________ per fiscal year. The board shall clearly indicate on the face of the certificate or other document transferring the tax credit the principal amount of the tax credit and the taxable year or years for which the credit may be claimed."

2. By amending subsections (f) and (g) to read:

"(f) The tax credits issued or transferred pursuant to this chapter, upon election by the taxpayer at time of use, shall be treated as a payment or prepayment in lieu of taxes imposed under chapter 235 [or], 241, or 431:7-202. Tax credits used pursuant to this chapter shall be claimed as a payment of tax or estimated tax for the purposes of chapter 235 [or], 241, or 431:7-202.

(g) If the tax credits under this section exceed the taxpayer's income tax liability under chapter 235 [or], 241, or 431:7-202 for any taxable year, or for any other reason is not claimed by a taxpayer in whole or in part in any taxable year, the excess of the tax credit over liability, or the amount of the unclaimed tax credit, as the case may be, may be carried over and used as a credit against the taxpayer's income tax liability in any subsequent year until exhausted, subject to:

(1) The deadline for the exercise of tax credits imposed by subsection (a); and

(2) The monetary limit imposed by subsection (c)."

SECTION 3. Section 211G-13, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) and (b) to read:

"(a) The corporation may solicit investment plans from investor groups for the investment of capital in accordance with this chapter. The corporation shall establish criteria based on best practices for the selection of persons, firms, corporations, or other entities. The criteria shall include the applicant's level of experience, quality of management, investment philosophy and process, probability of success in fundraising, plan for achieving the purposes of this chapter, and such other investment criteria as may be used in professional portfolio management that the corporation deems appropriate. If the corporation decides to engage one or more investor groups to deploy or generate capital, it shall consider and select one or more investment plans and investor groups that the corporation deems qualified to:

(1) Generate capital for investment with the most effective and efficient use of the guarantee;

(2) Invest the capital in private seed and venture capital entities in a manner mobilizing a wide variety of equity and near-equity investments in ventures promoting the economic development of the State; and

(3) Help build a significant, fiscally strong, and permanent resource to serve the objectives expressed in this chapter.

An investor group engaged by the corporation shall have a manager who is experienced in design and implementation, as well as the management of seed and venture capital investment programs and in capital formation. The corporation may remove and replace any investor group that has been engaged and effect the assignment of assets, liabilities, guarantees, and other contracts of this program to a new investor group, subject to such terms and conditions as may be set forth in the terms of engagement.

(b) With legislative approval pursuant to section 211G-14, the corporation may extend one or more guarantees and secure the performance of such guarantees in the form of a put option, as well as other arrangements selected by the corporation. Without limiting the foregoing:

(1) The corporation may guarantee loans, lines of credit, and other indebtedness and equity investments and may arrange for, pledge, and assign put options, as well as other agreements to purchase tax credits on such terms as the board may approve from time to time, [~~in order~~] to generate funds to deploy in a manner consistent with this chapter[;]. The corporation shall not guarantee loans, lines of credit, or equity capital that exceed the tax credit limit;

(2) The guarantees of loans, lines of credit, and other indebtedness may extend up to the principal amount plus interest over the term of the guarantee at a rate set by board resolution from time to time, a guarantee of a loan, lines of credit, or other indebtedness in a manner consistent with this chapter; and

(3) Guarantees of equity capital may extend up to the amount of the investment plus a rate of return set by board resolution from time to time in a manner consistent with this chapter.

Guarantees, in whatever form negotiated by the corporation, may be made for any period of time, but no term shall expire prior to January 1, 2006. The corporation may charge a reasonable fee for costs and the fair compensation of risks associated with its guarantee. Proceeds from the sale of any tax credits may be used to satisfy the contractual guarantee obligation of the corporation. The corporation may contract freely to protect the interest of the State."

2. By amending subsection (d) to read:

"(d) The corporation may make any contract, execute any document, charge reasonable fees for services rendered, perform any act or enter into any financial or other transaction necessary to carry out its mission. The corporation may employ a discretionary investment manager and other necessary staff as may be required for the proper implementation of this chapter, the management of its assets, or the performance of any function authorized or required by this chapter necessary for the accomplishment of any such function. Staff shall be selected by the corporation based upon outstanding knowledge and leadership in the field for which the person performs services for the board."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2944
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII