HB884.DOC

SECTION 1. The legislature finds that the State is undergoing a significant and possibly protracted economic downturn in tandem with the national and global economic and financial crises. Numerous jobs have been lost, a number of large and small companies have declared bankruptcy or left the State, and many families have suffered foreclosure on their over-mortgaged houses. In the past year, the council on revenues has consistently reduced its forecasts of Hawaii's tax revenues. Across-the-board spending restrictions have already been put in place in state government and a general hiring freeze has already been implemented except in areas that impact public health and safety.

These recent developments have put into sharp focus the failure of Americans to save and be ready for unanticipated crises.

The purpose of this Act is to encourage the habit of saving in the State's residents by establishing a custom already in place in the United Kingdom, and more recently in the state of Maine, whereby each child, at birth, has a savings account opened with an initial deposit made from excess general funds collected during successive years when the general fund balance exceeds five per cent of general fund revenues for each of the two fiscal years in the state budget, upon enactment of an amendment to section 6 of article VII of the Hawaii constitution to amend the disposition of excess revenues.

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

"Chapter

CHILD DEVELOPMENT ACCOUNT

§ ‑1 Definitions. As used in this chapter:

"Account" means a child development account.

"Child development account" means an account that:

(1) Is held by a child who is or has been an eligible child;

(2) Satisfies the requirements imposed by this chapter; and

(3) Has been opened in accordance with this chapter.

"Director" means the director of taxation.

"Eligible child" means a child born after July 1, 2009, and is resident in the State.

§ ‑2 Child development account; account types. (a) A child development account may be opened and maintained only with an account provider that has been approved by the department of taxation. An account shall include the following terms:

(1) The account shall be held in the name of the eligible child;

(2) The eligible child shall be entitled to the principal and investments of the account, including all income and gains;

(3) Withdrawals shall be restricted as provided in this chapter; and

(4) Only the person who has the authority to manage the account may instruct the account provider regarding management of the account.

(b) The director of taxation shall adopt rules in accordance with chapter 91 to prescribe various types of accounts that may be opened as a child development account, including savings accounts, equity-based accounts that may reduce the amount of risk as the child grows older, and other accounts that the director may deem appropriate.

§ ‑3 Inalienability. (a) Any assignment of, or agreement to assign, investments under an account, and any charge on or agreement to charge any such investments, shall be void.

(b) On the bankruptcy of an eligible child by whom an account is held, the entitlement to investments under the account shall not pass to any trustee or other person acting on behalf of the child's creditors.

"Assignment" includes assignation; and the term "assign" shall be construed accordingly.

"Bankruptcy", in relation to an eligible child, includes the sequestration of the child's estate.

"Charge on or agreement to charge" includes a right in security over the account or an agreement to create a right in security over the account.

§ -4 Opening a child development account; withdrawals; transfers. (a) At birth, the legal parent or parents, or legal guardian may open an account for an eligible child with an account provider; provided that an eligible child in whose name an account has been opened who reaches the age of eighteen may assume responsibility for the management of the account. Each account provider shall report monthly to the director of taxation and the director of finance the opening of any child development accounts.

(b) No withdrawal may be made from a child development account before the eligible child reaches the age of eighteen.

(c) An account held with one account provider may be transferred to another account provider according to rules adopted by the director of taxation in accordance with chapter 91.

§ ‑5 Initial state contribution; subsequent state contribution; annual contribution limits. (a) Upon receiving a report from an account provider pursuant to section ‑4(a) regarding the opening of an account, the director of finance shall pay to the account provider maintaining the account an initial contribution of $ ; provided that state contributions shall be made from general funds available whenever the state general fund balance at the close of each of two successive fiscal years exceeds five per cent of general fund revenues for each of the two fiscal years upon the enactment of an amendment to section 6 of article VII of the Hawaii constitution to amend the disposition of excess revenues.

(b) On receipt of a payment, the account provider shall credit the account with the amount of the payment received.

(c) Any person may make contributions to an account after the account is opened; provided that the maximum total annual contribution that may be made into a single account shall be $ .

§ ‑6 Exemption from tax. All earnings or other gains arising from a child development account shall be exempt from chapter 235.

§ ‑7 Submission of information. The director of taxation may require any account provider, account holder, legal parents, or legal guardian to submit any information regarding an account that the director deems necessary and relevant to the proper supervision and regulation of the account. The director of taxation may use the information only for the purposes of exercising the director's functions of supervision of regulation of the accounts.

§ ‑8 Penalties. (a) Any person who fraudulently:

(1) Applies to open or opens an account; or

(2) Makes a withdrawal from an account other than as permitted under this chapter

shall be fined an amount not to exceed $500.

(b) Any person who fraudulently or negligently provides incorrect information required under section ‑7 shall be fined an amount not to exceed $5,000.

(c) Any person who fails to provide any information required under section ‑7 shall be fined an amount not to exceed $500 for the initial violation and an amount not to exceed $100 for each day the violation remains uncorrected.

(d) Any account provider who fails to:

(1) Appropriately open an account based on a valid application pursuant to subsection ‑4(a);

(2) Credit an account pursuant to section ‑5(b); or

(3) Comply with the annual contribution limits prescribed under section ‑5(c)

shall be fined an amount not to exceed $500 or $5 for each account affected, whichever amount is greater.

§ ‑9 Rules. The director of taxation shall adopt all rules necessary in accordance with chapter 91 to carry out the effect of this chapter."

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235‑ Child development account; exemption. All amounts gained from a child development account under chapter shall be exempt from this chapter; provided that any loss of principal on the account shall not be considered a loss for tax purposes under this chapter."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	884
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII