HB530 SD1

SECTION 1. The legislature finds that the need to support agriculture in Hawaii has become critical following the recent natural disasters that have adversely affected farms and other agricultural enterprises.

The legislature further finds that one method to support agriculture is through the linked investment concept. Linked investments began in Iowa in 1986 as a loan program to support horticultural and alternative crops. It has successfully helped to diversify Iowa's agricultural-based economy and been expanded to assist women- and minority-owned small businesses, and to increase employment opportunities for rural communities facing a business closure, traditional livestock producers, and businesses that add value through the processing of agricultural commodities.

Under a linked investment program for agriculture, a person or enterprise proposing to engage in an agricultural enterprise applies to a lending institution, which will evaluate the proposal to qualify the borrower. The lending institution, after evaluating the proposal and determining that the proposed business is a sound viable proposal, will certify the applicant as an eligible borrower under the linked investment program. The institution will then prepare a linked investment loan package and submit it to the director of finance. If the director accepts the loan package, the director places a certificate of deposit for the loan amount with the lending institution.

The purpose of this Act is to expand the availability of agricultural loans by committing not more than $5,000,000 of certain moneys available in the state treasury for the creation of linked investments through agreements with eligible lending institutions.

SECTION 2. Chapter 36, Hawaii Revised Statutes, is amended by adding a new section to part II to be appropriately designated and to read as follows:

"§36- Linked investments. (a) An eligible lending institution shall accept and review applications for loans, determine applicants that are eligible borrowers, and prepare linked investment loan packages in a form and manner prescribed by the director of finance.

(b) A loan package shall verify the amount of the loan requested, the purpose of the loan, and the eligible lending institution's certification that the applicant is an eligible borrower.

(c) The director of finance may consider the availability of state funds and accept or reject a linked investment loan package.

(d) Upon acceptance of a linked investment loan package, the director of finance, pursuant to section 36-21, shall place a certificate of deposit for the loan amount with an eligible lending institution; provided that the eligible lending institution agrees to lend not more than ninety per cent of the value of the certificate of deposit to an eligible borrower at a rate not more than the prime rate or per cent a year, whichever is less; provided further that the certificate of deposit shall:

(1) Earn a rate of interest of not less than the current market rate;

(2) Not be subject to a penalty for early withdrawal;

(3) Have a maturity of one year for the initial period with an option for renewal with the approval of the director of finance for five additional one-year periods; and

(4) Not be considered security for a linked investment loan.

(e) The director of finance shall not invest in linked investments more than $5,000,000 of moneys available in the state treasury for deposit under section 38-2.

(f) Each loan made through a linked investment shall not exceed $ and shall not be used for the purchase of real property.

(g) As used in this section:

"Eligible borrower" means an entity, individual or corporation, who:

(1) Is engaged or proposes to be engaged in agriculture, as defined in section 163D-2, and submits a viable agricultural business plan; and

(2) Is certified as an eligible borrower by an eligible lending institution.

"Eligible lending institution" means any federally insured national or state bank, savings and loan association, financial services loan company, or federal or state credit union insured by the national credit union administration, that is authorized to do business in this State and that has entered into an agreement with the director of finance to receive linked investments.

"Linked investment" means a certificate of deposit placed with an eligible lending institution.

"Real property" means lands, structures, and interests therein, and natural resources including water, minerals, and all such things connected with land, including lands under water and riparian rights, space rights, air rights, and any and all other things and rights usually included within the term. "Real property" also means any and all interests in property less than fee title, such as leasehold interests, easements, incorporeal hereditaments, and every estate, interest, or right, legal or equitable, including terms for years and liens thereon by way of judgments, mortgages, or otherwise."

SECTION 3. Section 36-21, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The director of finance may invest any moneys of the State which in the director's judgment are in excess of the amounts necessary for meeting the immediate requirements of the State and where in the director's judgment the action will not impede or hamper the necessary financial operations of the State in:

(1) Any bonds or interest-bearing notes or obligations:

(A) Of the State (including state director of finance's warrant notes issued pursuant to chapter 40);

(B) Of the United States; and

(2) Federal Farm Credit System notes and bonds;

(3) Federal Agricultural Mortgage Corporation notes and bonds;

(4) Federal Home Loan Bank notes and bonds;

(5) Federal Home Loan Mortgage Corporation bonds;

(6) Federal National Mortgage Association notes and bonds;

(7) Tennessee Valley Authority notes and bonds;

(8) Securities of a mutual fund whose portfolio is limited to bonds or securities issued or guaranteed by the United States or an agency thereof or repurchase agreements fully collateralized by any such bonds or securities;

(9) Securities of a money market mutual fund that is rated AAA, or its equivalent, by a nationally recognized rating agency or whose portfolio consists of securities that are rated as first tier securities by a nationally recognized statistical rating organization as provided in title 17 Code of Federal Regulations section 270.2a-7;

(10) Federally insured savings accounts;

(11) Time certificates of deposit;

(12) Certificates of deposit open account;

(13) Repurchase agreements with federally insured banks, savings and loan associations, and financial services loan companies;

(14) Commercial paper with an A1/P1 or equivalent rating by any national securities rating service; [~~and~~]

(15) Bankers' acceptances with an A1/P1 or equivalent rating by any national securities rating service; and

(16) Certificates of deposit related to linked investments pursuant to section 36- ;

provided that for authorized investments with stated maturity dates, the investment, as well as the underlying securities of those investments, are due to mature not more than five years from the date of investment. Income derived from those investments shall be a realization of the general fund; provided that income earned from moneys invested by the general funds, special funds, bond funds, and trust and agency funds on an investment pool basis shall be paid into and credited to the respective funds based on the contribution of moneys into the investment pool by each fund. As used in this section, "investment pool" means the aggregate of state treasury moneys that are maintained in the custody of the director of finance for investment and reinvestment without regard to fund designation."

SECTION 4. 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 2019-2020 and the same sum or so much thereof as may be necessary for fiscal year 2020-2021 for the department of budget and finance to hire one full-time equivalent (1.0 FTE) to administer the new linked investment program.

The sums appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2150.

HOUSE OF REPRESENTATIVES	H.B. NO.	530
THIRTIETH LEGISLATURE, 2019		H.D. 1
STATE OF HAWAII		S.D. 1