STAND. COM. REP. NO. 891

Honolulu, Hawaii

RE: S.B. No. 1251

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirtieth State Legislature

Regular Session of 2019

State of Hawaii

Sir:

Your Committees on Water and Land and Ways and Means, to which was referred S.B. No. 1251 entitled:

"A BILL FOR AN ACT RELATING TO LEASE EXTENSIONS ON PUBLIC LAND,"

beg leave to report as follows:

The purpose and intent of this measure is to authorize the Board of Land and Natural Resources (Board) to extend commercial, industrial, or resort leases that have not been transferred or assigned within the last twenty years, for lessees who commit to making substantial improvements to the existing improvements.

Your Committees received testimony in support of this measure from the Department of Land and Natural Resources, Hilo Fish Company, Kanoelehua Industrial Area Association, and five individuals. Your Committees received testimony in opposition to this measure from the Office of Hawaiian Affairs, Kailapa Community Association, Laulima Pahoa, Na Ao Koa, Ka Ohana O Na Pua, Ohana Ho‘opakele, and over two hundred fifty individuals. Your Committees received comments on this measure from one individual.

Your Committees find that many of the leases for commercial, industrial, and resort properties on public land statewide may be nearing the end of their lease terms. Faced with the uncertainty of continued tenancy, lessees have little incentive to make major investments in infrastructural improvements and therefore the infrastructure on these properties has been deteriorating. Your Committees further find that Act 149, Session Laws of Hawaii 2018 (Act 149), established a ten year pilot program that, among other things, authorizes the Board to extend or modify the terms of certain public land leases within the Hilo Community Economic District upon approval by the Board of a lessee's development agreement to make substantial improvements to or construct new improvements on the land as long as the length of any extension granted does not extend the original lease term by more than forty years. Your Committees find that the provisions of Act 149 are a proper model by which to allow extensions of industrial and commercial leases approaching their expiration date.

Accordingly, your Committees have amended this measure by:

(1) Limiting the provisions to industrial and commercial leases that are subject to the management, administration, or control of the Board and will expire within an unspecified number of years of receipt of an application for a lease extension;

(2) Deleting references to resort leases;

(3) Amending the Board's authority regarding extension of leases;

(4) Specifying that the length of any extension granted, in the aggregate, shall not extend the original lease term by more than forty years;

(5) Inserting language to require an extension of the rental period or lease term to be based on the economic life of the substantial improvements as determined by the Board or an independent appraiser and subject to other specified requirements;

(6) Deleting language that would have prohibited assignments and transfers of leases during the extension period;

(7) Inserting language that establishes causes of economic hardship for which the Board may modify or eliminate any of the existing statutory restrictions, extend or modify the rental period, or extend the term of industrial and commercial public land leases, and amends the conditions for the Board's approval of any such modification, elimination, or extension;

(8) Specifying that substantial improvements are certain improvements, the cost of which equals or exceeds thirty percent, rather than fifty percent, of the market value of the existing improvements;

(9) Inserting an effective date of December 31, 2050, to encourage further discussion;

    (10) Inserting a blank repeal date; and

    (11) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

As affirmed by the records of votes of the members of your Committees on Water and Land and Ways and Means that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 1251, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 1251, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committees on Water and Land and Ways and Means,

________________________________ DONOVAN M. DELA CRUZ, Chair

________________________________ KAIALI'I KAHELE, Chair