SB2068

PART I

SECTION 1. The legislature finds that Act 90, Session Laws of Hawaii 2003 (Act 90), was enacted to transfer certain non-agricultural park lands from the department of land and natural resources to the department of agriculture. The final report from the Act 90 working group, established by Act 139, Session Laws of Hawaii 2021, finds that lands under the department of land and natural resources used for the primary and substantial management objective of agricultural production should be transferred to the department of agriculture following the processes and conditions set forth in Act 90, Session Laws of Hawaii 2003.

The Act 90 working group final report further finds that improved collaborative working relationships between the department of land and natural resources, the department of agriculture, and lessees of multi-use agricultural lands will facilitate the management or co-management of department of land and natural resources multi-use parcels to benefit public values, including food production, conservation, and natural resource management.

The legislature further finds that article XI, section 10, of the Hawaii State Constitution, establishes that "the public lands shall be used for the development of farm and homeownership on as a widespread a basis as possible, in accordance with procedures and limitations prescribed by law."

Therefore, the legislature finds that certain non-conservation designated public lands classified for agricultural use by the department of land and natural resources should be transferred to the department of agriculture, for the purposes and in a manner consistent with article XI, section 10, of the Hawaii State Constitution.

PART II

SECTION 2. The purpose of this part is to facilitate the transfer of certain non-agricultural park lands from the department of land and natural resources to the department of agriculture pursuant to Act 90, Session Laws of Hawaii 2003, and chapter 166E, Hawaii Revised Statutes, regarding non-agricultural park lands, by:

(1) Repealing the requirements that transfers of certain public lands classified for agricultural use by the department of land and natural resources shall receive approval of the board of land and natural resources and the board of agriculture prior to transfer to the department of agriculture and that transfers be done in a manner determined by the board of agriculture;

(2) Requiring the department of agriculture to accept the transfer of and manage certain qualifying non-conservation, non-agricultural park lands; and

(3) Requiring the department of agriculture, prior to offering a lease, to inquire with the department of land and natural resources regarding any easements required for the department of land and natural resources to access its landlocked forest reserves or other department of land and natural resources assets on the lands subject to the lease.

SECTION 3. Section 166E-1, Hawaii Revised Statutes, is amended to read as follows:

"[[]§166E-1[]] Legislative findings. The legislature finds that article XI, section 10, of the Hawaii State Constitution establishes that "the public lands shall be used for the development of farm and homeownership on as widespread a basis as possible, in accordance with procedures and limitations prescribed by law".

Therefore, the legislature finds that certain public lands classified for agricultural use by the department of land and natural resources should be transferred to the department of agriculture[~~, with the approval of the board of land and natural resources and the board of agriculture,~~] for purposes and in a manner consistent with article XI, section 10, of the state constitution.

The purpose of this chapter is to ensure the long-term productive use of public lands leased or available to be leased by the department of land and natural resources for agricultural purposes by allowing these lands to be transferred to and managed by the department of agriculture."

SECTION 4. Section 166E-3, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) [~~Upon mutual agreement and approval of the board and the board of land and natural resources:~~

~~(1)~~] The department [~~may~~] shall accept the transfer of and manage certain qualifying non-agricultural park lands; [~~and~~

~~(2)~~] provided that designated conservation lands shall remain under the jurisdiction of the department of land and natural resources. Certain assets, including position counts, related to the management of existing encumbered and unencumbered non-agricultural park lands and related facilities shall be transferred to the department.

(b) The department shall administer a program to manage the transferred non-agricultural park lands under rules adopted by the board pursuant to chapter 91. The program and its rules shall be separate and distinct from the agricultural park program and its rules. Non-agricultural park lands are not the same as, and shall not be selected or managed as [~~are~~], lands under agricultural park leases. Prior to offering a lease, the department shall inquire with the department of land and natural resources regarding any easements required by the department of land and natural resources to access landlocked forest reserves or other assets of the department of land and natural resources on the lands subject to the lease. Notwithstanding any other law to the contrary, the program shall include the following conditions pertaining to encumbered non-agricultural park lands:

(1) The lessee or permittee shall perform in full compliance with the existing lease or permit;

(2) The lessee or permittee shall not be in arrears in the payment of taxes, rents, or other obligations owed to the State or any county;

(3) The lessee's or permittee's agricultural operation shall be economically viable as specified by the board; and

(4) No encumbered or unencumbered non-agricultural park lands with soils classified by the land study bureau's detailed land classification as overall (master) productivity rating class A or B shall be transferred for the use or development of golf courses, golf driving ranges, and country clubs.

[~~The transfer of non-agricultural park lands shall be done in a manner to be determined by the board of agriculture.~~]"

SECTION 5. Section 166E-6, Hawaii Revised Statutes, is repealed.

["~~§166E-6 Rules.~~ ~~The board shall adopt rules pursuant to chapter 91, including eligibility requirements for each disposition and applicant qualifications, to effectuate the purposes of this chapter.~~"]

PART III

SECTION 6. The purpose of this part is to authorize the board of land and natural resources to amend and extend existing pasture leases and to issue new pasture leases by negotiation in furtherance of public purposes that are the responsibility of the board of land and natural resources and department of agriculture to promote, such as food production and natural resource conservation and stewardship.

SECTION 7. Section 171-36, Hawaii Revised Statutes, is amended to read as follows:

"§171-36 Lease restrictions; generally. (a) Except as otherwise provided, the following restrictions shall apply to all leases:

(1) Options for renewal of terms are prohibited;

(2) No lease shall be for a longer term than sixty-five years, except in the case of a residential leasehold, which may provide for an initial term of fifty-five years with the privilege of extension to meet the requirements of the Federal Housing Administration, Federal National Mortgage Association, Federal Land Bank of Berkeley, Federal Intermediate Credit Bank of Berkeley, Berkeley Bank for Cooperatives, or Department of Veterans Affairs requirements; provided that the aggregate of the initial term and extension shall in no event exceed seventy-five years;

(3) No lease shall be made for any land under a lease that has more than two years to run;

(4) No lease shall be made to any person who is in arrears in the payment of taxes, rents, or other obligations owed to the State or any county;

(5) No lease shall be transferable or assignable, except by devise, bequest, or intestate succession; provided that with the approval of the board, the assignment and transfer of a lease or unit thereof may be made in accordance with current industry standards, as determined by the board; provided further that prior to the approval of any assignment of lease, the board shall have the right to review and approve the consideration to be paid by the assignee and may condition its consent to the assignment of the lease on payment by the lessee of a premium based on the amount by which the consideration for the assignment, whether by cash, credit, or otherwise, exceeds the depreciated cost of improvements and trade fixtures being transferred to the assignee; provided further that with respect to state agricultural leases, in the event of foreclosure or sale, the premium, if any, shall be assessed only after the encumbrances of record and any other advances made by the holder of a security interest are paid;

(6) The lessee shall not sublet the whole or any part of the demised premises, except with the approval of the board; provided that prior to the approval, the board shall have the right to review and approve the rent to be charged to the sublessee; provided further that in the case where the lessee is required to pay rent based on a percentage of its gross receipts, the receipts of the sublessee shall be included as part of the lessee's gross receipts; provided further that the board shall have the right to review and, if necessary, revise the rent of the demised premises based upon the rental rate charged to the sublessee, including the percentage rent, if applicable, and provided that the rent may not be revised downward;

(7) The lease shall be for a specific use or uses and shall not include waste lands, unless it is impractical to provide otherwise;

(8) Mineral and metallic rights and surface and ground water shall be reserved to the State; and

(9) No lease of public lands, including submerged lands, or any extension of any lease of public lands shall be issued by the State to any person to construct, use, or maintain a sunbathing or swimming pier or to use the lands for those purposes, unless the lease, or any extension thereof, contains provisions permitting the general public to use the pier facilities on the public lands and requiring that a sign or signs be placed on the pier, clearly visible to the public, that indicates the public's right to the use of the pier. The board, at the earliest practicable date, and where legally possible, shall cause all existing leases to be amended to conform to this paragraph. The term "lease", for the purposes of this paragraph, includes month-to-month rental agreements and similar tenancies.

(b) The board, [~~from time to time,~~] upon the issuance or during the term of any intensive agricultural, aquaculture, commercial, mariculture, special livestock, pasture, or industrial lease, [~~may:~~] shall:

(1) Modify or eliminate any of the restrictions specified in subsection (a);

(2) Extend or modify the fixed rental period of the lease; provided that the aggregate of the initial term and any extension granted shall not exceed sixty-five years; or

(3) Extend the term of the lease,

to the extent necessary to qualify the lease for mortgage lending or guaranty purposes with any federal mortgage lending agency, to qualify the lessee for any state or private lending institution loan, private loan guaranteed by the State, or any loan in which the State and any private lender participates, or to amortize the cost of substantial improvements to the demised premises that are paid for by the lessee without institutional financing.

(c) Any extension authorized pursuant to subsection (b) shall be based on the economic life of the improvements as determined by the board or an independent appraiser; provided that the approval of any extension shall be subject to the following:

(1) The demised premises have been used substantially for the purpose for which they were originally leased;

(2) The aggregate of the initial term and any extension granted shall not be for more than sixty-five years;

(3) In the event of a reopening, the rental for any ensuing period shall be the fair market rental at the time of reopening;

(4) Any federal or private lending institution shall be qualified to do business in the State;

(5) Proceeds of any mortgage or loan shall be used solely for the operations or improvements on the demised premises;

(6) Where improvements are financed by the lessee, the lessee shall submit receipts of expenditures within a time period specified by the board or else the lease extension shall be canceled; and

(7) The rules of the board setting forth any additional terms and conditions, which shall ensure and promote the purposes of the demised lands.

(d) The board, at any time during the term of any intensive agricultural, aquaculture, or mariculture lease and when justified by sound economic practices or other circumstances, may permit an alternative agricultural, aquaculture, or mariculture use or uses for any portion or portions of the land demised. As a condition to permitting alternative uses, the board may require any other modifications, including rental adjustments or changes in the lease, as may be necessary to effect or accommodate the alternative use or uses. An alternative use or uses may be allowed by the board upon:

(1) The application of the lessee;

(2) Consent of each holder of record having a security interest in the leasehold; and

(3) A finding by the board that the alternative use or uses are in the public interest.

(e) The board, from time to time during the term of any agriculture, intensive agriculture, aquaculture, commercial, mariculture, special livestock, pasture, or industrial lease, may modify or eliminate any of the restrictions specified in subsection (a), extend or modify the fixed rental period of the lease, or extend the term of the lease upon a showing of significant economic hardship directly caused by:

(1) State disaster, pursuant to chapter 209, including seismic or tidal wave, tsunami, hurricane, volcanic eruption, typhoon, earthquake, flood, or severe drought; or

(2) A taking of a portion of the area of the lease by government action by eminent domain, withdrawal, or conservation easement; provided that the portion taken shall not be less than ten per cent of the entire leased area unless otherwise approved by the board; and provided that the board determines that the lessee will not be adequately compensated pursuant to the lease provisions.

(f) The approval of any extension granted pursuant to subsection (e) shall be subject to the following:

(1) The demised premises have been used substantially for the purposes for which they were originally leased;

(2) The aggregate of the initial term and any extension granted shall not be for more than fifty-five years;

(3) The rental shall not be less than the rental for the preceding term;

(4) The rules of the board setting forth any additional terms and conditions, which shall ensure and promote the purposes of the demised lands; and

(5) The length of the extension shall not exceed a reasonable length of time for the purpose of providing relief [~~and shall in no case exceed five years~~].

(g) Any provision of this chapter to the contrary notwithstanding, the board may amend and extend existing pasture leases in furtherance of public purposes that are the responsibility of the department and the department of agriculture to promote, including, without limitation, the preservation of existing native forest, reforestation for watershed enhancement and forest carbon sequestration opportunities, facilitation of public hunting, promotion of sustainable food production, establishment and maintenance of public access to landlocked reserves, enhancement of public recreational opportunities, protection and propagation of current biological and other significant resources, and preservation and enhancement of natural resource and public use values; provided that:

(1) The leased lands have been used substantially for the purpose for which they were originally leased;

(2) The aggregate of the initial term and any extension granted shall not be for more than sixty-five years; and

(3) The board may consider key characteristics of public lands most likely to benefit from the amendment and extension of pasture leases, identification of public purposes to be promoted through lease amendment and extension, a description of the types of lessee obligations regarding natural resource conservation and stewardship that will serve to achieve the identified public purposes, a statement of the types of lease amendments that are desirable to promote these public purposes, eligibility requirements for pasture lessees, and applicant qualifications.

The board may set the lease rent for the period of the lease term occurring after an amendment under this subsection on terms and conditions as the board may determine, including but not limited to a value that incentivizes or otherwise promotes ranching operations compatible with the public purposes that are the responsibility of the department to promote. In arriving at a rental value, the board may also consider the specified use of the land; any restriction on grazing or other beneficial use of the land; or portions thereof by lessee; any conservation or stewardship services required to be performed by the lessee under the amended lease; and any withdrawal of lands from the lease premises. If an independent appraisal is procured to determine rent for an amended pasture lease, the board shall apply a lower rate of return if warranted after consideration of the public purpose served by the lease, use restrictions thereunder, and any obligation of the lessee to provide conservation or stewardship services."

SECTION 8. Section 171-59, Hawaii Revised Statutes, is amended to read as follows:

"§171-59 Disposition by negotiation. (a) A lease of public land may be disposed of through negotiation upon a finding by the board of land and natural resources that the public interest demands it. Where the public land is being sought under this section by a sugar or pineapple company, and the company is the owner or operator of a mill or cannery, then, for the purposes of this section, the economic unit shall be that acreage of public land which when taken together with the lands already owned or controlled or available to the company, when cultivated is found by the board to be necessary for the company's optimum mill or cannery operation. In all other cases, public land to be sold under this section shall be an economic unit as provided in section 171-33(3).

After a determination is made to negotiate the disposition of a lease, the board shall:

(1) Give public notice as in public auction, in accordance with the procedure set forth in section 171-16(a), of its intention to lease public land through negotiation setting forth the minimum conditions thereunder, the use for which the public land will be leased. Any person interested in securing the lease shall file an application with the board not later than forty-five days after the first publication of the notice;

(2) Establish reasonable criteria for the selection of the lessee; provided that where the intended use of the land is agriculture, the department of agriculture shall establish the criteria;

(3) Determine the applicants who meet the criteria for selection set by the board or the department of agriculture, as the case may be, and notify all applicants of its determination. Any applicant may examine the basis of the determination, which shall be in writing, to ascertain whether or not the conditions and criteria established by the board or the department of agriculture were followed; provided that if any applicant does not notify the board of the applicant's objections, and the grounds therefor, in writing, within twenty days of the receipt of the notice, the applicant shall be barred from proceeding to seek legal remedy for any alleged failure of the board to follow the conditions and criteria.

If only one applicant meets the criteria for selection of the lessee, the board may, after notice as provided in (3), above, dispose of the lease by negotiation.

If two or more applicants meet the criteria for the selection of the lessee, the board shall select the lessee who submits the highest offer contained in a sealed bid deposited with the board.

(b) Disposition of public lands for airline, aircraft, airport-related, agricultural processing, cattle feed production, aquaculture, marine, maritime, and maritime-related operations may be negotiated without regard to the limitations set forth in subsection (a) and section 171-16(c); provided that:

(1) The disposition encourages competition within the aeronautical, airport-related, agricultural, aquaculture, maritime, and maritime-related operations;

(2) The disposition shall not exceed a maximum term of thirty-five years, except in the case of:

(A) Maritime and maritime-related operations, which may provide for a maximum term of seventy years; and

(B) Aquaculture operations, which may provide for a maximum term of sixty-five years; provided that aquaculture operations in good standing may seek to renew a lease issued under this section and, during the lease term, may engage in supportive activities that are related to or integrated with aquaculture; and

(3) The method of disposition of public lands for cattle feed production as set forth in this subsection shall not apply after December 31, 1988.

For the purposes of this subsection:

"Agricultural processing" means the processing of agricultural products, including dairying, grown, raised, or produced in Hawaii.

"Airport-related" means a purpose or activity that requires air transportation to achieve that purpose or activity; or an activity that generates revenue for the airport system as provided in section 261-7.

"Aquaculture" means the propagation, cultivation, or farming of aquatic plants and animals in controlled or selected environments for research, commercial, or stocking purposes, including aquaponics or any growing of plants or animals with aquaculture effluents.

"Maritime-related" means a purpose or activity that requires and is directly related to the loading, off-loading, storage, or distribution of goods and services of the maritime industry.

(c) Any provision of this chapter to the contrary notwithstanding, the board may issue new pasture leases by negotiation for lands already under pasture use when doing so will further public purposes that are the responsibility of the department and the department of agriculture to promote, including, without limitation, the preservation of existing native forest, reforestation for watershed enhancement and forest carbon sequestration opportunities, facilitation of public hunting, promotion of sustainable food production establishment and maintenance of public access to landlocked reserves, enhancement of public recreational opportunities, protection and propagation of current biological and other significant resources, and preservation and enhancement of natural resource and public use values; provided that:

(1) The term of any pasture lease issued under this subsection shall not be for more than sixty-five years; and

(2) The board may consider key characteristics of public lands most likely to benefit from the negotiation of pasture leases, identification of public purposes to be promoted through negotiation of pasture leases, a description of the types of lessee obligations regarding food production and natural resource conservation and stewardship that will serve to achieve the identified public purposes, eligibility requirements for pasture lessees, and applicant qualifications.

The board may set the rent for pastoral and agricultural leases issued under this subsection on such terms and conditions as the board may determine, including but not limited to a value that incentivizes or otherwise promotes ranching operations compatible with the public purposes that are the responsibility of the department to promote. In arriving at a rental value, the board may also consider the specified use of the land; any restriction on grazing or other beneficial uses of the land or portions thereof by lessee; and any conservation or stewardship services required to be performed by the lessee under the lease. If an independent appraisal is procured to determine rent for a pasture lease, the board shall apply a lower rate of return if warranted after consideration of the public purpose served by the lease, use restrictions thereunder, and any obligation of the lessee to provide conservation or stewardship services."

PART IV

SECTION 9. The purpose of this part is to balance the State's commitment to agriculture as a priority and the State's dedication to land stewardship and reforestation by requiring approval by the board of land and natural resources prior to removal of pasture lands for reforestation purposes.

SECTION 10. The department of land and natural resources' division of forestry and wildlife must seek approval from the board of land and natural resources prior to the removal of any land designated for pasture leases for reforestation purposes.

The division of forestry and wildlife shall submit a funded action plan for reforestation purposes on current pasture lease lands to the board of land and natural resources for approval.

PART V

SECTION 11. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 12. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 13. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2068
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII