SB2498 SD1

SECTION 1. The legislature finds that the State's streams, groundwater, and ocean are harmed by nonpoint contamination sources that flow directly off the land, rather than through pipes or ditches. Cesspools are a nonpoint contamination source of great concern. These inadequate systems are essentially holes in the ground that do not treat wastewater; rather, they merely dispose of polluted wastewater.

It is estimated that there are almost eighty-three thousand cesspools in the State; with nearly fifty thousand, or eighteen per cent, on Hawaii island; approximately fourteen thousand, or eighteen per cent, on Kauai; over eleven thousand, or fourteen per cent on Maui; approximately seven thousand five hundred, or nine per cent, on Oahu; and approximately one thousand four hundred, or two per cent, on Molokai. Collectively, the State's cesspools release more than fifty-three million gallons of untreated sewage into the ground each day and Hawaii relies on groundwater for ninety per cent of its drinking water.

In response to the State's cesspool pollution problem, in 2017, the legislature enacted a measure that required all cesspools not excluded by the director of health to be upgraded or converted to wastewater systems approved by the director of health, or connected to sewage systems by January 1, 2050; however, cesspool conversions, which are estimated to cost $1,300,000,000, have been lagging.

The legislature finds the upfront costs of cesspool conversions to be a barrier that prevents many cesspool owners from addressing systems that daily contribute to the release of untreated sewage into the ground. The legislature further finds that it is in the public interest to reduce risks presented by cesspools and safeguard public sanitation and the environment. It is in the interest of the State to encourage the acceleration of cesspool conversions as doing so would also produce external benefits to public education about cesspools and wastewater, while creating a market to sustain the clean water workforce being developed in training programs, like Work-4-Water, through the university of Hawaii community colleges system.

The legislature also finds that while state and federal funding for cesspool conversion loans are limited, the recently approved Inflation Reduction Act of 2022 and Bipartisan Infrastructure Law generously increase funding to supplement the Hawaii public utilities commission's energy efficiency programs. Under the Inflation Reduction Act Home Energy Rebate program, the State will receive $68,300,000 in funding for energy efficient water heaters, space heaters and coolers, dryers, cooking appliances, wiring, insulation, and other ENERGY STAR qualified technologies from fiscal year 2024 to fiscal year 2031. Under the Bipartisan Infrastructure Law, the state will receive $7,000,000 in funds for grid resilience and weatherization, and $18,000,000 for electric vehicle charging infrastructure from fiscal year 2024 to fiscal year 2028.

The public utilities commission-approved public benefits fee surcharge is currently used by its contractor, Hawaii Energy, to administer commercial and residential energy efficiency programs. For the program year spanning July 1, 2023, to June 30, 2024, it is expected that Hawaii Energy will receive $44,000,000 from ratepayers to administer its programs, with $26,000,000 allocated for commercial programs and $18,000,000 allocated for residential programs.

On October 26, 2017, the public utilities commission issued Order No. 34930 requiring the Hawaii green infrastructure authority to transfer all green energy market securitization (GEMS) bond-funded principal and interest loan repayments collected to supplement the public benefits fund. The amounts transferred to the public utilities commission are approximately $3,500,000 to $4,000,000 annually, and, to date, the authority has transferred over $17,700,000 to the public utilities commission.

It is expected that the Maui wildfires will significantly injure the State's economic health, and initial signs already indicate that the actual general fund tax revenue is roughly 1.8 per cent less than projected by the council on revenues for the first fiscal month of 2024.

The legislature further finds that according to the public utilities commission's Indenture of Trust, the GEMS bond was designated a "green bond," and that the State pledged to commit proceeds to the "financing of environmentally beneficial projects".

In lieu of transferring GEMS loan repayments to the public utilities commission, the legislature finds that allowing the Hawaii green infrastructure authority to retain earned interest to cover its operating expenses while repurposing the repaid principal of GEMS funded solar loans to fund a cesspool conversion revolving loan fund would create a long-term source of capital that, when combined with federal funds, serves a necessary public purpose.

The purpose of this Act is to:

(1) Establish the cesspool conversion revolving loan fund within the Hawaii green infrastructure special fund to provide financing to low- and moderate-income households for cesspool conversions approved by the department of health;

(2) Authorize the Hawaii green infrastructure authority to administer the fund; and

(3) Require annual reports to the legislature.

SECTION 2. Chapter 196, Hawaii Revised Statutes, is amended by adding a new section to part IV to be appropriately designated and to read as follows:

"§196- Cesspool conversion revolving loan fund. (a) There is established in the Hawaii green infrastructure special fund established under section 196-65, the cesspool conversion revolving loan fund that shall be administered by the authority. Funds deposited into the cesspool conversion revolving loan fund shall not be under the jurisdiction of nor subject to approval by the commission and shall include:

(1) Principal and interest repayments from green infrastructure loans made under section 196-65;

(2) Interest repayments from loans made to state government agencies under section 196-62.5;

(3) Funds from federal, state, county, private or other funding sources;

(4) Moneys received as repayment of loans and interest payments; provided that the repayment of loans and interest payments under this paragraph shall not include repayment of loans and interest collected as a result of funds advanced from proceeds of the clean energy and energy efficiency revolving loan fund established pursuant to section 196-65.5 or any solar or energy storage loan program; and

(5) Any fees collected by the authority under this section; provided that moneys collected as a result of the funds advanced from proceeds of the green energy market securitization bonds, clean energy and energy efficiency revolving loan fund, and any solar or energy storage loan program shall be kept separate from fees collected as a result of funds advanced from proceeds of the cesspool conversion revolving loan fund.

(b) Moneys in the cesspool conversion revolving loan fund shall be used to provide low-cost loans or other authorized financial assistance to eligible low- and moderate-income households to update or convert existing cesspools in any county to septic systems, aerobic treatment unit systems, connect to existing sewer systems or any other system approved by the department of health for wastewater treatment on terms approved by the authority. Moneys from the fund may be used to cover all administrative and legal costs of fund management and management associated with all loan programs administered by the authority, including personnel, services, technical assistance, data collection and reporting, materials, equipment, and travel for the purposes of this section.

(c) Funds appropriated or authorized from the cesspool conversion revolving loan fund shall be expended by the authority. The authority may contract with other public or private entities for the provision of all or a portion of the services necessary for the administration and implementation of the loan fund program pursuant to section 196-96(e). The authority may set fees for fund management and technical site assistance provided under this section.

(d) All interest earned on the loans, deposits, or investments of the moneys in the fund shall become part of the fund.

(e) The authority may establish subaccounts within the fund as necessary.

(f) The authority may adopt rules pursuant to chapter 91 to carry out the purposes of this section."

SECTION 3. Section 196-64, Hawaii Revised Statutes, is amended to read as follows:

"§196-64 Functions, powers, and duties of the authority. (a) In the performance of, and with respect to the functions, powers, and duties vested in the authority by this part, the authority, as directed by the director and in accordance with a green infrastructure loan program order or orders under section 269-171 or an annual plan submitted by the authority pursuant to this section, as approved by the commission for the green infrastructure loan program, may:

(1) Make loans and expend funds to finance the purchase or installation of green infrastructure equipment for clean energy technology, demand response technology, and energy use reduction and demand side management infrastructure, programs, and services;

(2) Hold and invest moneys in the green infrastructure special fund in investments as permitted by law and in accordance with approved investment guidelines established in one or more orders issued by the commission pursuant to section 269-171;

(3) Hire employees necessary to perform its duties, including an executive director. The executive director shall be appointed by the authority, and the employees' positions, including the executive director's position, shall be exempt from chapter 76;

(4) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice, and any other contracts that are necessary and proper for the implementation of the loan program;

(5) Enter into contracts in compliance with chapter 103D for the administration of the loan program[~~, without the necessity of complying with chapter 103D~~];

(6) Establish loan program guidelines to be approved in one or more orders issued by the commission pursuant to section 269-171 to carry out the purposes of this part;

(7) Be audited at least annually by a firm of independent certified public accountants selected by the authority, and provide the results of this audit to the department and the commission; and

(8) Perform all functions necessary to effectuate the purposes of this part.

(b) The authority shall submit to the commission an annual plan for the green infrastructure loan program for review and approval no later than ninety days prior to the start of each fiscal year. The annual plan submitted by the authority shall include the authority's projected operational budget for the succeeding fiscal year.

(c) In the performance of the functions, powers, and duties vested in the authority by this part, the authority shall administer the clean energy and energy efficiency revolving loan fund established pursuant to section 196-65.5 and may:

(1) Make loans and expend funds to finance the purchase or installation of clean energy technology and services;

(2) Implement and administer loan fund programs on behalf of other state departments or agencies through a memorandum of agreement and expend funds appropriated to the department or agency for purposes authorized by the legislature;

(3) Utilize all repayment mechanisms, including the green energy money saver on-bill program, financing tools, servicing and other arrangements, and sources of capital available to the authority;

(4) Exercise powers to organize and establish special purpose entities as limited liability companies under the laws of the State;

(5) Acquire, hold, and sell qualified securities;

(6) Pledge unencumbered net assets, loans receivable, assigned agreements, and security interests over equipment financed, as collateral for the authority's borrowings from federal, county, or private lenders or agencies;

(7) Utilize the employees of the authority, including the executive director;

(8) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice and any other contracts that are necessary and proper for the implementation of [~~the~~] a loan fund program;

(9) Enter into contracts in compliance with chapter 103D for the administration of [~~the~~] a loan fund program [~~exempt from~~ ~~chapter 103D~~];

(10) Establish loan fund program guidelines;

(11) Be audited at least annually by a firm of independent certified public accountants selected by the authority and provide the results of the audit to the department and legislature; and

(12) Perform all functions necessary to effectuate the purposes of this part.

(d) The authority shall submit an annual report for the clean energy and energy efficiency revolving loan fund to the legislature no later than twenty days prior to the convening of each regular session describing the projects funded and the projected energy impacts.

(e) In the performance of the functions, powers, and duties vested in the authority by this part, the authority shall administer the cesspool conversion revolving loan fund established pursuant to section 196- and may:

(1) Make loans and expend funds to finance the update or conversion of existing cesspools in any county to septic systems, aerobic treatment unit systems, and connect to existing sewer systems or any other system approved by the department of health for wastewater treatment;

(2) Reference as an example the loan program under section 342D-83, provided by the department of health;

(3) Utilize all repayment mechanisms, financing tools, servicing and other arrangements, and sources of capital available to the authority;

(4) Utilize the employees of the authority, including the executive director;

(5) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice and any other contracts that are necessary and proper for the implementation of a loan fund program;

(6) Enter into contracts in compliance with chapter 103D for the administration of a loan fund program;

(7) Establish loan fund program guidelines;

(8) Be audited at least annually by a firm of independent certified public accountants selected by the authority and provide the results of the audit to the department of health and legislature; and

(9) Perform all functions necessary to effectuate the purposes of this subsection.

(f) The authority shall submit an annual report for the cesspool conversion revolving loan fund to the legislature no later than twenty days prior to the convening of each regular session describing the projects funded."

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

SECTION 5. This Act shall take effect on July 1, 2024.

THE SENATE	S.B. NO.	2498
THIRTY-SECOND LEGISLATURE, 2024		S.D. 1
STATE OF HAWAII