SB1303

SECTION 1. The Legislature finds that Hawaii agricultural producers face critical barriers in accessing capital necessary to cover rising land and water costs, labor shortages, and infrastructure needs. Modifications to the state agricultural loan program are needed to address these challenges and encourage farmers and ranchers to expand their current operations. Larger scale agriculture operations are more efficient and better able to compete with imported products and assist the state in becoming more self-sufficient in food production.

The purposes of this Act are to:

(1) Lower and fix the state agricultural loan program's interest rates, increase loan limits, and reduce the required number of credit denials;

(2) Establish a program for a secured line of credit and create a new loan initiative to encourage larger scale agriculture for import replacement and crops grown for farm to state programs; and

(3) Appropriate funds to meet the anticipated increase in loan demand and to accommodate the increased loan limits.

SECTION 2. Section 155-1, Hawaii Revised Statutes, is amended by adding two new definitions to be appropriately inserted and to read as follows:

""Import replacement crops" are crops grown on a large-scale basis in Hawaii with the specific intent to replace crops imported into the state.

"Line of credit" means a secured revolving loan with a preset credit limit. A borrower can access funds from a line of credit at any time during the term of a loan provided that the borrower does not exceed the maximum credit limit and the account is in good standing."

SECTION 3. Section 155-3, Hawaii Revised Statutes, is amended to read as follows:

"§155-3 Restriction. Loans authorized by this chapter shall require [~~two credit denials, except for class "F" loans for new farmer and farm innovation programs, which shall require~~] one credit denial. This requirement shall be waived for new farmer loans for $100,000 or less for farm trainees and recent college graduates with a degree in agriculture. This requirement may also be waived by the board of agriculture for emergency loans. Credit denials may be accepted from any of the following:

(1) Private lenders;

(2) Members of the farm credit system; or

(3 The United States Department of Agriculture."

SECTION 4. Section 155-8, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) Loans made under this section shall bear simple interest on the unpaid principal balance, charged on the actual amount disbursed to the borrower. The interest rate on loans of class "A", "B", "C", "E", [~~and~~] "G", and "J" shall be at a rate of [~~one per cent below the prime rate or at a rate of~~ ~~seven and one-half~~] four per cent a year[~~, whichever is less~~]. [For purposes of this subsection, the prime rate shall be determined on January 1 and July 1 of each year, and shall be the prime rate charged by the two largest banks in the State identified by the department of commerce and consumer affairs. If the prime rates of the two largest banks are different, the lower prime rate of the two shall apply. The interest rate of class "F" loans shall be at a rate of one and one-half per cent below the prime rate or at a rate of six per cent a year, whichever is less.] The interest rate of class "D", "F", "H" [~~and~~], "I", and "K" loans shall be three per cent a year. If the money loaned is borrowed by the department, then the interest on loans of the classes shall be the rate as determined above or one per cent over the cost to the State of borrowing the money, whichever is greater. Interest on loans made under this chapter shall not be less than three per cent a year."

SECTION 5. Section 155-9, Hawaii Revised Statutes, is amended to read as follows:

"§155-9 Classes of loans; purposes, terms, eligibility. (a) Loans made under this chapter shall be for the purposes and in accordance with the terms specified in classes "A" through [~~"I"~~] "K" in this section and shall be made only to applicants who meet the eligibility requirements specified therein and except as to class "B" loans to associations and class "E" loans, the eligibility requirements specified in section 155-10. The maximum amount of a loan for class "A", "C", "D", and "F" loans to an individual applicant shall also apply to any loan application submitted by a partnership, corporation, or other entity, and for the purpose of determining whether the maximum loan amount to any individual will be exceeded, outstanding loans to any partnership, corporation, or other entity that the individual has a legal or equitable interest in excess of twenty per cent shall be taken into account.

(b) Class A: Farm ownership and improvement loans shall provide for:

(1) The purchase or improvement of farm land;

(2) The purchase, construction, or improvement of adequate farm dwellings, and other essential farm buildings; and

(3) The liquidation of indebtedness incurred for any of the foregoing purposes.

The loans shall be for an amount not to exceed [~~$800,000~~] $1,500,000 and for a term not to exceed forty years. To be eligible, the applicant shall (A) derive, or present an acceptable plan to derive, a major portion of the applicant's income from and devote, or intend to devote, most of the applicant's time to farming operations; and (B) have or be able to obtain the operating capital, including livestock and equipment, needed to successfully operate the applicant's farm.

(1) Soil conservation practices;

(2) Water development, conservation, and use;

(3) Drainage; and

(4) The liquidation of indebtedness incurred for any of the foregoing purposes.

The loans shall be for an amount not to exceed [~~$35,000~~] $750,000 to an individual or [~~$200,000 to~~] an association and shall be for a term not to exceed twenty years for a loan to an individual and forty years to an association. To be eligible, an individual applicant shall have sufficient farm and other income to pay for farm operating and living expenses and to meet payments on applicant's existing debts, including the proposed soil and water conservation loan. An association, to be eligible, shall be a nonprofit organization primarily engaged in extending services directly related to the purposes of the loan to its members, and at least sixty per cent of its membership shall meet the eligibility requirements specified in section 155-10.

(d) Class C: Farm operating loans shall be for the purpose of carrying on and improving a farming operation, including:

(1) The purchase of farm equipment and livestock;

(2) The payment of production and marketing expenses, including materials, labor, and services;

(3) The payment of living expenses;

(4) The liquidation of indebtedness incurred for any of the foregoing purposes; and

(5) The exportation of crops and livestock.

The loans shall be for an amount not to exceed [~~$800,000~~] $1,500,000 and for a term not to exceed ten years. To be eligible, an applicant shall derive, or present an acceptable plan to derive, a major portion of the applicant's income from and devote, or intend to devote, most of the applicant's time to farming operations.

Qualified farmers affected by state eradication programs may also be eligible for loans under this subsection. Loans made for rehabilitation from eradication programs shall be subject to the terms of class "C" loans; provided that the interest rate shall be three per cent a year and the requirements in section 155-3 shall be waived and paragraph (4) shall not apply.

(e) Class D: Emergency loans shall be for the purpose of providing relief and rehabilitation to qualified farmers without limit as to purpose:

(1) In areas stricken by extraordinary rainstorms, windstorms, droughts, tidal waves, earthquakes, volcanic eruptions, and other natural catastrophes;

(2) On farms stricken by livestock disease epidemics and crop blights;

(3) On farms seriously affected by prolonged shipping and dock strikes;

(4) During economic emergencies caused by overproduction, excessive imports, and the like; and

(5) During other emergencies as determined by the board of agriculture.

The maximum amounts and period for the loans shall be determined by the board of agriculture; provided that the board shall require that any settlement or moneys received by qualified farmers as a result of an emergency declared under this section shall first be applied to the repayment of an emergency loan made under this chapter.

(f) Class E: Loans to farmers' cooperatives, corporations, and food manufacturers shall provide credit to entities engaged in marketing, purchasing, and processing, and providing farm business services, including:

(1) Facility loans to purchase or improve land, building, and equipment for an amount not to exceed [~~$500,000~~] $1,500,000 and a term not to exceed twenty years;

(2) Operating loans to finance inventories of supplies and materials, warehousing, and shipping commodities, extension of consumer credit to justified farmer-members, and other normal operating expenses for an amount not to exceed [~~$300,000~~] $750,000 and a term not to exceed seven years; and

(3) The exportation of crops and livestock.

To be eligible, a farmers' cooperative or corporation shall have a majority of its board of directors and a majority of its membership as shareholders who meet the eligibility requirements of section 155-10 and who devote most of their time to farming operations, and the facility loans shall be for an amount not to exceed [~~$500,000~~] $1,500,000 or [~~eighty~~] eighty-five per cent of the cost of the project, whichever is less.

To be eligible, a food manufacturer shall be licensed to do business in the State, and the controlling interest of the entity shall possess a minimum of two years of relevant processing or manufacturing experience as acceptable to the department of agriculture. The entity shall process Hawaii-grown agricultural products or use Hawaii-grown agricultural products as an ingredient in the manufacturing process. Facility loans shall be for an amount not to exceed [~~$500,000~~] $1,500,000 or [~~eighty~~] eighty-five per cent of the cost of the project, whichever is less. The requirements in section 155-10 shall be waived for food manufacturing loans; however, the entity shall be a sound credit risk with the ability to repay the money borrowed.

(g) Class F: New farmer and farm innovation loan programs shall provide for:

(1) New farmer loans made under this class shall be [~~for purposes and~~] in accordance with the terms specified in class "A" and "C" [~~only, and shall be made only for full-time farming.~~] loans. The loans shall be made for an amount not to exceed [~~$250,000~~] $750,000 or eighty-five per cent of the cost of the project, whichever is less. Farm trainees and recent graduates with a degree in agriculture with smaller projects requiring loans of $100,000 or less shall have a minimum five per cent equity contribution towards the cost of the project;

(2) Farm innovation loans made under this class shall be for qualified farmers to perform practical research in crop development, innovative production techniques, new technologies, and production of new crops that are not typically grown in the State. Farm innovation loans shall be limited to a maximum of $75,000;

(3) Any subsequent loan shall be made from classes "A" to "D", respectively, depending upon the purpose for which the loan funds are used; and

(4) Borrowers shall comply with special term loan agreements as may be required by the department and shall take special training courses as the department deems necessary.

(h) Class G: Loans to part-time farmers shall be for farm improvement and operating purposes for carrying on and improving farming operations, including loans for:

(1) The purchase, construction, and improvement of farm production and growing structures;

(2) The purchase of farm equipment or livestock; and

(3) The payment of production and marketing expenses, including materials, labor, and services.

The liquidation of indebtedness incurred for any of the purposes under this subsection and for living expenses shall not be authorized purposes. Each loan shall be for an amount not to exceed [~~$25,000~~] $750,000 and for a term not to exceed ten years.

(i) Class H: Farm sustainable project loans shall provide for:

(1) The purchase, construction, or improvement of essential farm buildings, including the improvement of existing farm buildings related to the project;

(2) The improvement of land that may be required by the project;

(3) The purchase of equipment and payment of any related expenses, including materials, labor, and services;

(4) Operating expenses associated with the project; or

(5) The liquidation of indebtedness incurred for any of the foregoing purposes.

The loans shall be for an amount not to exceed $1,500,000 or eighty-five per cent of the project cost, whichever is less, and for a term not to exceed forty years.

To be eligible, the applicant shall be a qualified farmer of sound credit rating with the ability to repay the money borrowed, as determined by the department. Income from the applicant's farming activities and any supplemental income that may be generated from the project shall be the sole criterion for the department's determination of the applicant's ability to repay the money borrowed. The department's determination may be based on projections of income and expenses.

(j) Class I: Biosecurity project loans shall provide for:

(1) The purchase, construction, or improvement of essential farm buildings, including the improvement of existing farm buildings related to the project;

(2) The improvement of land that may be required by the project;

(3) The purchase of equipment and payment of any related expenses, including materials, labor, signage, training, and services;

(4) Operating expenses associated with the project; or

(5) The liquidation of indebtedness incurred for any of the foregoing purposes.

The loans shall be for an amount not to exceed $1,000,000 or eighty-five per cent of the project cost, whichever is less, and for a term not to exceed twenty-five years.

(k) Class J: Line of credit loans shall provide revolving credit for farm operational expenses and to improve farm operations. Funds from the line of credit shall not be used for personal expenses or non-farm related purposes, and.

(1) A line of credit secured by chattel, crops, or equipment shall not exceed $100,000 or eighty-five per cent of the collateral valuation, whichever is less and for a term not to exceed five years; and

(2) A line of credit secured by real property shall not exceed $250,000 or eighty-five per cent of the collateral valuation, whichever is less and for a term not to exceed ten years.

To be eligible, the applicant shall be a qualified farmer of sound credit rating with the ability to repay the money borrowed, as determined by the department. The interest rate for lines of credit shall be the same rate provided in section 155-8.

(l) Class K: Import replacement loans shall provide credit for farm expansion to grow import replacement crops or to fund crops grown for the farm to state program established under section 27-8. Loans made under this class shall be for the purposes specified in class "A" and class "C" and terms shall be determined by the primary purpose of the loan funds. Loans shall be for an amount not to exceed $2,500,000 and for a term not to exceed 10 years.

(1) Loans for crops grown for the farm to state shall have written commitments from the appropriate state agency;

(2) Import replacement crops shall be of sufficient scale to impact regional, island wide, or statewide markets.

To be eligible, the applicant shall be a qualified farmer of sound credit rating with the ability to repay the money borrowed, as determined by the department. Interest rates for this class shall be three per cent per year."

SECTION 6. 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 2025-2026 to be deposited into the agricultural loan revolving special fund.

SECTION 7. There is appropriated out of the agricultural loan revolving special fund the sum of $____________ or so much thereof as may be necessary for fiscal year 2025-2026 for funding agricultural loans.

The sum appropriated shall be expended by the department of agriculture for the purposes of this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

THE SENATE	S.B. NO.	1303
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII