THE SENATE	S.B. NO.	71
THIRTY-THIRD LEGISLATURE, 2025		S.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO THE RENTAL HOUSING REVOLVING FUND.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the State is experiencing an extreme housing shortage. However, the rental housing revolving fund, the State's primary means of financing new housing, produces new housing with extreme inefficiency. Presently, the rental housing revolving fund requires spending roughly $200,000 of state taxpayer funds per unit, typically to be repaid at only 0.15 per cent interest over fifty-seven years. Units financed by the rental housing revolving fund are typically only affordable for up to sixty-one years, which will result in the expiration of fifteen thousand units by the year 2100. The families in those fifteen thousand units will likely be evicted as rents rise to market rates unless the State and counties buy back the buildings, causing taxpayers to pay twice for the same building. As a result of these attractive terms, the rental housing revolving fund now finances half of all housing production statewide, crowding out all other forms of housing finance, including from the private sector.

Furthermore, the rental housing revolving fund is overbuilding rental housing at the sixty per cent area median income level. According to the Hawaii housing finance and development corporation's 2019 Hawaii housing planning study, the corporation forecasts a demand of only 1,789 rental units for households earning fifty to sixty per cent of the area median income, or three hundred fifty-eight units per year, over the 2020 – 2025 period, which is almost exclusively what comprises low-income housing tax credit projects. Presently, the Hawaii housing finance and development corporation is financing well over one thousand low-income housing tax credit units per year.

Due to the dramatic overbuilding of this narrow market segment, over thirty per cent of low-income housing tax credit units are being rented by tenants earning thirty per cent of the area median income, who are severely cost burdened as a result. The same 2019 study forecasts demand of 1,855 rental units, or three hundred seventy-one units per year, for renters earning one hundred twenty per cent to one hundred forty per cent of area median income over the same five-year period. By contrast, there is demand for 11,872 ownership units for households earning one hundred twenty per cent of the area median income or greater, which equals 2,156 units at one hundred twenty to one hundred forty per cent of area median income; 3,982 units at one hundred forty to one hundred eighty per cent of area median income; and 5,734 units greater than one hundred eighty per cent of area median income, over the same five-year period, or 2,374 units per year. These figures indicate that there is much greater demand than what the market is currently supplying. Therefore, prioritizing financing for tier I and tier II area median income segments, while enabling surplus funds to be used to produce housing in the most efficient means possible, will greatly increase housing production in the State.

Accordingly, the purpose of this Act is to:

(1) Rename the rental housing revolving fund to the state housing revolving fund;

(2) Establish a tiered system for the prioritization of moneys awarded from the state housing revolving fund;

(3) Require the Hawaii housing finance and development corporation to establish an application process for fund allocation; and

(4) Require the Hawaii housing finance and development corporation to prioritize projects that require the least amount of funding per unit per year.

SECTION 2. Chapter 201H, Hawaii Revised Statutes, is amended by amending the title of subpart J of part III to read as follows:

"J. [Rental] State Housing Revolving Fund"

SECTION 3. Section 201H-6, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

"(f) The corporation, through the housing advocacy and information system, shall develop and maintain an affordable housing inventory registry to identify:

(1) Affordable housing projects developed by the corporation utilizing moneys in the [rental] state housing revolving fund established pursuant to section 201H-202 or the dwelling unit revolving fund established pursuant to section 201H-191;

(2) State and federal public housing projects identified by the Hawaii public housing authority;

(3) United States Department of Housing and Urban Development Region 9 federally supported and privately managed housing projects; and

(4) State and county lands that may be developed for affordable housing, as defined in section 201H-57(b)."

SECTION 4. Section 201H-87, Hawaii Revised Statutes, is amended to read as follows:

"[[]§201H-87[]] Applications for financing; application periods. If sufficient funding is available, the corporation shall open at minimum two application periods each year for the receipt of applications for financing from parties interested in applying for financing for the development of affordable housing in the State from the low-income housing tax credit program, Hula Mae multi-family program, [rental] state housing revolving fund program, and dwelling unit revolving fund program. Applications for the four programs may be consolidated for administrative efficiency."

SECTION 5. Section 201H-201, Hawaii Revised Statutes, is amended as follows:

1. By amending the definition of "fund" to read:

""Fund" means the [rental] state housing revolving fund established pursuant to section 201H-202."

2. By repealing the definitions of "efficiency", "feasibility", and "project readiness".

[""Efficiency" means the amount of state financial resources required per unit.

"Feasibility" means reasonableness of project budget and schedule assumptions.

"Project readiness" means a project that is anticipated to commence construction within one year of award of financing."]

SECTION 6. Section 201H-202, Hawaii Revised Statutes, is amended as follows:

1. By amending its title and subsection (a) to read:

"§201H-202 [Rental] State housing revolving fund. (a) There is established the [rental] state housing revolving fund to be administered by the corporation."

2. By amending subsections (d) and (e) to read:

"(d) The fund shall be used to provide loans for the development, pre-development, construction, acquisition, preservation, and substantial rehabilitation of [rental] housing units. The corporation shall not forgive any loan made from the fund unless the corporation forecloses on the project. Permitted uses of the fund may include but are not limited to planning, design, land acquisition, costs of options, agreements of sale, downpayments, equity financing, capacity building of nonprofit housing developers, credit enhancement, gap financing, or other housing development services or activities as provided in rules adopted by the corporation pursuant to chapter 91. The rules may provide for a means of recapturing loans or grants made from the fund if a [rental] housing project financed under the fund is refinanced or sold at a later date. The rules may also provide that moneys from the fund shall be leveraged with other financial resources to the extent possible.

(e) Moneys available in the fund shall be used for the purpose of providing, in whole or in part, loans for [rental] housing projects [demonstrating project readiness, efficiency, and feasibility acceptable to the corporation] in the following order of priority:

(1) For projects that were awarded low-income housing credits pursuant to paragraph (2), priority shall be given to projects with a perpetual affordability commitment;

(2) Projects or units in projects that are allocated low-income housing credits pursuant to the state housing credit ceiling under section 42(h) of the Internal Revenue Code of 1986, as amended, or projects or units in projects that are funded by programs of the United States Department of Housing and Urban Development and United States Department of Agriculture Rural Development [wherein:

(A) At least fifty per cent of the available units are for persons and families with incomes at or below eighty per cent of the median family income of which at least five per cent of the available units are for persons and families with incomes at or below thirty per cent of the median family income; and

(B) The remaining units are for persons and families with incomes at or below one hundred per cent of the median family income;

provided that the corporation may establish rules to ensure full occupancy of fund projects; and]; provided that paragraphs (1) and (2) shall apply to awards up to the annual number of rental units that the corporation's most recent Hawaii housing planning study forecasts are needed for persons and families with incomes at fifty to sixty per cent of the area median income;

(3) Mixed-income [rental] projects or units in a mixed‑income [rental] project [wherein all of the available units are for persons and families with incomes at or below one hundred forty per cent of the median family income.]; provided that this paragraph shall apply to awards up to the annual number of rental units that the corporation's most recent Hawaii housing planning study forecasts are needed for persons and families with incomes at one hundred twenty to one hundred forty per cent of the area median income; and

(4) Projects that are exclusively for qualified residents as defined in section 201H-32."

3. By amending subsection (g) to read:

"(g) The corporation shall submit an annual report to the legislature no later than twenty days prior to the convening of each regular session describing the projects funded and, with respect to [rental] housing projects targeted for persons and families with incomes at or below thirty per cent of the median family income, its efforts to develop those [rental] housing projects, a description of proposals submitted for this target group and action taken on the proposals, and any barriers to developing housing units for this target group."

SECTION 7. Section 201H-204, Hawaii Revised Statutes, is amended to read as follows:

"[[]§201H-204[]] Eligible projects. (a) Activities eligible for assistance from the fund shall include but not be limited to:

(1) New construction, rehabilitation, or preservation of low-income rental housing units [that meet the criteria for eligibility described in subsection (c)];

(2) The leveraging of moneys with the use of fund assets;

(3) Pre-development activity grants or loans to nonprofit organizations; and

(4) Acquisition of housing units for the purpose of preservation as low-income or very low-income housing.

(b) [Preference shall be given to projects producing units in at least one of the following categories:

(1) Multifamily units;

(2) Attached single-family units;

(3) Apartments;

(4) Townhouses;

(5) Housing units above commercial or industrial space;

(6) Single room occupancy units;

(7) Accessory apartment units;

(8) Employee housing;

(9) United States Department of Housing and Urban Development mixed finance development of public housing units; and

(10) Other types of units meeting the criteria for eligibility set forth in subsection (c).]

The corporation shall establish an application process for fund allocation. Preference shall be given to projects meeting the following criteria:

(1) Multifamily units near stations of a locally preferred alternative of a mass transit project;

(2) State- or county-owned projects;

(3) Projects that are required to be conveyed to the State or a county at a definite time;

(4) Projects owned by organizations obliged to use all financial surplus generated by the projects to construct, manage, or rehabilitate owner- or renter‑occupied housing in the State;

(5) Projects with a perpetual affordability commitment;

(6) Projects of applicant developers who request loan terms no longer than five years; and

(7) Projects requiring the least amount of state funding per unit per year.

[(c) The corporation shall establish an application process for fund allocation that gives preference to projects meeting the following criteria that are listed in descending order of priority:

(1) Serve the original target group;

(2) Provide at least five per cent of the total number of units for persons and families with incomes at or below thirty per cent of the median family income;

(3) Provide the maximum number of units for persons or families with incomes at or below eighty per cent of the median family income;

(4) Are committed to serving the target group over a longer period of time;

(5) Increase the integration of income levels of the immediate community area;

(6) Meet the geographic needs of the target group of the proposed rental housing project, such as proximity to employment centers and services; and

(7) Have favorable past performance in developing, owning, managing, or maintaining affordable rental housing.

The corporation may include other criteria as it deems necessary to carry out the purposes of this subpart.

If the corporation, after applying the process described in this subsection, finds a nonprofit project equally ranked with a for-profit or government project, the corporation shall give preference to the nonprofit project in allotting fund moneys.]"

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.

Report Title:

HHFDC; RHRF; SHRF; Preference Criteria; Eligibility; Fund Allocation; Application Process; Preference; Priorities

Description:

Renames the Rental Housing Revolving Fund to the State Housing Revolving Fund (SHRF). Clarifies the prioritization of funds from the SHRF and eligible applicants of the SHRF. Amends the preference criteria and eligibility requirements for applicant developers seeking assistance from the SHRF. (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.