SB42

SECTION 1. The legislature finds that providing grants for rental units set aside for persons and families with incomes at or below thirty per cent of the median family income in any project financed in part or in whole by the rental housing revolving fund has been ineffective. Reports indicate that developers overwhelmingly were not willing to set aside units dedicated to persons and families with incomes at or below thirty per cent of the median family income, with only one project containing at least half of the proposed units dedicated to persons and families with incomes at or below thirty per cent of the median family income being submitted. Reports also indicate that the majority of projects receiving grants did not include more than five per cent of units set aside for persons and families with incomes at or below thirty per cent of the median family income. The legislature further finds that offering grants to developers to set aside more units for persons and families with incomes at or below thirty per cent of the median family income does not incentivize developers to set aside more units for persons and families at lower income levels because the rental housing revolving fund already provides long-term, low-interest loans that developers can utilize.

Accordingly, the purpose of this Act is to repeal statutory language that:

(1) Requires certain housing projects have at least five per cent of available units be for persons and families with incomes at or below thirty per cent of the median family income to be eligible for loans from the rental housing revolving fund;

(2) Provides grants to developers for rental units set aside for persons and families with incomes at or below thirty per cent of the median family income in any project financed in part or in whole by the rental housing revolving fund; and

(3) Requires the Hawaii housing finance and development corporation to establish an application process for rental housing revolving fund allocation that gives preference to projects providing 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.

SECTION 2. Section 201H-202, Hawaii Revised Statutes, is amended to read as follows:

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

(b) An amount from the fund, to be set by the corporation and authorized by the legislature, may be used for administrative expenses incurred by the corporation in administering the corporation's housing finance programs; provided that fund moneys shall not be used to finance day‑to‑day administrative expenses of projects allotted fund moneys.

(c) The following may be deposited into the fund: appropriations made by the legislature, conveyance taxes pursuant to section 247-7, private contributions, repayment of loans, interest, other returns, and moneys from other sources.

(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

(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.

(f) There is established within the fund a bond volume cap recycling program subaccount. The bond volume cap recycling program subaccount shall be maintained as a reserve for the bond volume cap recycling program established pursuant to section 39B-2(f).

(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.

(h) For the purposes of this subpart, the applicable median family income shall be the median family income for the county or standard metropolitan statistical area in which the project is located as determined by the United States Department of Housing and Urban Development, as adjusted from time to time.

(i) The corporation may provide loans under this section; provided that the corporation shall establish loan-to-value ratios to protect the fund from inordinate risk and that under no circumstances shall the rules permit the loan‑to-value ratio to exceed one hundred per cent; provided further that the underwriting guidelines include a debt-coverage ratio of [no] not less than 1.0 to 1.

[(j) For the period commencing July 1, 2005, through June 30, 2009, the fund may be used to provide grants for rental units set aside for persons and families with incomes at or below thirty per cent of the median family income in any project financed in whole or in part by the fund in proportion of those units to the total number of units in the project. At the conclusion of the period described in this subsection, the corporation shall report to the legislature on the number and use of grants provided and whether the grants were an effective use of the funds for purposes of developing rental housing for families at or below thirty per cent of the median family income.]"

SECTION 3. Section 201H-204, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(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)~~] (2) Provide the maximum number of units for persons or families with incomes at or below eighty per cent of the median family income;

[~~(4)~~] (3) Are committed to serving the target group over a longer period of time;

[~~(5)~~] (4) Increase the integration of income levels of the immediate community area;

[~~(6)~~] (5) Meet the geographic needs of the target group of the proposed rental housing project, such as proximity to employment centers and services; and

[~~(7)~~] (6) 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 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, 2025.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	42
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII