REPORT TITLE: 
State Bonds


DESCRIPTION:
Authorizes issuance of general obligation bonds.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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HOUSE OF REPRESENTATIVES                H.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                C.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO STATE BONDS.



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

 1      SECTION 1.  Declaration of findings with respect to the
 
 2 general obligation bonds authorized by this Act.  Pursuant to the
 
 3 clause in Article VII, Section 13 of the State Constitution which
 
 4 states:  "Effective July 1, 1980, the legislature shall include a
 
 5 declaration of findings in every general law authorizing the
 
 6 issuance of general obligation bonds that the total amount of
 
 7 principal and interest, estimated for such bonds and for all
 
 8 bonds authorized and unissued and calculated for all bonds issued
 
 9 and outstanding, will not cause the debt limit to be exceeded at
 
10 the time of issuance," the legislature finds and declares as
 
11 follows:
 
12      (1)  Limitation on general obligation debt.  The debt limit
 
13           of the state is set forth in Article VII, Section 13 of
 
14           the State Constitution, which states in part:  "General
 
15           obligation bonds may be issued by the State; provided
 
16           that such bonds at the time of issuance would not cause
 
17           the total amount of principal and interest payable in
 
18           the current or any future fiscal year, whichever is
 
19           higher, on such bonds and on all outstanding general
 

 
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 1           obligation bonds to exceed: a sum equal to twenty
 
 2           percent of the average of the general fund revenues of
 
 3           the State in the three fiscal years immediately
 
 4           preceding such issuance until June 30, 1982; and
 
 5           thereafter, a sum equal to eighteen and one-half
 
 6           percent of the average of the general fund revenues of
 
 7           the State in the three fiscal years immediately
 
 8           preceding such issuance."  Article VII, Section 13 also
 
 9           provides that in determining the power of the State to
 
10           issue general obligation bonds, certain bonds are
 
11           excludable, including "reimbursable general obligation
 
12           bonds issued for a public undertaking, improvement or
 
13           system but only to the extent that reimbursements to
 
14           the general fund are in fact made from the net revenue,
 
15           or net user tax receipts, or combination of both, as
 
16           determined for the immediately preceding fiscal year
 
17           and bonds constituting instruments of indebtedness
 
18           under which the State incurs a contingent liability as
 
19           a guarantor, but only to the extent the principal
 
20           amount of such bonds does not exceed seven percent of
 
21           the principal amount of outstanding general obligation
 
22           bonds not otherwise excluded under said Article VII,
 
23           Section 13.
 

 
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 1      (2)  Actual and estimated debt limits.  The limit on
 
 2           principal and interest of general obligation bonds
 
 3           issued by the State, actual for fiscal year 1998-1999
 
 4           and estimated for each fiscal year from 1999-2000 to
 
 5           2002-2003, is as follows:
 
 6            Fiscal                 Net General
 7             Year                 Fund Revenues        Debt Limit
 8           1995-1996             $3,136,543,568 
 
 9           1996-1997              3,115,264,737
 
10           1997-1998              3,195,967,036
 
11           1998-1999              3,241,641,000       $582,612,813
 
12           1999-2000              3,074,377,000        589,093,821
 
13           2000-2001              3,151,918,000        586,572,411
 
14           2001-2002              3,207,763,000        583,856,053
 
15           2002-2003            (Not Applicable)       581,766,910
 
16           For fiscal years 1998-1999, 1999-2000, 2000-2001, 2001-
 
17           2002 and 2002-2003 respectively, the debt limit is
 
18           derived by multiplying the average of the net general
 
19           fund revenues for the three preceding fiscal years by
 
20           eighteen and one-half per cent.  The net general fund
 
21           revenues for fiscal years 1995-1996, 1996-1997, and
 
22           1997-1998 are actual, as certified by the director of
 
23           finance in the Statement of the Debt Limit of the State
 
24           of Hawaii as of July 1, 1998, dated November 24, 1998.
 

 
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 1           The net general fund revenues for fiscal years 1998-
 
 2           1999 to 2001-2002 are estimates, based on general fund
 
 3           revenue estimates made as of March 12, 1999, by the
 
 4           council on revenues, the body assigned by Article VII,
 
 5           Section 7 of the State Constitution to make such
 
 6           estimates, and based on estimates made by the
 
 7           department of budget and finance of those receipts
 
 8           which cannot be included as general fund revenues for
 
 9           the purpose of calculating the debt limit, all of which
 
10           estimates the legislature finds to be reasonable.
 
11      (3)  Principal and interest on outstanding bonds applicable
 
12           to the debt limit.  (A) According to the department of
 
13           budget and finance, the total amount of principal and
 
14           interest on outstanding general obligation bonds, after
 
15           the exclusions permitted by Article VII, Section 13 of
 
16           the State Constitution, for determining the power of
 
17           the State to issue general obligation bonds within the
 
18           debt limit as of April 1, 1999 is as follows for fiscal
 
19           year 1999-2000 to fiscal year 2005-2006:
 
20                 Fiscal                       Principal
21                  Year                      and Interest
22                1999-2000                   $337,057,106
 
23                2000-2001                    335,665,371
 
24                2001-2002                    351,151,084
 

 
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 1                2002-2003                    394,858,561
 
 2                2003-2004                    350,610,135
 
 3                2004-2005                    345,436,743
 
 4                2005-2006                    319,768,363
 
 5           The department of budget and finance further reports
 
 6           that the amount of principal and interest on
 
 7           outstanding bonds applicable to the debt limit
 
 8           generally continues to decline each year from fiscal
 
 9           year 2006-2007 to fiscal year 2017-2018 when the final
 
10           installment of $44,962,638 shall be due and payable.
 
11           (B) The department of budget and finance further
 
12           reports that the outstanding principal amount of bonds
 
13           constituting instruments of indebtedness under which
 
14           the State may incur a contingent liability as a
 
15           guarantor is $191,000,000, all or part of which is
 
16           excludable in determining the power of the State to
 
17           issue general obligation bonds, pursuant to Article
 
18           VII, Section 13 of the State Constitution.
 
19      (4)  Amount of authorized and unissued general obligation
 
20           bonds and guaranties and proposed bonds and guaranties.
 
21           (A) As calculated from the state comptroller's bond
 
22           fund report as of March 31, 1999, adjusted for lapses
 
23           as provided in House Bill No. 100, H.D. 1, S.D. 1, C.D.
 

 
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 1           1 (the General Appropriations Act of 1999) amounting to
 
 2           $17,946,122 and change in means of financing from
 
 3           general obligation bond fund and from the general
 
 4           obligation bond fund with debt service cost to be paid
 
 5           from special funds to revenue bond funds amounting to
 
 6           $8,151,735, the total amount of authorized but unissued
 
 7           general obligation bonds is $1,064,679,670.  The total
 
 8           amount of general obligation bonds authorized by this
 
 9           Act is $835,315,000.  The total amount of general
 
10           obligation bonds previously authorized and unissued and
 
11           the general obligation bonds authorized by this Act is
 
12           $1,899,994,670.  (B) As reported by the department of
 
13           budget and finance the outstanding principal amount of
 
14           bonds constituting instruments of indebtedness under
 
15           which the State may incur a contingent liability as a
 
16           guarantor is $191,000,000, all or part of which is
 
17           excludable in determining the power of the State to
 
18           issue general obligation bonds, pursuant to Article
 
19           VII, Section 13 of the State Constitution.
 
20      (5)  Proposed general obligation bond issuance.  As reported
 
21           herein for fiscal years 1998-1999, 1999-2000, 2000-
 
22           2001, 2001-2002, and 2002-2003, the State proposes to
 
23           issue $500,000,000 during the remainder of fiscal year
 

 
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 1           1998-1999 $500,000,000 during each of the second half
 
 2           of fiscal years 1999-2000 and 2000-2001, and
 
 3           $200,000,000 during each of the second half of fiscal
 
 4           years 2001-2002 and 2002-2003.  It has been the
 
 5           practice of the State to issue twenty-year serial bonds
 
 6           with principal repayments beginning the third year, and
 
 7           interest payments commencing six months from the date
 
 8           of issuance and being paid semiannually thereafter.  As
 
 9           reported by the department of budget and finance, the
 
10           bond will be maturing in substantially equal annual
 
11           installments of principal and interest.  It is assumed
 
12           that this practice will be applied to the bonds which
 
13           are proposed to be issued.
 
14      (6)  Sufficiency of proposed general obligation bond
 
15           issuance to meet the requirements of authorized and
 
16           unissued bonds, as adjusted, and bonds authorized by
 
17           this Act.  From the schedule reported in paragraph (5),
 
18           the total amount of general obligation bonds which the
 
19           State proposes to issue during the fiscal years 1998-
 
20           1999 to 2001-2002 is $1,700,000,000.  An additional
 
21           $200,000,000 is proposed to be issued in fiscal year
 
22           2002-2003.  The total amount of $1,700,000,000 which is
 
23           proposed to be issued through fiscal year 2001-2002 is
 

 
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 1           sufficient to meet the requirements of the authorized
 
 2           and unissued bonds, as adjusted, and the bonds
 
 3           authorized by this Act, the total amount of which is
 
 4           $1,899,994,670, as reported in paragraph (4), except
 
 5           for $199,994,670.  It is assumed that the
 
 6           appropriations to which an additional $199,994,670 in
 
 7           bond issuance needs to be applied will have been
 
 8           encumbered as of June 30, 2002.  The $200,000,000 which
 
 9           is proposed to be issued in fiscal year 2002-2003 will
 
10           be sufficient to meet the requirements of the June 30,
 
11           2002 encumbrances in the amount of $199,994,670.  The
 
12           amount of assumed encumbrances as of June 30, 2002 is
 
13           reasonable and conservative, based upon an inspection
 
14           of June 30 encumbrances of the general obligation bond
 
15           fund as reported by the state comptroller.  Thus,
 
16           taking into account the amount of authorized and
 
17           unissued bonds, as adjusted, and the bonds authorized
 
18           by this Act versus the amount of bonds which is
 
19           proposed to be issued by June 30, 2002, and the amount
 
20           of June 30, 2002 encumbrances versus the amount of
 
21           bonds which is proposed to be issued in fiscal year
 
22           2002-2003, the legislature finds that in the aggregate,
 
23           the amount of bonds which is proposed to be issued is
 

 
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 1           sufficient to meet the requirements of all authorized
 
 2           and unissued bonds and the bonds authorized by this
 
 3           Act.
 
 4      (7)  Bonds excludable in determining the power of the State
 
 5           to issue bonds.  As noted in paragraph (1), certain
 
 6           bonds are excludable in determining the power of the
 
 7           State to issue general obligation bonds.  (A) General
 
 8           obligation reimbursable bonds can be excluded under
 
 9           certain conditions.  It is not possible to make a
 
10           conclusive determination as to the amount of
 
11           reimbursable bonds which are excludable from the amount
 
12           of each proposed bond issued because:
 
13            (i)    It is not known exactly when projects for which
 
14                   reimbursable bonds have been authorized in
 
15                   prior acts and in this Act will be implemented
 
16                   and will require the application of proceeds
 
17                   from a particular bond issue; and
 
18           (ii)    Not all reimbursable general obligation bonds
 
19                   may qualify for exclusion.
 
20           However, the legislature notes that with respect to the
 
21           principal and interest on outstanding general
 
22           obligation bonds, according to the department of budget
 
23           and finance, the average proportion of principal and
 

 
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 1           interest which is excludable each year from the
 
 2           calculation against the debt limit is 6.5 percent for
 
 3           the ten years from fiscal year 1999-2000 to fiscal year
 
 4           2008-2009.  For the purpose of this declaration, the
 
 5           assumption is made that five percent of each bond issue
 
 6           will be excludable from the debt limit, an assumption
 
 7           which the legislature finds to be reasonable and
 
 8           conservative.  (B) Bonds constituting instruments of
 
 9           indebtedness under which the State incurs a contingent
 
10           liability as a guarantor can be excluded but only to
 
11           the extent the principal amount of such guaranties does
 
12           not exceed seven percent of the principal amount of
 
13           outstanding general obligation bonds not otherwise
 
14           excluded under subparagraph (A) of paragraph (7) and
 
15           provided that the State shall establish and maintain a
 
16           reserve in an amount in reasonable proportion to the
 
17           outstanding loans guaranteed by the State as provided
 
18           by law.  According to the department of budget and
 
19           finance and the assumptions presented herein, the total
 
20           principal amount of outstanding general obligation
 
21           bonds and general obligation bonds proposed to be
 
22           issued, which are not otherwise excluded under Article
 
23           VII, Section 13 of the State Constitution for the
 

 
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 1           fiscal years 1998-1999, 1999-2000, 2000-2001, 2001-2002
 
 2           and 2002-2003 are as follows:
 
 3                                           Total amount of
 4                                      General Obligation Bonds
 5                                      not otherwise excluded by
 6                                       Article VII, Section 13
 7               Fiscal year            of the State Constitution
 8                1998-1999                  $3,467,853,736
 
 9                1999-2000                   3,730,063,538
 
10                2000-2001                   4,021,180,973
 
11                2001-2002                   3,986,790,956
 
12                2002-2003                   3,881,223,583
 
13           Based on the foregoing and based on the assumption that
 
14           the full amount of a guaranty is immediately due and
 
15           payable when such guaranty changes from a contingent
 
16           liability to an actual liability, the aggregate
 
17           principal amount of the portion of the outstanding
 
18           guaranties and the guaranties proposed to be incurred,
 
19           which does not exceed seven percent of the average
 
20           amount set forth in the last column of the above table
 
21           and for which reserve funds have been or will have been
 
22           established as heretofore provided, can be excluded in
 
23           determining the power of the State to issue general
 
24           obligation bonds.  As it is not possible to predict
 
25           with a reasonable degree of certainty when a guaranty
 
26           will change from a contingent liability to an actual
 

 
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 1           liability, it is assumed in conformity with fiscal
 
 2           conservatism and prudence, that all guaranties not
 
 3           otherwise excluded pursuant to Article VII, Section 13
 
 4           of the State Constitution will become due and payable
 
 5           in the same fiscal year in which the greatest amount of
 
 6           principal and interest on general obligation bonds,
 
 7           after exclusions, occurs.  Thus, based on such
 
 8           assumptions and on the determination in paragraph (8),
 
 9           all of the outstanding guaranties can be excluded.
 
10      (8)  Determination whether the debt limit will be exceeded
 
11           at the time of issuance.  From the foregoing and on the
 
12           assumption that all of the bonds identified in
 
13           paragraph (5) will be issued at an interest rate of
 
14           5.25% for the remainder of fiscal year 1998-1999, 5.75%
 
15           during fiscal year 1999-2000 and 6.25% thereafter, it
 
16           can be determined from the following schedule that the
 
17           bonds which are proposed to be issued, which include
 
18           all authorized and unissued bonds previously
 
19           authorized, as adjusted, general obligation bonds and
 
20           instruments of indebtedness under which the State
 
21           incurs a contingent liability as a guarantor authorized
 
22           in this Act, will not cause the debt limit to be
 
23           exceeded at the time of such issuance:
 

 
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 1                                                Greatest Amount
 2       Time of Issuance                           and Year of
 3       and Amount to be       Debt Limit       Highest Principal
 4        Counted Against       at Time of         and Interest
 5          Debt Limit           Issuance     on Bonds and Guaranties
 6 
 7     2nd half FY 1998-1999
 8         $475,000,000         582,612,813     436,290,073 (2003)
 9 
10     2nd half FY 1999-2000
11         $475,000,000         589,093,821     480,097,573 (2003)
12 
13     2nd half FY 2000-2001
14         $475,000,000         586,572,411     509,785,073 (2003)
15 
16     2nd half FY 2001-2002
17         $190,000,000         583,856,053     521,660,073 (2003)
18 
19     2nd half FY 2002-2003
20         $190,000,000         581,766,910     505,223,205 (2005)
21 
22      (9)  Overall and concluding finding.  From the facts,
 
23           estimates, and assumptions stated in this declaration
 
24           of findings, the conclusion is reached that the total
 
25           amount of principal and interest estimated for the
 
26           general obligation bonds authorized in this Act, and
 
27           for all bonds authorized and unissued, and calculated
 
28           for all bonds issued and outstanding, and all
 
29           guaranties, will not cause the debt limit to be
 
30           exceeded at the time of issuance.
 
31      SECTION 2.  The legislature finds the bases for the
 
32 declaration of findings set forth in this Act reasonable.  The
 
33 assumptions set forth in this Act with respect to the principal
 
34 amount of general obligation bonds which will be issued, the
 

 
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 1 amount of principal and interest on reimbursable general
 
 2 obligation bonds which are assumed to be excludable, and the
 
 3 assumed maturity structure shall not be deemed to be binding, it
 
 4 being the understanding of the legislature that such matters must
 
 5 remain subject to substantial flexibility.
 
 6      SECTION 3.  Authorization for issuance of general obligation
 
 7 bonds.  General obligation bonds may be issued as provided by law
 
 8 in an amount that may be necessary to finance projects authorized
 
 9 in House Bill No. 100, H.D. 1, S.D. 1, C.D. 1 (the General
 
10 Appropriations Act of 1999), House Bill No. 1450, H.D. 1, S.D. 2,
 
11 C.D. 1 (the Judiciary Appropriations Act of 1999), and House Bill
 
12 No. 1064, H.D. 1, (Relating to Hawaii Hurricane Relief Fund
 
13 Bonds) passed by this regular session of 1999, and designated to
 
14 be financed from the general obligation bond fund and from the
 
15 general obligation bond fund with debt service cost to be paid
 
16 from special funds; provided that the sum total of the general
 
17 obligation bonds so issued shall not exceed $835,315,000.
 
18      Any law to the contrary notwithstanding, general obligation
 
19 bonds may be issued from time to time in accordance with Section
 
20 39-16, Hawaii Revised Statutes, in such principal amount as may
 
21 be required to refund any general obligation bonds of the State
 
22 of Hawaii heretofore or hereafter issued pursuant to law.
 

 
 
 
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 1      SECTION 4.  The provisions of this Act are declared to be
 
 2 severable and if any portion thereof is held to be invalid for
 
 3 any reason, the validity of the remainder of this Act shall not
 
 4 be affected.
 
 5      SECTION 5.  In printing this Act, the revisor of statutes
 
 6 shall substitute in section 1 and section 3 the corresponding act
 
 7 numbers for bills identified therein.
 
 8      SECTION 6.  This Act shall take effect upon its approval.