REPORT TITLE: 
State Bonds


DESCRIPTION:
Authorizes issuance of general obligation bonds.  (HB86 SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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HOUSE OF REPRESENTATIVES                H.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
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 section 13 of article VII of the State Constitution
 
 4 which states:  "Effective July 1, 1980, the legislature shall
 
 5 include a declaration of findings in every general law
 
 6 authorizing the issuance of general obligation bonds that the
 
 7 total amount of principal and interest, estimated for such bonds
 
 8 and for all bonds authorized and unissued and calculated for all
 
 9 bonds issued and outstanding, will not cause the debt limit to be
 
10 exceeded at the time of issuance", the legislature finds and
 
11 declares as follows:
 
12      (1)  Limitation on general obligation debt.  The debt limit
 
13           of the State is set forth in section 13 of article VII
 
14           of the State Constitution, which states in part:
 
15           "General obligation bonds may be issued by the State;
 
16           provided that such bonds at the time of issuance would
 
17           not cause the total amount of principal and interest
 
18           payable in the current or any future fiscal year,
 
19           whichever is higher, on such bonds and on all
 

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

 
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 1      (2)  Actual and estimated debt limits.  The limits 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, are as follows:
 
 6            Fiscal            Net General
 7             Year            Fund Revenues          Debt Limit
 8 
 9           1995-1996           3,136,543,568
10           1996-1997           3,115,264,737
11           1997-1998           3,195,967,036
12           1998-1999           3,240,963,000        582,612,813
13           1999-2000           3,072,207,000        589,052,011
14           2000-2001           3,147,626,000        586,396,784
15           2001-2002           3,198,965,000        583,396,784
16           2002-2003        (not applicable)        580,825,877
17 
18           For fiscal years 1998-1999, 1999-2000, 2000-2001, 2001-
 
19           2002 and 2002-2003, respectively, the debt limit is
 
20           derived by multiplying the average of the net general
 
21           fund revenues for the three preceding fiscal years by
 
22           eighteen and one-half per cent.  The net general fund
 
23           revenues for fiscal years 1995-1996, 1996-1997, and
 
24           1997-1998 are actual, as certified by the director of
 
25           finance in the Statement of the Debt Limit of the State
 
26           of Hawaii as of July 1, 1998, dated November 24, 1998.
 
27           The net general fund revenues for fiscal years 1998-
 
28           1999 to 2001-2002 are estimates, based on general fund
 
29           revenue estimates made September 4, 1998, by the
 

 
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 1           council on revenues, the body assigned by section 7 of
 
 2           article VII of the State Constitution to make such
 
 3           estimates, and based on estimates made by the
 
 4           department of budget and finance of those receipts
 
 5           which cannot be included as general fund revenues for
 
 6           the purpose of calculating the debt limit, all of which
 
 7           estimates the legislature finds to be reasonable.
 
 8      (3)  Principal and interest on outstanding bonds applicable
 
 9           to the debt limit.
 
10           (A)  According to the department of budget and finance,
 
11                the total amount of principal and interest on
 
12                outstanding general obligation bonds, after the
 
13                exclusions permitted by section 13 of article VII
 
14                of the State Constitution, for determining the
 
15                power of the State to issue general obligation
 
16                bonds within the debt limit as of July 1, 1998, is
 
17                as follows for fiscal year 1999-2000 to fiscal
 
18                year 2005-2006:
 
19                 Fiscal                       Principal
20                  Year                      and Interest
21 
22                1999-2000                    363,199,913
23                2000-2001                    365,999,649
24                2001-2002                    378,809,135
25                2002-2003                    423,021,046
26                2003-2004                    373,757,191
27                2004-2005                    368,042,909
28                2005-2006                    340,389,179
29 

 
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 1                The department of budget and finance further
 
 2                reports that the amount of principal and interest
 
 3                on outstanding bonds applicable to the debt limit
 
 4                generally continues to decline each year from
 
 5                fiscal year 2003-2004 to fiscal year 2017-2018
 
 6                when the final installment of $44,962,638 shall be
 
 7                due and payable.
 
 8           (B)  The department of budget and finance further
 
 9                reports that the outstanding principal amount of
 
10                bonds constituting instruments of indebtedness
 
11                under which the State may incur a contingent
 
12                liability as a guarantor is $191,000,000, all or
 
13                part of which is excludable in determining the
 
14                power of the State to issue general obligation
 
15                bonds, pursuant to section 13 of article VII of
 
16                the State Constitution.
 
17      (4)  Amount of authorized and unissued general obligation
 
18           bonds and guaranties and proposed bonds and guaranties.
 
19           (A)  As calculated from the state comptroller's bond
 
20                fund report as of September 30, 1998, adjusted
 
21                for:
 
22                (i)  Appropriations to be funded with general
 
23                     obligation bonds and reimbursable general
 

 
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 1                     obligation bonds as provided in Act 116,
 
 2                     Session Laws of Hawaii 1998 (the General
 
 3                     Appropriations Act of 1998), to be expended
 
 4                     in fiscal year 1999-2000;
 
 5               (ii)  Appropriations to be funded by reimbursable
 
 6                     general obligation bonds as provided in Act
 
 7                     222, Session Laws of Hawaii 1997 (Relating to
 
 8                     Hawaii Hurricane Relief Fund Bonds) to be
 
 9                     expended in fiscal year 1998-1999;
 
10              (iii)  Appropriations to be funded by general
 
11                     obligation bonds as provided in Act 126,
 
12                     Session Laws of Hawaii 1998, (the Judiciary
 
13                     Appropriations Act of 1998);
 
14               (iv)  The issuance of $            in general
 
15                     obligation bonds of 1999, Series CR;
 
16                (v)  Appropriations to be funded by reimbursable
 
17                     general obligation bonds as provided in House
 
18                     Bill No.      (Relating to Agriculture), in
 
19                     the amount of $         ;
 
20               (vi)  Lapses proposed in House Bill No.      (the
 
21                     General Appropriations Act of 1999) in the
 
22                     amount of $         ; and
 
23              (vii)  Lapses proposed in House Bill No.      (the
 

 
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 1                     Judiciary Appropriations Act of 1999) in the
 
 2                     amount of $        ; the total amount of
 
 3                     authorized but unissued general obligation
 
 4                     bonds and reimbursable general obligation
 
 5                     bonds is $             .  The total amount of
 
 6                     general obligation bonds previously
 
 7                     authorized and unissued and the general
 
 8                     obligation bonds authorized in this Act is
 
 9                     $          .  The total amount of general
 
10                     obligation bonds and reimbursable general
 
11                     obligation bonds previously authorized and
 
12                     unissued and the general obligation bonds
 
13                     authorized in this Act is $            .
 
14           (B)  As reported by the department of budget and
 
15                finance, the outstanding principal amount of bonds
 
16                constituting instruments of indebtedness under
 
17                which the State may incur a contingent liability
 
18                as a guarantor is $          , all or part of
 
19                which is excludable in determining the power of
 
20                the State to issue general obligation bonds,
 
21                pursuant to section 13 of article VII of the State
 
22                Constitution.  The total amount of guaranty
 
23                authorized by House Bill No.      (Relating to the
 

 
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                                     H.B. NO.           S.D. 1
                                                        
                                                        

 
 1                Hawaii Capital Loan Program) is $          , and
 
 2                is herein validated.  The total amount of
 
 3                guaranties previously authorized and the
 
 4                guaranties validated by this Act is $            .
 
 5      (5)  Proposed general obligation bond issuance.  As reported
 
 6           in the budget for the fiscal period 1998-1999 to 2002-
 
 7           2003, the State proposes to issue $500,000,000 in
 
 8           general obligation bonds during the remainder of fiscal
 
 9           year 1998-1999, and $300,000,000 during the second half
 
10           of fiscal years 2000 to 2003, inclusive.  It has been
 
11           the practice of the State to issue twenty-year serial
 
12           bonds with principal repayments beginning the third
 
13           year, and interest payments commencing six months from
 
14           the date of issuance and being paid semiannually
 
15           thereafter.  As reported by the department of budget
 
16           and finance, the bonds will be maturing in
 
17           substantially equal annual installments of principal
 
18           and interest.  It is assumed that this practice will be
 
19           applied to the bonds which are proposed to be issued.
 
20      (6)  Sufficiency of proposed general obligation bond
 
21           issuance to meet the requirements of authorized and
 
22           unissued bonds, as adjusted, and bonds authorized by
 
23           this Act.  From the schedule reported in paragraph (5),
 

 
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 1           the total amount of general obligation bonds which the
 
 2           State proposes to issue during the fiscal period 1999-
 
 3           2000 to 2002-2003 is $1,700,000,000.  The total amount
 
 4           of $1,700,000,000 which is proposed to be issued
 
 5           through fiscal year 2002-2003 is sufficient to meet the
 
 6           requirements of the authorized and unissued bonds, as
 
 7           adjusted, and the bonds authorized by this Act, the
 
 8           total amount of which is $1,695,251,326, as reported in
 
 9           paragraph (4).  Thus, taking into account the amount of
 
10           previously authorized and issued bonds and bonds
 
11           proposed in the budget versus the amount of bonds which
 
12           is proposed to be issued by June 30, 2003, the
 
13           legislature finds that in the aggregate, the amount of
 
14           bonds is sufficient to meet these requirements.
 
15      (7)  Bonds excludable in determining the power of the State
 
16           to issue bonds.  As noted in paragraph (1), certain
 
17           bonds are excludable in determining the power of the
 
18           State to issue general obligation bonds.
 
19           (A)  General obligation reimbursable bonds can be
 
20                excluded under certain conditions.  It is not
 
21                possible to make a conclusive determination as to
 
22                the amount of reimbursable bonds which are
 
23                excludable from the amount of each proposed bond
 

 
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 1                issued because:
 
 2                (i)  It is not known exactly when projects for
 
 3                     which reimbursable bonds have been authorized
 
 4                     in prior acts and in this Act will be
 
 5                     implemented and will require the application
 
 6                     of proceeds from a particular bond issue; and
 
 7               (ii)  Not all reimbursable general obligation bonds
 
 8                     may qualify for exclusion.
 
 9           However, the legislature notes that with respect to the
 
10           principal and interest on outstanding general
 
11           obligation bonds, according to the department of budget
 
12           and finance, the average proportion of principal and
 
13           interest which is excludable each year from calculation
 
14           against the debt limit is 6.46 per cent for the ten
 
15           years from fiscal year 1999-2000 to fiscal year 2008-
 
16           2009.  For the purpose of this declaration, the
 
17           assumption is made that five per cent of each bond
 
18           issue will be excludable from the debt limit, an
 
19           assumption which the legislature finds to be reasonable
 
20           and conservative.
 
21           (B)  Bonds constituting instruments of indebtedness
 
22                under which the State incurs a contingent
 
23                liability as a guarantor can be excluded but only
 

 
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 1                to the extent the principal amount of such
 
 2                guaranties does not exceed seven per cent of the
 
 3                principal amount of outstanding general obligation
 
 4                bonds not otherwise excluded under subparagraph
 
 5                (A) of paragraph (7); and provided that the State
 
 6                shall establish and maintain a reserve in an
 
 7                amount in reasonable proportion to the outstanding
 
 8                loans guaranteed by the State as provided by law.
 
 9                According to the department of budget and finance
 
10                and the assumptions presented herein, the total
 
11                principal amount of outstanding general obligation
 
12                bonds and general obligation bonds proposed to be
 
13                issued, which are not otherwise excluded under
 
14                section 13 of article VII of the State
 
15                Constitution for fiscal years 1998-1999, 1999-
 
16                2000, 2000-2001, 2001-2002, and 2002-2003 are as
 
17                follows:
 
18 
19                                      Total Amount of
20                                 General Obligation Bonds
21                                 Not Otherwise Excluded by
22                                 Section 13 of Article VII
23               Fiscal Year       of the State Constitution
24 
25                1997-1998              $3,154,741,323
26                1998-1999               3,468,750,494
27                1999-2000               3,580,330,295
28                2000-2001               3,681,447,730
29                2001-2002               3,667,772,750
30                2002-2003               3,738,463,694

 
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 1           Based on the foregoing and based on the assumption that
 
 2           the full amount of a guaranty is immediately due and
 
 3           payable when such guaranty changes from a contingent
 
 4           liability to an actual liability, the aggregate
 
 5           principal amount of the portion of the outstanding
 
 6           guaranties and the guaranties proposed to be incurred,
 
 7           which does not exceed seven per cent of the average
 
 8           amount set forth in the last column of the above table
 
 9           and for which reserve funds have been or will have been
 
10           established as heretofore provided, can be excluded in
 
11           determining the power of the State to issue general
 
12           obligation bonds.  As it is not possible to predict
 
13           with a reasonable degree of certainty when a guaranty
 
14           will change from a contingent liability to an actual
 
15           liability, it is assumed in conformity with fiscal
 
16           conservatism and prudence, that all guaranties not
 
17           otherwise excluded pursuant to section 13 of article
 
18           VII of the State Constitution will become due and
 
19           payable in the same fiscal year in which the greatest
 
20           amount of principal and interest on general obligation
 
21           bonds, after exclusions, occurs.  Thus, based on these
 
22           assumptions and on the determination in paragraph (8),
 

 
 
 
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 1           the aggregate principal amount of the portion of the
 
 2           outstanding guaranties, which must be included in
 
 3           determining the power of the State to issue general
 
 4           obligation bonds, is $0.
 
 5      (8)  Determination whether the debt limit will be exceeded
 
 6           at the time of issuance.  From the foregoing and on the
 
 7           assumption that all of the bonds identified in
 
 8           paragraph (5) will be issued at an interest rate of
 
 9           5.25 per cent for the remainder of fiscal year 1998-
 
10           1999, 5.75 per cent during fiscal year 1999-2000 and
 
11           6.25 per cent thereafter, as reported in the budget, it
 
12           can be determined from the following schedule that the
 
13           bonds which are proposed to be issued, which include
 
14           all authorized and unissued bonds previously
 
15           authorized, as adjusted, general obligation bonds and
 
16           instruments of indebtedness under which the State
 
17           incurs a contingent liability as a guarantor authorized
 
18           in this Act, will not cause the debt limit to be
 
19           exceeded at the time of such issuance:
 
20                                                Greatest Amount
21       Time of Issuance                           and Year of
22       and Amount to be       Debt Limit       Highest Principal
23        Counted Against       at Time of         and Interest
24          Debt Limit           Issuance     on Bonds and Guaranties
25 
26    Remainder FY 1998-1999
27         $475,000,000        $582,612,813  $436,389,599 (2002-2003)

 
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 1     2nd half FY 1999-2000
 2         $285,000,000        $589,052,011  $462,217,099 (2002-2003)
 3     2nd half FY 2000-2001
 4         $285,000,000        $586,396,784  $480,029,599 (2002-2003)
 5     2nd half FY 2001-2002
 6         $285,000,000$       $583,415,753  $497,842,099 (2002-2003)
 7     2nd half FY 2002-2003
 8         $285,000,000        $580,825,877  $484,246,299 (2004-2005)
 9 
10      (9)  Overall and concluding finding.  From the facts,
 
11           estimates, and assumptions stated in this declaration
 
12           of findings, the conclusion is reached that the total
 
13           amount of principal and interest estimated for the
 
14           general obligation bonds authorized in this Act, and
 
15           for all bonds authorized and unissued, and calculated
 
16           for all bonds issued and outstanding, and all
 
17           guaranties, will not cause the debt limit to be
 
18           exceeded at the time of issuance.
 
19      SECTION 2.  The legislature finds the bases for the
 
20 declaration of findings set forth in this Act reasonable.  The
 
21 assumptions set forth in this Act with respect to the principal
 
22 amount of general obligation bonds which will be issued, the
 
23 amount of principal and interest on reimbursable general
 
24 obligation bonds which are assumed to be excludable, and the
 
25 assumed maturity structure shall not be deemed to be binding, it
 
26 being the understanding of the legislature that such matters must
 
27 remain subject to substantial flexibility.
 

 
 
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 1      SECTION 3.  Authorization for issuance of general obligation
 
 2 bonds.  General obligation bonds may be issued as provided by law
 
 3 in an amount that may be necessary to finance projects authorized
 
 4 in House Bill No.      (the General Appropriations Act of 1999),
 
 5 and House Bill No.      (the Judiciary Appropriations Act of
 
 6 1999), passed by this regular session of 1999, and designated to
 
 7 be financed from the general obligation bond fund and from the
 
 8 general obligation bond fund with debt service cost to be paid
 
 9 from special funds; provided that the sum total of the general
 
10 obligation bonds so issued shall not exceed $           .
 
11      Any law to the contrary notwithstanding, general obligation
 
12 bonds may be issued from time to time in accordance with section
 
13 39-16, Hawaii Revised Statutes, in such principal amount as may
 
14 be required to refund any general obligation bonds of the State
 
15 of Hawaii heretofore or hereafter issued pursuant to law.
 
16      SECTION 4.  The provisions of this Act are declared to be
 
17 severable and if any portion thereof is held to be invalid for
 
18 any reason, the validity of the remainder of this Act shall not
 
19 be affected.
 
20      SECTION 5.  In printing this Act, the revisor of statutes
 
21 shall substitute in section 1 and section 3 the corresponding act
 
22 numbers for bills identified therein.
 
23      SECTION 6.  This Act shall take effect upon its approval.