REPORT TITLE:
Affordable Housing


DESCRIPTION:
Requires assisted housing development owner to give 1 year notice
to tenants if owner is going to terminate a subsidy contract or
mortgage prepayment; gives tenants or nonprofit organization
opportunity to purchase the development if owner of development
has not given notice to sell prior to July 1, 1999. (SD3)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 3
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO HOUSING.



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

 1      SECTION 1.  The purpose of this Act is to provide protection
 
 2 to residents of housing assisted by the United States Department
 
 3 of Housing and Urban Development (HUD) who are at risk of losing
 
 4 their housing subsidy due to changes in the HUD project based
 
 5 Section 8 program.
 
 6      In Hawaii, there are currently more than three thousand
 
 7 units of affordable housing in fifty projects which are assisted
 
 8 by the HUD project based Section 8 program.  The residents of
 
 9 each of these dwelling units has a low income, so that they pay
 
10 thirty per cent of their income as rent, and HUD contributes the
 
11 remainder of their rent to the landlord.
 
12      It is estimated that HUD contributes more than $20,000,000
 
13 annually to rents, and to the Hawaii economy, for the three
 
14 thousand families that live in the assisted dwelling units.  This
 
15 income to the State, and the stability it provides for the
 
16 families which rely upon it, are essential to the struggling
 
17 economies where these projects are located.
 
18      The private landlords who own these projects will be under
 
19 increasing pressure to convert this affordable housing to market
 

 
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 1 rate housing as HUD's programs have changed to lower the amount
 
 2 of rent the owners receive from HUD.  If these owners elect not
 
 3 to continue receiving HUD subsidies, then the State stands to
 
 4 lose up to $20,000,000 annually in federal housing support.  In
 
 5 addition, the lives of the tenants of these projects, and the
 
 6 long term stock of affordable housing in Hawaii, would be
 
 7 seriously hurt by these conversions.
 
 8      Therefore, the purpose of this Act is to protect the low
 
 9 income tenants residing in HUD project based Section 8 housing
 
10 from conversion to market rate housing.
 
11      SECTION 2.  Chapter 201G, Hawaii Revised Statutes, is
 
12 amended by adding a new subpart to Part III to be appropriately
 
13 designated and to read as follows:
 
14       "  .  FEDERALLY ASSISTED RENTAL HOUSING PRESERVATION 
 
15                              PROGRAM
 
16      §201G-A  Definitions.  The following words or terms as used
 
17 in this subpart shall have the following meanings unless a
 
18 different meaning clearly appears from the context:
 
19      "Affected tenant" means a tenant household residing in an
 
20 assisted housing development which at the time the notice is
 
21 provided, benefits from the government assistance.
 
22      "Assisted housing development" or "development" means a
 

 
 
 
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 1 multifamily rental housing development that receives governmental
 
 2 assistance under any of the following federal programs:
 
 3      (1)  New construction, substantial rehabilitation, moderate
 
 4           rehabilitation, property disposition, and loan
 
 5           management set-aside programs under Section 8 of the
 
 6           United States Housing Act of 1937, as amended (42
 
 7           U.S.C. 1437f);
 
 8      (2)  The following programs under the following sections of
 
 9           the National Housing Act:
 
10           (A)  Section 213 (12 U.S.C. 1715(e));
 
11           (B)  The Below-Market-Interest-Rate Program under
 
12                U.S.C. Section 221(d)(3)(12 U.S.C. 1715(1)(d)(3)
 
13                and (5));
 
14           (C)  Section 236 (12 U.S.C. 1715(z-1)); and
 
15           (D)  Section 202 (12 U.S.C. 1701(q));
 
16      (3)  Programs for rent supplement assistance under Section
 
17           101 of the Housing and Urban Development Act of 1965,
 
18           as amended (Public Law 89-117); and
 
19      (4)  Programs under section 515 of the Housing Act of 1949,
 
20           as amended (42 U.S.C. 1485).
 
21      "Corporation" means the housing and community development
 
22 corporation of Hawaii.
 

 
 
 
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 1      "Local nonprofit organization" means not-for-profit
 
 2 corporations organized pursuant to chapter 415B, whose principal
 
 3 purpose is ownership, development, or management of housing or
 
 4 community development projects for person and families of low,
 
 5 very low, or moderate income.  Additionally, local nonprofit
 
 6 organizations should have a board that is a broad representative
 
 7 of the community, members that are community based, and a proven
 
 8 track record of local community service.
 
 9      "Low or moderate income" means having an income between
 
10 fifty and eighty per cent of the area median income as defined by
 
11 the federal Department of Housing and Urban Development.
 
12      "Owner" means an individual, corporation, limited liability
 
13 company, association, partnership, joint venture, or business
 
14 entity that holds title to an assisted housing development.
 
15      "Profit-motivated organizations and individuals" means
 
16 individuals or two or more persons that carry on a business for
 
17 profit.
 
18      "Regional or national organization" means not-for-profit
 
19 charitable corporations organized on a multicounty, state, or
 
20 multistate basis that have as their principal purpose the
 
21 ownership, development, or management of housing or community
 
22 development projects for persons and families of low or moderate
 

 
 
 
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 1 income and very low income.
 
 2      "Regional or national public agencies" means multicounty,
 
 3 state, or multistate agencies that are authorized to own,
 
 4 develop, or manage housing or community development projects for
 
 5 persons and families of low or moderate income and very low
 
 6 income.
 
 7      "Tenant" means a tenant, subtenant, lessee, sublessee, or
 
 8 other person legally in possession or occupying the assisted
 
 9 housing development.
 
10      "Tenant association" means a group of tenants who have
 
11 formed a nonprofit corporation, cooperative corporation, or other
 
12 entity or organization or a local nonprofit regional, or national
 
13 organization whose purpose includes the acquisition of an
 
14 assisted housing development and which represents the interest of
 
15 at least a majority of the tenants in the assisted housing
 
16 development.
 
17      "Use restriction" means any federal, state, or local
 
18 statute, regulation, ordinance, or contract which, as a condition
 
19 of receipt of any housing assistance, including a rental subsidy,
 
20 mortgage subsidy, or mortgage insurance to an assisted housing
 
21 development: 
 
22      (1)  Establishes maximum limitations on tenant incomes as a
 

 
 
 
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 1           condition of eligibility for occupancy of the units
 
 2           within a development;
 
 3      (2)  Imposes any restrictions on the maximum rents that
 
 4           could be charged for any of the units within a
 
 5           development; or 
 
 6      (3)  Requires that rents for any of the units within a
 
 7           development be reviewed by any governmental body or
 
 8           agency before the rents are implemented.
 
 9      "Very low income" means having an income less than fifty per
 
10 cent of the area median income as defined by the federal
 
11 Department of Housing and Urban Development.
 
12      §201G-B  Notice requirement.(a)  At least one year prior
 
13 to the anticipated date of termination of a subsidy contract or
 
14 mortgage prepayment on an assisted housing development, the owner
 
15 proposing the termination or prepayment of governmental
 
16 assistance shall provide a notice of the change to each affected
 
17 tenant household residing in the assisted housing development at
 
18 the time the notice is provided.
 
19      The notice shall contain:
 
20      (1)  The anticipated date of the termination or prepayment
 
21           of the programs contained in the definition of
 
22           "assisted housing development in section 201G-A;
 

 
 
 
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 1      (2)  The anticipated rent increase subsequent to the date of
 
 2           the prepayment or termination of the program;
 
 3      (3)  A statement that a copy of the notice will be sent to
 
 4           the corporation and the county where the assisted
 
 5           housing development is located;
 
 6      (4)  A statement of the possibility that the housing may
 
 7           remain in the federal program after the date of subsidy
 
 8           termination or prepayment under certain circumstances;
 
 9           and
 
10      (5)  The telephone number of the corporation's office which
 
11           can be contacted to request additional written
 
12           information.  
 
13 The same notice also shall be filed at the same time with the
 
14 corporation, the county where the property is located, and the
 
15 state legislature.
 
16      (b)  The notice to the appropriate county shall also
 
17 contain:
 
18      (1)  Total number of affected tenants in the project;
 
19      (2)  Number of units that are government assisted;
 
20      (3)  Number of units that are not government assisted;
 
21      (4)  Number of bedrooms in each unit that is government
 
22           assisted;
 

 
 
 
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 1      (5)  Ages, income, and ethnic or racial categories of the
 
 2           affected tenants;
 
 3      (6)  A brief description of the owner's plan for the
 
 4           project, including any timetables or deadlines for
 
 5           actions to be taken and specific governmental approvals
 
 6           that are required to be obtained;
 
 7      (7)  The reason the owner seeks to terminate the subsidy
 
 8           contract or prepay the mortgage; and 
 
 9      (8)  A list of any contracts the owner has made or is making
 
10           with other governmental agencies or other interested
 
11           parties in connection with the notice.
 
12 The information contained in the notice under this subsection
 
13 shall be based on reasonably available existing tenant written
 
14 records and shall not require the owner to obtain or acquire
 
15 additional information that is not contained in the existing
 
16 tenant records.  The owner shall not be held liable for any
 
17 inaccuracies contained in the tenant records or from other
 
18 sources.
 
19      (c)  For purposes of this section, service of the notice
 
20 shall be made by first-class mail postage prepaid.
 
21      (d)  This section may be enforced either at law or in equity
 
22 by any person or entity entitled to receive notice under this
 

 
 
 
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 1 section who is adversely affected by an owner's failure to comply
 
 2 with this section.
 
 3      (e)  This section shall not diminish any responsibility for
 
 4 notification under federal law.
 
 5      §201G-C  Right to purchase.(a)  An owner of an assisted
 
 6 housing development who has not, prior to July 1, 1999, given
 
 7 notice of intent to terminate a subsidy contract or prepay the
 
 8 mortgage pursuant to section 201G-B, shall not sell, or otherwise
 
 9 dispose of the development in a manner which would result in
 
10 either:
 
11      (1)  A discontinuance of its use as an assisted housing
 
12           development; or
 
13      (2)  The termination of any low-income use restrictions
 
14           which apply to the development, 
 
15 unless the owner or its agent proposing the removal of government
 
16 assistance shall first have provided each of the entities, listed
 
17 in subsection (b), an opportunity to purchase the development at
 
18 a price and upon terms which represent a bona fide intention to
 
19 sell, in compliance with subsection (f).
 
20      (b)  The entities to whom an opportunity to purchase shall
 
21 first be provided include the following:
 
22      (1)  The tenant association of the development;
 

 
 
 
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 1      (2)  Local nonprofit organizations and public agencies; and
 
 2      (3)  Regional or national nonprofit organizations and
 
 3           regional or national public agencies.
 
 4      (c)  For the purpose of this section, to qualify as a
 
 5 purchaser of an assisted housing development, an entity listed in
 
 6 subsection (b) shall:
 
 7      (1)  Be capable of managing the housing and related
 
 8           facilities for their remaining useful life, either by
 
 9           itself or through a management agent;
 
10      (2)  Agree to obligate itself and any successors in interest
 
11           to maintain the affordability of the assisted housing
 
12           development for persons and families of low or moderate
 
13           income and very low income for either a fifty-five year
 
14           period from the date that the purchaser took legal
 
15           possession of the housing or the remaining term of the
 
16           existing federal government assistance, whichever is
 
17           greater.  The development shall be continuously
 
18           occupied in the approximate percentages that those
 
19           persons and families occupied that development on the
 
20           date the owner gave notice of intent or the approximate
 
21           percentages specified in existing use restrictions,
 
22           whichever is higher.  This obligation shall be recorded
 

 
 
 
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 1           prior to the close of escrow in the bureau of
 
 2           conveyances and shall contain a legal description of
 
 3           the property, indexed to the name of the owner as
 
 4           grantor; and
 
 5      (3)  If a local nonprofit organization or public agency,
 
 6           have no member among its officers or directorate with a
 
 7           financial interest in assisted housing developments
 
 8           that have terminated a subsidy contract or prepaid
 
 9           mortgage on the development.
 
10      (d)  If an assisted housing development is not economically
 
11 feasible, a purchaser shall be entitled to remove one or more
 
12 units from the rent and occupancy requirements as is necessary
 
13 for the development to become economically feasible; provided
 
14 that once the development is again economically feasible, the
 
15 purchaser shall designate the next available units as low income
 
16 units up to the original number of those units.  For the purpose
 
17 of this subsection, "economically feasible" means the
 
18 development's revenue equals or exceeds the development's
 
19 operating expenses, excluding any return on investment.
 
20      (e)  If an owner decides to sell or otherwise dispose of the
 
21 assisted housing development pursuant to subsection (a), at least
 
22 one year prior to the anticipated date of termination of a
 

 
 
 
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 1 subsidy contract or mortgage prepayment of a development which
 
 2 would result in either: 
 
 3      (1)  A discontinuance of its use as an assisted housing
 
 4           development; or
 
 5      (2)  The termination of any low income use restrictions
 
 6           which apply to the development;
 
 7 the owner shall first give notice of the owner's bona fide
 
 8 intention to sell, or otherwise dispose of the development to
 
 9 each qualified entity on the list provided to the owner by the
 
10 corporation, in accordance with subsection (o), as well as to
 
11 those qualified entities which directly contact the owner.
 
12      The notice shall conform to the requirements of subsection
 
13 (f) and shall be sent to the entities by registered or certified
 
14 mail, return receipt requested.  The owner shall also post a copy
 
15 of the notice in a conspicuous place in the common area of the
 
16 development.
 
17      If the owner already has a bona fide offer to purchase from
 
18 a qualified entity at the time the owner decides to sell, or
 
19 otherwise dispose of the development, the owner shall not be
 
20 required to comply with this subsection.
 
21      (f)  The initial notice of a bona fide intention to sell
 
22 shall contain all of the following:
 

 
 
 
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 1      (1)  The sale price, terms of assumable financing, if any,
 
 2           terms of the subsidy contract, if any, and proposed
 
 3           improvements to the property to be made by the owner in
 
 4           connection with the sale, if any;
 
 5      (2)  A statement that each of the type of entities listed in
 
 6           subsection (b) has the right to purchase the
 
 7           development under this section in the order and
 
 8           according to the priorities established in subsection
 
 9           (g);
 
10      (3)  A statement that the owner will make available to each
 
11           of the type of entities listed in subsection (b)
 
12           within fifteen business days of receiving a request
 
13           therefor, itemized lists of monthly operating expenses,
 
14           capital improvements as determined by the owner made
 
15           within each of the two preceding calendar years, the
 
16           amount of project reserves, and copies of the two most
 
17           recent financial and physical inspection reports on the
 
18           development, if any, filed with the federal, state, or
 
19           local agencies;
 
20      (4)  A statement that the owner will make available to each
 
21           of the entities listed in subsection (b), within
 
22           fifteen business days of a request therefor, the most
 

 
 
 
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 1           recent rent roll listing the rent paid for each unit
 
 2           and the subsidy, if any, paid by a governmental agency
 
 3           as of the date the notice of intent was made pursuant
 
 4           to, section 201G-B and a statement of the vacancy rate
 
 5           at the development for each of the two preceding
 
 6           calendar years; and
 
 7      (5)  A statement that the owner has satisfied all notice
 
 8           requirements pursuant to section 201G-B(a).
 
 9      (g)  If a qualified entity elects to purchase an assisted
 
10 housing development, it shall make a bona fide offer to purchase
 
11 the development within one-hundred-eighty days from the date of
 
12 an owner's bona fide intention to sell.  
 
13      A qualified entity's bona fide offer to purchase shall
 
14 identify whether it is a tenant association, nonprofit
 
15 organization, public agency, or for-profit organization or
 
16 individual and shall certify, under penalty of perjury, that it
 
17 is qualified pursuant to subsection (c). 
 
18      During the first one-hundred-twenty days from the date of an
 
19 owner's bona fide notice of intention to sell, an owner shall
 
20 only accept a bona fide offer to purchase from the tenant
 
21 association.  If at the end of the first one-hundred-twenty day
 
22 period no purchase agreement has been executed, the owner may
 

 
 
 
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 1 accept a bona fide offer to purchase from any qualified entity
 
 2 specified in subsection (b) during the remaining sixty days.
 
 3      (h)  If at the end of the one-hundred-eighty day period no
 
 4 purchase agreement has been executed and a person or entity other
 
 5 than those entities listed in subsection (b) has offered to
 
 6 purchase, or otherwise acquire the development, and the owner of
 
 7 the development has complied with this section and section
 
 8 201G-B, the owner may accept a bona fide offer to purchase from
 
 9 this person or entity.
 
10      (i)  When a bona fide offer to purchase has been made to an
 
11 owner in response to a bona fide intention to sell, and the offer
 
12 is accepted, a purchase agreement shall be executed.
 
13      (j)  Either the owner or the qualified entity may request
 
14 that the fair market value of the property, as a development, be
 
15 determined by an independent appraiser qualified to perform
 
16 multifamily housing appraisals, who shall be selected and paid by
 
17 the requesting party.
 
18      All appraisers shall be certified real estate appraisers
 
19 under chapter 466K and shall possess qualifications equivalent to
 
20 those required by the members of the Appraisers Institute.  This
 
21 appraisal shall be nonbinding on either party with respect to the
 
22 sales price of the development offered in the bona fide intention
 

 
 
 
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 1 to sell, the bona fide offer to purchase, or the acceptance or
 
 2 rejection of either.
 
 3      (k)  During the one-hundred-eighty day period following the
 
 4 initial one-hundred-eighty day period required pursuant to
 
 5 subsection (g), an owner may accept an offer from a person or an
 
 6 entity that does not qualify under subsection (c); provided that
 
 7 the acceptance does not conflict with applicable federal laws
 
 8 governing who may purchase an assisted housing development. 
 
 9      This acceptance shall be made subject to the owner providing
 
10 each qualified entity that made a bona fide offer to purchase the
 
11 first opportunity to purchase the development at the same terms
 
12 and conditions as the pending offer to purchase sent by
 
13 registered or certified mail, return receipt requested.
 
14      The qualified entity shall have fifteen days from the date
 
15 the notice is mailed to submit a bona fide offer to purchase and
 
16 that offer shall be accepted by the owner.  The owner shall not
 
17 be required to comply with this subsection if the person or the
 
18 entity making the offer during this time period agrees to
 
19 maintain the development for persons and families of low and
 
20 moderate income and very low income, in accordance with
 
21 subsection (c)(2).
 
22      (l)  This section shall not apply to any of the following:
 

 
 
 
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 1      (1)  A government taking by eminent domain or negotiated
 
 2           purchase; 
 
 3      (2)  A forced sale pursuant to a foreclosure; or
 
 4      (3)  A transfer by gift, devise, or operation of law.
 
 5      (m)  An owner, at any time during the one-year period
 
 6 subsequent to giving notice of the bona fide intention to sell in
 
 7 accordance with subsection (e), may decide not to sell, or
 
 8 otherwise dispose of the development and may withdraw the notice
 
 9 of intention to sell.  However, at any time that the owner again
 
10 decides to sell, or otherwise dispose of the development, this
 
11 section shall apply.
 
12      (n)  Prior to the close of escrow, an owner selling,
 
13 leasing, or otherwise disposing of a development to a purchaser
 
14 who does not qualify under subsection (c) shall certify under
 
15 penalty of perjury that the owner has complied with all
 
16 provisions of this section and section 201G-B.
 
17      This certification shall be recorded in the bureau of
 
18 conveyances and shall contain a legal description of the property
 
19 and be indexed to the name of the owner as grantor.
 
20 Additionally, the certification may be relied upon by good faith
 
21 purchasers and encumbrancers for value and without notice of a
 
22 failure to comply with this section.
 

 
 
 
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 1      Any person or entity acting solely in the capacity of an
 
 2 escrow agent for the transfer of real property subject to this
 
 3 section shall not be liable for any failure to comply with this
 
 4 section unless the escrow agent either had actual knowledge of
 
 5 the requirements of this section or acted contrary to written
 
 6 escrow instructions concerning this section.
 
 7      (o)  The corporation shall undertake the following
 
 8 responsibilities and duties:
 
 9      (1)  Publish a form by April 1, 2000, containing a summary
 
10           of rights and obligations under this section and make
 
11           that information available to owners of assisted
 
12           housing developments as well as to tenant associations,
 
13           local nonprofit organizations, regional or national
 
14           nonprofit organizations, public agencies, and other
 
15           entities with an interest in preserving the State's
 
16           subsidized housing; and
 
17      (2)  Compile, maintain, and update a list of entities in
 
18           subsection (b) that have either contacted the
 
19           corporation with an expressed interest in purchasing a
 
20           development in the subject area or have been identified
 
21           by the corporation as potentially having an interest in
 
22           participating in a right of first refusal program.  The
 

 
 
 
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 1           corporation shall publicize the existence of the list
 
 2           statewide.  The initial list shall be developed by
 
 3           February 1, 2000.  Within five working days of the date
 
 4           of receipt of a notice of intent under section 201G-B,
 
 5           the corporation shall send the list by registered or
 
 6           certified mail to the owner proposing the termination
 
 7           or removal of government assistance.
 
 8      (p)  This section may be enforced either in law or in equity
 
 9 by any qualified entity entitled to exercise the right of first
 
10 refusal under this section, that has been adversely affected by
 
11 an owner's failure to comply with this section.
 
12      (q)  It is the intent of the legislature that this section
 
13 is in addition to, but not preemptive of, applicable federal laws
 
14 governing the sale, or other disposition of a development which
 
15 would result in either:
 
16      (1)  A discontinuance of its use as an assisted housing
 
17           development; or
 
18      (2)  The termination of any low income use restrictions
 
19           which apply to the development.
 
20      §201G-D  Other powers.  Nothing in this subpart shall
 
21 enlarge or diminish in any way, any power which a county,
 
22 affected tenant, or owner may have, independent of this section."
 

 
 
 
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 1      SECTION 3.  The legislature finds that it is in the best
 
 2 interest of the State to encourage rental housing that does not
 
 3 compete with private developers in the housing sales market.  
 
 4      The legislature further finds that the greatest need for
 
 5 housing in the State of Hawaii is for families below eighty per
 
 6 cent of the median income and that the most effective way to
 
 7 perpetuate housing for low-income families is through nonprofit
 
 8 development. 
 
 9      In 1992, the rental housing trust fund was created under Act
 
10 308, Session Laws Hawaii, 1992.  The legislature created this
 
11 fund to provide loans and grants for the development,
 
12 pre-development, construction, acquisition, preservation, and
 
13 substantial rehabilitation of rental housing units.
 
14      As of June 30, 1998, the rental housing trust fund
 
15 commission had committed project award loans to twenty-one
 
16 affordable rental developments.  Together they total 1,473 units
 
17 of affordable rental housing.  Projects assisted by the rental
 
18 housing trust fund, provide low interest, flexible term loans for
 
19 low income housing on Oahu, Maui, Kauai, and Hawaii.
 
20      The purpose of this Act is to authorize general obligation
 
21 bonds and to appropriate money to the rental housing trust fund
 
22 to encourage the development and availability of low income
 

 
 
 
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 1 rental housing throughout the State of Hawaii.
 
 2      SECTION 4.  The director of finance is authorized to issue
 
 3 general obligation bonds in the sum of $      , or so much
 
 4 thereof as may be necessary, and the same sum, or so much thereof
 
 5 as may be necessary, is appropriated for fiscal year 1999-2000 to
 
 6 be paid into the rental housing trust fund created in section
 
 7 201G-432, Hawaii Revised Statutes.
 
 8      SECTION 5.  The sum appropriated shall be expended by the
 
 9 housing and community development corporation of Hawaii for the
 
10 purpose of this Act.
 
11      SECTION 6.  In codifying the new sections added by section 2
 
12 of this Act, the revisor of statutes shall substitute appropriate
 
13 section numbers for the letters used in designating the new
 
14 sections in this Act.
 
15      SECTION 7.  This Act shall take effect upon its approval;
 
16 provided that sections 4 and 5 shall take effect on July 1, 1999.