REPORT TITLE:
State bonds


DESCRIPTION: 
Authorizes issuance of general obligation bonds.  Exempts state
bonds from the requirement of perfecting security interests in
government collateral. (HB2151 SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2151
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.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.  Chapter 39, Hawaii Revised Statutes, is amended
 
 2 by adding a new part to be appropriately designated and to read
 
 3 as follows:
 
 4                  "PART    . SECURITY INTERESTS
 
 5      §39-    Definitions.  Whenever used in this part, unless a
 
 6 different meaning clearly appears from the context:
 
 7      "Authorizing statute" mean any statute that authorizes the
 
 8 issuance of bonds.
 
 9      "Bonds" means any bonds, notes, and other instruments of
 
10 indebtedness, or lease, lease purchase, or certificates of
 
11 participation, or other evidence of indebtedness for which a
 
12 security interest is granted or a pledge made upon revenue or
 
13 other property to provide for payment or security.
 
14      "Governmental unit" means the State of Hawaii, and any state
 
15 department, board, commission, officer, authority, agency, public
 
16 corporation, instrumentality, or the judiciary.
 
17      "Measure" means any act, certificate, resolution, statute,
 
18 or other enactment authorizing the issuance of bonds or
 
19 authorizing an indenture with respect to bonds pursuant to an
 

 
Page 2                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 authorizing statute.
 
 2      §39-    Perfection of a security interest.  Any security
 
 3 interest created by a governmental unit pursuant to any
 
 4 authorizing statute is perfected by the adoption of the measure
 
 5 or measures from the date on which the measure takes effect
 
 6 without the need for any physical delivery, filing, or recording
 
 7 in any office.
 
 8      §39-    Priority of a security interest.  The priority of
 
 9 any security interest created by a governmental unit shall be
 
10 governed by the contractual terms set forth in the measure or
 
11 measures, including the terms of any indenture or any other
 
12 agreement approved by the measure or measures, adopted by the
 
13 governmental unit.  No security interest having priority over an
 
14 existing security interest may be created in violation of the
 
15 terms of an existing measure governing outstanding bonds.
 
16      §39-    Enforcement of a security interest.  The terms of
 
17 any applicable authorizing statute shall govern the enforcement
 
18 of any security interest to the extent that the authorizing
 
19 statute contains express provisions relating to enforcement or
 
20 authorizes a governmental unit to contract with respect to
 
21 enforcement."
 
22      SECTION 2.  Declaration of findings with respect to the
 

 
 
 
Page 3                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 general obligation bonds authorized by this Act.  Pursuant to the
 
 2 clause in article VII, section 13 of the state constitution,
 
 3 which states:  "Effective July 1, 1980, the legislature shall
 
 4 include a declaration of findings in every general law
 
 5 authorizing the issuance of general obligation bonds that the
 
 6 total amount of principal and interest, estimated for such bonds
 
 7 and for all bonds authorized and unissued and calculated for all
 
 8 bonds issued and outstanding, will not cause the debt limit to be
 
 9 exceeded at the time of issuance," the legislature finds and
 
10 declares as follows:
 
11      (1)  Limitation on general obligation debt.  The debt limit
 
12           of the State is set forth in article VII, section 13 of
 
13           the state constitution, which states in part:  "General
 
14           obligation bonds may be issued by the State; provided
 
15           that such bonds at the time of issuance would not cause
 
16           the total amount of principal and interest payable in
 
17           the current or any future fiscal year, whichever is
 
18           higher, on such bonds and on all outstanding general
 
19           obligation bonds to exceed: a sum equal to twenty
 
20           percent of the average of the general fund revenues of
 
21           the State in the three fiscal years immediately
 
22           preceding such issuance until June 30, 1982; and
 

 
 
 
Page 4                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           thereafter, a sum equal to eighteen and one-half
 
 2           percent of the average of the general fund revenues of
 
 3           the State in the three fiscal years immediately
 
 4           preceding such issuance."  Article VII, section 13 also
 
 5           provides that in determining the power of the State to
 
 6           issue general obligation bonds, certain bonds are
 
 7           excludable, including "reimbursable general obligation
 
 8           bonds issued for a public undertaking, improvement or
 
 9           system but only to the extent that reimbursements to
 
10           the general fund are in fact made from the net revenue,
 
11           or net user tax receipts, or combination of both, as
 
12           determined for the immediately preceding fiscal year"
 
13           and bonds constituting instruments of indebtedness
 
14           under which the State incurs a contingent liability as
 
15           a guarantor, but only to the extent the principal
 
16           amount of such bonds does not exceed seven per cent of
 
17           the principal amount of outstanding general obligation
 
18           bonds not otherwise excluded under said article VII,
 
19           section 13.
 
20      (2)  Actual and estimated debt limits.  The limits on
 
21           principal and interest of general obligation bonds
 
22           issued by the State, actual for fiscal year 1999-2000
 

 
 
 
Page 5                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           and estimated for each fiscal year from 2000-2001 to
 
 2           2002-2003, are as follows:
 
 3            Fiscal             Net General
 4             Year             Fund Revenues         Debt Limit
 5 
 6           1996-1997           3,115,264,737                   
 7           1997-1998           3,195,967,036                   
 8           1998-1999           3,254,256,686                   
 9           1999-2000           3,141,743,000        589,871,788
10           2000-2001           3,228,232,000        591,304,615
11           2001-2002           3,285,586,000        593,494,287
12           2002-2003        (not applicable)        595,426,262
13 
14           For fiscal years 1999-2000, 2000-2001, 2001-2002, and
 
15           2002-2003, respectively, the debt limit is derived by
 
16           multiplying the average of the net general fund
 
17           revenues for the three preceding fiscal years by
 
18           eighteen and one-half per cent.  The net general fund
 
19           revenues for fiscal years 1996-1997, 1997-1998, and
 
20           1998-1999 are actual, as certified by the director of
 
21           finance in the Statement of the Debt Limit of the State
 
22           of Hawaii as of July 1, 1999, dated November 24, 1999.
 
23           The net general fund revenues for fiscal years 1999-
 
24           2000 to 2002-2003 are estimates, based on general fund
 
25           revenue estimates made March 10, 2000, by the council
 
26           on revenues, the body assigned by article VII, section
 
27           7 of the state constitution to make such estimates, and
 
28           based on estimates made by the department of budget and
 

 
 
Page 6                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           finance of those receipts, which cannot be included as
 
 2           general fund revenues for the purpose of calculating
 
 3           the debt limit, all of which estimates the legislature
 
 4           finds to be reasonable.
 
 5      (3)  Principal and interest on outstanding bonds applicable
 
 6           to the debt limit. 
 
 7           (A)  According to the department of budget and finance,
 
 8                the total amount of principal and interest on
 
 9                outstanding general obligation bonds, after the
 
10                exclusions permitted by article VII, section 13
 
11                of the state constitution, for determining the
 
12                power of the State to issue general obligation
 
13                bonds within the debt limit as of July 1, 1999, is
 
14                as follows for fiscal year 2000-2001 to fiscal
 
15                year 2006-2007:
 
16                 Fiscal                       Principal
17                  Year                      and Interest
18 
19                2000-2001                    352,508,780
20                2001-2002                    367,994,493
21                2002-2003                    411,766,053
22                2003-2004                    396,607,168
23                2004-2005                    408,282,994
24                2005-2006                    399,897,654
25                2006-2007                    412,331,653
26 
27                The department of budget and finance further
 
28                reports that the amount of principal and interest
 

 
 
Page 7                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                on outstanding bonds applicable to the debt limit
 
 2                generally continues to decline each year from
 
 3                fiscal year 2003-2004 to fiscal year 2017-2018
 
 4                when the final installment of $44,962,638 shall be
 
 5                due and payable.
 
 6           (B)  The department of budget and finance further
 
 7                reports that the outstanding principal amount of
 
 8                bonds constituting instruments of indebtedness
 
 9                under which the State may incur a contingent
 
10                liability as a guarantor is $191,000,000, all or
 
11                part of which is excludable in determining the
 
12                power of the State to issue general obligation
 
13                bonds, pursuant to article VII, section 13 of the
 
14                state constitution.
 
15       (4) Amount of authorized and unissued general obligation
 
16           bonds and guaranties and proposed bonds and guaranties.
 
17           (A)  As calculated from the state comptroller's bond
 
18                fund report as of October 31, 1999, adjusted for:
 
19                (i)  Appropriations to be funded with general
 
20                     obligation bonds and reimbursable general
 
21                     obligation bonds as provided in Act 91,
 
22                     Session Laws of Hawaii 1999 (the General
 

 
 
 
Page 8                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                     Appropriations Act of 1999), to be expended
 
 2                     in fiscal year 2000-2001;
 
 3               (ii)  Appropriations to be funded by reimbursable
 
 4                     general obligation bonds as provided in Act
 
 5                     151, Session Laws of Hawaii 1999 (Relating to
 
 6                     Hawaii Hurricane Relief Fund Bonds) to be
 
 7                     expended in fiscal year 1998-1999;
 
 8              (iii)  Appropriations to be funded by general
 
 9                     obligation bonds as provided in Act 156,
 
10                     Session Laws of Hawaii 1999 (the Judiciary
 
11                     Appropriations Act of 1999);
 
12               (iv)  The issuance of $____________ in general
 
13                     obligation bonds of 2000, Series CR; 
 
14                (v)  Appropriations to be funded by reimbursable
 
15                     general obligation bonds as provided in House
 
16                     Bill No. ____ (Relating to Agriculture), in
 
17                     the amount of $____________;
 
18               (vi)  Lapses proposed in House Bill No. ____ (the
 
19                     Supplemental Appropriations Act of 2000) in
 
20                     the amount of $____________; and
 
21              (vii)  Lapses proposed in House Bill No. ____ (the
 
22                     Judiciary Supplemental Appropriations Act of
 

 
 
 
Page 9                                                     2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                     2000) in the amount of $____________; the
 
 2                     total amount of authorized but unissued
 
 3                     general obligation bonds and reimbursable
 
 4                     general obligation bonds is $____________.
 
 5                     The total amount of general obligation bonds
 
 6                     previously authorized and unissued and the
 
 7                     general obligation bonds authorized in this
 
 8                     Act is $____________.  The total amount of
 
 9                     general obligation bonds and reimbursable
 
10                     general obligation bonds previously
 
11                     authorized and unissued and the general
 
12                     obligation bonds authorized in this Act is
 
13                     $____________.
 
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 article VII, section 13 of the state
 
22                constitution.  The total amount of guaranty
 

 
 
 
Page 10                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                authorized by House Bill No. ____ (Relating to the
 
 2                Hawaii Capital Loan Program) is $_____________,
 
 3                and is herein validated.  The total amount of
 
 4                guaranties previously authorized and the
 
 5                guaranties validated by this Act is $____________.
 
 6      (5)  Proposed general obligation bond issuance.  As reported
 
 7           in the budget for the fiscal period 1999-2000 to 2002-
 
 8           2003, the State proposes to issue $200,000,000 in
 
 9           general obligation bonds during the remainder of fiscal
 
10           year 1999-2000, and $350,000,000 during the second half
 
11           of fiscal years 2000 to 2001, $150,000,000 during the
 
12           second half of fiscal year 2000-2001, $150,000,000
 
13           during the first half of fiscal year 2001-2002,
 
14           $150,000,000 during the second half of fiscal year
 
15           2001-2002, $100,000,000 during the first half of fiscal
 
16           year 2002-2003, and $350,000,000 during the second half
 
17           of fiscal year 2002-2003.  It has been the practice of
 
18           the State to issue twenty-year serial bonds with
 
19           principal repayments beginning the third year, and
 
20           interest payments commencing six months from the date
 
21           of issuance and being paid semiannually thereafter.  As
 
22           reported by the department of budget and finance, the
 

 
 
 
Page 11                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           bonds will be maturing in substantially equal annual
 
 2           installments of principal and interest.  It is assumed
 
 3           that this practice will be applied to the bonds which
 
 4           are proposed to be issued.
 
 5      (6)  Sufficiency of proposed general obligation bond
 
 6           issuance to meet the requirements of authorized and
 
 7           unissued bonds, as adjusted, and bonds authorized by
 
 8           this Act.  From the schedule reported in paragraph (5),
 
 9           the total amount of general obligation bonds that the
 
10           State proposes to issue during the fiscal period 1999-
 
11           2000 to 2002-2003 is $1,400,000,000.  The total amount
 
12           of $1,400,000,000 that is proposed to be issued through
 
13           fiscal year 2002-2003 is sufficient to meet the
 
14           requirements of the authorized and unissued bonds, as
 
15           adjusted, and the bonds authorized by this Act, the
 
16           total amount of which is $1,395,874,929, as reported in
 
17           paragraph (4).  Thus, taking into account the amount of
 
18           previously authorized and issued bonds and bonds
 
19           proposed in the budget versus the amount of bonds that
 
20           is proposed to be issued by June 30, 2003, the
 
21           legislature finds that in the aggregate, the amount of
 
22           bonds is sufficient to meet these requirements.
 

 
 
 
Page 12                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

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

 
 
 
Page 13                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                excludable each year from calculation against the
 
 2                debt limit is 6.97 per cent for the ten years from
 
 3                fiscal year 2000-2001 to fiscal year 2009-2010.
 
 4                For the purpose of this declaration, the
 
 5                assumption is made that five per cent of each bond
 
 6                issue will be excludable from the debt limit, an
 
 7                assumption that the legislature finds to be
 
 8                reasonable and conservative.
 
 9           (B)  Bonds constituting instruments of indebtedness
 
10                under which the State incurs a contingent
 
11                liability as a guarantor can be excluded but only
 
12                to the extent the principal amount of such
 
13                guaranties does not exceed seven per cent of the
 
14                principal amount of outstanding general obligation
 
15                bonds not otherwise excluded under subparagraph
 
16                (A) of paragraph (7); and provided that the State
 
17                shall establish and maintain a reserve in an
 
18                amount in reasonable proportion to the outstanding
 
19                loans guaranteed by the State as provided by law.
 
20                According to the department of budget and finance
 
21                and the assumptions presented herein, the total
 
22                principal amount of outstanding general obligation
 

 
 
 
Page 14                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                bonds and general obligation bonds proposed to be
 
 2                issued, which are not otherwise excluded under
 
 3                article VII, section 13 of the state constitution
 
 4                for fiscal years 1999-2000, 2000-2001, 2001-2002,
 
 5                and 2002-2003 are as follows:
 
 6                                      Total Amount of
 7                                 General Obligation Bonds
 8                                 Not Otherwise Excluded by
 9                                  Article VII, Section 13
10               Fiscal Year       of the State Constitution
11 
12                1999-2000               3,309,433,537
13                2000-2001               3,600,550,972
14                2001-2002               3,667,655,955
15                2002-2003               3,843,443,582
16 
17           Based on the foregoing and based on the assumption that
 
18           the full amount of a guaranty is immediately due and
 
19           payable when such guaranty changes from a contingent
 
20           liability to an actual liability, the aggregate
 
21           principal amount of the portion of the outstanding
 
22           guaranties and the guaranties proposed to be incurred,
 
23           which does not exceed seven per cent of the average
 
24           amount set forth in the last column of the above table
 
25           and for which reserve funds have been or will have been
 
26           established as heretofore provided, can be excluded in
 
27           determining the power of the State to issue general
 
28           obligation bonds.  As it is not possible to predict
 

 
 
Page 15                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           with a reasonable degree of certainty when a guaranty
 
 2           will change from a contingent liability to an actual
 
 3           liability, it is assumed in conformity with fiscal
 
 4           conservatism and prudence, that all guaranties not
 
 5           otherwise excluded pursuant to article VII, section 13
 
 6           of the state constitution will become due and payable
 
 7           in the same fiscal year in which the greatest amount of
 
 8           principal and interest on general obligation bonds,
 
 9           after exclusions, occurs.  Thus, based on these
 
10           assumptions and on the determination in paragraph (8),
 
11           the aggregate principal amount of the portion of the
 
12           outstanding guaranties, which must be included in
 
13           determining the power of the State to issue general
 
14           obligation bonds, is $0.
 
15      (8)  Determination whether the debt limit will be exceeded
 
16           at the time of issuance.  From the foregoing and on the
 
17           assumption that all of the bonds identified in
 
18           paragraph (5) will be issued at an interest rate of 6.0
 
19           per cent as reported in the Budget, it can be
 
20           determined from the following schedule that the bonds
 
21           that are proposed to be issued, which include all
 
22           authorized and unissued bonds previously authorized, as
 

 
 
 
Page 16                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           adjusted, general obligation bonds and instruments of
 
 2           indebtedness under which the State incurs a contingent
 
 3           liability as a guarantor authorized in this Act, will
 
 4           not cause the debt limit to be exceeded at the time of
 
 5           such issuance:
 
 6                                                Greatest Amount
 7       Time of Issuance                           and Year of
 8       and Amount to Be       Debt Limit       Highest Principal
 9        Counted Against       at Time of         and Interest
10          Debt Limit           Issuance     on Bonds and Guaranties
11 
12    Remainder FY 1999-2000
13         $190,000,000        $589,871,788  $423,101,970 (2002-2003)
14     1st half FY 2000-2001
15         $332,500,000        $591,504,615  $443,051,970 (2002-2003)
16     2nd half FY 2000-2001
17         $142,500,000        $591,504,615  $451,601,970 (2002-2003)
18     1st half FY 2001-2002
19         $142,500,000        $593,494,287  $455,876,970 (2002-2003)
20     2nd half FY 2001-2002
21         $142,500,000        $593,494,287  $464,426,970 (2002-2003)
22     1st half FY 2002-2003
23          $95,000,000        $595,426,262  $459,374,614 (2004-2005)
24     2nd half FY 2002-2003
25         $285,000,000        $595,426,262  $479,324,614 (2004-2005)
26 
27      (9)  Overall and concluding finding.  From the facts,
 
28           estimates, and assumptions stated in this declaration
 
29           of findings, the conclusion is reached that the total
 
30           amount of principal and interest estimated for the
 
31           general obligation bonds authorized in this Act, and
 
32           for all bonds authorized and unissued, and calculated
 
33           for all bonds issued and outstanding, and all
 

 
 
Page 17                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           guaranties, will not cause the debt limit to be
 
 2           exceeded at the time of issuance.
 
 3      SECTION 3.  The legislature finds the bases for the
 
 4 declaration of findings set forth in this Act reasonable.  The
 
 5 assumptions set forth in this Act with respect to the principal
 
 6 amount of general obligation bonds that will be issued, the
 
 7 amount of principal and interest on reimbursable general
 
 8 obligation bonds that are assumed to be excludable, and the
 
 9 assumed maturity structure shall not be deemed to be binding, it
 
10 being the understanding of the legislature that such matters
 
11 shall remain subject to substantial flexibility.
 
12      SECTION 4.  Authorization for issuance of general obligation
 
13 bonds.  General obligation bonds may be issued as provided by law
 
14 in an amount that may be necessary to finance projects authorized
 
15 in House Bill No. 1900 (the Supplemental Appropriations Act of
 
16 2000), and House Bill No. 2650 (the Judiciary Supplemental
 
17 Appropriations Act of 2000), passed by this regular session of
 
18 2000, and designated to be financed from the general obligation
 
19 bond fund and from the general obligation bond fund with debt
 
20 service cost to be paid from special funds; provided that the sum
 
21 total of the general obligation bonds so issued shall not exceed
 
22 $____________.
 

 
 
 
Page 18                                                    2151
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1      Any law to the contrary notwithstanding, general obligation
 
 2 bonds may be issued from time to time in accordance with section
 
 3 39-16, Hawaii Revised Statutes, in such principal amount as may
 
 4 be required to refund any general obligation bonds of the State
 
 5 of Hawaii heretofore or hereafter issued pursuant to law.
 
 6      SECTION 5.  The provisions of this Act are declared to be
 
 7 severable and if any portion thereof is held to be invalid for
 
 8 any reason, the validity of the remainder of this Act shall not
 
 9 be affected.
 
10      SECTION 6.  In printing this Act, the revisor of statutes
 
11 shall substitute in section 2 and section 4 the corresponding act
 
12 numbers for bills identified therein.
 
13      SECTION 7.  This Act shall take effect upon its approval.