Report Title:
Economic Development
Description:
Stimulates the economy with a variety of tax incentives, program appropriations, tasks forces, studies, and planning. (SB3061 HD1)
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THE SENATE |
S.B. NO. |
3061 |
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TWENTY-FIRST LEGISLATURE, 2002 |
S.D. 2 |
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STATE OF HAWAII |
H.D. 1 |
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A BILL FOR AN ACT
relating to Economic development.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
PART I
SECTION 1. The legislature finds that the events of September 11, 2001, have had a significant impact on our economy. The State is in desperate need of a variety of economic stimulus programs and incentives to guide us toward a healthier and more stable economy.
The purpose of this Act is to improve the economy by:
(1) Issuing an unspecified amount of special purpose revenue bonds to Hawaii Macadamia Tree, Incorporated, to finance the establishment of facilities to process macadamia nuts and manufacture macadamia products;
(2) Appropriating moneys for the formulation of a strategic plan to make Hawaii the "Geneva of the Pacific" – a diplomatic setting for conflict resolution, multinational business, and multicultural relations;
(3) Creating a statewide unifying entity of seventeen members from the public and private sectors to create a strategic economic development plan and to appropriate money for its development;
(4) Allowing firms enrolled in the Hawaii enterprise zones partnership program to use alternative means to calculate their average annual number of full-time employees to retain their eligibility for enterprise zone tax benefits;
(5) Clarifying the application of certain high technology tax incentives;
(6) Exempting, from the general excise tax, amounts received by professional performers from live musical performances;
(7) Establishing a council to advise and assist the legislature on the economy;
(8) Exempting lands held by the high technology development corporation from chapter 171, Hawaii Revised Statutes, which, among other things, provides that public lands shall be managed, administered, and controlled by the department of land and natural resources;
(9) Repealing the June 30, 2002, sunset date for the Regulatory Flexibility Act and the small business defender, and making other changes to more effectively assist small businesses;
(10) Changing the frequency of loan interest rate adjustment for the Hawaii capital loan program from semiannual to the first of each month to allow small businesses to take advantage of rapidly changing interest rate conditions; and
(11) Clarifying that the Hawaii innovation development fund is to be used to promote the development of new manufactured products, marks, works, works of authorship, or inventions that have direct economic benefits for Hawaii.
PART II
SECTION 2. The legislature finds that the cessation of sugar operations in Hawaii has resulted in the loss of jobs and revenues to the State, the counties, and the citizens of Hawaii. The land formerly devoted to the growing of sugar cane is now available for commercial growing of a diverse number of crops, including macadamia seedlings, macadamia trees, and their kernel crop. The establishment of new facilities in the State to process macadamia nuts and to manufacture and produce macadamia products would support the development of macadamia nursery and farming operations and the marketing and sale of macadamia nuts locally and for export. These facilities would create an estimated one hundred new jobs directly in the processing and production operations, as well as additional new jobs in related nursery, farming, marketing, and sales operations. Due to economic conditions in the State, and the loss of many agricultural jobs, the creation of new jobs is imperative at this time.
The legislature also finds that it is particularly in the public interest to encourage and promote the development of new agriculture-related enterprises where and when that opportunity presents itself. The establishment of new facilities that can process macadamia nuts and manufacture and produce macadamia products for use locally and for export is the type of enterprise that will provide such an opportunity for our State. The macadamia processing and production facilities proposed by Hawaii Macadamia Tree, Incorporated, in the county of Hawaii, is an excellent example of the type of enterprise that the legislature finds to be in the public interest.
The legislature finds and declares that the issuance of special purpose revenue bonds under this Act is in the public interest and for the public health, safety, and general welfare.
SECTION 3. Pursuant to part IV, chapter 39A, Hawaii Revised Statutes, the department of budget and finance, with the approval of the governor, is authorized to issue special purpose revenue bonds in a total amount not to exceed $ , in one or more series, for the purpose of assisting Hawaii Macadamia Tree, Incorporated, a Hawaii corporation, to finance the establishment of facilities in the county of Hawaii to process macadamia nuts and to manufacture and produce macadamia products. The legislature hereby finds and determines that the planning, design, construction, and equipping of facilities to process macadamia nuts and to manufacture and produce macadamia products constitute a project as defined in part IV, chapter 39A, Hawaii Revised Statutes, and the financing thereof is assistance to a processing enterprise.
SECTION 4. The special purpose revenue bonds and the refunding special purpose revenue bonds issued under this Act shall be issued pursuant to part IV, chapter 39A, Hawaii Revised Statutes, relating to the power to issue special purpose revenue bonds to assist processing enterprises.
SECTION 5. The department of budget and finance is authorized, from time to time, including times subsequent to June 30, 2005, to issue special purpose revenue bonds in whatever principal amounts the department shall determine to be necessary to refund the special purpose revenue bonds authorized in section 3 and to refund special purpose revenue bonds authorized in this section, regardless of whether the outstanding special purpose revenue bonds or refunding special purpose revenue bonds have matured or are the subject of redemption or whether the refunding special purpose revenue bonds shall be bonds for the multi-project programs described in section 3. In making this determination, the department shall comply with federal law relating to the exemption from federal income taxation of the interest on bonds of the nature authorized by this section.
SECTION 6. The authorization to issue special purpose revenue bonds under this Act shall lapse on June 30, 2005.
PART III
SECTION 7. Hawaii, with its world class infrastructure and ideal cultural and environmental advantages, could become the "Geneva of the Pacific" – a diplomatic setting for conflict resolution, multinational business, and multicultural relations. Hawaii could house protocol offices and become a center for international trade agreements. To maximize these opportunities, a strategic plan must be formulated. The office of planning of the department of business, economic development, and tourism shall draft such a plan and transmit it to the legislature no later than twenty days before the convening of the regular session of 2003.
SECTION 8. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2002-2003 for the formulation of a strategic plan to make Hawaii the "Geneva of the Pacific".
The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this part.
PART IV
SECTION 9. The legislature finds that Hawaii lacks a strategic economic plan for future stability, nor does it have a unified effort of various levels of government, private sector councils, and the University of Hawaii to develop such a plan.
The purpose of this part is to create a statewide unifying entity of seventeen members from the public and private sectors to create a strategic economic development plan and to appropriate money for its development.
SECTION 10. (a) There is established within the department of business, economic development, and tourism, a statewide unifying economic development task force. Specifically, the task force shall develop and administer an economic development plan for the State.
(b) The task force shall be composed of:
(1) A representative from each of the county councils;
(2) A representative from each of the county economic development councils;
(3) A representative from the Small Business Hawaii/Small Business Community/Hawaii Trade Association;
(4) A representative from the Pacific Basin Economic Council;
(5) A representative from the University of Hawaii;
(6) A representative from Brigham Young University;
(7) A representative from Hawaii Pacific University;
(8) A representative from the department of business, economic development, and tourism;
(9) The chairperson of the economic development and business concerns committee of the house of representatives;
(10) The chairperson of the economic development and technology committee of the senate; and
(11) A representative from the governor's office.
SECTION 11. The task force shall submit a status report to the department of business, economic development, and tourism regarding the strategic economic development plan within six months after the effective date of this part. The task force shall submit the final strategic economic development plan within one year after the effective date of this part.
SECTION 12. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2002-2003 for the development of a strategic economic development plan for the State.
The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this part.
PART V
SECTION 13. The legislature finds that due to the negative economic impact of the terrorist attacks in New York City and Virginia on September 11, 2001, there is a need to amend the hiring requirements for firms enrolled in the Hawaii enterprise zones partnership. Most participating enterprise zone firms may find it difficult to increase their hiring as required by the enterprise zones program criteria in the near future, and may even be forced to lay off employees. As a result, this part:
(1) Allows all firms enrolled in the enterprise zones partnership before September 11, 2001, to use their average number of full-time employees from the beginning of their current fiscal year until August 31, 2001, to determine their qualification for enterprise zones tax benefits for the entirety of their current fiscal year; and
(2) Allows all firms enrolled in the enterprise zones partnership before September 11, 2001, to reduce their base number of full-time employees--the number used to calculate their future annual increases--to the average annual number of full-time employees at the end of their current fiscal year if lower than their original base number of full-time employees.
This part also eliminates the use tax exemption for enterprise zones-qualified firms. This incentive conflicts with the intent of the enterprise zones partnership by encouraging enterprise zones-enrolled firms to purchase supplies and equipment from out-of-state rather than local vendors.
SECTION 14. Section 209E-9, Hawaii Revised Statutes, is amended to read as follows:
"§209E-9 Eligibility; qualified business; sale of property or services. (a) Any business firm may be eligible to be designated a qualified business for purposes of this chapter if the business:
(1) Begins the operation of a trade or business within an enterprise zone;
(2) During each taxable year has at least fifty per cent of its enterprise zone establishment's gross receipts attributable to the active conduct of trade or business within the enterprise zone;
(3) Increases its average annual number of full-time employees by at least ten per cent by the end of its first tax year of participation; and
(4) During each subsequent taxable year at least maintains that higher level of employment.
(b) A business firm also may be eligible to be designated a qualified business for purposes of this chapter if the business:
(1) Is actively engaged in the conduct of a trade or business in an area immediately prior to an area being designated an enterprise zone;
(2) Meets the requirements of subsection (a)(2); and
(3) Increases its average annual number of full-time employees employed at the business' establishment or establishments located within the enterprise zone by at least ten per cent annually.
(c) After designation as an enterprise zone, each qualified business firm in the zone shall submit annually to the department an approved form supplied by the department that provides the information necessary for the department to determine if the business firm qualifies as a qualified business. The approved form shall be submitted by each business to the governing body of the county in which the enterprise zone is located, then forwarded to the department by the governing body of the county.
(d) The form referred to in subsection (c) shall be prima facie evidence of the eligibility of a business for the purposes of this section.
(e) Tangible personal property shall be sold at an establishment of a qualified business within an enterprise zone and the transfer of title to the buyer of the tangible personal property shall take place in the same enterprise zone in which the tangible personal property is sold. Services shall be sold at an establishment of a qualified business engaged in a service business within an enterprise zone and the services shall be delivered in the same enterprise zone in which sold. Any services rendered outside an enterprise zone shall not be deemed to be the services of a qualified business.
(f) For any fiscal year that includes September 11, 2001, a business may use its average annual number of full-time employees as of August 31, 2001, rather than its average annual number at the end of its fiscal year including September 11, 2001, if necessary to meet the requirements of subsection (a)(3) and (4) or (b)(3). A business may also use its average annual number of full-time employees at the end of its fiscal year that includes September 11, 2001, as its base number of full-time employees if necessary to meet the requirements of subsection (a)(3) and (4) or (b)(3) in future fiscal years."
SECTION 15. Section 209E-11, Hawaii Revised Statutes, is amended to read as follows:
"§209E-11 State general excise [and use] tax exemptions. The department shall certify annually to the department of taxation that any qualified business is exempt from the payment of general excise taxes on the gross proceeds from the manufacture of tangible personal property, the wholesale sale of tangible personal property, the engaging in a service business by a qualified business, or the engaging in research, development, sale, or production of all types of genetically-engineered medical, agricultural, or maritime biotechnology products. [The department shall also certify annually to the department of taxation that any qualified business is exempt from the use tax for purchases by the qualified business.] The gross proceeds received by a contractor licensed under chapter 444 shall be exempt from the general excise tax for construction within an enterprise zone performed for a qualified business within an enterprise zone. The exemption shall extend for a period not to exceed seven years."
PART VI
SECTION 16. Section 235-7.3, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:
"(c) For the purposes of this section:
"Nonfossil fuel energy" means energy produced by wind, solar energy, hydropower, geothermal resources, ocean thermal energy conversion, wave energy, hydrogen, fuel cells, landfill gas, waste to energy biomass, including municipal solid waste, and biofuels.
"Nonfossil fuel energy-related technology" means system components, design, and assembly of a system used solely for the production, processing, storage, or transformation of nonfossil fuel energy for the transportation or stationary power. Nofossil fuel energy-related technology" does not include:
"Performing arts products" means:
(1) Audio files, video files, audiovideo files, computer animation, and other entertainment products perceived by or through the operation of a computer; and
(2) Commercial television and film products for sale or license[, and reuse or residual fee payments from these products.]; provided that at least fifty per cent of the postproduction work shall be performed in Hawaii.
"Postproduction work" means services for film or video that include editing, film and video transfers, transcoding, dubbing, subtitling, credits, close captioning, audio production, special effects (visual or sound), graphics, or animation.
"Qualified high technology business" means a business that conducts more than fifty per cent of its activities in qualified research.
"Qualified research" means:
(1) The same as in section 41(d) of the Internal Revenue Code;
(2) The development and design of [computer software using fourth generation or higher software development tools or native programming languages to design and construct] unique and specific code to create computer software applications and design databases for sale or license;
(3) Biotechnology;
(4) Performing arts products;
(5) Sensor and optic technologies;
(6) Ocean sciences;
(7) Astronomy; or
(8) Nonfossil fuel energy-related technology."
SECTION 17. Section 235-110.9, Hawaii Revised Statutes, is amended to read as follows:
"§235-110.9 High technology business investment tax credit. (a) There shall be allowed to each taxpayer subject to the taxes imposed by this chapter a high technology business investment tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the investment was made and the following four years provided the credit is properly claimed. The tax credit shall be as follows:
(1) In the year the investment was made, thirty-five per cent;
(2) In the first year following the year in which the investment was made, twenty-five per cent;
(3) In the second year following the investment, twenty per cent;
(4) In the third year following the investment, ten per cent; and
(5) In the fourth year following the investment, ten per cent;
of the investment made by the taxpayer in each qualified high technology business, up to a maximum allowed credit in the year the investment was made, $700,000; in the first year following the year in which the investment was made, $500,000; in the second year following the year in which the investment was made, $400,000; in the third year following the year in which the investment was made, $200,000; and in the fourth year following the year in which the investment was made, $200,000.
(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. For the purpose of this section, "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.
(c) If the tax credit under this section exceeds the taxpayer's income tax liability for any of the five years that the credit is taken, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. Every claim, including amended claims, for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.
(d) If at the close of any taxable year in the five-year period in subsection (a):
(1) The business no longer qualifies as a qualified high technology business;
(2) The business or an interest in the business has been sold or transferred by the taxpayer investing in the qualified high technology business; or
(3) The taxpayer has withdrawn the taxpayer's investment wholly or partially from the qualified high technology business;
the credit claimed under this section shall be recaptured. The recapture shall be equal to ten per cent of the amount of the total tax credit claimed under this section in the preceding two taxable years. The amount of the credit recaptured shall apply only to the investment in the particular qualified high technology business that meets the requirements of paragraph (1), (2), or (3). The recapture provisions of this subsection shall not apply to a tax credit claimed for a qualified high technology business that does not fall within the provisions of paragraph (1), (2), or (3). The amount of the recaptured tax credit determined under this subsection shall be added to the taxpayer's tax liability for the taxable year in which the recapture occurs under this subsection.
(e) As used in this section:
"Qualified high technology business" means a business, employing or owning capital or property, or maintaining an office, in this State; provided that[:] at the close of the taxable year for the business:
(1) More than fifty per cent of its total business activities are qualified research; and provided further that the business conducts more than seventy-five per cent of its qualified research in this State; or
(2) More than seventy-five per cent of its gross income is derived from qualified research; and provided further that this income is received from:
(A) Products sold from, manufactured in, or produced in this State; or
(B) Services performed in this State.
"Qualified research" means the same as defined in section 235-7.3.
(f) In the case of partnerships, limited liability partnerships, limited liability companies classified as partnerships, and S-corporations, the credit available under this section may be claimed; provided that all partners, members, or shareholders certify that, in any taxable year in which any partners, members, or shareholders claim a credit under this section, no other credits will be claimed under section 235-17 or 235-110.3.
[(f)] (g) This section shall not apply to taxable years beginning after December 31, 2005."
PART VII
SECTION 18. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§237- Income derived from live professional musical performances not taxable. This chapter shall not apply to amounts received by professional performers for live musical performances conducted in the State of Hawaii."
PART VIII
SECTION 19. Chapter 23, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"Part . legislative economic advisory council
§23-A Purpose. The legislature finds that in matters affecting taxes and governmental revenues, expenditures, and operations, the aid of members of the financial, business, and academic community is invaluable. The legislative process gains from the response of the community, and the information acquired through the dialogue enlarges the basis for sound legislative action. The purpose of this part is to provide that the financial and economic resources of the State will become an integral aid to the legislature and to assure community assistance and guidance in legislative decision-making by establishing a legislative economic advisory council.
§23-B Definition. As used in this part, "council" means the legislative economic advisory council.
§23-C Establishment. There shall be in the office of the auditor for administrative purposes a legislative economic advisory council to provide joint assistance to the senate committee on ways and means and the house of representatives committee on finance.
§23-D Composition; appointment. (a) The council shall be composed of five members representing a broad spectrum of the financial, business, and academic community.
(b) The ombudsman, the auditor, and the director of the legislative reference bureau shall submit a list of ten names to the president of the senate and the speaker of the house of representatives who shall jointly appoint the members of the council.
(c) The president of the senate and speaker of the house of representative shall jointly appoint one of the members of the council as chairperson of the council.
§23-E Term. The members of the council shall be appointed for three-year terms.
§23-F Duties. The council shall provide financial information to both the senate committee on ways and means and the house of representatives committee on finance at the joint request of the president of the senate and speaker of the house of representatives. The council may establish the necessary ad hoc committees for the purposes of gathering information; provided that at least one member of the council shall be a member of each ad hoc committee.
§23-G Expenses. The members of the council and ad hoc committees shall serve without compensation but shall be reimbursed for all necessary expenses incurred in the performance of their duties on behalf of the council."
SECTION 20. In codifying the new sections added by section 19 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this part.
PART IX
SECTION 21. Section 206M-3(a), Hawaii Revised Statutes, gives the high technology development corporation powers to acquire, own, lease, hold, clear, improve, and rehabilitate real, personal, or mixed property and assign, exchange, transfer, convey, lease, sublease, or encumber any project, including by way of easements. Chapter 171, Hawaii Revised Statutes, provides, among other things, that public lands shall be managed, administered, and controlled by the department of land and natural resources, unless the lands are specifically exempted by section 171-2, Hawaii Revised Statutes. Section 171-2 does not exempt the lands held by the high technology development corporation from chapter 171. This Part amends section 171-2, Hawaii Revised Statutes, by specifically exempting the lands held by the high technology development corporation from chapter 171, Hawaii Revised Statutes.
SECTION 22. Section 171-2, Hawaii Revised Statutes, is amended to read as follows:
"§171-2 Definition of public lands. "Public lands" means all lands or interest therein in the State classed as government or crown lands previous to August 15, 1895, or acquired or reserved by the government upon or subsequent to that date by purchase, exchange, escheat, or the exercise of the right of eminent domain, or in any other manner; including submerged lands, and lands beneath tidal waters which are suitable for reclamation, together with reclaimed lands which have been given the status of public lands under this chapter, except:
(1) Lands designated in section 203 of the Hawaiian Homes Commission Act, 1920, as amended;
(2) Lands set aside pursuant to law for the use of the United States;
(3) Lands being used for roads and streets;
(4) Lands to which the United States relinquished the absolute fee and ownership under section 91 of the Hawaiian Organic Act prior to the admission of Hawaii as a state of the United States unless subsequently placed under the control of the board of land and natural resources and given the status of public lands in accordance with the State Constitution, the Hawaiian Homes Commission Act, 1920, as amended, or other laws;
(5) Lands to which the University of Hawaii holds title;
(6) Lands to which the housing and community development corporation of Hawaii in its corporate capacity holds title;
(7) Lands to which the Hawaii community development authority in its corporate capacity holds title;
(8) Lands to which the department of agriculture holds title by way of foreclosure, voluntary surrender, or otherwise, to recover moneys loaned or to recover debts otherwise owed the department under chapter 167;
(9) Lands which are set aside by the governor to the Aloha Tower development corporation; lands leased to the Aloha Tower development corporation by any department or agency of the State; or lands to which the Aloha Tower development corporation holds title in its corporate capacity;
(10) Lands to which the agribusiness development corporation in its corporate capacity holds title[.]; and
(11) Lands to which the high technology development corporation in its corporate capacity holds title."
PART X
SECTION 23. The legislature finds a need to continue to provide relief from unduly burdensome rules for small businesses by amending the Small Business Regulatory Flexibility Act. The specific changes include:
(1) Amending the definition of "small business" to focus regulatory relief efforts on those businesses too small to have the resources to respond to broad-based regulations;
(2) Allowing the small business regulatory review board to make nominations to fill board vacancies;
(3) Deleting the petition to an agency for review of existing rules which duplicates the petition process in section 91-6, Hawaii Revised Statutes;
(4) Deleting the provision for a business defender to provide free legal services to small businesses cited by an agency; and
(5) Making the Small Business Regulatory Flexibility Act and the small business regulatory review board permanent through removal of the sunset date.
SECTION 24. Act 168, Session Laws of Hawaii 1998, is amended by amending section 2 to amend the definition of "small business" in section -1, Hawaii Revised Statutes, to read as follows:
""Small business" means a for-profit enterprise consisting of fewer than [two] one hundred full-time or part-time employees."
SECTION 25. Act 168, Session Laws of Hawaii 1998, is amended by amending section 2 to amend subsections (b) and (c) of section -5, Hawaii Revised Statutes, to read as follows:
"(b) The board shall consist of eleven members, who shall be appointed by the governor pursuant to section 26-34. [Selection for the initial board shall come from a list of nominees submitted by the small business task force on regulatory relief. Thereafter, the nominations] Nominations to fill vacancies shall be made from names submitted by [any and all of the departmental advisory committees on small business.] the review board. The appointments shall reflect representation of a variety of [small] businesses in the State; provided that no more than two members shall be representatives from the same type of [small] business, and that there shall be at least two [small business] representatives from each county.
(c) All members of the board shall be either a current or former owner or officer of a [small] business and shall not be an officer or employee of the federal, state, or county government. [The governor shall appoint the initial chair-person of the board, and a] A majority of the board shall elect [subsequent chairpersons.] the chairperson. The chairperson shall serve a term of not more than one year, unless removed earlier by a two-thirds vote of all members to which the board is entitled."
SECTION 26. Act 168, Session Laws of Hawaii 1998, is amended by amending section 5 to read as follows:
"SECTION 5. This Act shall take effect on July 1, 1998[, and shall be repealed as of June 30, 2002]."
SECTION 27. Act 168, Session Laws of Hawaii 1998, is amended by amending section 2 to repeal section -6, Hawaii Revised Statutes.
["§ -6 Petition for regulatory review. (a) In addition to the basis for filing a petition provided in section 91-6, any affected small business may file a written petition with the agency that has adopted the rules objecting to all or part of any rule affecting small business on any of the following grounds:
(1) The actual effect on small business was not reflected in, or significantly exceeded, the small business impact statement submitted prior to the adoption of the rules;
(2) The small business impact statement did not consider new or significant economic information that reveals an undue impact on small business; or
(3) These impacts were not previously considered at the public hearing on the rules.
(b) For rules adopted prior to the effective date of this chapter, an affected small business may file a written petition with the agency that adopted the rules objecting to all or part of any rules affecting small business on any of the following grounds:
(1) The rules created an undue barrier to the formation, operation, and expansion of small businesses in a manner that significantly outweighs its benefit to the public;
(2) The rules duplicate, overlap, or conflict with rules adopted by another agency or violate the substantive authority under which the rules were adopted; or
(3) The technology, economic conditions, or other relevant factors justifying the purpose for the rules have changed or no longer exist.
(c) Upon submission of the petition, the agency shall forward a copy of the petition to the board as notification of a petition filed under this chapter. The agency shall promptly consider the petition and may seek advice and counsel regarding the petition from the appropriate departmental advisory committee on small business. Within sixty days after the submission of the petition, the agency shall determine whether the impact statement or the public hearing addressed the actual and significant impact on small business. The agency shall submit a written response of the agency's determination to the small business review board within sixty days after receipt of the petition. If the agency determines that the petition merits the adoption, amendment, or repeal of a rule, it may initiate proceedings in accordance with section 91-3.
(d) If the agency determines that the petition does not
merit the adoption, amendment, or repeal of any rule, any affected small business may seek a review of the decision by the small business regulatory review board. The board shall promptly convene a meeting pursuant to chapter 92 for the purpose of soliciting testimony that will assist in its determination whether to recommend that the agency initiate proceedings in accordance with section 91-3. For rules adopted after the effective date of this chapter, the board may base its recommendation on any of the following reasons:
(1) The actual effect on small business was not reflected in, or significantly exceeded, the impact statement submitted prior to the adoption of the rules;
(2) The impact statement did not consider new or significant economic information that reveals an undue impact on small business; or
(3) These impacts were not previously considered at the public hearing on the rules.
(e) For rules adopted prior to the effective date of this chapter, the regulatory review board may base its recommendation to the agency on any of the following reasons:
(1) The rules created an undue barrier to the formation, operation, and expansion of small businesses in the State in a manner that significantly outweighs its benefit to the public;
(2) The rules duplicate, overlap, or conflict with rules adopted by another agency or violate the substantive authority under which the rules were adopted; or
(3) The technology, economic conditions, or other relevant factors justifying the purpose for the rules have changed or no longer exist.
(f) If the small business regulatory review board recommends that an agency initiate rulemaking proceedings for any reason provided in subsection (d) or (e), it shall submit to the legislature an evaluation report and the agency's response as provided in subsection (c). The legislature may subsequently take such action in response to the evaluation report and the agency's response as it finds appropriate.
(g) Nothing in this section shall entitle an affected small business to a contested case hearing under chapter 91."]
SECTION 28. Act 168, Session Laws of Hawaii 1998, is amended by repealing section 3.
["SECTION 3. The Hawaii Revised Statutes is amended by adding a new chapter to title 3 to be appropriately designated and to read as follows:
"CHAPTER
SMALL BUSINESS DEFENDER
§ -1 Small business defender. (a) There is established within the legislature a small business defender. The small business defender shall be appointed by the senate president and speaker of the house of representatives. The senate president and speaker of the house of representatives shall determine the salary of the small business defender. The senate president and speaker of the house of representatives may also appoint administrative support personnel who shall assist and support the small business defender.
(b) Unless otherwise specifically provided by law, and upon written request by a small business, the small business defender may represent, defend, and provide legal representation to any small business, during any adjudicatory or contested proceeding involving any civil citation issued by a state or county agency in which the small business is a party; provided that the small business shall seek its own legal representation whenever the potential remedies against the small business may include fines or penalties that exceed $25,000 or may result in the suspension or revocation of a license. The small business defender shall have the discretion to accept or refuse any case for good cause. The small business defender may also engage in the following activities:
(1) Advocate and negotiate, upon consultation with the small business regulatory review board, with federal, state, and county agencies and officials on any matter relating to and promoting the interests of small business;
(2) Conduct investigations to secure information useful in the lawful administration of any provision in this chapter;
(3) Refer any appropriate matter to the auditor or ombudsman for examination or investigation; and
(4) Do any and all things necessary to effectuate the purposes of this chapter.
(c) Each small business shall waive and release any and all claims, damages, causes of action, and any request for relief made against the small business defender or staff, the State or counties, their officers, employees, or agents, and arising from the legal representation of the small business by the small business defender provided under this section.
§ -2 Annual report. The small business defender shall submit an annual report to the legislature detailing its activities and expenditures no later than twenty days prior to convening of the regular session."]
PART XI
SECTION 29. The Hawaii capital loan program provides low interest rate loans to small businesses that face barriers in obtaining commercial financing. In counties with a population of less than one hundred fifty thousand, the borrowers are charged an interest rate of three per cent below the local bank prime rate, or five and one-half per cent a year, whichever is lower. In counties with a population exceeding hundred fifty thousand, the borrowers are charged an interest rate of one per cent below the local bank prime rate, or seven and one-half per cent a year, whichever is lower. Section 210-6, Hawaii Revised Statutes, limits the adjustment of the local bank prime rate to once every six months. Following the tragic incidents in New York and Virginia on September 11, 2001, the Federal Reserve Board has twice lowered the federal fund rates that are the basis for the local bank prime rate. The legislature finds that the effectiveness of the Hawaii capital loan program is hampered by the ability to adjust the loan interest rate only once every six months. Accordingly, the purpose of this part is to allow the Hawaii capital loan program's interest rate to be adjusted on the first of each month so that it can better reflect the current rapidly changing financial market.
SECTION 30. Section 210-6, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:
"(b) The department may make loans to business concerns located in a county with a population of less than 150,000; provided that the interest on loans made under this subsection shall bear simple interest at the rate of three per cent below the prime rate or at a rate of five and one-half per cent a year, whichever is lower. For purposes of this subsection, the prime rate shall be determined on [January 1 and July 1 of each year,] the first day of each month, and shall be the rate charged by the two largest banks in the State of Hawaii identified by the department of commerce and consumer affairs. Should there be a difference in rate charged by the institutions, the lower of the two shall be used. Payments required under loans made under this subsection may be deferred, but no loans made under this subsection shall be forgiven.
(c) Except as may be expressly provided otherwise for loans made under subsection (b), the foregoing powers shall be subject to the following restrictions and limitations:
(1) No loans shall be granted unless financial assistance is not available to the applicant. The condition may be waived by the director for participation loans or loan guarantees with a private financial institution;
(2) The amount of the loan or loans to any one applicant at any one time shall in no case exceed a total of $1,000,000;
(3) No loan shall be made for a term exceeding twenty years;
(4) Within counties of a population exceeding 150,000, each loan shall bear simple interest at a rate of one per cent below the prime rate or at a rate of seven and one-half per cent a year, whichever is lower. For purposes of this paragraph, the prime rate shall be determined on [January 1 and July 1 of each year,] the first day of each month, and shall be the rate charged by the two largest banks in the State identified by the department of commerce and consumer affairs. Should there be a difference in rate charged by the institutions, the lower of the two shall be used;
(5) The commencement date for the repayment of the first installment on the principal of each loan may be deferred by the director, but in no event shall such initial payment be deferred in excess of five years; and
(6) The payment of interest on the principal of a loan may be deferred by the director, but in no event shall interest payments be deferred in excess of two years from the date of issuance of the loan."
PART XII
SECTION 31. Section 211E-1, Hawaii Revised Statutes, is amended by adding two new definitions to be appropriately inserted and to read as follows:
""Department" means the department of business, economic development, and tourism.
"Intellectual property" means patents, copyrights, trademarks, and trade dress."
SECTION 32. Section 211E-2, Hawaii Revised Statutes, is amended to read as follows:
"§211E-2 Hawaii innovation development fund; establishment. (a) There is established a revolving fund to be known as the Hawaii innovation development fund, that shall be administered by the department [of business, economic development, and tourism] for the purpose of promoting the development of new [products or inventions] manufactured products, marks, works of authorship, or inventions that have direct economic benefits for Hawaii.
(b) The department shall provide low interest loans pursuant to subsection [(b)] (d) to inventors or authors for the development of their new [product or invention.] manufactured products, marks, works of authorship, or inventions.
(c) All moneys received as repayment of loans and interest payment shall be deposited in the fund. The department may transfer moneys from the Hawaii innovation development fund established by this section to either the state disaster revolving loan fund established by section 209-34, or the Hawaii capital loan revolving fund established by section 210-3, and moneys from these three funds shall be disbursed by the department or the director pursuant to chapters 209, 210, and 211E, respectively. The department or the director may transfer moneys from the state disaster revolving loan fund and the Hawaii capital loan revolving fund to the Hawaii innovation development fund for disbursement pursuant to this chapter:
(1) The total amount of moneys transferred to the state disaster revolving loan fund, the Hawaii capital loan revolving fund, or the Hawaii innovation development fund shall not exceed $1,000,000 for each respective fund within the calendar year;
(2) Notwithstanding paragraph (1), the total amount of moneys transferred between the state disaster revolving loan fund and the Hawaii capital loan revolving fund or the Hawaii innovation development fund shall not exceed $1,000,000 within the calendar year if the governor proclaims a state disaster pursuant to section 209-2; and
(3) The department shall report any transfer of funds made under this section to the legislature within ten days of the transfer.
[(b)] (d) The department shall adopt rules pursuant to chapter 91 to carry out the purposes of this chapter including the following:
(1) Prescribe the qualification for eligibility of loan applicants;
(2) Establish preferences and priorities in determining eligibility for loans and loan repayments;
(3) Determine the necessity for and the extent of security required in any loan;
(4) Establish the interest rates chargeable by the State; provided that each loan granted under this section shall bear a simple interest which shall not exceed seven and one-half per cent; and
(5) Prescribe the forms of financial participation the department may engage in as a result of making a loan under this chapter, including but not limited to warrants, options, or royalties on sales or earnings."
PART XIII
SECTION 33. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 34. This Act shall take effect upon its approval, provided that:
(1) Parts II, III, and IV shall take effect on July 1, 2002;
(2) Part VI shall apply to taxable years beginning after December 31, 2001; and
(3) Part VII shall apply to gross income or gross receipts received after June 30, 2002.