HB1760 HD1

SECTION 1. The legislature finds that the 2008 Housing and Economic Recovery Act added section 146(i)(6) to the Internal Revenue Code of 1986, as amended, which authorized the "recycling" of multifamily private activity bond volume cap to finance new affordable rental housing projects. Jurisdictions such as New York City and California have established bond recycling programs in order to use this existing authority under the Internal Revenue Code to preserve and more efficiently use their tax-exempt private activity bond volume by allowing an authorized private activity bond issuer to secure an instrument of indebtedness with a trustee, fiscal agent, or bank that holds the debt for an affordable housing project. The proceeds of that instrument of indebtedness are then deemed to be used to repay a prior tax-exempt private activity bond issue, the loan pursuant to the prior tax-exempt issue is deemed to have been repaid from an alternative source, and the repayment is deemed to have been transferred to the issuer to make a new loan to another borrower. Under the bond recycling strategy, the jurisdiction's volume cap is not spent but can instead be recycled once, with certain requirements and limitations, to finance other affordable rental housing projects and leverage other tax incentives like the low-income housing tax credit.

Given the critical need to create more affordable housing opportunities within the State, the legislature further finds that laying the foundation for a bond recycling program now is prudent so that the Hawaii housing finance and development corporation and counties can use the bond recycling strategy when conditions are favorable.

While the Internal Revenue Code authorizes bond recycling, article VII, section 13, of the Hawaii State Constitution establishes a limit on the total outstanding general obligation bond indebtedness of the State and on the funded debt of any political subdivision, unless certain conditions are met, but also excludes certain bonds from the debt limit, including bonds constituting instruments of indebtedness under which the State incurs a contingent liability as a guarantor, but only to the extent the principal amount of such bonds does not exceed seven percent of the principal amount of outstanding general obligation bonds not otherwise excluded under section 13; provided that the State establishes and maintains a reserve in an amount in reasonable proportion to the outstanding loans guaranteed by the State. Pursuant to this constitutional provision and in order to ensure the exclusion of any bond debt incurred for the bond recycling program from the total outstanding debt limit for the State, the legislature finds that a reserve fund should be established for any unsecured portion of the debt used for the bond recycling program.

The purpose of this Act is to statutorily establish authorization for the Hawaii housing finance and development corporation and counties to implement a bond recycling program for affordable rental housing and ensure the exclusion of any bond debt incurred for the program from the State's total outstanding debt limit.

SECTION 2. Section 39B-2, Hawaii Revised Statutes, is amended to read as follows:

"§39B-2 Allocation of annual state ceiling. (a) The annual state ceiling shall be allocated for each calendar year in the following proportions:

(1) An amount equal to fifty per cent of the annual state ceiling to the State;

(2) An amount equal to 37.55 per cent of the annual state ceiling to the city and county of Honolulu;

(3) An amount equal to 5.03 per cent of the annual state ceiling to the county of Hawaii;

(4) An amount equal to 2.41 per cent of the annual state ceiling to the county of Kauai; and

(5) An amount equal to 5.01 per cent of the annual state ceiling to the county of Maui.

(b) The department, with the approval of the governor, may assign all or any part of the allocation of the State to any issuer or any county for a specific calendar year or years. At the request of the department, any issuer or county to which any part of the State's allocation has been assigned shall return all or part of the assignment, in which case the department may provide for its reassignment.

(c) The department may request return of all or any part of the allocations of one or more counties made pursuant to subsection (a), and may assign and reassign the allocation to any other county or issuer for a specified calendar year or years.

(d) A county, by resolution of its governing body, or any issuer, by written certificate of the issuer, may request additional allocations of the annual state ceiling from, or assign all or any part of its portion of the allocation of the annual state ceiling to, the State for a specified calendar year or years. Before requesting an additional allocation of the annual state ceiling for a specific calendar year or years under this subsection, a county shall have applied all of its allocation of the annual state ceiling for the specified calendar year or years as evidenced by a certificate of the issuer or the director of finance of a county, as applicable, under section 39B-3. If a county assigns all or any part of its private activity bond allocation for a specific calendar year or years to the State under this subsection, the assigned portion shall be applied to a project or projects located in the assigning county; provided that pursuant to a cooperative agreement with the department and Hawaii housing finance and development corporation under subsection (e), the private activity bond allocation may be awarded to projects located in other counties.

(e) In order to facilitate the construction of new rental housing projects, the department and Hawaii housing finance and development corporation may enter into a cooperative agreement with a county to coordinate the award of private activity bonds and low-income housing tax credits for new rental housing projects in the county. The agreement shall, except as provided under federal law, be exempt from all statutes, ordinances, charter provisions, and rules of any government agency relating to the award of private activity bonds and low-income housing tax credits.

(f) The Hawaii housing finance and development corporation or a county may establish a bond recycling program pursuant to section 146(i)(6) of the Internal Revenue Code of 1986, as amended. Under the program, if the repayment of a loan financed by an issue of which ninety-five per cent or more of the net proceeds are used to provide projects described in section 142(d) of the Internal Revenue Code of 1986, as amended, and the repayment is used to provide a new loan for any project so described, any bond that is issued to refinance the issue shall be treated as a refunding issue to the extent the principal amount of the refunding issue does not exceed the principal amount of the bonds refunded.

(g) The Hawaii housing finance and development corporation or a county may secure a line of credit or other instrument of indebtedness for a bond recycling program.

If the Hawaii housing finance and development corporation secures a line of credit or other instrument of indebtedness under this subsection, the Hawaii housing finance and development corporation shall maintain in a separate subaccount of the rental housing revolving fund a reserve in an amount in reasonable proportion to the outstanding balance of the instrument of indebtedness that is not secured by cash or short-term investments described in section 36‑21(a).

If a county secures a line of credit or other instrument of indebtedness under this subsection, the county shall maintain in a separate fund a reserve in an amount in reasonable proportion to the outstanding balance of the instrument of indebtedness that is not secured by cash or short-term investments described in section 36‑21(a).

(h) The department and Hawaii housing finance and development corporation may enter into a cooperative agreement with a county to facilitate and coordinate the establishment and implementation of a bond recycling program. The agreement shall be exempt from all statutes, ordinances, charter provisions, and rules of any government agency relating to the award of private activity bonds except federal law, subsections (f) and (g), and section 39B-5(2)."

SECTION 3. Section 39B-5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§39B-5[]] Semi-annual report status or use of allocation. In addition to the report required by section 39B-4, within thirty days of the end of each fiscal and calendar year, each county or any issuer shall submit a report to the department and the Hawaii housing finance and development corporation on [~~the~~]:

(1) The status or use of its portion of the allocation of the annual state ceiling, including any carryforward allocation, that has not been applied to an issuance of a qualified private bond[,]; and

(2) The status or use of its portion of the allocation of the annual state ceiling previously applied to an issuance of a qualified private bond and used to provide a new loan under the bond recycling program pursuant to section 39B-2(f) and section 146(i)(6) of the Internal Revenue Code of 1986, as amended,

as evidenced by a certificate of the issuer or the director of finance of a county, as applicable."

SECTION 4. Section 201H-202, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) The fund shall be used to provide loans or grants for the development, pre-development, construction, acquisition, preservation, and substantial rehabilitation of rental housing units. Permitted uses of the fund may include but are not limited to planning, design, land acquisition, costs of options, agreements of sale, downpayments, equity financing, capacity building of nonprofit housing developers, or other housing development services or activities as provided in rules adopted by the corporation pursuant to chapter 91. The rules may provide for a means of recapturing loans or grants made from the fund if a rental housing project financed under the fund is refinanced or sold at a later date. The rules may also provide that moneys from the fund shall be leveraged with other financial resources to the extent possible.

There is established within the rental housing revolving fund a bond recycling program subaccount. The bond recycling program subaccount shall be maintained as a reserve pursuant to section 39B‑2(f)."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 3000.

HOUSE OF REPRESENTATIVES	H.B. NO.	1760
THIRTY-SECOND LEGISLATURE, 2024		H.D. 1
STATE OF HAWAII