HB2705

SECTION 1. The legislature finds that state agricultural lands are a key resource that can be used to meet the State's goals for economic diversification and food self-sufficiency. In order to support farmers on these lands, the State subsidizes lessees by providing leases at below-market rates and, in some cases, providing lower-cost agricultural water. The State invests in training new farmers, but these farmers often experience difficulty in obtaining affordable land to farm after completing their training. State agricultural land that would otherwise be available to prospective farmers may be tied up in long-term leases that are not productive. For example, the land may be used primarily as a residence, or a significant portion of the land may remain unused or be used for non-agricultural purposes despite being suitable for farming.

Additionally, lessees who obtain State agricultural leases in high-demand locations may convert their leases into windfall profits that exceed their investment in the property. This is an unintended transfer of wealth from the State to individual lessees. This situation also causes the transfer of leases to the highest bidders, who may or may not be the farmers best able to use the land for production.

The legislature further finds that state agricultural lands should not remain in the possession of lessees, or successors to lessees, who are unable to farm the land productively according to the plan for which the original lease was granted. In those cases, the lease should be terminated.

Accordingly, the purpose of this Act is to update certain state non-agricultural park leasing statutes to maximize the benefit to the State of these lands and to help the State achieve its economic and food production goals.

SECTION 2. Section 166E-5, Hawaii Revised Statutes, is amended to read as follows:

"§166E-5 Extension of qualified and encumbered non‑agricultural park lands transferred to and managed by the department. Notwithstanding chapter 171[,] and except as provided in section 166E-8, the board shall establish criteria and rules to allow the cancellation, renegotiation, and extension of transferred encumbrances by the department. Notwithstanding any law to the contrary, qualified and encumbered non-agricultural park lands transferred to the department shall not have the respective length of term of the lease or rents reduced over the remaining fixed term of the applicable encumbrances."

SECTION 3. Section 166E-8, Hawaii Revised Statutes, is amended to read as follows:

"[[]§166E-8[]] Disposition. (a) Any provision of this chapter to the contrary notwithstanding, the department may dispose of:

(1) Public lands and related facilities set aside and designated for use pursuant to this chapter; and

(2) Other lands and facilities under the jurisdiction of the department pursuant to section 166E‑9 and notwithstanding chapter 171,

by negotiation, drawing of lot, conversion, or public auction[.]; provided that for transfers and extensions of leases issued on or after the effective date of this Act, the department shall first conduct a public notice to solicit interested applicants to a conditional sealed bid process that is open to all qualified applicants, subject to cancellation upon withdrawal of the request for transfer or extension. For the purposes of this section, in awarding a lease through the sealed bid process, the department shall select the best-suited applicant in terms of meeting the department's mission, whether the applicant is an existing or prospective lessee. If there is no interested and qualified applicant other than the current lessee, or the intended transferee identified by the current lessee, the department may extend or transfer a lease pursuant to subsection (b)(5) and section 166E-5.

Except as provided by subsection (d), the department shall dispose of public lands by lease.

(b) In all dispositions, the department shall be subject to the requirements set forth in rules adopted by the board consistent with section 166E-6 and subject to the following:

(1) All land and facilities shall be disposed of for purposes of agricultural or aquacultural activities only;

(2) Each lessee shall derive a major portion of the lessee's total annual income earned from the lessee's activities on the premises; provided that this restriction shall not apply if:

(A) Failure to meet the restriction results from mental or physical disability or the loss of a spouse; or

(B) The premises are fully used in the production of crops or products for which the disposition was granted;

(3) The lessee shall comply with all federal and state laws regarding environmental quality control;

(4) The board shall:

(A) Determine the specific uses for which the disposition is intended;

(B) Parcel the land into minimum size economic units sufficient for the intended uses;

(D) Set the upset price or lease rent based upon an appraised evaluation of the property value, adjustable to the specified use of the lot;

(E) Set the term of the lease that shall be not less than fifteen years nor more than [~~sixty-five~~] fifty years, including any extension granted for mortgage lending or guarantee purposes; and

(F) Establish other terms and conditions it deems necessary, including but not limited to restrictions against alienation and provisions for withdrawal by the board; and

(5) Any transferee, assignee, or sublessee of a non‑agricultural park lease shall first qualify as an applicant under this chapter. For the purpose of this paragraph, any transfer, assignment, sale, or other disposition of any interest, excluding a security interest, by any legal entity that holds a non‑agricultural park lease shall be treated as a transfer of the non-agricultural park lease and shall be subject to the approval of the board and to reasonable terms and conditions, consistent with this chapter or rules of the board that the board may deem necessary. No transfer shall be approved by the board if the disposition of the stock or assets or other interest of the legal entity would result in the failure of the entity to qualify for a non‑agricultural park land lease.

(c) After notice of the breach or default as provided in rules adopted by the board consistent with section 166E-6, a violation of any provision in this section shall be cause for the board to cancel the lease and take possession of the land.

(d) The board may issue easements, licenses, permits, and rights-of-entry for uses that are consistent with the purposes for which the lands were set aside or are otherwise subject to the authority of the department pursuant to section 166E‑9.

(e) For leases issued on or after the effective date of this Act, when the department transfers a lease, the lessee shall be fully compensated for any depreciated cost of improvements and trade fixtures if the bid equals or exceeds that amount. If the bid falls short of the depreciated cost of improvements and trade fixtures, the lessee shall receive the entire bid but no further compensations. The premium, if any, shall be credited to the State.

(f) If a lessee seeks a modification of the lease or original plan of development and utilization due to a mental or physical disability or the loss of a spouse or reciprocal beneficiary, the lessee may submit, within twelve months of the occurrence of the event:

(1) Documentation to the department to demonstrate that the lessee is able to resume implementation of the original plan of development and utilization within the following twelve months; or

(2) An amended plan of development and utilization for consideration by the department.

(g) If a lease is transferred through bequest, devise, or intestate succession, the heir, devisee, or beneficiary shall submit, within twelve months of the death of the lessee:

(1) Documentation to the department to demonstrate that the heir, devisee, or beneficiary is able to resume implementation of the original plan of development and utilization within the following twelve months; or

(2) An amended plan of development and utilization for consideration by the department.

The department shall approve an amended plan only if the plan meets standards with respect to productivity comparable to new leases being issued at that time.

If the documentation or amended plan is not satisfactory to the department, the lease shall be terminated at that time.

Twenty-four months after the death of the lessee, the department shall review the heir, devisee, or beneficiary's progress toward implementation of the original plan, or the amended plan if one was approved. If the heir, devisee, or beneficiary is not following the original or amended plan of development and utilization, as applicable, the lease shall be terminated at that time."

SECTION 4. Section 166E-11, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) [~~The~~] Subject to the requirements of section 166E-8, the department may negotiate and enter into leases with any person who:

(1) Holds a revocable permit for agricultural purposes;

(2) Has formerly held an agricultural lease or a holdover lease of public land that expired within the last ten years and has continued to occupy the land; or

(3) Is determined by the department to have a beneficial impact on agriculture."

SECTION 5. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 6. The revisor of statutes shall insert the effective date of this Act in the appropriate locations in section 3 of this Act.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2705
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII