SB2770

SECTION 1. The legislature finds that cesspools are a source of pollution that threatens the health of Hawaii's people and environment. In response to the State's cesspool pollution problem, legislation was enacted in 2017 that requires all cesspools not excluded by the director of health to be upgraded or converted to director of health-approved wastewater systems or connected to sewerage systems by January 1, 2050.

The legislature further finds that the large upfront costs of cesspool conversions prevent many cesspool owners from addressing systems that contribute to the daily release of untreated sewage. It is in the public interest to explore non-traditional financing mechanisms to accelerate cesspool conversions and provide Hawaii's homeowners with additional financing options, especially for those not able to qualify for bank and credit union financing at reasonable rates and terms.

The purpose of this Act is to:

(1) Direct the Hawaii green infrastructure authority to establish a cesspool conversion financing program to provide low-interest loans for low- and moderate-income homeowners to upgrade or convert existing cesspools in all counties to director of health-approved wastewater systems or connect properties with existing cesspools to sewerage systems;

(2) Allow the department of health, through a memorandum of agreement, to annually transfer funding available from the water pollution control revolving fund to capitalize the cesspool conversion financing program; and

(3) Enable the counties to collaborate with the authority to implement the cesspool conversion financing program by including the principal and interest loan repayments for eligible borrowers on the water bill of each respective county and transmit the collections to the authority.

SECTION 2. Chapter 196, Hawaii Revised Statutes, is amended by adding a new section to part IV to be appropriately designated and to read as follows:

"§196- Cesspool conversion loan special fund; cesspool conversion financing program. (a) There is established in the state treasury the cesspool conversion loan special fund that shall be administered by the authority. Funds deposited into the cesspool conversion loan special fund shall include:

(1) Moneys appropriated by the legislature;

(2) Funds from federal, state, county, private, or other funding sources, including funds from the department of health under section 342D-83;

(3) Moneys received as repayment of loans and interest payments; provided that the repayment of loans and interest payments under this paragraph shall not include repayment of loans and interest collected as a result of funds advanced from proceeds of the green energy market securitization bonds, clean energy and energy efficiency revolving loan fund, solar photovoltaic and energy storage loan program, or condominium loan program; and

(4) Any fees collected by the authority under this section; provided that moneys collected as a result of the funds advanced from proceeds of the green energy market securitization bonds, clean energy and energy efficiency revolving loan fund, solar photovoltaic and energy storage loan program, and condominium loan program shall be kept separate from fees collected as a result of funds advanced from proceeds of the cesspool conversion loan special fund.

(b) Moneys in the cesspool conversion loan special fund shall be used to administer the cesspool conversion financing program to provide low-interest loans or other authorized financial assistance to eligible low and moderate-income households to upgrade or convert existing cesspools in all counties to director of health-approved wastewater systems or connect properties with existing cesspools to sewerage systems on terms approved by the authority. Moneys from the fund may be used to cover administrative and legal costs of fund management and management associated with individual loans, which include personnel, services, technical assistance, data collection and reporting, materials, equipment, and travel for the purposes of this section.

(c) Funds appropriated or authorized from the cesspool conversion loan special fund shall be expended by the authority. The authority may contract with other public or private entities for the provision of all or a portion of the services necessary for the administration and implementation of the cesspool conversion financing program. The authority may set fees or charges for fund management and technical site assistance provided under this section.

(d) All interest earned on the loans, deposits, or investments of the moneys in the fund shall become part of the cesspool conversion loan special fund.

(e) The authority may establish subaccounts within the cesspool conversion loan special fund as necessary.

(f) The authority may adopt rules pursuant to chapter 91 or publish cesspool conversion financing program guidelines to carry out the purposes of this section."

SECTION 3. Section 196-64, Hawaii Revised Statutes, is amended to read as follows:

"§196-64 Functions, powers, and duties of the authority. (a) In the performance of, and with respect to the functions, powers, and duties vested in the authority by this part, the authority, as directed by the director and in accordance with a green infrastructure loan program order or orders under section 269-171 or an annual plan submitted by the authority pursuant to this section, as approved by the commission for the green infrastructure loan program, may:

(1) Make loans and expend funds to finance the purchase or installation of green infrastructure equipment for clean energy technology, demand response technology, and energy use reduction and demand side management infrastructure, programs, and services;

(2) Hold and invest moneys in the green infrastructure special fund in investments as permitted by law and in accordance with approved investment guidelines established in one or more orders issued by the commission pursuant to section 269-171;

(3) Hire employees necessary to perform its duties, including an executive director. The executive director shall be appointed by the authority, and the employees' positions, including the executive director's position, shall be exempt from chapter 76;

(4) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice, and any other contracts that are necessary and proper for the implementation of the loan program;

(5) Enter into contracts for the administration of the loan program, without the necessity of complying with chapter 103D;

(6) Establish loan program guidelines to be approved in one or more orders issued by the commission pursuant to section 269-171 to carry out the purposes of this part;

(7) Be audited at least annually by a firm of independent certified public accountants selected by the authority, and provide the results of this audit to the department and the commission; and

(8) Perform all functions necessary to effectuate the purposes of this part.

(b) The authority shall submit to the commission an annual plan for the green infrastructure loan program for review and approval no later than ninety days prior to the start of each fiscal year. The annual plan submitted by the authority shall include the authority's projected operational budget for the succeeding fiscal year.

(c) In the performance of the functions, powers, and duties vested in the authority by this part, the authority shall administer the clean energy and energy efficiency revolving loan fund pursuant to section 196-65.5 and may:

(1) Make loans and expend funds to finance the purchase or installation of clean energy technology and services;

(2) Implement and administer loan programs on behalf of other state departments or agencies through a memorandum of agreement and expend funds appropriated to the department or agency for purposes authorized by the legislature;

(3) Utilize all repayment mechanisms, including the green energy money saver on-bill program, financing tools, servicing and other arrangements, and sources of capital available to the authority;

(4) Exercise powers to organize and establish special purpose entities as limited liability companies under the laws of the State;

(5) Acquire, hold, and sell qualified securities;

(6) Pledge unencumbered net assets, loans receivable, assigned agreements, and security interests over equipment financed, as collateral for the authority's borrowings from federal, county, or private lenders or agencies;

(7) Utilize the employees of the authority, including the executive director;

(8) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice and any other contracts that are necessary and proper for the implementation of the loan fund program;

(9) Enter into contracts for the administration of the loan fund program exempt from chapter 103D;

(10) Establish loan fund program guidelines;

(11) Be audited at least annually by a firm of independent certified public accountants selected by the authority and provide the results of the audit to the department and legislature; and

(12) Perform all functions necessary to effectuate the purposes of this part.

(d) In the performance of the functions, powers, and duties vested in the authority by this part, the authority shall administer the cesspool conversion loan special fund and cesspool conversion financing program pursuant to section 196- and may:

(1) Make loans and expend funds to finance the upgrade or conversion of existing cesspools in all counties to director of health-approved wastewater systems or connection of properties with existing cesspools to sewerage systems;

(2) Implement and administer the cesspool conversion financing program with funding available under section 342D-83 provided by the department of health on an annual basis through a memorandum of agreement and expend funds appropriated to the department for purposes authorized by the legislature;

(3) Coordinate with each county water utility, through memorandums of agreement, to implement the repayment mechanism for the cesspool conversion financing program to have the principal and interest loan repayments collected from eligible borrowers, and for each respective county to transmit those collections to the authority;

(4) Utilize all repayment mechanisms, financing tools, servicing and other arrangements, and sources of capital available to the authority;

(5) Utilize the employees of the authority, including the executive director;

(6) Enter into contracts for the service of consultants for rendering professional and technical assistance and advice and any other contracts that are necessary and proper for the implementation of the cesspool conversion financing program;

(7) Enter into contracts for the administration of the cesspool conversion financing program that are exempt from chapter 103D;

(8) Establish guidelines for the cesspool conversion financing program;

(9) Be audited at least annually by a firm of independent certified public accountants selected by the authority and provide the results of the audit to the department and legislature; and

(10) Perform all functions necessary to effectuate the purposes of this part.

[~~(d)~~] (e) The authority shall submit an annual report for the clean energy and energy efficiency revolving loan fund and the cesspool conversion loan special fund to the legislature no later than twenty days prior to the convening of each regular session describing the projects funded and the projected energy impacts."

SECTION 4. 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 2026-2027 to be deposited into the cesspool conversion loan special fund established under section 196- , Hawaii Revised Statutes.

SECTION 5. There is appropriated out of the cesspool conversion loan special fund the sum of $ or so much thereof as may be necessary for fiscal year 2026-2027 for the hiring of one full-time equivalent (1.0 FTE) program management position and for the purposes of the cesspool conversion loan special fund.

The sum appropriated shall be expended by the Hawaii green infrastructure authority for the purposes of this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2026.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2770
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII