REPORT TITLE:
New Economy


DESCRIPTION:


 
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HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 2000                                S.D. 2
STATE OF HAWAII                                            C.D. 1
                                                             
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                     A BILL FOR AN ACT

RELATING TO THE NEW ECONOMY.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The "New Economy" is an economy based on
 
 2 knowledge and ideas.  It is an economy where the keys to job
 
 3 creation and higher standards of living are innovative ideas and
 
 4 technology embedded in services and manufactured products.  It is
 
 5 an economy where risk, uncertainty, and constant change are the
 
 6 rule rather than the exception.  It is an economy in a world of
 
 7 innovation where there is rapid convergence of technology,
 
 8 telecommunications, and media.  As a result, partnerships, such
 
 9 as MSNBC and AOL-Time Warner, become staples of this rapidly
 
10 moving industry.
 
11      Hawaii is competing in this New Economy.  Hawaii offers
 
12 great advantages not available in other areas of the world:
 
13 unparalleled quality of life, rich and diverse cultures, and an
 
14 educated populace.  In 1999, the twentieth legislature, the
 
15 educational system, and administration partnered to demonstrate
 
16 their commitment of support for an aggressive development of high
 
17 technology resources.  Act 178, Session Laws of Hawaii 1999,
 
18 called for the integration of technology with some of Hawaii's
 
19 industries, the increase of technology professionals through work
 

 
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 1 force development programs, and the creation of economic
 
 2 incentives for businesses to increase high technology research
 
 3 activities.
 
 4      Since geographic location and isolation are no longer
 
 5 detrimental factors when competing in a global market, the
 
 6 legislature believes that it must continue the effort started in
 
 7 1999.  The purpose of this Act is to encourage the continued
 
 8 growth and development of high technology businesses and
 
 9 associate industries.
 
10                              PART I
 
11      SECTION 2.  The purpose of this Part is to:
 
12      (1)  Allow qualified high technology businesses to sell
 
13           their unused net operating loss carryover to other
 
14           taxpayers;
 
15      (2)  Amend the high technology-related definitions in the
 
16           income tax law;
 
17      (3)  Amend the income tax exclusion for royalties and other
 
18           income from high technology businesses established by
 
19           section 22 of Act 178, Session Laws of Hawaii 1999, by
 
20           expanding that exclusion to include royalties derived
 
21           from any patent, copyright, or trade secret;
 
22      (4)  Amend the section relating to operation of certain
 
23           Internal Revenue Code provisions to allow partnership
 

 
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 1           investors the flexibility of allocating the high
 
 2           technology business investment tax credit in section
 
 3           235-110.9, Hawaii Revised Statutes, among partners
 
 4           without regard to their proportionate interests in
 
 5           their partnership investment vehicle;
 
 6      (5)  Amend the tax credit for increasing research activities
 
 7           under section 235-110.91, Hawaii Revised Statutes, by
 
 8           making the credit refundable to the taxpayer in
 
 9           addition to allowing the credit to be used against the
 
10           taxpayer's income tax liability in subsequent years
 
11           until exhausted; and
 
12      (6)  Conform the tax credit for increasing research
 
13           activities under section 235-110.91, Hawaii Revised
 
14           Statutes, to that provided under the Internal Revenue
 
15           Code, thereby increasing the tax credit from 2.5 per
 
16           cent to twenty per cent to match the federal rate.
 
17      SECTION 3.  Chapter 235, Hawaii Revised Statutes, is amended
 
18 by adding a new section to be appropriately designated and to
 
19 read as follows:
 
20      "235-    High technology; sale of unused net operating loss
 
21 carryover.  (a)  A qualified high technology business may apply
 
22 to the department of taxation to sell its unused net operating
 
23 loss carryover to another taxpayer.  If approved by the
 

 
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 1 department of taxation, a qualified high technology business may
 
 2 sell its unused net operating loss carryover to another taxpayer
 
 3 in an amount equal to at least seventy-five per cent of the
 
 4 amount of the surrendered tax benefit; provided that the
 
 5 qualified high technology business may sell no more than $500,000
 
 6 of its unused net operating loss carryover to another taxpayer
 
 7 per year.  The tax benefit purchased by the buyer shall be
 
 8 claimed in the year for which the sale is approved by the
 
 9 department.  Any use of the purchased net operating loss
 
10 carryover for tax carryback or carryforward purposes shall comply
 
11 with applicable law.  The income from the sale of the net
 
12 operating loss carryover received by the seller shall be reported
 
13 on its tax return in the taxable year received but shall not be
 
14 considered taxable income.
 
15      (b)  No application for the sale of unused net operating
 
16 losses shall be approved if the seller is a qualified high
 
17 technology business that:
 
18      (1)  Has demonstrated positive net income in any of the two
 
19           previous full years of ongoing operations as determined
 
20           on its financial statements;
 
21      (2)  Has demonstrated a ratio in excess of one hundred ten
 
22           per cent or greater of operating revenues divided by
 
23           operating expenses in any of the two previous full
 

 
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 1           years of operations as determined on its financial
 
 2           statements; or
 
 3      (3)  Is directly or indirectly at least fifty per cent owned
 
 4           or controlled by another corporation that has
 
 5           demonstrated positive net income in any of the two
 
 6           previous full years of ongoing operations as determined
 
 7           on its financial statements or is part of a
 
 8           consolidated group of affiliate corporations, as filed
 
 9           for federal income tax purposes, that in the aggregate
 
10           has demonstrated positive net income in any of the two
 
11           previous full years of ongoing operations as determined
 
12           on its combined financial statements;
 
13 as certified and documented by a licensed certified public
 
14 accountant.
 
15      (c)  As used in this section, "net operating loss" means a
 
16 net operating loss for income tax purposes occurring in the two
 
17 taxable years preceding the year in which the sale of net
 
18 operating loss carryover occurs.
 
19      (d)  This section shall only apply to sales of net operating
 
20 loss carryovers after December 31, 2000, and before January 1,
 
21 2004."
 
22      SECTION 4.  Section 235-1, Hawaii Revised Statutes, is
 
23 amended by adding five new definitions to be appropriately
 
24 inserted and to read as follows:
 

 
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 1      ""Biotechnology" means fundamental knowledge regarding the
 
 2 function of biological systems from the macro level to the
 
 3 molecular and subatomic levels that has application to
 
 4 development including the development of novel products,
 
 5 services, technologies, and subtechnologies from insights gained
 
 6 from research advances that add to that body of fundamental
 
 7 knowledge.
 
 8      "Computer data" means any representation of information,
 
 9 knowledge, facts, concepts, or instructions that is being
 
10 prepared or has been prepared and is intended to be processed, is
 
11 being processed, or has been processed in a computer or computer
 
12 network.
 
13      "Computer program" means an ordered set of computer data
 
14 representing coded instructions or statements, that, when
 
15 executed by a computer, causes the computer to perform one or
 
16 more computer operations.
 
17      "Computer software" means computer data, a computer program,
 
18 or a set of computer programs, procedures, or associated
 
19 documentation concerned with the operation and function of a
 
20 computer system, and includes both systems and application
 
21 programs and subdivisions, such as assemblers, compilers,
 
22 routines, generators, and utility programs.
 

 
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 1      "Investment" means a nonrefundable investment, at risk, as
 
 2 that term is used in section 465 (with respect to deductions
 
 3 limited to amount at risk) of the Internal Revenue Code, in a
 
 4 qualified high technology business, of cash that is transferred
 
 5 to the qualified high technology business, the transfer of which
 
 6 is in connection with a transaction in exchange for stock,
 
 7 interests in partnerships, joint ventures, or other entities,
 
 8 licenses (exclusive or nonexclusive), rights to use technology,
 
 9 marketing rights, warrants, options, or any items similar to
 
10 those included in this definition, including but not limited to
 
11 options or rights to acquire any of the items included in this
 
12 definition.  The nonrefundable investment is entirely at risk of
 
13 loss where repayment depends upon the success of the qualified
 
14 high technology business.  If the money invested is to be repaid
 
15 to the taxpayer, no repayment except for dividends or interest
 
16 shall be made for at least one year from the date the investment
 
17 is made.  The annual amount of any dividend and interest payment
 
18 to the taxpayer shall not exceed twelve per cent of the amount of
 
19 the investment."
 
20      SECTION 5.  Section 235-2.4, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "235-2.4  Operation of certain Internal Revenue Code
 
23 provisions[.]; sections 63 to 530.  (a)  Section 63 (with respect
 
24 to taxable income defined) of the Internal Revenue Code shall be
 

 
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 1 operative for the purposes of this chapter, except that the
 
 2 standard deduction amount in section 63(c) of the Internal
 
 3 Revenue Code shall instead mean:
 
 4      (1)  $1,900 in the case of:
 
 5           (A)  A joint return as provided by section 235-93; or
 
 6           (B)  A surviving spouse (as defined in section 2(a) of
 
 7                the Internal Revenue Code);
 
 8      (2)  $1,650 in the case of a head of household (as defined
 
 9           in section 2(b) of the Internal Revenue Code);
 
10      (3)  $1,500 in the case of an individual who is not married
 
11           and who is not a surviving spouse or head of household;
 
12           or
 
13      (4)  $950 in the case of a married individual filing a
 
14           separate return.
 
15      Section 63(c)(4) shall not be operative in this State.
 
16 Section 63(c)(5) shall be operative, except that the limitation
 
17 on basic standard deduction in the case of certain dependents
 
18 shall be the greater of $500 or such individual's earned income.
 
19 Section 63(f) shall not be operative in this State.
 
20      The standard deduction amount for nonresidents shall be
 
21 calculated pursuant to section 235-5.
 
22      (b)  Section 72 (with respect to annuities; certain proceeds
 
23 of endowment and life insurance contracts) of the Internal
 

 
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 1 Revenue Code shall be operative for purposes of this chapter and
 
 2 be interpreted with due regard to section 235-7(a), except that
 
 3 the ten per cent additional tax on early distributions from
 
 4 retirement plans in section 72(t) shall not be operative for
 
 5 purposes of this chapter.
 
 6      (c)  Section 121 (with respect to exclusion of gain from
 
 7 sale of principal residence) of the Internal Revenue Code shall
 
 8 be operative for purposes of this chapter, except that for the
 
 9 election under section 121(f), a reference to section 1034
 
10 treatment means a reference to section 235-2.4(n) in effect for
 
11 taxable year 1997.
 
12      (d)  Section 219 (with respect to retirement savings) of the
 
13 Internal Revenue Code shall be operative for the purpose of this
 
14 chapter.  For the purpose of computing the limitation on the
 
15 deduction for active participants in certain pension plans for
 
16 state income tax purposes, adjusted gross income as used in
 
17 section 219 as operative for this chapter means federal adjusted
 
18 gross income.
 
19      (e)  Section 220 (with respect to medical savings accounts)
 
20 of the Internal Revenue Code shall be operative for the purpose
 
21 of this chapter, but only with respect to medical services
 
22 accounts that have been approved by the Secretary of the Treasury
 
23 of the United States.
 

 
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 1      (f)  Section 408A (with respect to Roth Individual
 
 2 Retirement Accounts) of the Internal Revenue Code shall be
 
 3 operative for the purposes of this chapter.  For the purposes of
 
 4 determining the aggregate amount of contributions to a Roth
 
 5 Individual Retirement Account or qualified rollover contribution
 
 6 to a Roth Individual Retirement Account from an individual
 
 7 retirement plan other than a Roth Individual Retirement Account,
 
 8 adjusted gross income as used in section 408A as operative for
 
 9 this chapter means federal adjusted gross income.
 
10      (g)  In administering the provisions of sections 410 to 417
 
11 (with respect to special rules relating to pensions, profit
 
12 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
13 respect to special rules for multiemployer plans), and sections
 
14 419 and 419A (with respect to treatment of welfare benefit funds)
 
15 of the Internal Revenue Code, the department of taxation shall
 
16 adopt rules under chapter 91 relating to the specific
 
17 requirements under such sections and to such other administrative
 
18 requirements under those sections as may be necessary for the
 
19 efficient administration of sections 410 to 419A.
 
20      In administering sections 401 to 419A (with respect to
 
21 deferred compensation) of the Internal Revenue Code, Public Law
 
22 93-406, section 1017(i), shall be operative for the purposes of
 
23 this chapter.
 

 
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 1      In administering section 402 (with respect to the taxability
 
 2 of beneficiary of employees' trust) of the Internal Revenue Code,
 
 3 the tax imposed on lump sum distributions by section 402(e) of
 
 4 the Internal Revenue Code shall be operative for the purposes of
 
 5 this chapter and the tax imposed therein is hereby imposed by
 
 6 this chapter at the rate determined under this chapter.
 
 7      (h)  Section 468B (with respect to special rules for
 
 8 designated settlement funds) of the Internal Revenue Code shall
 
 9 be operative for the purposes of this chapter and the tax imposed
 
10 therein is hereby imposed by this chapter at a rate equal to the
 
11 maximum rate in effect for the taxable year imposed on estates
 
12 and trusts under section 235-51.
 
13      (i)  Section 469 (with respect to passive activities and
 
14 credits limited) of the Internal Revenue Code shall be operative
 
15 for the purposes of this chapter.  For the purpose of computing
 
16 the offset for rental real estate activities for state income tax
 
17 purposes, adjusted gross income as used in section 469 as
 
18 operative for this chapter means federal adjusted gross income.
 
19      (j)  Sections 512 to 514 (with respect to taxation of
 
20 business income of certain exempt organizations) of the Internal
 
21 Revenue Code shall be operative for the purposes of this chapter
 
22 as provided in this subsection.
 

 
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 1      "Unrelated business taxable income" means the same as in the
 
 2 Internal Revenue Code, except that in the computation thereof
 
 3 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
 4 apply, and in the determination of the net operating loss
 
 5 deduction there shall not be taken into account any amount of
 
 6 income or deduction [which] that is excluded in computing the
 
 7 unrelated business taxable income.  Unrelated business taxable
 
 8 income shall not include any income from a prepaid legal service
 
 9 plan.
 
10      For a person described in section 401 or 501 of the Internal
 
11 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
12 section 235-51 or 235-71 shall be imposed upon the person's
 
13 unrelated business taxable income.
 
14      (k)  Section 521 (with respect to cooperatives) and
 
15 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
16 and their patrons) of the Internal Revenue Code shall be
 
17 operative for the purposes of this chapter as to any cooperative
 
18 fully meeting the requirements of section 421-23, except that
 
19 Internal Revenue Code section 521 cooperatives need not be
 
20 organized in Hawaii.
 
21      (l)  Sections 527 (with respect to political organizations)
 
22 and 528 (with respect to certain homeowners associations) of the
 
23 Internal Revenue Code shall be operative for the purposes of this
 

 
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 1 chapter and the taxes imposed in each such section are hereby
 
 2 imposed by this chapter at the rates determined under section
 
 3 235-71.
 
 4      (m)  Section 530 (with respect to education individual
 
 5 retirement accounts) of the Internal Revenue Code shall be
 
 6 operative for the purposes of this chapter.  For the purpose of
 
 7 determining the maximum amount that a contributor could make to
 
 8 an education individual retirement account for state income tax
 
 9 purposes, modified adjusted gross income as used in section 530
 
10 as operative for this chapter means federal modified adjusted
 
11 gross income as defined in section 530.
 
12      [(n)] 235-2.45  Operation of certain Internal Revenue Code
 
13 provisions; sections 641 to 7518.  (a)  Section 641 (with respect
 
14 to imposition of tax) of the Internal Revenue Code shall be
 
15 operative for the purposes of this chapter subject to the
 
16 following:
 
17      (1)  The deduction for exemptions shall be allowed as
 
18           provided in section 235-54(b)[.];
 
19      (2)  The deduction for contributions and gifts in
 
20           determining taxable income shall be limited to the
 
21           amount allowed in the case of an individual, unless the
 
22           contributions and gifts are to be used exclusively in
 
23           the State[.]; and
 

 
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 1      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
 2           Code as applied by section 641 of the Internal Revenue
 
 3           Code is hereby imposed by this chapter at the rate and
 
 4           amount as determined under section 235-51 on estates
 
 5           and trusts.
 
 6      [(o)](b)  Section 667 (with respect to treatment of amounts
 
 7 deemed distributed by trusts in preceding years) of the Internal
 
 8 Revenue Code shall be operative for the purposes of this chapter
 
 9 and the tax imposed therein is hereby imposed by this chapter at
 
10 the rate determined under this chapter; except that the reference
 
11 to tax-exempt interest to which section 103 of the Internal
 
12 Revenue Code applies in section 667(a) of the Internal Revenue
 
13 Code shall instead be a reference to tax-exempt interest to which
 
14 section 235-7(b) applies.
 
15      [(p)](c)  Section 685 (with respect to treatment of
 
16 qualified funeral trusts) of the Internal Revenue Code shall be
 
17 operative for purposes of this chapter, except that the tax
 
18 imposed under this chapter shall be computed at the tax rates
 
19 provided under section 235-51, and no deduction for the exemption
 
20 amount provided in section 235-54(b) shall be allowed.  The cost-
 
21 of-living adjustment determined under section 1(f)(3) of the
 
22 Internal Revenue Code shall be operative for the purpose of
 
23 applying section 685(c)(3) under this chapter.
 

 
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 1      (d)  Section 704 of the Internal Revenue Code (with respect
 
 2 to a partner's distributive share) shall be operative for
 
 3 purposes of this chapter; except that subsection (b)(2) shall not
 
 4 apply to allocations of the high technology business investment
 
 5 tax credit allowed by section 235-110.9.
 
 6      [(q)](e)  Section 1212 (with respect to capital loss
 
 7 carrybacks and carryforwards) of the Internal Revenue Code shall
 
 8 be operative for the purposes of this chapter; except that for
 
 9 the purposes of this chapter the capital loss carryback
 
10 provisions of section 1212 shall not be operative and the capital
 
11 loss carryforward allowed by section 1212(a) shall be limited to
 
12 five years[.]; except for a qualified high technology business as
 
13 defined in section 235-7.3, which shall be limited to fifteen
 
14 years.
 
15      [(r)](f)  Subchapter S (sections 1361 to 1379) (with respect
 
16 to tax treatment of S corporations and their shareholders) of
 
17 chapter 1 of the Internal Revenue Code shall be operative for the
 
18 purposes of this chapter as provided in part VII.
 
19      [(s)](g)  Section 6015 (with respect to relief from joint
 
20 and several liability on joint return) of the Internal Revenue
 
21 Code is operative for purposes of this chapter.
 
22      [(t)](h)  Subchapter C (sections 6221 to 6233) (with respect
 
23 to tax treatment of partnership items) of chapter 63 of the
 

 
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 1 Internal Revenue Code shall be operative for the purposes of this
 
 2 chapter.
 
 3      [(u)](i)  Subchapter D (sections 6240 to 6255) (with respect
 
 4 to simplified audit procedures for electing large partnerships)
 
 5 of the Internal Revenue Code shall be operative for the purposes
 
 6 of this chapter, with due regard to chapter 232 relating to tax
 
 7 appeals.
 
 8      [(v)](j)  Section 6511(h) (with respect to running of
 
 9 periods of limitation suspended while taxpayer is unable to
 
10 manage financial affairs due to disability) of the Internal
 
11 Revenue Code shall be operative for purposes of this chapter,
 
12 with due regard to section 235-111 relating to the limitation
 
13 period for assessment, levy, collection, or credit.
 
14      [(w)](k)  Section 7518 (with respect to capital construction
 
15 fund for commercial fishers) of the Internal Revenue Code shall
 
16 be operative for the purposes of this chapter.  Qualified
 
17 withdrawals for the acquisition, construction, or reconstruction
 
18 of any qualified asset [which] that is attributable to deposits
 
19 made before the effective date of this section shall not reduce
 
20 the basis of the asset when withdrawn.  Qualified withdrawals
 
21 shall be treated on a first-in-first-out basis."
 
22      SECTION 6.  Section 235-7.3, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "[[]235-7.3[]]  Royalties [and other income from high
 
 2 technology business] derived from patents, copyrights, or trade
 
 3 secrets excluded from gross income.(a)  In addition to the
 
 4 exclusions in section 235-7, there shall be excluded from gross
 
 5 income, adjusted gross income, and taxable income, amounts
 
 6 received by an individual or a qualified high technology business
 
 7 as royalties and other income derived from any patents [and],
 
 8 copyrights[:], and trade secrets:
 
 9      (1)  Owned by the individual or qualified high technology
 
10           business; and
 
11      (2)  Developed and arising out of a qualified high
 
12           technology business.
 
13      (b)  For the purposes of this section:
 
14      ["Computer software" means a set of computer programs,
 
15 procedures, or associated documentation concerned with the
 
16 operation and function of a computer system, and includes both
 
17 systems and application programs and subdivisions, such as
 
18 assemblers, compilers, routines, generators, and utility
 
19 programs.]
 
20      "Performing arts products" means:
 
21      (1)  Audio files, video files, audiovideo files, computer
 
22           animation, and other entertainment products perceived
 
23           by or through the operation of a computer; and
 

 
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 1      (2)  Commercial television and film products for sale or
 
 2           license, and reuse or residual fee payments from these
 
 3           products.
 
 4      "Qualified high technology business" means a business
 
 5 [performing] conducting more than fifty per cent of its
 
 6 activities in qualified research.  The term "qualified high
 
 7 technology business" does not include:
 
 8      (1)  Any trade or business involving the performance of
 
 9           services in the field of law, architecture, accounting,
 
10           actuarial science, [performing arts,] consulting,
 
11           athletics, financial services, or brokerage services;
 
12      (2)  Any banking, insurance, financing, leasing, rental,
 
13           investing, or similar business; any farming business,
 
14           including the business of raising or harvesting trees;
 
15           any business involving the production or extraction of
 
16           products of a character with respect to which a
 
17           deduction is allowable under section 611 (with respect
 
18           to allowance of deduction for depletion), 613 (with
 
19           respect to basis for percentage depletion), or 613A
 
20           (with respect to limitation on percentage depleting in
 
21           cases of oil and gas wells) of the Internal Revenue
 
22           Code;
 

 
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 1      (3)  Any business operating a hotel, motel, restaurant, or
 
 2           similar business; and
 
 3      (4)  Any trade or business involving a hospital, a private
 
 4           office of a licensed health care professional, a group
 
 5           practice of licensed health care professionals, or a
 
 6           nursing home.
 
 7      "Qualified research" means:
 
 8      (1)  The same as in section 41(d) of the Internal Revenue
 
 9           Code; [or]
 
10      (2)  [Developing, designing, modifying, programming, and
 
11           licensing computer software.]  The development and
 
12           design of computer software using fourth generation or
 
13           higher software development tools or native programming
 
14           languages to design and construct unique and specific
 
15           code to create applications and design databases of
 
16           sale or license;
 
17      (3)  Biotechnology; or
 
18      (4)  Performing arts products."
 
19      SECTION 7.  Section 235-9.5, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "[[]235-9.5[]]  Stock options from qualified high
 
22 technology businesses exempt from taxation.(a)  Notwithstanding
 
23 any law to the contrary, all income received from stock options
 

 
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 1 from a qualified high technology business by an employee,
 
 2 officer, or director, or investor who qualifies for the credit
 
 3 under section 235-110.9, that would otherwise be taxed as
 
 4 ordinary income or as capital gains to those [employees] persons
 
 5 is exempt from taxation under this chapter.
 
 6      (b)  For the purposes of this section:
 
 7      ["Computer software" means a set of computer programs,
 
 8 procedures, or associated documentation concerned with the
 
 9 operation and function of a computer system, and includes both
 
10 systems and application programs and subdivisions, such as
 
11 assemblers, compilers, routines, generators, and utility
 
12 programs.]
 
13      "Qualified high technology business" means a business
 
14 [performing] conducting more than fifty per cent of its
 
15 activities in qualified research.  The term "qualified high
 
16 technology business" does not include:
 
17      (1)  Any trade or business involving the performance of
 
18           services in the field of law, architecture, accounting,
 
19           actuarial science, [performing arts,] consulting,
 
20           athletics, financial services, or brokerage services;
 
21      (2)  Any banking, insurance, financing, leasing, rental,
 
22           investing, or similar business; any farming business,
 
23           including the business of raising or harvesting trees;
 

 
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 1           any business involving the production or extraction of
 
 2           products of a character with respect to which a
 
 3           deduction is allowable under section 611 (with respect
 
 4           to allowance of deduction for depletion), 613 (with
 
 5           respect to basis for percentage depletion), or 613A
 
 6           (with respect to limitation on percentage depleting in
 
 7           cases of oil and gas wells) of the Internal Revenue
 
 8           Code;
 
 9      (3)  Any business operating a hotel, motel, restaurant, or
 
10           similar business; and
 
11      (4)  Any trade or business involving a hospital, a private
 
12           office of a licensed health care professional, a group
 
13           practice of licensed health care professionals, or a
 
14           nursing home.
 
15      "Qualified research" means:
 
16      (1)  The same as in section 41(d) of the Internal Revenue
 
17           Code; or
 
18      (2)  [Developing, designing, modifying, programming, and
 
19           licensing computer software.]  The development and
 
20           design of computer software using fourth generation or
 
21           higher software development tools or native programming
 
22           languages to design and construct unique and specific
 
23           code to create applications and design databases for
 
24           sale or license; or
 
25      (3)  Biotechnology."
 

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 1      SECTION 8.  Section 235-110.9, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]235-110.9[]]  [High-technology] High technology
 
 4 business investment tax credit.(a)  There shall be allowed to
 
 5 each taxpayer, subject to the taxes imposed by this chapter, a
 
 6 high technology investment tax credit that shall be deductible
 
 7 from the taxpayer's net income tax liability, if any, imposed by
 
 8 this chapter for the taxable year in which the credit is properly
 
 9 claimed.  The tax credit shall be an amount equal to ten per cent
 
10 of the investment made by the taxpayer in each qualified high
 
11 technology business, up to a maximum allowed credit of $500,000
 
12 for the taxable year for the investment made by the taxpayer in a
 
13 qualified high technology business.
 
14      (b)  The credit allowed under this section shall be claimed
 
15 against the net income tax liability for the taxable year.  For
 
16 the purpose of this section, "net income tax liability" means net
 
17 income tax liability reduced by all other credits allowed under
 
18 this chapter.
 
19      (c)  If the tax credit under this section exceeds the
 
20 taxpayer's income tax liability, the excess of the tax credit
 
21 over liability may be used as a credit against the taxpayer's
 
22 income tax liability in subsequent years until exhausted.  All
 
23 claims, including any amended claims, for tax credits under this
 

 
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 1 section shall be filed on or before the end of the twelfth month
 
 2 following the close of the taxable year for which the credit may
 
 3 be claimed.  Failure to comply with the foregoing provision shall
 
 4 constitute a waiver of the right to claim the credit.
 
 5      (d)  As used in this section:
 
 6      ["Computer software" means a set of computer programs,
 
 7 procedures, or associated documentation concerned with the
 
 8 operation and function of a computer system, and includes both
 
 9 systems and application programs and subdivisions, such as
 
10 assemblers, compilers, routines, generators, and utility
 
11 programs.
 
12      "Investment" means a nonrefundable investment, at risk, as
 
13 that term is used in section 465 (with respect to deductions
 
14 limited to amount at risk) of the Internal Revenue Code, in a
 
15 qualified high technology business, of cash that is transferred
 
16 to the qualified high technology business, the transfer of which
 
17 is in connection with a transaction in exchange for stock,
 
18 interests in partnerships, joint ventures, or other entities,
 
19 licenses (exclusive or nonexclusive), rights to use technology,
 
20 marketing rights, warrants, options, or any items similar to
 
21 those included herein, including but not limited to options or
 
22 rights to acquire any of the items included herein.  The
 
23 nonrefundable investment is entirely at risk of loss where
 

 
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 1 repayment depends upon the success of the qualified high
 
 2 technology business.  If the money invested is to be repaid to
 
 3 the taxpayer, no repayment except for dividends or interest shall
 
 4 be made for at least three years from the date the investment is
 
 5 made.  The annual amount of any dividend and interest payment to
 
 6 the taxpayer shall not exceed twelve per cent of the amount of
 
 7 the investment.
 
 8      (e)  For the purposes of this section:]
 
 9           "Qualified high technology business" means[:
 
10      (1)  A]
 
11 a business, employing or owning capital or property, or
 
12 maintaining an office, in this State[; and which] that:
 
13      [(2) (A) Conducts one hundred] (1)  More than fifty per cent
 
14           of [its] whose total business activities [in
 
15           performing] are qualified research [in this State; or];
 
16           provided that the business conducts more than seventy-
 
17           five per cent of its qualified research in this State;
 
18           or
 
19          [(B) Received one hundred] (2)  More than seventy-five
 
20          per cent of its gross income is derived from qualified
 
21          research; provided that the income is received from
 
22          [products]:
 

 
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 1           (A)  Products sold from, manufactured[,] in, or
 
 2                produced in the State; or [services]
 
 3           (B)  Services performed in this State.
 
 4      The term "qualified high technology business" does not
 
 5 include:
 
 6      (1)  Any trade or business involving the performance of
 
 7           services in the field of law, architecture, accounting,
 
 8           actuarial science, [performing arts,] consulting,
 
 9           athletics, financial services, or brokerage services;
 
10      (2)  Any banking, insurance, financing, leasing, rental,
 
11           investing, or similar business; any farming business,
 
12           including the business of raising or harvesting trees;
 
13           any business involving the production or extraction of
 
14           products of a character with respect to which a
 
15           deduction is allowable under section 611 (with respect
 
16           to allowance of deduction for depletion), 613 (with
 
17           respect to basis for percentage depletion), or 613A
 
18           (with respect to limitation on percentage depleting in
 
19           cases of oil and gas wells) of the Internal Revenue
 
20           Code;
 
21      (3)  Any business operating a hotel, motel, restaurant, or
 
22           similar business; and
 

 
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 1      (4)  Any trade or business involving a hospital, a private
 
 2           office of a licensed health care professional, a group
 
 3           practice of licensed health care professionals, or a
 
 4           nursing home.
 
 5      "Qualified research" means:
 
 6      (1)  The same as in section 41(d) of the Internal Revenue
 
 7           Code; [or]
 
 8      (2)  [Developing, designing, modifying, programming, and
 
 9           licensing computer software;] The development and
 
10           design of computer software using fourth generation or
 
11           higher software development tools or native programming
 
12           languages to design and construct unique and specific
 
13           code to create applications and design databases for
 
14           sale or license; or
 
15      (3)  Biotechnology;
 
16 [except that it shall not include research conducted outside the
 
17 State.]
 
18      (f)] (e)  This section shall not apply to taxable years
 
19 beginning after December 31, 2005."
 
20      SECTION 9.  Section 235-110.91, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "[[]235-110.91[]]  Tax credit for increasing research
 
23 activities.(a)  Section 41 (with respect to the credit for
 
24 increasing research activities) and section 280C(c) (with respect
 

 
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 1 to certain expenses for which the credit for increasing research
 
 2 activities are allowable) of the Internal Revenue Code shall be
 
 3 operative for the purposes of this chapter as provided in this
 
 4 section.  If section 41 of the Internal Revenue Code is repealed
 
 5 or terminated prior to January 1, 2006, its provisions shall
 
 6 remain in effect for purposes of the income tax law of the State
 
 7 as provided for in subsection (h).
 
 8      (b)  All references to Internal Revenue Code sections within
 
 9 sections 41 and 280C(c) of the Internal Revenue Code shall be
 
10 operative for purposes of this section.
 
11      (c)  There shall be allowed to each taxpayer, subject to the
 
12 tax imposed by this chapter, an income tax credit for increased
 
13 research activities [that] equal to the credit for research
 
14 activities provided by section 41 of the Internal Revenue Code.
 
15 The credit shall be deductible from the taxpayer's net income tax
 
16 liability, if any, imposed by this chapter for the taxable year
 
17 in which the credit is properly claimed.
 
18      [(d)  The tax credit for increased research activities shall
 
19 be equal to the sum of:
 
20      (1)  2.5 per cent of the excess (if any) of:
 
21           (A)  The qualified research expenses for the taxable
 
22                year; over
 
23           (B)  The base amount; and
 

 
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 1      (2)  2.5 per cent of the basic research payments determined
 
 2           under section 41(e)(1)(A) of the Internal Revenue Code.
 
 3      (e)  For purposes of this section:
 
 4      (1)  The alternative incremental credit in section 41(c)(4)
 
 5           of the Internal Revenue Code shall be equal to the sum
 
 6           of 12.5 per cent of:
 
 7           (A)  1.65 per cent of so much of the qualified research
 
 8                expenses for the taxable year as exceeds one per
 
 9                cent of the average described in section
 
10                41(c)(1)(B) but does not exceed 1.5 per cent of
 
11                such average;
 
12           (B)  2.2 per cent of so much of those expenses as
 
13                exceeds 1.5 per cent of the average but does not
 
14                exceed two per cent of the average; and
 
15           (C)  2.75 per cent of so much of those expenses as
 
16                exceeds two per cent of the average;
 
17      (2)  The term "qualified research"]
 
18      (d)  As used in this section:
 
19      "Qualified research" under section 41(d)(1) of the Internal
 
20 Revenue Code shall not include research conducted outside of the
 
21 State[; and].
 
22      [(3)  The term "basic research"]
 

 
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 1      "Basic research" under section 41(e) of the Internal Revenue
 
 2 Code shall not include research conducted outside of the State.
 
 3      [(f)  The amount of reduced credit in section 280C(c)(3)(B)
 
 4 of the Internal Revenue Code shall be equal to the excess of:
 
 5      (1)  The amount of credit determined under section 41(a) (as
 
 6           provided for in this section) (without regard to this
 
 7           paragraph); over
 
 8      (2)  The product of:
 
 9           (A)  The amount described in subsection (f)(1); and
 
10           (B)  12.5 per cent of the maximum rate of tax under
 
11                section 11(b)(1) of the Internal Revenue Code.
 
12      (g)] (e)  If the tax credit for increased research
 
13 activities claimed by a taxpayer exceeds the amount of income tax
 
14 payment due from the taxpayer, the excess of the tax credit over
 
15 payments due [may be used as a credit against the taxpayer's
 
16 income tax liability in subsequent years until exhausted.] shall
 
17 be refunded to the taxpayer; provided that no refund on account
 
18 of the tax credit allowed by this section shall be made for
 
19 amounts less than $1.
 
20      [(h)] (f)  All claims for a tax credit under this section
 
21 [must] shall be filed on or before the end of the twelfth month
 
22 following the close of the taxable year for which the credit may
 
23 be claimed.  Failure to properly claim the credit shall
 
24 constitute a waiver of the right to claim the credit.
 

 
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 1      [(i)] (g)  The director of taxation may adopt any rules
 
 2 under chapter 91 and forms necessary to carry out this section.
 
 3      [(j)] (h)  This section shall not apply to taxable years
 
 4 beginning after December 31, 2005."
 
 5      SECTION 10.  It is the intention of the legislature in
 
 6 making amendments in this Part to sections 235-7.3, 235-9.5, 235-
 
 7 110.9, and 235-110.91, Hawaii Revised Statutes, that the
 
 8 amendments be liberally construed, and in this regard, the
 
 9 department of taxation is given latitude to interpret those
 
10 amendments in light of current industry standards.  The
 
11 amendments made in this Part to sections 235-7.3, 235-9.5, 235-
 
12 110.9, and 235-110.91, Hawaii Revised Statutes, shall not be
 
13 construed to disqualify any taxpayer who has received a favorable
 
14 written determination from the department of taxation under the
 
15 original provisions of those sections as enacted by Act 178,
 
16 Session Laws of Hawaii, 1999.
 
17                              PART II
 
18      SECTION 11.  The legislature finds that the shortage of
 
19 venture capital in Hawaii makes it difficult for local high
 
20 technology businesses to obtain the necessary financing to
 
21 develop products, enter new markets, and expand on their early
 
22 success.  The purpose of this Part is to allow the board of
 
23 trustees of the employees' retirement system to invest in Hawaii
 
24 high technology businesses or venture capital investments.
 

 
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 1      SECTION 12.  Section 88-119, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "88-119  Investments.  Investments may be made in:
 
 4      (1)  Real estate loans and mortgages.  Obligations (as
 
 5           defined in section 431:6-101) of any of the following
 
 6           classes:
 
 7           (A)  Obligations secured by mortgages of nonprofit
 
 8                corporations desiring to build multirental units
 
 9                (ten units or more) subject to control of the
 
10                government for occupancy by families displaced as
 
11                a result of government action;
 
12           (B)  Obligations secured by mortgages insured by the
 
13                Federal Housing Administration;
 
14           (C)  Obligations for the repayment of home loans made
 
15                under the Servicemen's Readjustment Act of 1944 or
 
16                under Title II of the National Housing Act;
 
17           (D)  Other obligations secured by first mortgages on
 
18                unencumbered improved real estate owned in fee
 
19                simple; provided that the amount of the obligation
 
20                at the time investment is made therein shall not
 
21                exceed eighty per cent of the value of the real
 
22                estate and improvements mortgaged to secure it,
 
23                and except that the amount of the obligation at
 

 
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 1                the time investment is made therein may exceed
 
 2                eighty per cent but no more than ninety per cent
 
 3                of the value of the real estate and improvements
 
 4                mortgaged to secure it; provided further that the
 
 5                obligation is insured or guaranteed against
 
 6                default or loss under a mortgage insurance policy
 
 7                issued by a casualty insurance company licensed to
 
 8                do business in the State.  The coverage provided
 
 9                by the insurer shall be sufficient to reduce the
 
10                system's exposure to not more than eighty per cent
 
11                of the value of the real estate and improvements
 
12                mortgaged to secure it.  The insurance coverage
 
13                shall remain in force until the principal amount
 
14                of the obligation is reduced to eighty per cent of
 
15                the market value of the real estate and
 
16                improvements mortgaged to secure it, at which time
 
17                the coverage shall be subject to cancellation
 
18                solely at the option of the board of trustees.
 
19                Real estate shall not be deemed to be encumbered
 
20                within the meaning of this subparagraph by reason
 
21                of the existence of any of the restrictions,
 
22                charges, or claims described in section 431:6-308;
 

 
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 1           (E)  Other obligations secured by first mortgages of
 
 2                leasehold interests in improved real estate;
 
 3                provided that:
 
 4                (i)  Each such leasehold interest at such time
 
 5                     shall have a current term extending at least
 
 6                     two years beyond the stated maturity of the
 
 7                     obligation it secures; and
 
 8               (ii)  The amount of the obligation at the time
 
 9                     investment is made therein shall not exceed
 
10                     eighty per cent of the value of the
 
11                     respective leasehold interest and
 
12                     improvements, and except that the amount of
 
13                     the obligation at the time investment is made
 
14                     therein may exceed eighty per cent but no
 
15                     more than ninety per cent of the value of the
 
16                     leasehold interest and improvements mortgaged
 
17                     to secure it;
 
18                provided further that the obligation is insured or
 
19                guaranteed against default or loss under a
 
20                mortgage insurance policy issued by a casualty
 
21                insurance company licensed to do business in the
 
22                State.  The coverage provided by the insurer shall
 
23                be sufficient to reduce the system's exposure to
 

 
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 1                not more than eighty per cent of the value of the
 
 2                leasehold interest and improvements mortgaged to
 
 3                secure it.  The insurance coverage shall remain in
 
 4                force until the principal amount of the obligation
 
 5                is reduced to eighty per cent of the market value
 
 6                of the leasehold interest and improvements
 
 7                mortgaged to secure it, at which time the coverage
 
 8                shall be subject to cancellation solely at the
 
 9                option of the board of trustees;
 
10           (F)  Obligations for the repayment of home loans
 
11                guaranteed by the department of Hawaiian home
 
12                lands pursuant to section 214(b) of the Hawaiian
 
13                Homes Commission Act, 1920; and
 
14           (G)  Obligations secured by second mortgages on
 
15                improved real estate for which the mortgagor
 
16                procures a second mortgage on the improved real
 
17                estate for the purpose of acquiring the
 
18                leaseholder's fee simple interest in the improved
 
19                real estate; provided that any prior mortgage does
 
20                not contain provisions that might jeopardize the
 
21                security position of the retirement system or the
 
22                borrower's ability to repay the mortgage loan.
 

 
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 1           The board of trustees may retain such real estate,
 
 2           including leasehold interests therein, as it may
 
 3           acquire by foreclosure of mortgages or in enforcement
 
 4           of security, or as may be conveyed to it in
 
 5           satisfaction of debts previously contracted; provided
 
 6           that all such real estate, other than leasehold
 
 7           interests, shall be sold within five years after
 
 8           acquiring the same, subject to extension by the
 
 9           governor for additional periods not exceeding five
 
10           years each, and that all such leasehold interests shall
 
11           be sold within one year after acquiring the same,
 
12           subject to extension by the governor for additional
 
13           periods not exceeding one year each;
 
14      (2)  Government obligations, etc.  Obligations of any of the
 
15           following classes:
 
16           (A)  Obligations issued or guaranteed as to principal
 
17                and interest by the United States or by any state
 
18                thereof or by any municipal or political
 
19                subdivision or school district of any of the
 
20                foregoing; provided that principal of and interest
 
21                on such obligations are payable in currency of the
 
22                United States; or sovereign debt instruments
 
23                issued by agencies of, or guaranteed by foreign
 
24                governments;
 

 
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 1           (B)  Revenue bonds, whether or not permitted by any
 
 2                other provision hereof, of the State or any
 
 3                municipal or political subdivision thereof,
 
 4                including the board of water supply of the city
 
 5                and county of Honolulu, and street or improvement
 
 6                district bonds of any district or project in the
 
 7                State; and
 
 8           (C)  Obligations issued or guaranteed by any federal
 
 9                home loan bank including consolidated federal home
 
10                loan bank obligations, the Home Owner's Loan
 
11                Corporation, the Federal National Mortgage
 
12                Association, or the Small Business Administration;
 
13      (3)  Corporate obligations.  Below investment grade or
 
14           nonrated debt instruments, foreign or domestic, in
 
15           accordance with investment guidelines adopted by the
 
16           board of trustees;
 
17      (4)  Preferred and common stocks.  Shares of preferred or
 
18           common stock of any corporation created or existing
 
19           under the laws of the United States or of any state or
 
20           district thereof or of any country;
 
21      (5)  Obligations eligible by law for purchase in the open
 
22           market by federal reserve banks;
 

 
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 1      (6)  Obligations issued or guaranteed by the International
 
 2           Bank for Reconstruction and Development, the Inter-
 
 3           American Development Bank, the Asian Development Bank,
 
 4           or the African Development Bank;
 
 5      (7)  Obligations secured by collateral consisting of any of
 
 6           the securities or stock listed above and worth at the
 
 7           time the investment is made at least fifteen per cent
 
 8           more than the amount of the respective obligations;
 
 9      (8)  Insurance company obligations.  Contracts and
 
10           agreements supplemental thereto providing for
 
11           participation in one or more accounts of a life
 
12           insurance company authorized to do business in Hawaii,
 
13           including its separate accounts, and whether the
 
14           investments allocated thereto are comprised of stocks
 
15           or other securities or of real or personal property or
 
16           interests therein;
 
17      (9)  Interests in real property.  Interests in improved or
 
18           productive real property in which, in the informed
 
19           opinion of the board of trustees, it is prudent to
 
20           invest funds of the system.  For purposes of this
 
21           paragraph, "real property" includes any property
 
22           treated as real property either by local law or for
 
23           federal income tax purposes.  Investments in improved
 

 
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 1           or productive real property may be made directly or
 
 2           through pooled funds, including common or collective
 
 3           trust funds of banks and trust companies, group or unit
 
 4           trusts, limited partnerships, limited liability
 
 5           companies, investment trusts, title-holding
 
 6           corporations recognized under section 501(c) of the
 
 7           Internal Revenue Code of 1986, as amended, similar
 
 8           entities that would protect the system's interest, and
 
 9           other pooled funds invested on behalf of the system by
 
10           investment managers retained by the system;
 
11     (10)  Other securities and futures contracts.  Securities and
 
12           futures contracts in which in the informed opinion of
 
13           the board of trustees it is prudent to invest funds of
 
14           the system, including currency, interest rate, bond,
 
15           and stock index futures contracts and options on such
 
16           contracts to hedge against anticipated changes in
 
17           currencies, interest rates, and bond and stock prices
 
18           that might otherwise have an adverse effect upon the
 
19           value of the system's securities portfolios; covered
 
20           put and call options on securities; and stock; whether
 
21           or not the securities, stock, futures contracts, or
 
22           options on futures are expressly authorized by or
 
23           qualify under the foregoing paragraphs, and
 

 
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 1           notwithstanding any limitation of any of the foregoing
 
 2           paragraphs (including paragraph (4)); and
 
 3     (11)  Private placements.  Investments in institutional blind
 
 4           pool limited partnerships or direct investments that
 
 5           make private debt and equity investments in privately
 
 6           held companies[.], including but not limited to
 
 7           investments in Hawaii high technology businesses or
 
 8           venture capital investments that, in the informed
 
 9           opinion of the board of trustees, are appropriate to
 
10           invest funds of the system.  In evaluating venture
 
11           capital investments, the board of trustees shall
 
12           consider, among other things, the impact an investment
 
13           may have on job creation in Hawaii and on the state
 
14           economy."
 
15                             PART III
 
16      SECTION 13.  The legislature finds that there is a need to
 
17 expand educational programs in science and math at Hawaii's "E
 
18 Academies", which were established by section 17 of Act 178,
 
19 Session Laws of Hawaii 1999.  These programs were created to give
 
20 students greater opportunities in new educational technologies,
 
21 and provide relevant, challenging, and meaningful course
 
22 offerings for students interested in pursuing a career in
 
23 advanced technology fields.  The legislature finds that the use
 

 
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 1 of "E Academies", which are virtual, site-based schools that
 
 2 provide students with industry and academic standards-based
 
 3 instruction and assessments in technology, science, math, and
 
 4 engineering, offer enhanced opportunities to students who are
 
 5 interested in furthering their preparation for technology
 
 6 positions or who are interested in advanced studies in post
 
 7 secondary information technology, science, engineering, and math.
 
 8      By funding the laptops for learning program, the legislature
 
 9 provides constant access to computer education and reduces the
 
10 digital divide by providing opportunities for all regardless of
 
11 economic status.
 
12      The legislature also finds that there is a need for Hawaii's
 
13 public community colleges to develop training programs to improve
 
14 the skills of students in those colleges for jobs in the new
 
15 economy, in such industries as biotechnology, health care,
 
16 information technology, environmental science and technology, and
 
17 telecommunications.  The development of new or enhanced programs
 
18 in these and related areas at the State's community colleges will
 
19 help to lessen the need to import workers and increase job
 
20 opportunities for Hawaii's residents by improving their skills in
 
21 these areas.
 
22      The legislature acknowledges the following appropriations,
 
23 which have been included under the Supplemental Appropriations
 
24 Act of 2000:
 

 
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                                                        S.D.2
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 1      (1)  $1,000,000 for fiscal year 2000-2001 to conduct
 
 2           advanced communications research at the University of
 
 3           Hawaii's college of engineering;
 
 4      (2)  $1,000,000 for fiscal year 2000-2001 for the expansion
 
 5           of research, scholarship, and instruction in electronic
 
 6           commerce at the University of Hawaii's college of
 
 7           business administration;
 
 8      (3)  $1,000,000 for fiscal year 2000-2001 to conduct
 
 9           research in molecular genetics at the University of
 
10           Hawaii's school of medicine;
 
11      (4)  $1,000,000 for fiscal year 2000-2001 to be expended by
 
12           the University of Hawaii's community colleges to
 
13           establish the Pacific center for advanced technology
 
14           training where a coordinated statewide approach to
 
15           designing and delivering customized training to the
 
16           high technology industry in Hawaii will be implemented;
 
17           and 
 
18      (5)  $677,808 for fiscal year 2000-2001 to develop new
 
19           programs and enhance existing programs at the
 
20           University of Hawaii at Hilo to prepare students for
 
21           the workforce of the new economy.
 
22      The legislature further finds that funding programs related
 
23 to developing the new economy at the University of Hawaii will
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D.2
                                                        C.D. 1

 
 1 lessen the need to import workers and increase job opportunities
 
 2 for Hawaii's residents by improving their skills in these areas.
 
 3      The purpose of this Part is to appropriate funds:
 
 4      (1)  To expand the department of education's E Academies;
 
 5           and
 
 6      (2)  For the high technology development corporation for
 
 7           marketing and promoting high technology development in
 
 8           Hawaii.
 
 9      SECTION 14.  There is appropriated out of the general
 
10 revenues of the State of Hawaii the sum of $800,000 or so much
 
11 thereof as may be necessary for fiscal year 2000-2001 for the
 
12 expansion of the department of education's E Academies to provide
 
13 students at virtual onsite locations based at selected high
 
14 schools with industry and academic standards-based instruction
 
15 and assessments in technology, science, math, and engineering,
 
16 and for the laptops for learning program.
 
17      The sum appropriated shall be expended by the department of
 
18 education for the purposes of this Part.
 
19      SECTION 15.  There is appropriated out of the general
 
20 revenues of the State of Hawaii the sum of $200,000 or so much
 
21 thereof as may be necessary for fiscal year 2000-2001 for
 
22 marketing and promoting high technology development in Hawaii by
 
23 the high technology development corporation.
 

 
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                                                        S.D.2
                                                        C.D. 1

 
 1      The sum appropriated shall be expended by the department of
 
 2 business, economic development, and tourism for the purposes of
 
 3 this Part.
 
 4                              PART IV
 
 5      SECTION 16.  The legislature finds that the governor's
 
 6 special advisory council for technology development, which was
 
 7 established under section 3 of Act 178, Session Laws of Hawaii
 
 8 1999, has the potential to make significant contributions to the
 
 9 development of the State's high technology industry.  The intent
 
10 of the advisory council was to attract leaders in high technology
 
11 development from around the world to Hawaii.  However, the
 
12 legislature finds it highly unlikely that these individuals will
 
13 come to Hawaii for this purpose if they are faced with a possibly
 
14 lengthy senate confirmation process and must file financial
 
15 disclosure forms with the state ethics commission.
 
16      The legislature finds that there is no reason to subject
 
17 these individuals to confirmation hearings and the filing of
 
18 ethics disclosure forms, in view of the fact that the advisory
 
19 council is strictly advisory in nature and the members of that
 
20 council have no influence over spending or budgetary matters.
 
21 The legislature also recognizes the need to bring in persons who
 
22 have international prestige and expertise in high technology.  It
 
23 would be extremely difficult to find such highly qualified people
 

 
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 1 to serve on the council before its expiration on December 31,
 
 2 2005.  Accordingly, the purpose of this Part is to exempt the
 
 3 members of the governor's special advisory council for technology
 
 4 development from the senate confirmation process and from the
 
 5 need to file a disclosure of financial interests with the state
 
 6 ethics commission.
 
 7      SECTION 17.  Section 27-42, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "[[]27-42[]]  Governor's special advisory council for
 
10 technology development; establishment; appointment, number, and
 
11 term of members; duties.(a)  There is established within the
 
12 office of the governor, for administrative purposes, an advisory
 
13 council to be known as the governor's special advisory council
 
14 for technology development, that shall review and make
 
15 recommendations on matters relating to the marketing and
 
16 promotion of Hawaii as a location for high technology companies.
 
17 The council shall be composed of at least eleven but no more than
 
18 twenty-five members appointed [in accordance with] not subject to
 
19 section 26-34, and shall include representatives of the high
 
20 technology industry, business leaders, educators, government
 
21 leaders, and legislators.
 
22      (b)  The members shall be appointed by the governor for four
 
23 years, except that the terms of the members first appointed shall
 

 
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 1 be for two and four years, respectively, as designated by the
 
 2 governor at the time of appointment.  The council shall elect a
 
 3 chairperson from among its members.
 
 4      (c)  In appointing members, the governor shall select
 
 5 persons who have knowledge of the high technology industry, the
 
 6 educational needs of the industry, or in the marketing and
 
 7 promotion of high technology industries.  The members of the
 
 8 council shall serve without compensation but shall be reimbursed
 
 9 for expenses, including travel expenses, necessary for the
 
10 performance of their duties.
 
11      (d)  The council shall assist the special advisor for
 
12 technology development in developing and coordinating the
 
13 marketing and promotion of the high technology industry in
 
14 Hawaii.
 
15      (e)  In carrying out the duties of this section, the council
 
16 shall seek and [utilize] use any available funding sources,
 
17 including grant moneys.
 
18      (f)  The council shall develop, establish, and implement
 
19 ethics and conflict of interest guidelines for its members.
 
20      [(f)] (g)  This section is repealed on December 31, 2005."
 
21      SECTION 18.  Section 84-17, Hawaii Revised Statutes, is
 
22 amended by amending subsection (c) to read as follows:
 
23      "(c)  The following persons shall file annually with the
 
24 state ethics commission a disclosure of financial interests:
 

 
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 1      (1)  The governor, the lieutenant governor, the members of
 
 2           the legislature, and delegates to the constitutional
 
 3           convention; provided that delegates to the
 
 4           constitutional convention shall only be required to
 
 5           file initial disclosures;
 
 6      (2)  The directors and their deputies, the division chiefs,
 
 7           the executive directors and the executive secretaries
 
 8           and their deputies, the purchasing agents and the
 
 9           fiscal officers, regardless of the titles by which the
 
10           foregoing persons are designated, of every state agency
 
11           and department;
 
12      (3)  The permanent employees of the legislature and its
 
13           service agencies, other than persons employed in
 
14           clerical, secretarial, or similar positions;
 
15      (4)  The administrative director of the State, and the
 
16           assistants in the office of the governor and the
 
17           lieutenant governor, other than persons employed in
 
18           clerical, secretarial, or similar positions;
 
19      (5)  The hearings officers of every state agency and
 
20           department;
 
21      (6)  The president, the vice presidents, assistant vice
 
22           presidents, the chancellors, and the provosts of the
 
23           University of Hawaii and its community colleges;
 

 
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 1      (7)  The superintendent, the deputy superintendent, the
 
 2           assistant superintendents, the district
 
 3           superintendents, the state librarian, and the deputy
 
 4           state librarian of the department of education;
 
 5      (8)  The administrative director and the deputy director of
 
 6           the courts;
 
 7      (9)  The members of every state board or commission whose
 
 8           original terms of office are for periods exceeding one
 
 9           year and whose functions are not solely advisory;
 
10           provided that the governor's special advisory council
 
11           for technology development established pursuant to
 
12           section 27-42 not otherwise subject to this subsection
 
13           shall be exempt from this subsection;
 
14     (10)  Candidates for state elective offices, including
 
15           candidates for election to the constitutional
 
16           convention, provided that candidates shall only be
 
17           required to file initial disclosures; and
 
18     (11)  The administrator and assistant administrator of the
 
19           office of Hawaiian affairs."
 
20                              PART V
 
21      SECTION 19.  The legislature finds that the internet is a
 
22 critical component of the new economy because of its enormous
 
23 potential to increase efficiency and raise productivity.
 

 
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 1 Internet commerce, which is probably the most significant
 
 2 component of electronic commerce, or "e-commerce", includes such
 
 3 areas as online financial services, consumer retail and business-
 
 4 to-business transactions, media, infrastructure, and consumer and
 
 5 business internet access services.
 
 6      The legislature further finds that the total United States
 
 7 internet economy more than doubled between 1996 and 1997, from
 
 8 $15,500,000,000 to $38,800,000,000.  By 2001, it has been
 
 9 projected that the total United States internet economy will be
 
10 over $350,000,000,000.  Of this amount, business-to-business
 
11 e-commerce is expected to account for the largest share, while
 
12 consumer retail activity is expected to emerge more slowly,
 
13 totaling over $18,000,000,000 in the year 2001.
 
14      The purpose of this Part is to increase the State's share of
 
15 this significant economic activity and the facilitation of e-
 
16 commerce in Hawaii through the development of partnerships
 
17 between the Hawaii tourism authority and Hawaii's business
 
18 community to promote the State, through a coordinated statewide
 
19 effort, as an internet and server-friendly place to conduct
 
20 electronic commerce.
 
21      SECTION 20.  Section 201B-7, Hawaii Revised Statutes, is
 
22 amended by amending subsection (a) to read as follows:
 
23      "(a)  The authority may enter into contracts and agreements
 
24 that include the following:
 

 
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 1      (1)  Tourism promotion, marketing, and development;
 
 2      (2)  Market development-related research;
 
 3      (3)  Product development and diversification issues;
 
 4      (4)  Promotion, development, and coordination of sports-
 
 5           related activities and events;
 
 6      (5)  Promotion of Hawaii, through a coordinated statewide
 
 7           effort, as a place to do high technology business;
 
 8     [(5)] (6)  Reduction of barriers to travel;
 
 9     [(6)] (7)  Tourism public information and educational
 
10           programs;
 
11     [(7)] (8)  Programs to monitor and investigate complaints
 
12           about the problems resulting from the tourism industry
 
13           in the State; and
 
14     [(8)] (9)  Any and all other activities necessary to carry
 
15           out the intent of this chapter;
 
16 provided that for the purposes of continuity, the Hawaii Visitors
 
17 and Convention Bureau shall be the designated agency to conduct
 
18 the marketing and promotion of the State until the end of fiscal
 
19 year 1998-1999 or until a date specified by the board."
 
20                              PART VI
 
21      SECTION 21.  The purpose of this Part is to improve the
 
22 effectiveness of the high technology development corporation by
 
23 providing increased autonomy and authority over its personnel and
 
24 fiscal matters.
 

 
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 1      SECTION 22.  Chapter 206M, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      1.  By adding four new sections to be appropriately
 
 4 designated and to read:
 
 5      "206M-    Hawaii technology loan revolving fund.  There is
 
 6 established the Hawaii technology loan revolving fund for the
 
 7 purpose of investing in technology development in Hawaii.  The
 
 8 following shall be deposited into the Hawaii technology loan
 
 9 revolving fund:
 
10      (1)  Appropriations from the legislature;
 
11      (2)  Moneys received as repayments of loans;
 
12      (3)  Investment earnings;
 
13      (4)  Royalties;
 
14      (5)  Premiums, or fees or equity charged by the corporation,
 
15           or otherwise received by the corporation; and
 
16      (6)  Loans that are convertible to equity;
 
17 provided that the total amount of moneys in the fund shall not
 
18 exceed $2,000,000 at the end of any fiscal year.
 
19      206M-    Contracts for services necessary for management
 
20 and operation of corporation.  The corporation may contract with
 
21 others, public or private persons, for the provision of all or a
 
22 portion of the services necessary for the management and
 
23 operation of the corporation.  The corporation shall have the
 

 
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 1 power to use all appropriations, grants, contractual
 
 2 reimbursements, and all other funds not appropriated for a
 
 3 designated purpose to pay for the proper general expenses and to
 
 4 carry out the purposes of the corporation.
 
 5      206M-    Confidentiality of trade secrets or the like;
 
 6 disclosure of financial information.  (a)  Notwithstanding
 
 7 chapters 92, 92F, or any other law to the contrary, any documents
 
 8 or data made or received by any member or employee of the
 
 9 corporation shall not be a public record to the extent that the
 
10 material or data:
 
11      (1)  Consists of trade secrets;
 
12      (2)  Consists of commercial or financial information
 
13           regarding the operation of any business conducted by an
 
14           applicant for, or recipient of, any form of assistance
 
15           that the corporation is empowered to render; or
 
16      (3)  Relates to the competitive position of that applicant
 
17           in a particular field of endeavor;
 
18 provided that if the corporation purchases a qualified security
 
19 from an applicant, the commercial and financial information,
 
20 excluding confidential business information, shall be deemed to
 
21 become a public record of the corporation.  If the information is
 
22 made or received by any member or employee of the corporation
 
23 after the purchase of the qualified security, it shall become a
 

 
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 1 public record three years from the date the information was made
 
 2 or received.
 
 3      (b)  Any discussion or consideration of trade secrets or
 
 4 commercial or financial information shall be held by the board,
 
 5 or the subcommittee of the board, in executive sessions closed to
 
 6 the public; provided that the purpose of any such executive
 
 7 session shall be set forth in the official minutes of the
 
 8 corporation, and business that is not related to that purpose
 
 9 shall not be transacted nor shall any vote be taken during the
 
10 executive sessions.
 
11      206M-    Limitation on liability.  Chapters 661 and 662 or
 
12 any other law to the contrary notwithstanding, nothing in this
 
13 chapter shall create an obligation, debt, claim, cause of action,
 
14 claim for relief, charge, or any other liability of any kind
 
15 whatsoever in favor of any person or entity, against the State or
 
16 its officers and employees, without regard to whether that person
 
17 or entity receives any benefits under this chapter.  The State
 
18 and its officers and employees shall not be liable for the
 
19 results of any investment, purchase of securities, loan, or other
 
20 assistance provided pursuant to this chapter.  Nothing in this
 
21 chapter shall be construed as authorizing any claim against the
 
22 corporation in excess of any note, loan, or other specific
 
23 indebtedness incurred by the corporation or in excess of any
 
24 insurance policy acquired for the corporation or its employees."
 

 
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 1      2.  By amending section 206M-1 by adding two new definitions
 
 2 to be appropriately inserted and to read:
 
 3      ""Direct investment" means an investment by the corporation
 
 4 in qualified securities of an enterprise to provide capital to an
 
 5 enterprise.
 
 6      "Qualified security" means any note, stock, treasury stock
 
 7 bond, debenture, evidence of indebtedness, certificate of
 
 8 interest or participation in any profit-sharing agreement,
 
 9 preorganization certificate of subscription, transferable share,
 
10 investment contract, certificate of deposit for a security,
 
11 certificate of interest or participation in a patent or patent
 
12 application, or in royalty or other payments under such a patent
 
13 or application, or, in general, any interest or instrument
 
14 commonly known as a "security" or any certificate for, receipt
 
15 for, or option, warrant, or right to subscribe to or purchase any
 
16 of the foregoing."
 
17      SECTION 23.  Section 36-27, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "36-27  Transfers from special funds for central service
 
20 expenses.  Except as provided in this section, and
 
21 notwithstanding any other law to the contrary, from time to time,
 
22 the director of finance, for the purpose of defraying the
 
23 prorated estimate of central service expenses of government in
 
24 relation to all special funds, except the:
 

 
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 1      (1)  Special summer school and intersession fund under
 
 2           section 302A-1310;
 
 3      (2)  School cafeteria special funds of the department of
 
 4           education;
 
 5      (3)  Special funds of the University of Hawaii;
 
 6      (4)  State educational facilities improvement special fund;
 
 7      (5)  Convention center capital and operations special fund
 
 8           under section 206X-10.5;
 
 9      (6)  Special funds established by section 206E-6;
 
10      (7)  Housing loan program revenue bond special fund;
 
11      (8)  Housing project bond special fund;
 
12      (9)  Aloha Tower fund created by section 206J-17;
 
13     (10)  Domestic violence prevention special fund under section
 
14           321-1.3;
 
15     (11)  Spouse and child abuse special account under section
 
16           346-7.5;
 
17     (12)  Spouse and child abuse special account under section
 
18           601-3.6;
 
19     (13)  Funds of the employees' retirement system created by
 
20           section 88-109;
 
21     (14)  Unemployment compensation fund established under
 
22           section 383-121;
 

 
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 1     (15)  Hawaii hurricane relief fund established under chapter
 
 2           431P;
 
 3     (16)  Hawaii health systems corporation special funds;
 
 4     (17)  Boiler and elevator safety revolving fund established
 
 5           under section 397-5.5;
 
 6     (18)  Tourism special fund established under section 201B-11;
 
 7     (19)  Department of commerce and consumer affairs' special
 
 8           funds;
 
 9     (20)  Compliance resolution fund established under section
 
10           26-9;
 
11     (21)  Universal service fund established under chapter 269;
 
12     (22)  Integrated tax information management systems special
 
13           fund under section 231-3.2;
 
14     (23)  Insurance regulation fund under section 431:2-215;
 
15     (24)  Hawaii tobacco settlement special fund under section
 
16           328L-2; [and]
 
17     (25)  Emergency budget and reserve fund under section 328L-3;
 
18           and
 
19     (26)  High technology special fund under section 206M-15.5;
 
20 shall deduct five per cent of all receipts of all other special
 
21 funds, which deduction shall be transferred to the general fund
 
22 of the State and become general realizations of the State.  All
 
23 officers of the State and other persons having power to allocate
 

 
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 1 or disburse any special funds shall cooperate with the director
 
 2 in effecting these transfers.  To determine the proper revenue
 
 3 base upon which the central service assessment is to be
 
 4 calculated, the director shall adopt rules pursuant to chapter 91
 
 5 for the purpose of suspending or limiting the application of the
 
 6 central service assessment of any fund.  No later than twenty
 
 7 days prior to the convening of each regular session of the
 
 8 legislature, the director shall report all central service
 
 9 assessments made during the preceding fiscal year."
 
10     SECTION 24.  Section 36-30, Hawaii Revised Statutes, is
 
11 amended by amending subsection (a) to read as follows:
 
12     "(a)  Each special fund, except the:
 
13     (1)   Transportation use special fund established by section
 
14           261D-1;
 
15     (2)   Special summer school and intersession fund under
 
16           section 302A-1310;
 
17     (3)   School cafeteria special funds of the department of
 
18           education;
 
19     (4)   Special funds of the University of Hawaii;
 
20     (5)   State educational facilities improvement special fund;
 
21     (6)   Special funds established by section 206E-6;
 
22     (7)   Aloha Tower fund created by section 206J-17;
 
23     (8)   Domestic violence prevention special fund under section
 
24           321-1.3;
 

 
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 1     (9)   Spouse and child abuse special account under section
 
 2           346-7.5;
 
 3     (10)  Spouse and child abuse special account under section
 
 4           601-3.6;
 
 5     (11)  Funds of the employees' retirement system created by
 
 6           section 88-109;
 
 7     (12)  Unemployment compensation fund established under
 
 8           section 383-121;
 
 9     (13)  Hawaii hurricane relief fund established under chapter
 
10           431P;
 
11     (14)  Convention center capital and operations special fund
 
12           established under section 206X-10.5;
 
13     (15)  Hawaii health systems corporation special funds;
 
14     (16)  Tourism special fund established under section 201B-11;
 
15     (17)  Compliance resolution fund established under section
 
16           26-9;
 
17     (18)  Universal service fund established under chapter 269;
 
18     (19)  Integrated tax information management systems special
 
19           fund;
 
20     (20)  Insurance regulation fund under section 431:2-215;
 
21     (21)  Hawaii tobacco settlement special fund under section
 
22           328L-2; [and]
 
23     (22)  Emergency and budget reserve fund under section 328L-3;
 
24           and
 

 
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 1     (23)  High technology special fund under section 206M-15.5;
 
 2 shall be responsible for its pro rata share of the administrative
 
 3 expenses incurred by the department responsible for the
 
 4 operations supported by the special fund concerned."
 
 5      SECTION 25.  Section 206M-2, Hawaii Revised Statutes, is
 
 6 amended by amending subsections (a) and (b) to read as follows:
 
 7      "(a)  There is established the high technology development
 
 8 corporation, which shall be a public body corporate and politic
 
 9 and an instrumentality and agency of the State.  The development
 
10 corporation shall be placed within the department of business,
 
11 economic development, and tourism for administrative purposes,
 
12 pursuant to section 26-35.  The purpose of the development
 
13 corporation shall be to facilitate the growth and development of
 
14 the commercial high technology industry in Hawaii.  Its duties
 
15 shall include, but not be limited to: [developing]
 
16      (1)  Developing and encouraging industrial parks as high
 
17           technology innovation centers and the developing of
 
18           projects within or outside of industrial parks[;
 
19           providing], including participating with the private
 
20           sector in such development;
 
21      (2)  Providing support and services to Hawaii-based high
 
22           technology companies; [collecting]
 

 
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 1      (3)  Collecting and analyzing information on the state of
 
 2           commercial high technology activity in Hawaii;
 
 3           [promoting]
 
 4      (4)  Promoting and marketing Hawaii as a site for commercial
 
 5           high technology activity; [and providing]
 
 6      (5)  Providing advice on policy and planning for technology-
 
 7           based economic development.
 
 8      (b)  The governing body of the development corporation shall
 
 9 consist of a board of directors having [nine] eleven voting
 
10 members.  Seven of the members shall be appointed by the governor
 
11 for staggered terms pursuant to section 26-34.  Six of the
 
12 appointed members shall be from the general public and selected
 
13 on the basis of their knowledge, interest, and proven expertise
 
14 in, but not limited to, one or more of the following fields:
 
15 finance, commerce and trade, corporate management, marketing,
 
16 economics, engineering, and telecommunications, and other high
 
17 technology fields.  The other appointed member shall be selected
 
18 from the faculty of the University of Hawaii.  All appointed
 
19 members of the board shall continue in office until their
 
20 respective successors have been appointed.  The director of
 
21 business, economic development, and tourism [and], the director
 
22 of finance, an appointed member from the board of the Hawaii
 
23 strategic development corporation, and an appointed member from
 

 
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 1 the board of the natural energy laboratory of Hawaii authority,
 
 2 or their designated representatives, shall serve as ex officio
 
 3 voting members of the board.  The director of business, economic
 
 4 development, and tourism shall serve as the chairperson until
 
 5 such time as a chairperson is elected by the board from the
 
 6 membership.  The board shall elect such other officers as it
 
 7 deems necessary."
 
 8      SECTION 26.  Section 206M-2.5, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "[[]206M-2.5[]]  Meetings of the board.  (a)  The meetings
 
11 of the board shall be open to the public as provided in section
 
12 92-3, except that when it is necessary for the board to receive
 
13 information that is proprietary to a particular enterprise that
 
14 seeks entry into or use of one of its facilities or the
 
15 disclosure of which might be harmful to the business interests of
 
16 the enterprise, the board may enter into an executive meeting
 
17 that is closed to the public.
 
18      (b)  The board shall be subject to the procedural
 
19 requirements of section 92-4, and this authorization shall be an
 
20 addition to the exceptions listed in section 92-5, to enable the
 
21 development corporation to respect the proprietary requirements
 
22 of enterprises with which it has business dealings.
 
23      (c)  The board shall be exempt from section 26-35(4) and
 
24 (5)."
 

 
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 1      SECTION 27.  Section 206M-3, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "206M-3 Powers, generally.  (a)  The development
 
 4 corporation shall have all the powers necessary to carry out its
 
 5 purposes, including the [following powers:] powers to:
 
 6      (1)  [To sue] Sue and be sued; 
 
 7      (2)  [To have] Have a seal and alter the same at its
 
 8           pleasure; 
 
 9      (3)  [To make] Make and execute, enter into, amend,
 
10           supplement, and carry out contracts and all other
 
11           instruments necessary or convenient for the exercise of
 
12           its powers and functions under this chapter including,
 
13           subject to approval of the governor, a project
 
14           agreement with a qualified person, and any other
 
15           agreement whereby the obligations of a qualified person
 
16           under a project agreement shall be unconditionally
 
17           guaranteed or insured by, or the performance thereof
 
18           assigned to, or guaranteed or insured by, a person or
 
19           persons other than the qualified person; and [to] grant
 
20           options or renew any project agreement entered into by
 
21           it in connection with any project or industrial park,
 
22           on terms and conditions as it deems advisable;  
 

 
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 1      (4)  [To make] Make and alter bylaws for its organization
 
 2           and internal management; 
 
 3      (5)  [To adopt] Adopt rules under chapter 91 necessary to
 
 4           effectuate this chapter in connection with industrial
 
 5           parks, projects, and the operations, properties, and
 
 6           facilities of the development corporation;
 
 7      (6)  Through its chief executive officer, [to] appoint
 
 8           officers, agents, and employees, prescribe their duties
 
 9           and qualifications, and fix their salaries, without
 
10           regard to chapters 76 and 77;  
 
11      (7)  [To prepare] Prepare or cause to be prepared
 
12           development plans for industrial parks;
 
13      (8)  [To acquire,] Acquire, own, lease, hold, clear,
 
14           improve, and rehabilitate real, personal, or mixed
 
15           property and [to] assign, exchange, transfer, convey,
 
16           lease, sublease, or encumber any project including by
 
17           way of easements; 
 
18      (9)  [To construct,] Construct, reconstruct, rehabilitate,
 
19           improve, alter, or repair, or provide for the
 
20           construction, reconstruction, rehabilitation,
 
21           improvement, alteration, or repair of any project and
 
22           [to] designate a qualified person as its agent for such
 
23           purpose[, and to own,];
 

 
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 1      (10) Own hold, assign, transfer, convey, exchange, lease,
 
 2           sublease, or encumber any project;
 
 3    [(10)] (11) [To arrange] Arrange or initiate appropriate
 
 4           action for the planning, replanning, opening, grading,
 
 5           or closing of streets, roads, roadways, alleys,
 
 6           easements, or other places, the furnishing of
 
 7           improvements, the acquisition of property or property
 
 8           rights, or the furnishing of property or services in
 
 9           connection with an industrial park; 
 
10    [(11)] (12) [To prepare] Prepare, or cause to be prepared,
 
11           plans, specifications, designs, and estimates of cost
 
12           for the construction, reconstruction, rehabilitation,
 
13           improvement, alteration, or repair of any project or
 
14           industrial park, and from time to time [to] modify such
 
15           plans, specifications, designs, or estimates;
 
16    [(12)] (13) [To engage] Engage the services of consultants on
 
17           a contractual basis for rendering professional and
 
18           technical assistance and advice;
 
19    [(13)] (14) [To procure] Procure insurance against any loss in
 
20           connection with its property and other assets and
 
21           operations in such amounts and from such insurers as it
 
22           deems desirable; 
 

 
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 1    [(14)] (15) [To accept] Accept and expend gifts or grants in
 
 2           any form from any public agency or from any other
 
 3           source; 
 
 4    [(15)] (16) [To issue] Issue bonds pursuant to this chapter in
 
 5           such principal amounts as may be authorized from time
 
 6           to time by law to finance the cost of a project or an
 
 7           industrial park as authorized by law and [to] provide
 
 8           for the security thereof as permitted by this chapter;
 
 9    [(16)] (17) [To lend] Lend or otherwise apply the proceeds of
 
10           the bonds issued for a project or an industrial park
 
11           either directly or through a trustee or a qualified
 
12           person for use and application in the acquisition,
 
13           construction, installation, or modification of a
 
14           project or industrial park, or agree with the qualified
 
15           person whereby any of these activities shall be
 
16           undertaken or supervised by that qualified person or by
 
17           a person designated by the qualified person;
 
18    [(17)] (18) With or without terminating a project agreement,
 
19           [to] exercise any and all rights provided by law for
 
20           entry and [re-entry] reentry upon or [to] take
 
21           possession of a project at any time or from time to
 
22           time upon breach or default by a qualified person under
 
23           a project agreement, including any action at law or in
 

 
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 1           equity for the purpose of effecting its rights of entry
 
 2           or [re-entry] reentry or obtaining possession of the
 
 3           project or for the payments of rentals, user taxes, or
 
 4           charges, or any other sum due and payable by the
 
 5           qualified person to the development corporation
 
 6           pursuant to the project agreement;
 
 7    [(18)] (19) [To enter] Enter into arrangements with qualified
 
 8           county development entities whereby the board would
 
 9           provide financial support to qualified projects
 
10           proposed; 
 
11    [(19)] (20) [To create] Create an environment in which to
 
12           support high technology economic development, including
 
13           but not limited to:  supporting all aspects of
 
14           technology-based economic development; developing
 
15           instructive programs, identifying issues and
 
16           impediments to the growth of high technology industry
 
17           in Hawaii; and providing policy analysis and
 
18           information important to the development of high
 
19           technology industries in Hawaii; 
 
20    [(20)] (21) [To develop] Develop programs that support start-
 
21           up and existing high technology companies in Hawaii and
 
22           [to] attract new companies to relocate to or establish
 
23           operations in Hawaii by assessing the needs of these
 

 
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 1           companies and providing the physical and technical
 
 2           infrastructure to support their operations;
 
 3    [(21)] (22) [To coordinate] Coordinate its efforts with other
 
 4           public and private agencies involved in stimulating
 
 5           technology-based economic development in Hawaii,
 
 6           including but not limited to:  the department of
 
 7           business, economic development, and tourism; the
 
 8           Pacific international center for high technology
 
 9           research; and the office of technology transfer and
 
10           economic development of the University of Hawaii;
 
11    [(22)] (23) [To promote] Promote and market Hawaii as a site
 
12           for commercial high technology activity[;] ,including
 
13           the expenditure of funds for protocol purposes at the
 
14           discretion of the board;  
 
15    [(23)] (24) [To provide] Provide advice on policy and planning
 
16           for technology-based economic development; [and]
 
17     (25)  Finance, conduct, or cooperate in financing or
 
18           conducting technological, business, financial, or other
 
19           investigations that are related to or likely to lead to
 
20           business, technology, and economic development by
 
21           making and entering into contracts and other
 
22           appropriate arrangements, including the provision of
 
23           loans, start-up and expansion capital, loan guaranty,
 

 
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 1           loans convertible to equity, equity charged and
 
 2           received by the corporation, and other forms of
 
 3           assistance;
 
 4     (26)  Solicit, study, and assist in the preparation of
 
 5           business plans and proposals of new or established
 
 6           businesses;
 
 7     (27)  Provide advice, technical and marketing assistance,
 
 8           support, and promotion to enterprises in which
 
 9           investments have been made;
 
10     (28)  Acquire, hold, and sell qualified securities;
 
11     (29)  Consent, subject to the provisions of any contract with
 
12           noteholders or bondholders, whenever the corporation
 
13           deems it necessary or desirable in the fulfillment of
 
14           the purposes of this chapter, to the modification, with
 
15           respect to rate of interest, time of payment of any
 
16           installment of principal or interest, or any other
 
17           terms, of any contract or agreement of any kind to
 
18           which the corporation is a party;
 
19     (30)  Invest any funds held in reserves or sinking funds, or
 
20           any funds not required for immediate disbursement, in
 
21           such investments as may be lawful for fiduciaries in
 
22           the State; and
 

 
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 1    [(24)  To do] (31)  Do all things necessary or proper to carry
 
 2           out the purposes of this chapter.
 
 3      (b)  The corporation shall be exempt from chapters 102 and
 
 4 103D."
 
 5      SECTION 28.  Section 206M-15.5, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "[[]206M-15.5[]]  High technology special fund.  There is
 
 8 established in the state treasury a fund to be known as the high
 
 9 technology special fund, into which shall be deposited all moneys
 
10 [and], fees, and equity from tenants or other users of the
 
11 development corporation's industrial parks, projects, other
 
12 leased facilities, and other services and publications[.];
 
13 provided that the total amount of moneys in the fund shall not
 
14 exceed $3,000,000 at the end of any fiscal year.  All moneys in
 
15 the fund are hereby appropriated for the purposes of and shall be
 
16 expended by the development corporation for the operation,
 
17 maintenance, and management of its industrial parks, projects,
 
18 facilities, services, and publications."
 
19      SECTION 29.  Section 210-3, Hawaii Revised Statutes, is
 
20 amended by amending subsections (a) and (b) to read as follows:
 
21      "(a)  There is established the Hawaii capital loan revolving
 
22 fund into which shall be deposited all moneys received as
 
23 repayment of loans and interest payments as provided in this
 

 
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 1 chapter.  The department may utilize a portion of the moneys
 
 2 contained in the Hawaii capital loan revolving fund for programs
 
 3 associated with administering the fund and its mandated purpose.
 
 4 The department may transfer moneys from the Hawaii capital loan
 
 5 revolving fund established by this section to the Hawaii
 
 6 technology loan revolving fund established by section 206M-  ,
 
 7 the state disaster revolving loan fund established by section
 
 8 209-34, the Hawaii innovation development fund established by
 
 9 section 211E-2, or the Hawaii strategic development corporation
 
10 fund established by chapter 211F, and moneys from these funds
 
11 shall be disbursed by the department or the director pursuant to
 
12 chapters 206M, 209, 210, 211E, and 211F, respectively.  The
 
13 department or the director may transfer moneys from the state
 
14 disaster revolving loan fund and the Hawaii innovation
 
15 development fund to the Hawaii capital loan revolving fund for
 
16 disbursement pursuant to this chapter.
 
17      (b)  The total amount of moneys transferred to the state
 
18 disaster revolving loan fund, the Hawaii capital loan revolving
 
19 fund, or the Hawaii innovation development fund shall not exceed
 
20 $1,000,000 for each respective fund within the calendar year.
 
21 Any transfers to or from the [Hawaii strategic development
 
22 corporation fund] Hawaii technology loan revolving fund shall be
 
23 approved by the corporation's board of directors."
 

 
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 1      SECTION 30.  Section 211F-3, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  The governing body of the corporation shall be a board
 
 4 of directors consisting of [nine] eleven members.  Eight of the
 
 5 members shall be from the general public and appointed by the
 
 6 governor for staggered terms pursuant to section 26-34, and shall
 
 7 be selected on the basis of their knowledge, skill, and
 
 8 experience in the scientific, business, or financial fields.  The
 
 9 director of business, economic development, and tourism, an
 
10 appointed member from the board of the high technology
 
11 development corporation, and an appointed member from the board
 
12 of the natural energy laboratory of Hawaii authority, or [a]
 
13 their designated [subordinate,] representatives, shall serve as
 
14 [an] ex officio voting [member.] members.  Not more than two of
 
15 the eight appointed members of the board, during their term of
 
16 office on the board, shall be employees of the State.  Of the
 
17 members appointed by the governor, one member shall be appointed
 
18 from a list of nominees provided by the speaker of the house of
 
19 representatives and one member shall be appointed from a list of
 
20 nominees provided by the president of the senate.  All appointed
 
21 members of the board shall continue in office until their
 
22 respective successors have been appointed."
 

 
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 1      SECTION 31.  Section 227D-2, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (b) to read as follows:
 
 3      "(b)  The governing body of the authority shall consist of a
 
 4 board of directors having [nine] eleven voting members.  Three
 
 5 members from the general public shall be appointed by the
 
 6 governor for staggered terms pursuant to section 26-34, except
 
 7 that one of these members shall be a resident of the county of
 
 8 Hawaii.  [For the first term, one of these members shall be
 
 9 appointed from the board of the high technology development
 
10 corporation.]  The members shall be selected on the basis of
 
11 their knowledge, interest, and proven expertise in, but not
 
12 limited to, one or more of the following fields: finance,
 
13 commerce and trade, corporate management, marketing, economics,
 
14 engineering, energy management, real estate development, property
 
15 management, aquaculture, and ocean science.  The chairperson and
 
16 secretary of the research advisory committee shall serve on the
 
17 board.  The director of business, economic development, and
 
18 tourism, the chairperson of the board of land and natural
 
19 resources, the president of the University of Hawaii, [and] the
 
20 mayor of the county of Hawaii, an appointed member from the board
 
21 of the high technology development corporation, and an appointed
 
22 member from the board of the Hawaii strategic development
 
23 corporation, or their designated representatives, shall serve as
 

 
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 1 ex officio, voting members of the board.  The director of
 
 2 business, economic development, and tourism shall serve as the
 
 3 chairperson until such time as a chairperson is elected by the
 
 4 board from the membership.  The board shall elect other officers
 
 5 as it deems necessary."
 
 6                             PART VII
 
 7      SECTION 32.  The legislature finds that there are many
 
 8 investors in Hawaii who would like to invest in local start-up
 
 9 companies or in commercialization of research efforts, such as
 
10 those carried out by the University of Hawaii.  However, these
 
11 investors are often unable to meet the standards of an accredited
 
12 investor--which require $2,000,000 in net assets and an annual
 
13 income of $250,000--and thus cannot invest in the majority of
 
14 private placements being offered.
 
15      The legislature further finds that there is a need for an
 
16 investment vehicle to allow participation by smaller investors,
 
17 as a means of proving additional options for Hawaii investors,
 
18 and aid in the growth of Hawaii technology companies.
 
19      The purpose of this Part is to create such a program, the
 
20 Hawaii technology investment program, for small individual
 
21 investors.
 
22      SECTION 33.  Chapter 211F, Hawaii Revised Statutes, is
 
23 amended by adding a new Part to be appropriately designated and
 
24 to read as follows:
 

 
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 1       "PART .  THE HAWAII TECHNOLOGY INVESTMENT PROGRAM
 
 2      211F-   Definitions.  As used in this part:
 
 3      "Biotechnology" means fundamental knowledge regarding the
 
 4 function of biological systems from the macro level to the
 
 5 molecular subatomic levels that has application to development
 
 6 including the development of novel products, services,
 
 7 technologies, and subtechnologies from insights gained from
 
 8 research advances that add to that body of fundamental knowledge. 
 
 9      "Computer data" means any representation of information,
 
10 knowledge, facts, concepts, or instructions that is being
 
11 prepared or has been prepared and is intended to be processed, is
 
12 being processed, or has been processed in a computer or computer
 
13 network.  
 
14      "Computer program" means an ordered set of computer data
 
15 representing coded instructions or statements, that, when
 
16 executed by a computer, causes the computer to perform one or
 
17 more computer operations.
 
18      "Computer software" means computer data, a computer program,
 
19 or a set of computer programs, procedures, or associated
 
20 documentation concerned with the operation and function of a
 
21 computer system, and includes both systems and application
 
22 programs and subdivisions, such as assemblers, compilers,
 
23 routines, generators, and utility programs.
 

 
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 1      "Financial organization" means an organization authorized to
 
 2 do business in Hawaii that is:
 
 3      (1)  Certified as an insurer by the insurance commissioner;
 
 4      (2)  Licensed or chartered as a financial institution by the
 
 5           commissioner of financial institutions;
 
 6      (3)  Chartered by an agency of the federal government;
 
 7      (4)  Subject to the jurisdiction and regulation of the
 
 8           federal Securities and Exchange Commission; or
 
 9      (5)  Any other entity otherwise authorized to do business in
 
10           the State that meets the requirements of this part.
 
11      "Program" means the Hawaii technology investment program.
 
12      "Program manager" means a financial organization selected by
 
13 the corporation to manage the program.
 
14      "Qualified high technology business":
 
15      (1)  Means a business, employing or owning capital or
 
16           property, or maintaining an office, in this State that:
 
17           (A)  Conducts more than fifty per cent of its
 
18                activities in performing qualified research in
 
19                this State; or
 
20           (B)  Receives more than fifty per cent of its gross
 
21                income derived from qualified research; provided
 
22                that the income is received from:
 

 
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 1                (i)  Products sold from, manufactured in, or
 
 2                     produced in the State; or
 
 3               (ii)  Services performed in this State.
 
 4      (2)  Does not include:
 
 5           (A)  Any trade or business involving the performance of
 
 6                services in the field of law, architecture,
 
 7                accounting, actuarial science, consulting,
 
 8                athletics, financial services, or brokerage
 
 9                services;
 
10           (B)  Any banking, insurance, financing, leasing,
 
11                rental, investing, or similar business; any
 
12                farming business, including the business of
 
13                raising or harvesting trees; any business
 
14                involving the production or extraction of products
 
15                of a character with respect to which a deduction
 
16                is allowable under section 611 (with respect to
 
17                allowance of deduction for depletion), 613 (with
 
18                respect to basis for percentage depletion), or
 
19                613A (with respect to limitation on percentage
 
20                depleting in cases of oil and gas wells) of the
 
21                Internal Revenue Code;
 
22           (C)  Any business operating a hotel, motel, restaurant,
 
23                or similar business; and
 

 
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 1           (D)  Any trade or business involving a hospital, a
 
 2                private office of a licensed health care
 
 3                professional, a group practice of licensed health
 
 4                care professionals, or a nursing home.
 
 5      "Qualified research" means:
 
 6      (1)  The same as in section 41(d) of the Internal Revenue
 
 7           Code; or
 
 8      (2)  The development and design of computer software using
 
 9           fourth generation or higher software development tools
 
10           or native programming languages to design and construct
 
11           unique and specific code to create applications and
 
12           design databases for sale or license; or
 
13      (3)  Biotechnology;
 
14 provided that more than fifty per cent of the business'
 
15 activities are qualified research.
 
16      "Venture capital investment" means any of the following
 
17 investments in a qualified high technology business:
 
18      (1)  Common or preferred stock and equity securities without
 
19           a repurchase requirement for at least five years;
 
20      (2)  A right to purchase stock or equity securities;
 
21      (3)  Any debenture or loan, whether or not convertible or
 
22           having stock purchase rights, which:
 

 
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 1           (A)  Is subordinated, together with security interests
 
 2                against the assets of the borrower, by their terms
 
 3                to all borrowings of the borrower from other
 
 4                institutional lenders;
 
 5           (B)  Is for a term of not less than three years; and
 
 6           (C)  Has no part amortized during the first three
 
 7                years;
 
 8      (4)  General or limited partnership interests; and
 
 9      (5)  Membership interests in limited liability companies.
 
10      211F-   Formation of Hawaii technology investment
 
11 program.(a)  The corporation shall establish the Hawaii
 
12 technology investment program for the purpose of allowing
 
13 individual investors to contribute to the program to invest
 
14 venture capital in businesses in Hawaii.  
 
15      (b)  The corporation may implement the Hawaii technology
 
16 investment program through a regulated investment company under
 
17 the terms and conditions established by this section.  The
 
18 corporation may make changes to the program as required for
 
19 participants to obtain the federal and state income tax benefits
 
20 or treatment provided by sections 851 to 855 of the federal
 
21 Internal Revenue Code of 1986, as amended.
 
22      The corporation may establish a program in which the
 
23 dividends distributed by the regulated investment company are
 

 
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 1 exempt from income taxation under chapter 235.  If the
 
 2 corporation establishes a program that is proposed to be exempt
 
 3 from income taxation under chapter 235, it shall furnish
 
 4 sufficient information and notify the department of taxation and
 
 5 investors of the tax exempt status of that program.
 
 6      (c)  The corporation may implement the program through the
 
 7 use of financial organizations as program managers.  Under the
 
 8 program, individuals may establish accounts directly with a
 
 9 program manager.
 
10      (d)  The corporation may solicit proposals from one or more
 
11 financial organizations to act as a program manager.  Financial
 
12 organizations submitting proposals shall describe the investment
 
13 instrument.  The corporation shall select as program managers the
 
14 financial organizations from among the bidding financial
 
15 organizations that demonstrate the most advantageous combination,
 
16 both to potential program participants and this State, based on
 
17 the following factors:
 
18      (1)  The financial stability and integrity of the financial
 
19           organization;
 
20      (2)  The ability of the financial organization to establish
 
21           or act as a regulated investment company for the
 
22           purposes of this part;
 

 
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 1      (3)  The ability of the financial organization to satisfy
 
 2           recordkeeping and reporting requirements for the
 
 3           purposes of a program that allows a program that is
 
 4           exempt from taxation under chapter 235;
 
 5      (4)  The financial organization's plan for promoting the
 
 6           program and the resources it is willing to allocate to
 
 7           promote the program;
 
 8      (5)  The fees, if any, proposed to be charged to persons for
 
 9           opening accounts;
 
10      (6)  The minimum initial deposit and minimum contributions,
 
11           subject to this section that the financial organization
 
12           will require;
 
13      (7)  Other benefits to the State or its residents included
 
14           in the proposal, including fees payable to the State to
 
15           cover expenses to operate the program.
 
16      (e)  The corporation may enter into a management contract of
 
17 up to ten years with a financial organization.  The financial
 
18 organization shall provide investment instruments meeting the
 
19 requirements of this section.  The management contract shall
 
20 include, at a minimum, terms requiring the financial organization
 
21 to:
 
22      (1)  Take any action required to keep the program in
 
23           compliance with requirements of this section and to
 

 
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 1           manage the program to meet the requirements of sections
 
 2           851 to 855 of the federal Internal Revenue Code of
 
 3           1986, as amended;
 
 4      (2)  Keep adequate records of each account, keep each
 
 5           account segregated from each other's account, and
 
 6           provide the corporation with the information necessary
 
 7           to prepare any necessary statements;
 
 8      (4)  Provide the corporation with the information necessary
 
 9           to determine compliance with this section;
 
10      (5)  Provide the corporation access to the books and records
 
11           of the financial organization to the extent needed to
 
12           determine compliance with the contract;
 
13      (6)  Hold all accounts for the benefit of the account owner;
 
14      (7)  Be audited at least annually by a firm of independent
 
15           certified public accountants selected by the financial
 
16           organization, and provide the results of the audit to
 
17           the corporation; and
 
18      (8)  Provide the corporation with copies of all regulatory
 
19           filings and reports related to the program made by the
 
20           financial organization during the term of the
 
21           management contract or while it is holding any
 
22           accounts, other than confidential filings or reports
 
23           that will not become part of the program.  The
 

 
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 1           financial organization shall make available for review
 
 2           by the corporation, the results of any periodic
 
 3           examination of the financial organization by any state
 
 4           or federal banking, insurance, or securities
 
 5           commission, except to the extent that the report or
 
 6           reports may not be disclosed under applicable law or
 
 7           the rules of the examining agency.
 
 8      (f)  The corporation may require an audit to be conducted of
 
 9 the operations and financial position of the program manager at
 
10 any time if the corporation has any reason to be concerned about
 
11 the financial position, the recordkeeping practices, or the
 
12 status of accounts of the program manager.
 
13      (g)  During the term of any contract with a program manager,
 
14 the corporation shall conduct an examination of the program
 
15 manager and its handling of accounts.  The examination shall be
 
16 conducted at least biennially if the program manager is not
 
17 otherwise subject to periodic examination by the commissioner of
 
18 financial institutions, the Federal Deposit Insurance
 
19 Corporation, or other similar entity.
 
20      (h)  If selection of a financial organization as a program
 
21 manager is not renewed, after the end of the term:
 
22      (1)  Accounts previously established and held in investment
 
23           instruments at the financial organization may be
 
24           terminated;
 

 
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 1      (2)  Additional contributions may be made to the accounts;
 
 2      (3)  No new accounts may be placed with the financial
 
 3           organization; and
 
 4      (4)  Existing accounts held by the financial organization
 
 5           shall remain subject to all oversight and reporting
 
 6           requirements established by the corporation.
 
 7 If the corporation terminates a financial organization as a
 
 8 program manager, the corporation shall take custody of accounts
 
 9 held by the financial organization and shall seek to promptly
 
10 transfer the accounts to another financial organization that is
 
11 selected as a program manager and into investment instruments as
 
12 similar to the original instruments as possible.
 
13      (i)  The corporation may enter into contracts for the
 
14 services of consultants for rendering professional and technical
 
15 assistance and advice and any other contracts that are necessary
 
16 and proper for the implementation of the program.
 
17      (j)  The program shall only allow contributions from
 
18 individual investors in amounts ranging from a minimum of $1,000
 
19 to a maximum of $100,000 per investor.
 
20      (k)  The program manager shall invest all contributions
 
21 received from investors in securities not limited to legal
 
22 investments under state laws relating to the investment of trust
 
23 fund assets by trust companies, including those authorized by
 

 
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 1 article 8 of chapter 412.  Contributions shall be used for
 
 2 venture capital investment.  Investment may be made in any manner
 
 3 the program deems correct.  If no venture capital investment is
 
 4 available at the time a contribution is made to the program, the
 
 5 program manager may invest the contribution in any manner allowed
 
 6 a regulated investment company until a venture capital investment
 
 7 opportunity occurs.  While the program manager should make a best
 
 8 effort to make venture capital investments as defined in section
 
 9 211F-     , if no such venture capital investment is available in
 
10 Hawaii, then the program manager may make venture capital
 
11 investments outside Hawaii.
 
12      (l)  The corporation may adopt any necessary rules under
 
13 chapter 91.
 
14      211F-  Limitation of liability.  In no case shall the
 
15 corporation, officers or employees of the corporation, or the
 
16 State be liable for the monetary losses of individuals
 
17 contributing to the program.  In all cases, the program manager
 
18 shall inform individual contributors of the risk involved in
 
19 contributing to the program."
 
20      SECTION 34.  Statutory material to be repealed is bracketed.
 
21 New statutory material is underscored.
 
22      SECTION 35.  This Act shall take effect upon its approval;
 
23 provided that:
 

 
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 1      (1)  Part I, upon its approval, shall apply to taxable years
 
 2           beginning after December 31, 1999; and
 
 3      (2)  Part III shall take effect on July 1, 2000.
 

 
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