REPORT TITLE:
ERS; Investments


DESCRIPTION:
Requires that by 2002 25% of ERS investment portfolio be invested
in property in Hawaii, are Hawaii companies and businesses that
pay Hawaii taxes, employ Hawaii residents, or are entities in
which not less than 50% ownership interest is held by Hawaii
residents.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1567       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE EMPLOYEES' RETIREMENT SYSTEM.



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

 1      SECTION 1.  The legislature finds that in these times of
 
 2 fiscal constraints when the State and the counties are looking
 
 3 for ways to reduce costs and improve the business climate in
 
 4 Hawaii, it behooves the State to look at ways to ensure that the
 
 5 employees' retirement system invests state moneys in a socially
 
 6 responsible manner.  The employees' retirement system administers
 
 7 a large investment holding and could make a greater effort to
 
 8 invest its resources in the State to help improve Hawaii's ailing
 
 9 economy.  The purpose of this Act is to call for the investment
 
10 of twenty-five per cent of the employees' retirement system's
 
11 portfolio in Hawaii companies and businesses by 2002.
 
12      SECTION 2.  Section 88-119, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "88-119  Investments.  (a)  Investments may be made in:
 
15      (1)  Real estate loans and mortgages.  Obligations (as
 
16           defined in section 431:6-101) of any of the following
 
17           classes:
 
18           (A)  Obligations secured by mortgages of nonprofit
 
19                corporations desiring to build multirental units
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1                (ten units or more) subject to control of the
 
 2                government for occupancy by families displaced as
 
 3                a result of government action;
 
 4           (B)  Obligations secured by mortgages insured by the
 
 5                Federal Housing Administration;
 
 6           (C)  Obligations for the repayment of home loans made
 
 7                under the Servicemen's Readjustment Act of 1944 or
 
 8                under Title II of the National Housing Act;
 
 9           (D)  Other obligations secured by first mortgages on
 
10                unencumbered improved real estate owned in fee
 
11                simple; provided that the amount of the obligation
 
12                shall not at the time investment is made therein
 
13                exceed eighty per cent of the value of the real
 
14                estate and improvements mortgaged to secure it,
 
15                and except that the amount of the obligation at
 
16                the time investment is made therein may exceed
 
17                eighty per cent but no more than ninety per cent
 
18                of the value of the real estate and improvements
 
19                mortgaged to secure it; provided further that the
 
20                obligation is insured or guaranteed against
 
21                default or loss under a mortgage insurance policy
 
22                issued by a casualty insurance company licensed to
 
23                do business in the State.  The coverage provided
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1                by the insurer should be sufficient to reduce the
 
 2                system's exposure to not more than eighty per cent
 
 3                of the value of the real estate and improvements
 
 4                mortgaged to secure it.  Such insurance coverage
 
 5                shall remain in force until the principal amount
 
 6                of the obligation is reduced to eighty per cent of
 
 7                the market value of the real estate and
 
 8                improvements mortgaged to secure it, at which time
 
 9                the coverage shall be subject to cancellation
 
10                solely at the option of the board of trustees.
 
11                Real estate shall not be deemed to be encumbered
 
12                within the meaning of this subparagraph by reason
 
13                of the existence of any of the restrictions,
 
14                charges, or claims described in section 431:6-308;
 
15           (E)  Other obligations secured by first mortgages of
 
16                leasehold interests in improved real estate;
 
17                provided that:
 
18                (i)  Each such leasehold interest at such time
 
19                     shall have a current term extending at least
 
20                     two years beyond the stated maturity of the
 
21                     obligation it secures; and
 
22               (ii)  The amount of the obligation shall not at the
 
23                     time investment is made therein exceed eighty
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1                     per cent of the value of the respective
 
 2                     leasehold interest and improvements, and
 
 3                     except that the amount of the obligation, at
 
 4                     the time investment is made therein, may
 
 5                     exceed eighty per cent but no more than
 
 6                     ninety per cent of the value of the leasehold
 
 7                     interest and improvements mortgaged to secure
 
 8                     it;
 
 9                provided further that the obligation is insured or
 
10                guaranteed against default or loss under a
 
11                mortgage insurance policy issued by a casualty
 
12                insurance company licensed to do business in the
 
13                State.  The coverage provided by the insurer
 
14                should be sufficient to reduce the system's
 
15                exposure to not more than eighty per cent of the
 
16                value of the leasehold interest and improvements
 
17                mortgaged to secure it.  Such insurance coverage
 
18                shall remain in force until the principal amount
 
19                of the obligation is reduced to eighty per cent of
 
20                the market value of the leasehold interest and
 
21                improvements mortgaged to secure it, at which time
 
22                the coverage shall be subject to cancellation
 
23                solely at the option of the board of trustees;
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1           (F)  Obligations for the repayment of home loans
 
 2                guaranteed by the department of Hawaiian home
 
 3                lands pursuant to section 214(b) of the Hawaiian
 
 4                Homes Commission Act, 1920; and
 
 5           (G)  Obligations secured by second mortgages on
 
 6                improved real estate for which the mortgagor
 
 7                procures a second mortgage on the improved real
 
 8                estate for the purpose of acquiring the
 
 9                leaseholder's fee simple interest in the improved
 
10                real estate; provided that any prior mortgage does
 
11                not contain provisions which might jeopardize the
 
12                security position of the retirement system or the
 
13                borrower's ability to repay the mortgage loan.
 
14           The board of trustees may retain such real estate,
 
15           including leasehold interests therein, as it may
 
16           acquire by foreclosure of mortgages or in enforcement
 
17           of security, or as may be conveyed to it in
 
18           satisfaction of debts previously contracted; provided
 
19           that all such real estate, other than leasehold
 
20           interests, shall be sold within five years after
 
21           acquiring the same, subject to extension by the
 
22           governor for additional periods not exceeding five
 
23           years each, and that all such leasehold interests shall
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1           be sold within one year after acquiring the same,
 
 2           subject to extension by the governor for additional
 
 3           periods not exceeding one year each;
 
 4      (2)  Government obligations, etc.  Obligations of any of the
 
 5           following classes:
 
 6           (A)  Obligations issued or guaranteed as to principal
 
 7                and interest by the United States or by any state
 
 8                thereof or by any municipal or political
 
 9                subdivision or school district of any of the
 
10                foregoing; provided that principal of and interest
 
11                on such obligations are payable in currency of the
 
12                United States; or sovereign debt instruments
 
13                issued by agencies of, or guaranteed by foreign
 
14                governments;
 
15           (B)  Revenue bonds, whether or not permitted by any
 
16                other provision hereof, of the State or any
 
17                municipal or political subdivision thereof,
 
18                including the board of water supply of the city
 
19                and county of Honolulu, and street or improvement
 
20                district bonds of any district or project in the
 
21                State; and
 
22           (C)  Obligations issued or guaranteed by any federal
 
23                home loan bank including consolidated federal home
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1                loan bank obligations, the Home Owner's Loan
 
 2                Corporation, the Federal National Mortgage
 
 3                Association, or the Small Business Administration;
 
 4      (3)  Corporate obligations.  Investments may be made in
 
 5           below investment grade or nonrated debt instruments,
 
 6           foreign or domestic, in accordance with investment
 
 7           guidelines adopted by the board of trustees;
 
 8      (4)  Preferred and common stocks.  Shares of preferred or
 
 9           common stock of any corporation created or existing
 
10           under the laws of the United States or of any state or
 
11           district thereof or of any country;
 
12      (5)  Obligations eligible by law for purchase in the open
 
13           market by federal reserve banks;
 
14      (6)  Obligations issued or guaranteed by the International
 
15           Bank for Reconstruction and Development, the Inter-
 
16           American Development Bank, the Asian Development Bank,
 
17           or the African Development Bank;
 
18      (7)  Obligations secured by collateral consisting of any of
 
19           the securities or stock listed above and worth, at the
 
20           time the investment is made, at least fifteen per cent
 
21           more than the amount of the respective obligations;
 
22      (8)  Insurance company obligations.  Contracts and
 
23           agreements supplemental thereto providing for
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1           participation in one or more accounts of a life
 
 2           insurance company authorized to do business in Hawaii,
 
 3           including its separate accounts, and whether the
 
 4           investments allocated thereto are comprised of stocks
 
 5           or other securities or of real or personal property or
 
 6           interests therein;
 
 7      (9)  Interests in real property.  Interests in improved or
 
 8           productive real property in which, in the informed
 
 9           opinion of the board of trustees, it is prudent to
 
10           invest funds of the system.  For purposes of this
 
11           paragraph, "real property" includes any property
 
12           treated as real property either by local law or for
 
13           federal income tax purposes.  Investments in improved
 
14           or productive real property may be made directly or
 
15           through pooled funds, including common or collective
 
16           trust funds of banks and trust companies, group or unit
 
17           trusts, limited partnerships, investment trusts, title-
 
18           holding corporations recognized under section 501(c)(2)
 
19           or section 501(c)(23) of the Internal Revenue Code of
 
20           1986, as amended, and other pooled funds invested on
 
21           behalf of the system by investment managers retained by
 
22           the system;
 
23     (10)  Other securities and futures contracts.  Securities and
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1           futures contracts in which in the informed opinion of
 
 2           the board of trustees it is prudent to invest funds of
 
 3           the system, including currency, interest rate, bond,
 
 4           and stock index futures contracts and options on such
 
 5           contracts to hedge against anticipated changes in
 
 6           currencies, interest rates, and bond and stock prices
 
 7           that might otherwise have an adverse effect upon the
 
 8           value of the system's securities portfolios; covered
 
 9           put and call options on securities; and stock; whether
 
10           or not the securities, stock, futures contracts, or
 
11           options on futures are expressly authorized by or
 
12           qualify under the foregoing paragraphs, and
 
13           notwithstanding any limitation of any of the foregoing
 
14           paragraphs (including paragraph (4)); and
 
15     (11)  Private placements.  Investments in institutional blind
 
16           pool limited partnerships or direct investments which
 
17           make private debt and equity investments in privately
 
18           held companies.
 
19      (b)  By the year 2002, twenty-five per cent of investments
 
20 shall be made in:
 
21      (1)  Companies and businesses that:
 
22           (A)  Pay taxes to the State of Hawaii;
 
23           (B)  Employ Hawaii residents; or
 

 
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                                     H.B. NO.1567       
                                                        
                                                        

 
 1           (C)  Are entities in which an ownership interest of not
 
 2                less than fifty per cent is held by Hawaii
 
 3                residents, regardless of the location of
 
 4                operations; and
 
 5      (2)  Property located in Hawaii."
 
 6      SECTION 3.  New statutory material is underscored.
 
 7      SECTION 4.  This Act shall take effect upon its approval.
 
 8 
 
 9                              INTRODUCED BY:______________________