REPORT TITLE:
Agricultural Loans


DESCRIPTION:
Provides agricultural loans to qualified part-time farmers.
Reduces the state residency requirements for permanent resident
aliens seeking financing under the State's agricultural loan
program.  Enables the department of agriculture to provide credit
to food manufacturers located in the State that utilize Hawaii-
grown agricultural products.  (HB2996 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2996
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO AGRICULTURAL LOANS.



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

 1      SECTION 1.  The legislature finds that a substantial number
 
 2 of individuals and families are undertaking agricultural
 
 3 production on a part-time basis to supplement earnings obtained
 
 4 from full-time employment by one or more members of the
 
 5 household.  In many instances, the individual and family are
 
 6 dependent upon farm earnings to make ends meet and provide other
 
 7 amenities for the family.  With the uncertainties involved in
 
 8 farming, such as market demand, prices, government regulations,
 
 9 and weather, these people find that they are not able to leave
 
10 the security of a steady income provided by their full-time
 
11 employment and the benefits provided by their employer,
 
12 especially medical coverage.  Many part-time farmers want to
 
13 expand their farm production as their limited operations are
 
14 profitable.
 
15      Current government programs are tailored for full-time
 
16 farming, consequently leaving these entrepreneurial and hard-
 
17 working individuals with limited avenues for funding their
 
18 operation.  A loan program to assist part-time farmers would not
 
19 only enable these individuals to expand their farming enterprise,
 
20 but would increase the export potential of certain crops, as many
 

 
Page 2                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 part-time farmers are nurturing crops that are exportable.
 
 2 Exportable crops include fruits (papayas), ornamentals (orchids
 
 3 for cut flower and potted plants, and certified potted foliage),
 
 4 and plants with pharmaceutical qualities (awa root).  Moreover,
 
 5 increasing exports would be beneficial to the state economy.
 
 6      Farming activities today are increasingly being undertaken
 
 7 by recent immigrants to the State.  Many of these immigrants are
 
 8 already skilled in farming techniques and have taken up farming
 
 9 as a livelihood.  These immigrants are the "new wave" of farmers,
 
10 as older farming generations are ceasing their farming
 
11 activities, and turning their farmland into more profitable urban
 
12 investments.
 
13      The legislature also finds that diversified agriculture is
 
14 undergoing a significant period of transition and is a dynamic
 
15 growth industry.  With the closures of most of the State's sugar
 
16 plantations, prime agricultural land, water, and an
 
17 agriculturally-oriented labor force are now available for
 
18 diversified agricultural development and expansion.  As
 
19 diversified agriculture grows, there will be a greater need to
 
20 utilize and market the expected increase in agricultural
 
21 production.
 
22      One of the primary ways to utilize the increase in
 
23 production is through further development of value-added
 

 
Page 3                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 products.  Processing and manufacturing present unlimited
 
 2 opportunities to sell agricultural products to vast export
 
 3 markets.  Unlike fresh agricultural products, processed products
 
 4 are not restricted in shipment to export markets by quarantine
 
 5 regulations pertaining to pests, such as fruit flies.  In
 
 6 addition, processed agricultural products are generally less
 
 7 perishable, allowing for greater ease in transport and shipment.
 
 8 A strong link exists between the production of agricultural
 
 9 products at the farm and the processing and marketing of those
 
10 products.  Just as there is a need for financing for farm
 
11 enterprises, a need for financing also exists for the processing
 
12 and manufacturing of agricultural products.
 
13      The purpose of this Act is to expand the agricultural loan
 
14 program by:
 
15      (1)  Reducing state residency requirements for permanent
 
16           resident aliens seeking financing under the State's
 
17           agricultural loan program; and
 
18      (2)  Enabling qualified part-time farmers, and food
 
19           manufacturers located in the State who use Hawaii-grown
 
20           agricultural products, to obtain loans under the
 
21           agricultural loan program.
 
22      SECTION 2.  Section 155-1, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
Page 4                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      "155-1 Definitions.  Whenever used in this chapter:
 
 2      [(1) "Farm land" means land in the State used for
 
 3           agricultural purposes, including general farming, cane
 
 4           growing, fruit growing, flower growing, grazing,
 
 5           dairying, the production of any form of livestock or
 
 6           poultry, and any other form of agricultural activity.
 
 7           It includes land required for an adequate farm dwelling
 
 8           and other essential farm buildings, roads, wasteland.
 
 9      (2)  "Qualified farmer" means a person of proven farming
 
10           ability who operates the person's own farm on land
 
11           owned by the person in fee or on land rented or leased
 
12           from others and who is presently devoting, has recently
 
13           devoted, or intends to devote most of the person's time
 
14           or who derives a major portion of the person's net cash
 
15           income from direct participation in farming in its
 
16           broadest sense.  It includes Hawaii partnerships
 
17           controlled to the extent of seventy-five per cent by
 
18           persons who would qualify individually and would meet
 
19           the eligibility requirements of section 155-10.  It
 
20           also includes small corporations where at least
 
21           seventy-five per cent of each class of stock issued by
 
22           the corporation is owned by persons who qualify
 
23           individually and would meet the eligibility
 

 
Page 5                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           requirements of section 155-10 and where seventy-five
 
 2           per cent of the directors are qualified farmers.  It
 
 3           also includes corporations incorporated in the State
 
 4           primarily for agricultural production purposes;
 
 5           actively engaged in agricultural production for a
 
 6           minimum of two years; and with at least seventy-five
 
 7           per cent of each class of stock owned by residents of
 
 8           this State.
 
 9      (3)  "New farmer program" means a new farm enterprise for
 
10           qualified new farmers, including persons who are
 
11           displaced from employment in an agricultural production
 
12           enterprise, college graduates in agriculture, community
 
13           college graduates in agriculture, and members of the
 
14           Hawaii Young Farmer Association and Future Farmer of
 
15           America graduates with farming projects, persons who
 
16           have not less than two years' experience as part-time
 
17           farmers, persons who have been farm tenants or farm
 
18           laborers, or other individuals who have for the two
 
19           years last preceding their application obtained the
 
20           major portion of their income from farming operations,
 
21           and persons who by reason of ability, experience, and
 
22           training as vocational trainees are likely to
 
23           successfully operate a farm, who otherwise meet the
 
24           eligibility requirements of section 155-10.
 

 
Page 6                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (4)  "Cooperative" means a nonprofit association of farmers
 
 2           organized under chapter 421.
 
 3      (5)  "Mortgage" includes [such] classes of liens on farm
 
 4           land and other authorized security as are approved by
 
 5           the department of agriculture and the credit
 
 6           instruments secured thereby.
 
 7      (6)  "Private lender" includes banks, savings and loan
 
 8           associations, credit unions, mortgage companies, and
 
 9           other qualified companies whose business includes the
 
10           making of loans in the State.]
 
11      "Cooperative" means a nonprofit association of farmers
 
12 organized under chapter 421.
 
13      "Farm land" means land used for agricultural purposes,
 
14 including general farming, cane growing, fruit growing, flower
 
15 growing, grazing, dairying, the production of any form of
 
16 livestock or poultry, and any other form of agricultural
 
17 activity.  It includes land required for an adequate farm
 
18 dwelling and other essential farm buildings, roads, and
 
19 wasteland.
 
20      "Food manufacturers" means entities that process Hawaii-
 
21 grown agricultural products or that utilize Hawaii-grown
 
22 agricultural products as an ingredient in the manufacturing
 
23 process.  Processed and manufactured agricultural food products
 

 
Page 7                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 include items such as chips, dairy products, guava and papaya
 
 2 puree, macadamia nut products, fruit drinks, juices, nectars,
 
 3 jams, jellies, packaged coffee, processed vegetables, freeze-
 
 4 dried and fresh poi, processed meat products, cookies, and
 
 5 candies.
 
 6      "Mortgage" includes classes of liens on farm land and other
 
 7 authorized security as are approved by the department of
 
 8 agriculture and the credit instruments secured thereby.
 
 9      "New farmer program" means a new farm enterprise for
 
10 qualified new farmers, including persons who are:
 
11      (1)  Displaced from employment in an agricultural production
 
12           enterprise;
 
13      (2)  College graduates in agriculture;
 
14      (3)  Community college graduates in agriculture;
 
15      (4)  Members of the Hawaii Young Farmer Association and
 
16           Future Farmer of America graduates with farming
 
17           projects;
 
18      (5)  Persons who have not less than two years' experience as
 
19           part-time farmers;
 
20      (6)  Persons who have been farm tenants or farm laborers;
 
21      (7)  Other individuals who for the two years last preceding
 
22           their application have obtained the major portion of
 
23           their income from farming operations; and
 

 
Page 8                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (8)  Persons who by reason of ability, experience, and
 
 2           training as vocational trainees are likely to
 
 3           successfully operate a farm, who otherwise meet the
 
 4           eligibility requirements of section 155-10.
 
 5      "Part-time farmer" means a person of proven farming ability
 
 6 who:
 
 7      (1)  Has been operating the person's farm for at least two
 
 8           years on land owned by the person in fee or on land
 
 9           rented or leased from others;
 
10      (2)  Is presently devoting a portion of the person's time to
 
11           farming; and
 
12      (3)  Derives between twenty-five to fifty per cent of the
 
13           person's net cash income from direct participation in
 
14           farming in its broadest sense.
 
15      "Private lender" includes banks, savings and loan
 
16 associations, credit unions, mortgage companies, and other
 
17 qualified companies whose business includes the making of loans
 
18 in the State.
 
19      "Qualified farmer" means a person of proven farming ability
 
20 who operates the person's own farm on land owned by the person in
 
21 fee or on land rented or leased from others and who is presently
 
22 devoting, has recently devoted, or intends to devote most of the
 
23 person's time or who derives a major portion of the person's net
 

 
Page 9                                                     2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 cash income from direct participation in farming in its broadest
 
 2 sense.  It includes:
 
 3      (1)  Hawaii partnerships controlled to the extent of
 
 4           seventy-five per cent by persons who would qualify
 
 5           individually and would meet the eligibility
 
 6           requirements of section 155-10;
 
 7      (2)  Small corporations where at least seventy-five per cent
 
 8           of each class of stock issued by the corporation is
 
 9           owned by persons who qualify individually and would
 
10           meet the eligibility requirements of section 155-10 and
 
11           where seventy-five per cent of the directors are
 
12           qualified farmers; and
 
13      (3)  Corporations incorporated in the State primarily for
 
14           agricultural production purposes; actively engaged in
 
15           agricultural production for a minimum of two years; and
 
16           with at least seventy-five per cent of each class of
 
17           stock owned by residents of this State."
 
18      SECTION 3.  Section 155-2, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "155-2 Objectives.  One of the objectives of the
 
21 department of agriculture shall be to promote the agricultural
 
22 development of the State by stimulating, facilitating, and
 
23 granting loans to qualified farmers[.] and food manufacturers.
 

 
Page 10                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      The department shall encourage the growth, development, and
 
 2 [well being] well-being of agriculture in the State by
 
 3 [maximizing]:
 
 4      (1)  Maximizing the use of limited state funds and resources
 
 5           in encouraging development of new farmers and new
 
 6           crops; [assisting]
 
 7      (2)  Assisting qualified farmers and food manufacturers with
 
 8           loans; [encouraging]
 
 9      (3)  Encouraging private lenders to make loans to qualified
 
10           farmers and food manufacturers directly, or in
 
11           cooperation, or in participation with the State; and
 
12           [providing]
 
13      (4)  Providing relief to farmers in times of emergencies.
 
14      The department shall also establish standards and criteria
 
15 pursuant to which loans may be provided to qualified farmers and
 
16 food manufacturers who cannot secure credit from other sources at
 
17 reasonable rates and terms.  Any assessment of the program shall
 
18 consider its purpose and intent [which] that involves credit risk
 
19 beyond that of banks and other private lenders, and [such] the
 
20 assessment shall be based on standards of similar programs."
 
21      SECTION 4.  Section 155-4, Hawaii Revised Statutes, is
 
22 amended as follows:
 

 
 
 
Page 11                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      "155-4 Powers and duties of the department.  The
 
 2 department of agriculture shall have the following powers:
 
 3      (1)  Employ a secretary, who may be exempt from chapters 76
 
 4           and 77, and [such] other full-time and part-time
 
 5           employees, subject to chapters 76 and 77, as are
 
 6           necessary to effectuate the purposes of this chapter,
 
 7           subject further to the limitation of funds in the
 
 8           agricultural loan reserve fund;
 
 9      (2)  Designate [such] agents throughout the State as may be
 
10           necessary for property appraisal, the consideration of
 
11           loan applications, and the supervision of farming
 
12           operations of borrowers.  The agents may be compensated
 
13           for their services at [such] rates [as] the department
 
14           in its discretion may fix;
 
15      (3)  Initiate and carry on a continuing research and
 
16           education program, utilizing and coordinating the
 
17           services and facilities of other government agencies
 
18           and private lenders to the maximum, to inform qualified
 
19           farmers concerning procedures for obtaining loans and
 
20           to inform private lenders concerning the advantages of
 
21           making loans to qualified farmers;
 
22      (4)  Cooperate with private and federal government farm loan
 
23           sources to increase the amount of loan funds available
 
24           to qualified farmers in the State;
 

 
Page 12                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (5)  Assist individual qualified farmers in obtaining loans
 
 2           from other sources.  Insofar as available funds and
 
 3           staff permit, counsel and assist individual farmers in
 
 4           establishing and maintaining proper records to prove
 
 5           their farming ability for loan purposes;
 
 6      (6)  Insure loans made to qualified farmers and food
 
 7           manufacturers by private lenders under section 155-5;
 
 8      (7)  Participate in loans made to qualified farmers and food
 
 9           manufacturers by private lenders under section 155-6;
 
10      (8)  Make direct loans to qualified farmers and food
 
11           manufacturers under section 155-8;
 
12      (9)  Borrow money for loan purposes;
 
13     (10)  Assign and sell mortgages;
 
14     (11)  Hold title to, maintain, use, manage, operate, sell,
 
15           lease, or otherwise dispose of personal and real
 
16           property acquired by way of foreclosure, voluntary
 
17           surrender, or otherwise, to recover moneys loaned;
 
18     (12)  Sue and be sued in the name of the "State of Hawaii";
 
19     (13)  Exercise [such] incidental powers as are deemed
 
20           necessary or requisite to fulfill its duty in carrying
 
21           out the purposes of this chapter;
 
22     (14)  Delegate authority to its chairperson to approve loans,
 
23           where the requested amount plus any principal balance
 

 
Page 13                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           on existing loans to the applicant, does not exceed
 
 2           $25,000 of state funds; and
 
 3     (15)  Adopt rules pursuant to chapter 91 necessary for the
 
 4           purpose of this chapter."
 
 5      SECTION 5.  Section 155-5, Hawaii Revised Statutes, is
 
 6 amended by amending subsections (a) and (b) to read as follows:
 
 7      "(a)  The department of agriculture may insure up to ninety
 
 8 per cent of the principal balance of a loan, plus interest due
 
 9 thereon, made to a qualified farmer [or], qualified new farmer,
 
10 or qualified food manufacturer by a private lender who is unable
 
11 to otherwise lend the applicant sufficient funds at reasonable
 
12 rates; provided that at no time shall the aggregate amount of the
 
13 State's liability, contingent or otherwise, on loans insured
 
14 under this section and section 155-6 exceed $10,000,000.
 
15      (b)  Loans insured under this section shall be limited by
 
16 the provisions of sections 155-9 through 155-13 for purposes of
 
17 class "A" through class "F"[.]; provided that class "E" loans to
 
18 food manufacturers shall not be subject to section 155-10."
 
19      SECTION 6.  Section 155-5.5, Hawaii Revised Statutes, is
 
20 amended by amending subsections (a) and (b) to read as follows:
 
21      "(a)  The department of agriculture may guarantee up to
 
22 ninety per cent of the principal balance of a loan, plus interest
 
23 due thereon, made to a qualified farmer, qualified food
 

 
Page 14                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 manufacturer, or cooperative by a private lender; provided that
 
 2 at no time shall the aggregate amount of the State's liability,
 
 3 contingent or otherwise, on loans guaranteed under this section[,
 
 4 section] and sections 155-5, [and section] 155-6, and 155-6.5
 
 5 exceed $10,000,000.
 
 6      (b)  Loans guaranteed under this section shall be limited by
 
 7 the provisions of sections 155-9 through 155-13 for purposes of
 
 8 [class] classes "A", "B", "C", and "E"[.]; provided that class
 
 9 "E" loans to food manufacturers shall not be subject to section
 
10 155-10.  No class "D" and "F" loans shall be made under this
 
11 section."
 
12      SECTION 7.  Section 155-6, Hawaii Revised Statutes, is
 
13 amended by amending subsections (a) and (b) to read as follows:
 
14      "(a)  The department of agriculture may provide funds for a
 
15 share, not to exceed ninety per cent, of the principal amount of
 
16 a loan made to a qualified farmer [or], qualified new farmer, or
 
17 qualified food manufacturer by a private lender who is unable
 
18 otherwise to lend the applicant sufficient funds at reasonable
 
19 rates.
 
20      (b)  Participating loans under this section shall be limited
 
21 by sections 155-9 to 155-13 for purposes of class "A" through
 
22 class "F", the department's share not to exceed the maximum
 
23 amounts specified therefor[.]; provided that class "E" loans to
 
24 food manufacturers shall not be subject to section 155-10."
 

 
Page 15                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      SECTION 8.  Section 155-6.5, Hawaii Revised Statutes, is
 
 2 amended as follows:
 
 3      1.  By amending subsection (a) to read:
 
 4      "(a)  The department of agriculture, for a fee, may
 
 5 underwrite and service loans for cooperating private lenders and
 
 6 government loan programs providing loan funds to qualified
 
 7 farmers[.] and qualified food manufacturers.  All fees shall be
 
 8 deposited into the agricultural loan reserve fund."
 
 9      2.  By amending subsection (c) to read:
 
10      "(c)  Loans underwritten or serviced under this section
 
11 shall be limited by sections 155-1 and 155-9 to 155-12[.];
 
12 provided that class "E" loans to food manufacturers shall not be
 
13 subject to section 155-10.  No class "D" and "F" loans shall be
 
14 underwritten or serviced under this section."
 
15      SECTION 9.  Section 155-8, Hawaii Revised Statutes, is
 
16 amended by amending subsections (a), (b), and (c) to read as
 
17 follows:
 
18      "(a)  The department of agriculture may make loans directly
 
19 to qualified farmers [or], qualified new farmers, or qualified
 
20 food manufacturers who are unable to obtain sufficient funds at
 
21 reasonable rates from private lenders either independently or
 
22 under sections 155-5, 155-5.5, and 155-6.
 

 
 
 
Page 16                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (b)  Loans made under this section shall be limited by
 
 2 sections 155-9 to 155-13[.]; provided that class "E" loans to
 
 3 food manufacturers shall not be subject to 155-10.
 
 4      (c)  Loans made under this section shall bear simple
 
 5 interest on the unpaid principal balance, charged on the actual
 
 6 amount disbursed to the borrower.  The interest rate on loans of
 
 7 [classes] class "A", "B", "C", [and] "E", and "G" shall be at a
 
 8 rate of one per cent below the prime rate or at a rate of seven
 
 9 and one-half per cent a year, whichever is less.  For purposes of
 
10 this subsection, the prime rate shall be determined on January 1
 
11 and July 1 of each year, and shall be the prime rate charged by
 
12 the two largest banks in the State identified by the department
 
13 of commerce and consumer affairs.  If the prime rates of the two
 
14 largest banks are different, the lower prime rate of the two
 
15 shall apply.  The interest rate on class "F" loans shall be six
 
16 per cent a year.  If the money loaned is borrowed by the
 
17 department, then the interest on loans of [such] the classes
 
18 shall be the rate as determined above or one per cent over the
 
19 cost to the State of borrowing the money, whichever is greater.
 
20 Interest on class "D" loans shall not be less than three per cent
 
21 a year."
 
22      SECTION 10.  Section 155-9, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
Page 17                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      "155-9 Classes of loans; purposes, terms, eligibility.
 
 2 (a)  Loans made under this chapter shall be for the purposes and
 
 3 in accordance with the terms specified in classes "A" through "F"
 
 4 in this section and shall be made only to applicants who meet the
 
 5 eligibility requirements specified therein and except as to class
 
 6 "B" loans to associations and class "E" loans, the eligibility
 
 7 requirements specified in section 155-10.  The maximum amount of
 
 8 a loan for class "A", "C", "D", and "F" loans to an individual
 
 9 applicant shall also apply to any loan application submitted by a
 
10 partnership, corporation, or other entity, and for the purpose of
 
11 determining whether the maximum loan amount to any individual
 
12 will be exceeded, outstanding loans to any partnership,
 
13 corporation, or other entity [in which such] that the individual
 
14 has a legal or equitable interest in excess of twenty per cent
 
15 shall be taken into account.
 
16      (b)  Class A:  Farm ownership and improvement loans shall
 
17 provide for:
 
18      (1)  The purchase or improvement of farm land;
 
19      (2)  The purchase, construction, or improvement of adequate
 
20           farm dwellings, and other essential farm buildings; and
 
21      (3)  The liquidation of indebtedness incurred for any of the
 
22           foregoing purposes.
 

 
 
 
Page 18                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      The loans shall be for an amount not to exceed $400,000 and
 
 2 for a term not to exceed forty years.  To be eligible, the
 
 3 applicant shall (A) derive, or present an acceptable plan to
 
 4 derive, a major portion of the applicant's income from and
 
 5 devote, or intend to devote, most of the applicant's time to
 
 6 farming operations; and (B) have or be able to obtain the
 
 7 operating capital, including livestock and equipment, needed to
 
 8 successfully operate the applicant's farm.
 
 9      (c)  Class B:  Soil and water conservation loans shall
 
10 provide for:
 
11      (1)  Soil conservation practices;
 
12      (2)  Water development, conservation, and use;
 
13      (3)  Drainage; and
 
14      (4)  The liquidation of indebtedness incurred for any of the
 
15           foregoing purposes.
 
16      The loans shall be for an amount not to exceed $35,000 to an
 
17 individual or $200,000 to an association and shall be for a term
 
18 not to exceed twenty years for a loan to an individual and forty
 
19 years to an association.  To be eligible, an individual applicant
 
20 shall have sufficient farm and other income to pay for farm
 
21 operating and living expenses and to meet payments on the
 
22 applicant's existing debts, including the proposed soil and water
 
23 conservation loan.  An association, to be eligible, shall be a
 

 
Page 19                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 nonprofit organization primarily engaged in extending services
 
 2 directly related to the purposes of the loan to its members, and
 
 3 at least sixty per cent of its membership shall meet the
 
 4 eligibility requirements specified in section 155-10.
 
 5      (d)  Class C:  Farm operating loans shall be for the purpose
 
 6 of carrying on and improving a farming operation, including:
 
 7      (1)  The purchase of farm equipment and livestock;
 
 8      (2)  The payment of production and marketing expenses
 
 9           including materials, labor, and services;
 
10      (3)  The payment of living expenses;
 
11      (4)  The liquidation of indebtedness incurred for any of the
 
12           foregoing purposes; and
 
13      (5)  The exportation of crops and livestock.
 
14      The loans shall be for an amount not to exceed $400,000 and
 
15 for a term not to exceed ten years.  To be eligible, an applicant
 
16 shall derive, or present an acceptable plan to derive, a major
 
17 portion of the applicant's income from and devote, or intend to
 
18 devote, most of the applicant's time to farming operations.
 
19      Qualified farmers affected by state eradication programs may
 
20 also be eligible for loans under this subsection.  Loans made for
 
21 rehabilitation from eradication programs shall be subject to the
 
22 terms of class "C" loans; provided that the interest rate shall
 
23 be three per cent a year and the requirements in section 155-3
 
24 shall be waived and paragraph (4) shall not apply.
 

 
Page 20                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (e)  Class D:  Emergency loans shall be for the purpose of
 
 2 providing relief and rehabilitation to qualified farmers without
 
 3 limit as to purpose:
 
 4      (1)  In areas stricken by extraordinary rainstorms,
 
 5           windstorms, droughts, tidal waves, earthquakes,
 
 6           volcanic eruptions, and other natural catastrophes;
 
 7      (2)  On farms stricken by livestock disease epidemics and
 
 8           crop blights;
 
 9      (3)  On farms seriously affected by prolonged shipping and
 
10           dock strikes;
 
11      (4)  During economic emergencies caused by overproduction,
 
12           excessive imports, and the like; and
 
13      (5)  During other emergencies as determined by the board of
 
14           agriculture.
 
15      The maximum amounts and period for the loans shall be
 
16 determined by the board of agriculture; provided that the board
 
17 shall require that any settlement or moneys received by qualified
 
18 farmers as a result of an emergency declared under this section
 
19 shall first be applied to the repayment of an emergency loan made
 
20 under this chapter.
 
21      (f)  Class E:  Loans to farmers' cooperatives [and],
 
22 corporations, and food manufacturers shall provide credit to
 
23 [farmers' cooperative associations and corporations] entities
 

 
Page 21                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 engaged in marketing, purchasing, and processing, and providing
 
 2 farm business services, including:
 
 3      (1)  Facility loans to purchase or improve land, building,
 
 4           and equipment for an amount not to exceed $500,000 and
 
 5           a term not to exceed twenty years;
 
 6      (2)  Operating loans to finance inventories of supplies[,]
 
 7           and materials, warehousing, and shipping commodities,
 
 8           extension of consumer credit to justified farmer-
 
 9           members, and other normal operating expenses for an
 
10           amount not to exceed $300,000 and a term not to exceed
 
11           seven years; and
 
12      (3)  The exportation of crops and livestock.
 
13      To be eligible, a farmers' cooperative or corporation shall
 
14 have a majority of its board of directors and a majority of its
 
15 membership as shareholders who meet the eligibility requirements
 
16 of section 155-10 and who devote most of their time to farming
 
17 operations, and the facility loans shall be for an amount not to
 
18 exceed $500,000 or eighty per cent of the cost of the project,
 
19 whichever is the lesser.
 
20      To be eligible, a food manufacturer shall be licensed to do
 
21 business in the State, and the controlling interest of the entity
 
22 shall possess a minimum of two years of relevant processing or
 
23 manufacturing experience as acceptable to the department of
 

 
Page 22                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 agriculture.  The entity shall process Hawaii-grown agricultural
 
 2 products or use Hawaii-grown agricultural products as an
 
 3 ingredient in the manufacturing process.  Facility loans shall be
 
 4 for an amount not to exceed $500,000 or eighty per cent of the
 
 5 cost of the project, whichever is the lesser.  The requirements
 
 6 in section 155-10 shall be waived for food manufacturing loans;
 
 7 however, the entity shall be a sound credit risk with the ability
 
 8 to repay the money borrowed.
 
 9      (g)  Class F:  Loans for new farmer programs shall provide
 
10 for costs of a new farm enterprise for qualified new farmers:
 
11      (1)  Initial loans made under this class shall be for
 
12           purposes and in accordance with the terms specified in
 
13           [classes] class "A" and "C" only, and shall be made
 
14           only for full-time farming.  The loans shall be made
 
15           for an amount not to exceed $100,000 or eighty-five per
 
16           cent of the cost of the project, whichever is the
 
17           lesser;
 
18      (2)  Any subsequent loan shall be made from classes "A" to
 
19           "D", respectively, depending upon the purpose for which
 
20           the loan funds are used; and
 
21      (3)  Borrowers shall comply with [such] special term loan
 
22           agreements as may be required by the department and
 
23           shall take [such] special training courses as the
 
24           department deems necessary.
 

 
Page 23                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (h)  Class G:  Loans to part-time farmers shall be for farm
 
 2 improvement and operating purposes for carrying on and improving
 
 3 farming operations, including loans for:
 
 4      (1)  The purchase, construction, and improvement of farm
 
 5           production and growing structures;
 
 6      (2)  The purchase of farm equipment or livestock; and
 
 7      (3)  The payment of production and marketing expenses,
 
 8           including materials, labor, and services.
 
 9      The liquidation of indebtedness incurred for any of the
 
10 purposes under this subsection and for living expenses shall not
 
11 be authorized purposes.  Each loan shall be for an amount not to
 
12 exceed $25,000 and for a term not to exceed ten years."
 
13      SECTION 11.  Section 155-10, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "155-10  General eligibility requirements for loans.  To be
 
16 eligible for loans under this chapter, an applicant shall be:
 
17      (1)  A qualified farmer, [or] a person under the new farmer
 
18           program[;], or a part-time farmer;
 
19      (2)  A citizen of the United States who has resided in the
 
20           State for at least three years, or any permanent
 
21           resident alien who has resided in the State for at
 
22           least [five] three years; provided that this
 
23           requirement shall not apply to applicants for class "D"
 

 
Page 24                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           loans who otherwise qualify.  In the case of
 
 2           partnerships and corporations, the residence
 
 3           requirement must be met by seventy-five per cent of the
 
 4           members or stockholders;
 
 5      (3)  A sound credit risk with the ability to repay the money
 
 6           borrowed; and
 
 7      (4)  Willing to carry out recommended farm management
 
 8           practices."
 
 9      SECTION 12.  Section 155-11, Hawaii Revised Statutes, is
 
10 amended as follows:
 
11      1.  By amending subsection (a) to read:
 
12      "(a)  Loans made under this chapter [shall] may be secured
 
13 by duly recorded first mortgages upon the following property
 
14 within the State:
 
15      (1)  Fee simple [farm] land;
 
16      (2)  Leaseholds of [farm] land where the lease has an
 
17           unexpired term at least two years longer than the term
 
18           of the loan;
 
19      (3)  Crops, livestock, and equipment; and
 
20      (4)  Other chattels."
 
21      2.  By amending subsection (e) to read:
 
22      "(e)  In case of the sale or transfer of the mortgaged land
 
23 or goods [in which] that the department has a security interest,
 

 
Page 25                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 as that term is defined in section 490:1-201(37), the department
 
 2 may permit the mortgage or encumbrance to be assumed by the
 
 3 purchaser.  In case of the death of the borrower, the borrower's
 
 4 heir or heirs, or the borrower's legal representative or
 
 5 representatives, shall have the option within six months of the
 
 6 death to assume the mortgage of the deceased.  The department or
 
 7 its agents may, pending the exercise of the option and pending
 
 8 possession being taken by the heirs or representatives, take
 
 9 possession of all mortgaged property and carry on the
 
10 [agricultural] operation connected therewith, and the expense of
 
11 the same shall be added to the principal due upon the mortgage to
 
12 bear interest at the applicable rate."
 
13      SECTION 13.  Section 155-12, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "155-12  Conditions.  Every borrower who is granted a loan
 
16 under this chapter shall comply with the following conditions:
 
17      (1)  Expend no portion of the borrower's loan for purposes
 
18           other than those sanctioned by the department of
 
19           agriculture[.];
 
20      (2)  Carry out recommended [farm] management practices,
 
21           including the keeping of proper records[.];
 
22      (3)  Not sell or otherwise dispose of the mortgaged property
 
23           except on written consent of the lender, and except
 

 
Page 26                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           upon [such] conditions as may be prescribed in writing
 
 2           by the lender[.];
 
 3      (4)  Undertake to pay, when due, all taxes, liens,
 
 4           judgments, or assessments [which] that may be lawfully
 
 5           assessed against the property mortgaged, together with
 
 6           the costs and expense of any foreclosure of [such] the
 
 7           mortgage[.];
 
 8      (5)  Keep insured to the satisfaction of the department all
 
 9           buildings and other insurable property covered by the
 
10           mortgage.  Insurance shall be made payable to the
 
11           mortgagee as its interests may appear at the time of
 
12           the loss.  At the option of the lender, and subject to
 
13           the general regulations of the department, sums so
 
14           received may be used to pay for reconstruction of the
 
15           buildings destroyed, or for decreasing the amount of
 
16           the indebtedness[.];
 
17      (6)  Keep buildings in good repair; provide proper care for
 
18           improvements, stock, and implements; keep land free
 
19           from noxious weeds; and practice good systems of
 
20           husbandry[.];
 
21      (7)  All of the above conditions shall be held and construed
 
22           to be a provision of any mortgage executed by virtue of
 
23           this chapter whether appearing as a provision of the
 
24           mortgage or not[.]; and
 

 
Page 27                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (8)  If the borrower is in default in respect to the above
 
 2           conditions, or any other conditions, or any other
 
 3           condition or covenant of the mortgage, the whole of the
 
 4           loan shall, at the option of the lender become due and
 
 5           payable forthwith.  The lender may, with or without
 
 6           notice, take possession of the mortgaged property
 
 7           pending a foreclosure and may carry on [agricultural]
 
 8           the business pursuits upon the mortgaged premises,
 
 9           expending all reasonable sums therefor.  [Such] The
 
10           sums shall be a lien on the mortgaged premises and be
 
11           recoverable in any foreclosure proceedings or
 
12           otherwise.  The lender may foreclose the mortgage by
 
13           any method provided for by law."
 
14      SECTION 14.  Section 171-14.5, Hawaii Revised Statutes, is
 
15 amended by amending subsection (b) to read as follows:
 
16      "(b)  Any other law to the contrary notwithstanding, to be
 
17 eligible to bid in an auction for agricultural or pasture leases,
 
18 a potential bidder shall be a bona fide individual farmer or a
 
19 nonindividual farm concern:
 
20      (1)  Who has spent not less than two years, full-time, in
 
21           farming operations; [or]
 
22      (2)  Who is an owner-operator of an established farm
 
23           conducting a substantial farming operation; [or]
 

 
Page 28                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (3)  Who for a substantial period of the individual's adult
 
 2           life resided on a farm and depended on farm income for
 
 3           a livelihood; [or]
 
 4      (4)  Who is an individual who has been a farm tenant or farm
 
 5           laborer or other individual, who has for the two years
 
 6           last preceding the auction obtained the major portion
 
 7           of their income from farming operations; [or]
 
 8      (5)  Is an individual with a college degree in agriculture;
 
 9           [or]
 
10      (6)  Is an individual who by reason of ability, experience,
 
11           and training as a vocational trainee is likely to
 
12           successfully operate a farm; [or]
 
13      (7)  Who has qualified for and received a commitment for a
 
14           loan under the Bankhead-Jones Farm Tenant Act as
 
15           amended, or as may hereafter be amended, for the
 
16           acquisition of a farm; [or]
 
17      (8)  Who is an individual who is displaced from employment
 
18           in an agricultural production enterprise; [or]
 
19      (9)  Who is a member of the Hawaii Young Farmer Association
 
20           or a Future Farmer of America graduate with two years
 
21           of training with farming projects; [or]
 
22   (10)  Who possesses the qualifications under the new farmer
 
23           program pursuant to section [155-1(3)] 155-1; or
 

 
Page 29                                                    2996
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1   (11)  Who possesses [such] other qualifications as the board
 
 2           of land and natural resources may prescribe pursuant to
 
 3           section 171-6 and this section."
 
 4      SECTION 15.  Statutory material to be repealed is bracketed.
 
 5 New statutory material is underscored.
 
 6      SECTION 16.  This Act shall take effect upon its approval.