Report Title:

State Funds; Linked Investments


Allows director of finance to invest up to 10% of state short-term investment moneys in linked investments. Sets procedures. Caps loans to $      . Limits uses of such loans. Restricts eligible borrowers to an entrepreneur in the State.


H.B. NO.









relating to management of state funds.



SECTION 1. Chapter 36, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

"36-A Linked investments; limitations. (a) A linked investment is a certificate of deposit placed with an eligible lending institution at an interest rate not more than two per cent below current market rates; provided that the eligible lending institution agrees to lend the value of the deposit to an eligible borrower at a rate not more than the prime rate or seven and one-half per cent a year, whichever is lower. A linked investment certificate of deposit shall:

(1) Earn a rate of interest of not less than two per cent per annum;

(2) Not be subject to a penalty for early withdrawal; and

(3) Have a maturity of one year for the initial linked investment, which may be renewed for eight additional one-year periods.

(b) The director of finance may invest not more than ten per cent of any moneys that are maintained in the custody of the director of finance for investment and reinvestment under section 36-21 in linked investments through agreements with eligible lending institutions.

(c) As used in this chapter:

"Eligible borrower" means a person or enterprise who is or proposes to be engaged in a business as an entrepreneur by organizing, managing, and assuming the risks of a business or enterprise, and whose principal place of business is in the State of Hawaii, and who is certified by an eligible lending institution.

"Eligible lending institution" means any federally insured national or state bank, savings and loan association, or financial services loan company or federal or state credit union insured by the national credit union administration authorized to do business in this State and entering into an agreement with the director of finance to receive linked investments.

36-B Linked investments; application; authorization. (a) An eligible lending institution shall accept and review applications for loans, determine that the applicants are eligible borrowers, and prepare a linked investment loan package in the form and manner prescribed by the director of finance. The loan package shall include information on the amount of the loan requested, the purpose of the loan, and the institution's certification that the applicant is an eligible borrower.

(b) The director of finance shall accept or reject the linked investment loan package or any portion of the package based on the availability of state funds.

(c) Upon acceptance of the linked investment loan package, the director of finance shall place a certificate of deposit for the loan amount with the eligible financial institution.

36-C Loans. (a) Each separate loan made through linked investments shall not exceed the amount of         .

(b) Loans made through linked investments may be used for the financing of plant construction or expansion, the purchase of equipment and materials, and working capital. Loans made through linked investments shall not be used for the purchase of real property."

SECTION 2. Section 36-21, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The director of finance may invest any moneys of the State which in the director's judgment are in excess of the amounts necessary for meeting the immediate requirements of the State and where in the director's judgment the action will not impede or hamper the necessary financial operations of the State in:

(1) Any bonds or interest-bearing notes or obligations:

(A) Of the State (including state director of finance's warrant notes issued pursuant to chapter 40);

(B) Of the United States;

(C) For which the faith and credit of the United States are pledged for the payment of principal and interest;

(2) Federal Farm Credit System notes and bonds;

(3) Federal Agricultural Mortgage Corporation notes and bonds;

(4) Federal Home Loan Bank notes and bonds;

(5) Federal Home Loan Mortgage Corporation bonds;

(6) Federal National Mortgage Association notes and bonds;

(7) Student Loan Marketing Association notes and bonds;

(8) Tennessee Valley Authority notes and bonds;

(9) Securities of a mutual fund whose portfolio is limited to bonds or securities issued or guaranteed by the United States or an agency thereof or repurchase agreements fully collateralized by any such bonds or securities;

(10) Securities of a money market mutual fund that is rated AAA, or its equivalent, by a nationally recognized rating agency or whose portfolio consists of securities that are rated as first tier securities by a nationally recognized statistical rating organization as provided in 17 Code of Federal Regulations section 270.2a-7;

(11) Federally insured savings accounts;

(12) Time certificates of deposit;

(13) Certificates of deposit open account;

(14) Repurchase agreements with federally insured banks, savings and loan associations, and financial services loan companies;

(15) Student loan resource securities including:

(A) Student loan auction rate securities;

(B) Student loan asset-backed notes;

(C) Student loan program revenue notes and bonds; and

(D) Securities issued pursuant to Rule 144A of the Securities Act of 1933, including any private placement issues;

issued with either bond insurance or overcollateralization guaranteed by the United States Department of Education; provided all insurers maintain a triple-A rating by Standard & Poor's, Moody's, Duff & Phelps, Fitch, or any other major national securities rating agency;

(16) Commercial paper with an A1/P1 or equivalent rating by any national securities rating service; [and]

(17) Bankers' acceptances with an A1/P1 or equivalent rating by any national securities rating service; and

(18) Linked investments established under sections 36-A through 36C;

provided that the investments are due to mature not more than five years from the date of investment. Income derived from those investments shall be a realization of the general fund; provided that income earned from moneys invested by the general funds, special funds, bond funds, and trust and agency funds on an investment pool basis shall be paid into and credited to the respective funds based on the contribution of moneys into the investment pool by each fund. As used in this section, "investment pool" means the aggregate of state treasury moneys that are maintained in the custody of the director of finance for investment and reinvestment without regard to fund designation."

SECTION 3. In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2004.