Report Title:

Municipal Leases; Lease/Leaseback Transactions

Description:

Allows the counties to lease, for a term not to exceed 99 years, any plant or equipment of any waterworks, mains, or water distribution system or any related real or personal property; or any wastewater, sewer, or other waste disposal system and any related real and personal property for the collection, treatment, purification, and disposal of sewage. Allows the proceeds of any lease to be invested. (SB1477 HD2)

THE SENATE

S.B. NO.

1477

TWENTY-SECOND LEGISLATURE, 2003

S.D. 2

STATE OF HAWAII

H.D. 2


 

A BILL FOR AN ACT

 

relating to municipal leases.

 

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

SECTION 1. The legislature finds and determines that:

(1) Municipal governments and other public entities throughout the country have been able to benefit substantially from the long-term lease/leaseback of their assets in which they receive a significant cash benefit;

(2) In these lease/leaseback transactions, title to the assets remains with the public entity and the public entity retains complete operating control and the responsibility for maintenance and repair of the assets throughout the term of the lease; and

(3) Counties in the State that determine that participating in such a transaction would be in the best interests of the county should be authorized to enter into such transactions in an economical manner.

The purpose of this Act is to authorize the counties to participate in these lease/leaseback transactions, to invest the proceeds of the lease in such a manner as to accomplish a defeasance of the leaseback obligations at the outset of the transaction, and to exempt the transaction from taxes, fees, and charges, which might otherwise apply to the transaction and thus reduce or eliminate its economic benefit to the counties.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

County lease and leaseback agreements

-1 Definitions. Unless the context requires otherwise, as used in this chapter:

"County" or "counties" means the city and county of Honolulu, the county of Hawaii, the county of Kauai, and the county of Maui and their respective boards, departments, and commissions.

"Lease" means, when used with respect to municipal facilities, any lease, sublease, leaseback agreement, or other contract, agreement, instrument, or arrangement pursuant to which any rights, interest, or property with respect to municipal facilities are transferred to, by, or from any party to, by, or from one or more parties and any related documentation, instruments, or arrangements entered into or to be entered into in connection therewith or ancillary thereto, including, without limitation, support and operating agreements, service agreements, indemnity agreements, participation agreements, loan agreements, or payment undertaking agreements.

"Municipal facility" means all of or any part of, or an undivided or other interest in:

(1) Any utility property; or

(2) Any other land, buildings, improvements, or capital equipment, and any property or other rights or interests ancillary or related thereto, whether owned, used, or leased by or from a county, or to be owned, used, or leased by or from a county, or useful to a county.

"Permitted investment" means any investment authorized by chapter 46, together with:

(1) Collateralized or noncollateralized obligations of, or any other payment undertaking, deposit, or other agreement of, any bank or savings institution, investment banking firm or organization, financial institution, insurance company, bank, or insurance holding company (or any subsidiary or affiliate of any of the foregoing), whether organized under the laws of the United States of America, any state or territory thereof, or the laws of any foreign nation, if the rating at the time the investments are acquired, the senior debt or claims paying ability of the person or entity is rated in, or the person or entity has its obligations in respect of the investments guaranteed or supported by a person or entity, the senior debt or claims paying ability of which is rated in, or whose obligation in respect of the investments are secured by bonds, notes, or other financial obligations issued by issuers rated in, the highest three basic rating classifications (without regard to any numerical or other modifiers to indicate relative standing within the basic rating classifications) by at least one nationally recognized rating service;

(2) Any bonds, notes, or other obligations of any state or territory of the United States of America or any political subdivision thereof or any agency, authority, or other instrumentality of the United States of America or any state, territory, or political subdivision thereof, if at the time the investments are acquired in bonds, notes, or other obligations are rated in, or the obligations in respect of the investments are guaranteed or supported by a person or entity, the senior debt or claims paying ability of which is rated in, the three highest basic rating classifications (without regard to any numerical or other modifiers to indicate relative standing within the basic rating classifications) established by at least one nationally recognized rating service; or

(3) Any bonds, notes, or other obligations of the State; provided further that the term of any such investment may be up to, but not in excess of, the term of any lease permitted by this chapter.

"Person" means any natural person, firm, partnership, limited liability company, association, corporation, nonprofit corporation, trust, grantor trust, business trust, or public entity.

"Support and operating agreement" means any contract, agreement, or other arrangement pursuant to which a party agrees with another party to make certain municipal facilities, or rights with respect thereto or in collection therewith, available to such other party and which agreement may provide for the imposition of fees, rates, or charges for the use or operation of or receipt of services from municipal facilities.

"Utility" means any system or part of a system of waterworks, wastewater, sewage, or other waste disposal owned by a county.

"Utility property" means all or any part of any land, buildings, improvements, or capital equipment, any property or rights ancillary or related thereto comprising a utility, including any extensions, additions, improvements, or appurtenances to any such utility or combination of systems, and any interest in any of the foregoing, including water rights and disposal rights, whether owned, leased, or used by, to, or from a county, or any other public entity, or useful to a county or public entity, including, without limitation, as to which a county or public entity has arranged a service agreement.

-2 Powers of the counties. (a) Any provision of law to the contrary notwithstanding, any county may lease to any person, for a term not to exceed ninety-nine years, and may lease back from such person, all or a portion of the property constituting the utility property of a utility owned by it, including without limitation, the plant or equipment constituting:

(1) Any waterworks, mains, or water distribution system and any real or personal property related thereto; and

(2) Any wastewater, sewer, or other waste disposal system and all related real and personal property for the collection, treatment, purification, and disposal in a sanitary manner of sewage.

(b) The county may include in the leases, any of the following provisions:

(1) In leases, options for the county to purchase the property subject to the lease or the lessor's interest therein, provisions for the deferred payment or prepayment by lessee or lessor of rent, provisions for designating a portion of the periodic payments to be made thereunder as interest, net of all other costs and expenses of ownership, operation, maintenance, and insurance of the leased property by the county as agent of the lessor; and

(2) In leaseback contracts or leaseback contracts with buyout options, provisions of the type specified in paragraph (1), and provisions for designating a portion of the periodic payments to be made thereunder as interest, for prepayment, and for acquisition of unencumbered title or fee title to the property subject to the contract.

(c) Any lease entered into pursuant to this chapter shall be exempt from the requirements of chapter 103D.

(d) Any utility subject to a lease entered into pursuant to this chapter and operated by a county shall be exempt from the provisions of chapters 239 and 269.

(e) Any proceeds received by a county as a result of entering into a lease pursuant to this chapter may be invested in any permitted investment. The rent, income, or other proceeds derived by a county from any lease or investment entered into pursuant to this chapter may be used for any purpose.

(f) Any lease obligations of a county under a lease entered into pursuant to this chapter shall not be treated as "funded debt" within the meaning of article VII, section 13 of the State Constitution if funds for the payment in full of such obligations are provided for by the deposit of permitted investments in an escrow account provided therefor.

-3 Provisions of leases. Any lease entered into pursuant to section -2 may contain terms and conditions as the parties under the lease may stipulate and as authorized by an ordinance of the respective county."

SECTION 3. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 4. This Act shall take effect upon its approval.