Report Title:

Interisland Shipping; Loans; Encourage Marketplace Competition

Description:

Requires the department of business, economic development, and tourism to guarantee loans from private lending institutions to assist new and existing Hawaii water carriers and to propose other ways to encourage interisland shipping competition.

THE SENATE

S.B. NO.

1539

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to Water Carriers.

 

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

SECTION 1. The legislature finds that water transportation is uniquely important to the people of Hawaii. The construction of surface transportation systems linking the various islands of Hawaii on the comprehensive basis that prevails elsewhere in the United States is impractical. Accordingly, the people of Hawaii must rely extensively on water transportation for the shipment of goods that are important to their daily lives. Similarly, business and industry in the State rely heavily on water carriers for the transportation of their goods between the various islands. This makes reliable water transportation among the islands of the State vital to the health and growth of the State's economy.

The legislature finds that there is a need to encourage greater competition in the interisland shipping industry, particularly by encouraging new businesses to enter the marketplace. One significant way to accomplish this goal is by providing financial assistance for new and existing companies through the creation of a loan guarantee by the State to assist Hawaii interisland water carriers when other resources are not available and loans from private lending institutions can be secured only with a guarantee from the State.

The legislature finds that the issuance of loan guarantees under this Act is in the public interest and for the public health, safety, and general welfare of the State. The purpose of this Act is to encourage competition among Hawaii interisland water carriers by:

(1) Authorizing the department of business, economic development, and tourism, through its director, to guarantee loans from private lending institutions to assist Hawaii water carriers; and

(2) In consultation with the public utilities commission and the department of transportation, propose other ways to ease regulations and encourage marketplace competition in the interisland shipping industry, particularly to encourage companies that are not currently doing business in Hawaii to enter the interisland shipping marketplace to compete with existing Hawaii companies.

SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part . hAWAII WATER CARRIER LOAN GUARANTEE PROGRAM

§201-A Definitions. As used in this part, unless the context clearly requires otherwise:

"Trust fund" means the Hawaii water carriers loan guarantee trust fund established in section 201-C.

"Water carrier" has the same meaning as defined in section 271G-5, and includes a person who seeks to become a common carrier by water in Hawaii.

§201-B Loans guaranteed by the department. (a) The department, through its director, may guarantee up to ninety per cent of the principal balance of a loan made by a private lending institution to a Hawaii water carrier providing the carriage of persons or property by water for compensation or hire between any two points, both of which are within the State; provided that at no time shall the aggregate amount of the State's liability, contingent or otherwise, on loans guaranteed by this section exceed $      .

(b) The loan guarantee shall be for a term of not more than         years.

(c) All loans guaranteed under this section shall be collateralized on a basis at least equal to the outstanding balance of the loan guaranteed; provided that, as part of the collateral, the Hawaii water carrier shall deposit, in cash, an amount equal to        per cent of the principal balance of the loan into the Hawaii water carrier loan trust fund to be held by the State in an interest bearing account. The balance of the collateral shall be in the form of real property interests or other marketable assets as may be approved by the director. The collateral shall not be subject to a buyback or re-stock agreement such that the value of the collateral or method of securing payment from the collateral shall be guaranteed.

(d) A loan guarantee shall be considered only when there is evidence that the loan is not available from other sources. The loan shall be deemed to be available, unless the Hawaii water carrier provides satisfactory proof to the director of refusal of all or a part of the required loan from at least two financial institutions. Proof of refusal shall contain the date of application, amount, purpose, and the financial institutions' reasons for not granting the desired loan.

(e) The department shall conduct a due diligence examination of the Hawaii water carrier applying for a loan guarantee. The department shall not approve a loan guarantee unless the applicant provides reasonable assurances that the loan can and will be repaid pursuant to its terms. Reasonable assurance of repayment shall be based upon consideration of the applicant's record of past earnings or projections of future earnings.

(f) The loan guarantee shall not be granted unless the Hawaii water carrier secures agreements from its principal creditors that the principal creditors shall withhold any collection actions that may result in the Hawaii water carrier ceasing operations for a minimum of two years from the effective date of the guarantee.

(g) Funds provided by the guaranteed loan may be used for working capital; provided that loan guarantees shall not be granted if the direct or indirect purpose or result of granting the loan would be to:

(1) Satisfy debts arising prior to the effective date of the guarantee;

(2) Provide funds, directly or indirectly, for payment, distribution, or as a loan to owners, partners, or shareholders of the borrower;

(3) Provide funds for wage or salary increases; or

(4) Replenish funds heretofore used for any of these purposes in anticipation of applying for a loan guarantee under this section.

(h) The department may set additional terms and conditions on the granting of the loan guarantee. When the application for a guaranteed loan has been approved by the department, the department shall issue to the lender a guarantee for the percentage of the loan guaranteed. The lender shall collect all payments from the borrower and otherwise service the loan.

(i) Loan guarantees shall not be granted unless the carrier raises new equity equal to the amount of the guarantee in a form acceptable to the department.

(j) In return for the department's guarantee, the lender, out of interest collected, shall remit a guarantee fee on the unpaid principal balance of the guaranteed portion of the loan to the State; provided that this fee shall not be added to any amount that the borrower is obligated to pay. The department shall determine the amount of the guarantee fee.

(k) The applicant shall:

(1) Expend the loan in accordance with this part;

(2) Keep the department informed of any changes in the security and other major changes in the carrier's operation; and

(3) Provide promptly any information and documents to the department upon request.

(l) Upon retirement of the loan or under other conditions satisfactory to the director, the deposit made into the trust fund by the Hawaii water carrier shall be returned to the Hawaii water carrier in accordance with the terms of the agreement with the carrier.

In the event of a default by the Hawaii water carrier, the lender shall notify the department of the default and shall be entitled to receive all moneys deposited into the trust fund by the Hawaii water carrier. The lender shall commence all actions necessary to protect or enforce its rights to the properties used as collateral to secure the loan guarantee and shall prosecute actions to the fullest extent available under law.

(m) During the life of a loan guarantee, the carrier shall submit to the department audited annual financial statements consisting of a balance sheet, income statement, and a statement of cash flows. These reports shall be submitted no later than four months after the close of the carrier's fiscal year. The department may require the carrier to file interim financial statements and reports as deemed necessary by the director.

§201-C Hawaii water carriers loan guarantee trust fund. (a) There is created a trust fund in the state treasury, to be known as the Hawaii water carriers loan guarantee trust fund, that shall serve as the reserve for all loans guaranteed under this part.

(b) The Hawaii water carrier shall deposit in cash an amount equal to per cent of the principal balance of the loan guaranteed under this Act into the trust fund. This sum, when and if necessary, shall be expended by the department for the purposes of this part."

SECTION 3. The department of business, economic development, and tourism, in consultation with the public utilities commission and the department of transportation, shall:

(1) Review the effect of the Hawaii water carrier loan guarantee program established by section 2 of this Act on the interisland shipping industry in this State;

(2) Propose ways to reduce regulations and encourage marketplace competition in the interisland shipping industry, particularly to encourage companies that are not currently doing business in Hawaii to enter the interisland shipping marketplace to compete with existing Hawaii companies, including:

(A) Providing tax deductions or credits for new job creation;

(B) Offering grants or other incentives;

(C) Limiting public utility commission regulations under chapter 271G, Hawaii Revised Statutes, including temporarily suspending fees and charges; and

(D) Reviewing other ways to reduce entry barriers and increase marketplace competition; and

(3) Report findings and recommendations, including any proposed implementing legislation, to the legislature no later than twenty days before the convening of the regular session of 2004.

SECTION 4. Pursuant to article VII, section 13, clause 8, of the state constitution, which states: "Bonds constituting instruments of indebtedness under which the State or any political subdivision incurs a contingent liability as a guarantor, but only to the extent the principal amount of such bonds does not exceed seven percent of the principal amount of outstanding general obligation bonds not otherwise excluded under this section; provided that the State or political subdivision shall establish and maintain a reserve in an amount in reasonable proportion to the outstanding loans guaranteed by the State or political subdivisions as provided by law", the legislature finds and declares that the moneys deposited into the Hawaii water carriers loan guarantee trust fund, pursuant to section 2 of this Act, satisfies the reasonable reserve requirement of the state constitution.

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ , or so much thereof as may be necessary for fiscal year 2003-2004, and the same sum, or so much thereof as may be necessary for fiscal year 2004-2005, to conduct due diligence examinations of any Hawaii water carrier applying for a loan guarantee from the State and to monitor, audit, and administer the Hawaii water carriers loan guarantee trust fund.

SECTION 6. The sums appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 7. The provisions of this Act shall be performed to the extent permissible under the United States Constitution and federal law without causing a violation of the United States Constitution, federal grant agreements, federal law, or federal regulations.

SECTION 8. In codifying the new sections added by section 2 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 9. This Act shall take effect on July 1, 2003; provided that this Act shall be repealed on June 30, 2008.

INTRODUCED BY:

_____________________________