STAND. COM. REP. 913

Honolulu, Hawaii

, 2003

RE: S.B. No. 1477

S.D. 2

H.D. 1

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Water, Land Use, and Hawaiian Affairs, to which was referred S.B. No. 1477, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO MUNICIPAL LEASES,"

begs leave to report as follows:

The purpose of this bill is to provide the counties with a means of obtaining cash benefits in exchange for entering into a lease/leaseback transaction with a private entity involving county wastewater, waste disposal, and water distribution systems.

The County of Maui and Allco Finance Company testified in support of this measure. The County of Hawaii also supported this measure with amendments. The Department of the Attorney General, Department of Health, and Department of Taxation offered comments.

Under this bill, a county may grant a long-term lease in its waterworks, wastewater, sewer, or other waste disposal system to a private entity. The county would then immediately lease the system back under a shorter lease term. Under this arrangement, legal title to the system would remain with the county, and it would retain full responsibility for operating the system. Upon the execution of the long-term lease, the private entity would make a one-time payment to the county representing the fair market value of the system. The county would then deposit the majority of the payment into a defeasance deposit which is a form of a guaranteed investment contract. The defeasance deposit would automatically make all of the leaseback rent payments to the private entity over the entire leaseback period. The county would then determine how to use the remainder of the one-time payment which may comprise three to four percent of the fair market value of the system. The primary incentive for the private entity is that the income from the lease/leaseback transactions would be exempt from state or county taxes.

Your Committee has amended this bill by clarifying that the exemption from taxation excludes the payment of loan fees and charges adopted under chapters 340E (Drinking Water Treatment Revolving Loan Fund) and 342D (Water Pollution Control Revolving Fund), Hawaii Revised Statutes (HRS). Without this amendment, the counties may lose federal funding for not complying with the provisions of the Federal Clean Water Act and the Federal Safe Drinking Water Act.

Other amendments to this bill include:

(1) Adding county boards, departments, and commissions as part of the definition of "county" or "counties";

(2) Clarifying that the authority to lease also includes a leaseback option;

(3) Clarifying that the counties' revenues from assets subject to leases not be inadvertently subject to the public service company tax of chapter 239, HRS; and

(4) Making technical, nonsubstantive amendments for the purpose of clarity.

As affirmed by the record of votes of the members of your Committee on Water, Land Use, and Hawaiian Affairs that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1477, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1477, S.D. 2, H.D. 1, and be referred to the Committee on Judiciary.

 

Respectfully submitted on behalf of the members of the Committee on Water, Land Use, and Hawaiian Affairs,

 

____________________________

THOMAS WATERS, Acting Chair