Report Title:

Loan Guaranty for Agriculture; Important Agricultural Land



Allows the Director of Finance to guarantee loans made to agricultural producers for agricultural projects on important agricultural lands.



S.B. NO.














relating to important agricultural lands loan guaranty.





SECTION 1. In 1978, voters approved Article XI, section 3, of the Constitution of the State of Hawaii. This section laid out the framework for state policies to promote agriculture and conserve productive agricultural lands in the state. Article XI, section 3, reads as follows:

"The State shall conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self-sufficiency and assure the availability of agriculturally suitable lands. The legislature shall provide standards and criteria to accomplish the foregoing.

Lands identified by the State as important agricultural lands needed to fulfill the purposes above shall not be reclassified by the State or rezoned by its political subdivisions without meeting the standards and criteria established by the legislature and approved by a two-thirds vote of the body responsible for the reclassification or rezoning action."

To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii, was enacted. Act 183 establishes standards, criteria, and mechanisms to identify important agricultural lands and implement the intent and purpose of Article XI, section 3, of the State Constitution.

Act 183 also recognized that while the supply of lands suitable for agriculture is critical, the long-term viability of agriculture depends on other factors as well. These factors include:

(1) Commodity prices;

(2) Availability of water and irrigation;

(3) Agricultural research and outreach;

(4) Application of production technologies;

(5) Marketing; and

(6) Availability and cost of transportation services.

Financing is a critical component of the long-term viability of agriculture on important agricultural lands in the state. The legislature finds that it is in the public interest to assist agricultural producers in meeting their financing needs for projects that are located in important agricultural lands.

The purpose of this Act is to further the implementation of Act 183 by:

(1) Authorizing the director of finance to guaranty loans relating to agricultural projects located on important agricultural lands; and

(2) Declaring that the substance of this Act establishes incentives and protections for important agricultural lands as contemplated by section 9 of Act 183, which effectuates the land use commission's authorization to designate lands as important agricultural lands and adopt maps therefor pursuant to section 205-49d.

SECTION 2. Chapter 36, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"36-     Loan guaranty; important agricultural lands; agricultural and aquacultural loans. (a) The director of finance may guarantee loans made by commercial lenders, authorized to do business in this state, to agricultural producers for the purpose of developing and implementing agricultural projects; provided that the director of finance determines that:

(1) The agricultural projects are located on lands designated as important agricultural lands pursuant to part III of chapter 205;

(2) The commercial lender has completed its due diligence in approving the loan, including ensuring adequate collateral; and

(3) The State possesses sufficient funds to provide an appropriate reserve for the loan guaranty and which, in the director's judgment, are in excess of the amounts necessary for meeting the immediate requirements of the State and will not impede or hamper the fulfillment of the financial obligations of the State.

The director of finance may impose other conditions as is deemed reasonable to implement the loan guaranty.

(b) In addition to the conditions that the director of finance may impose under subsection (a), any loan guaranty made pursuant to this section shall meet the following conditions:

(1) For a loan that finances operating costs, the maximum term of the loan shall be ten years;

(2) For a loan that finances capital improvement costs, the maximum term of the loan shall be twenty years;

(3) The interest rate charged on the loan shall be one per cent below the commercial lender's prime rate for as long as the loan guaranty is in effect;

(4) The loan guaranty may be up to one hundred per cent of the principal amount of the loan, but shall not include any fees or accrued interest associated with the loan or its collection.

(c) Subject to chapter 91, the director of finance shall adopt rules to effectuate the purposes of this section.

(d) As used in this section:

"Agricultural producer" means a farmer, cooperative, association, or landowner who derives at least fifty per cent of its gross income from agricultural or aquacultural activities.

"Agricultural projects" means projects relating to agricultural or aquacultural operations or capital improvements."

SECTION 3. New statutory material is underscored.



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