HOUSE OF REPRESENTATIVES
TWENTY-SIXTH LEGISLATURE, 2011
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO PUBLIC FINANCE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:
CLEAN ECONOMY BANK OF THE STATE OF HAWAII
§ -1 Clean economy bank of the State of Hawaii established. (a) The clean economy bank of the State of Hawaii is established as an independent entity that shall not be a department, institution, agency, or instrumentality of the State. Neither the bank nor any of its functions, powers, or duties shall be transferred to or consolidated with any other department, agency, or corporation.
(b) The purposes of the clean economy bank of the State of Hawaii shall be to:
(1) Enable the State, along with other participating states, territories, and municipalities, to leverage aligned resources and collective influence to build a national clean economy that creates jobs, reduces carbon emissions, and ensures the United States' energy security;
(2) Support clean economic development within the State and within participating states, territories, and municipalities, by increasing access to capital for local governments, businesses, and nonprofit entities in partnership with local financial institutions;
(3) Lessen the burden on the State and other participating states, territories, and municipalities of financing qualified renewable energy, renewable energy transmission, energy efficiency, distributed generation, and oil-saving projects and technologies; zero- or low-carbon transportation; clean energy manufacturing; municipal water efficiency; municipal waste efficiency; job training for energy efficiency projects; and for other related purposes;
(4) Evaluate and coordinate financing for qualifying clean economy projects;
(5) Provide loans, loan guarantees, debt securitization, insurance, portfolio insurance, and other forms of financing support or risk management to qualified clean economy projects;
(6) Facilitate efficient tax equity markets for qualified clean economy projects;
(7) Facilitate the financing of long-term clean energy purchasing by governmental and non-governmental nonprofit entities;
(8) Develop and foster the consistent application of transparent underwriting standards, standard contractual terms, and measurement and verification protocols for qualifying clean economy projects;
(9) Compile performance data that enables effective underwriting, risk management, and pro-forma modeling of financial performance of qualifying clean economy projects to support primary financing markets and stimulate development of secondary investment markets for clean economy projects;
(10) Foster within the State the level of financing support for qualifying clean economy projects necessary to advance vital national and state objectives, including:
(A) Achieving energy independence from foreign energy sources;
(B) Abating climate change by increasing zero- or low-carbon electricity generation and transportation capabilities;
(C) Realizing the energy efficiency potential in existing infrastructure;
(D) Easing the economic effects of transitioning from a carbon based economy to a clean energy economy;
(E) Creating jobs through the construction and operation of qualifying clean economy projects;
(F) Upholding fair labor standards;
(G) Fostering long-term domestic manufacturing capacity in the clean economy industries; and
(H) Complementing and supplementing other clean economy legislation at the federal or state level; and
(11) Use profits beyond those necessary to accomplish the purposes of the bank under this subsection and for the continued sound operation of the bank to create credit enhancement mechanisms such as loan loss reserves, revolving loan funds, interest rate buydowns, or other similar mechanisms that decrease the cost of capital for certain qualifying clean economy projects, which shall include affordable housing retrofits and modifications in accordance with the purposes of this chapter.
§ -2 Definitions. For purposes of this chapter:
"Bank" means the clean economy bank of the State of Hawaii.
"Board" means the board of directors of the clean economy bank of the State of Hawaii established under section -4.
"Clean economy" means any enterprise or industry that participates in the generation, storage, or distribution of renewable energy, including direct renewable energy generation using waste-to-energy technologies, farm-to-fuel technologies, biodiesel, or heat capture; increases energy efficiency or resource productivity; reduces carbon emissions or waste; uses water or waste more efficiently; manufactures component parts of renewable energy or energy efficiency technologies; employs energy efficiency measures; engages in building science and construction projects to increase energy efficiency or otherwise reduce carbon emissions or waste; or develops or deploys electric and hybrid energy transportation.
"Clean economy project" means any undertaking of electricity generation, storage, or transmission; heating or cooling process; industrial process; reduction of oil use in transportation or manufacturing; municipal water or waste project; or related technical assessment or energy audit that:
(1) Reduces the need for additional energy supplies by using, transmitting, distributing, or transporting existing energy supplies with greater effectiveness through the infrastructure of the United States;
(2) Diversifies the sources of the energy supply of the United States to strengthen energy security and to increase supplies with a favorable balance of environmental effects; or
(3) Contributes to the stabilization of atmospheric greenhouse gas concentrations through reduction, avoidance, or sequestration of energy-related emissions of greenhouse gases.
"Community development financial institution" has the same meaning as a community development financial institution under the Riegle Community Development and Regulatory Improvement Act of 1994, title 12 United States Code section 4702.
"Council" means the advisory council of clean economy practitioners established by section -5.
"Customer" means any person or entity that has transacted or is transacting business with, has used or is using the services of the bank, or for which the bank has acted or is acting as a fiduciary with respect to trust property.
"Participating state, territory, or municipality" means a state, territory, or municipality of the United States that contributes to the capitalization of one or more of the bank's funds and satisfies other requirements as determined by the board.
"Qualifying clean economy project" means a clean economy project that meets the criteria of this chapter for financing support or risk management from the bank.
§ -3 Qualifying clean economy projects. To qualify for financing support or risk management from the bank, a clean economy project shall:
(1) Employ commercially viable technologies;
(2) Be capable of being carried out in a commercially viable manner within the State or a participating state, territory, or municipality;
(3) Remain current on interest and debt payment obligations; and
(4) Satisfy any other conditions established by the bank.
§ -4 Board of directors of the bank; powers and duties. (a) The board of the clean economy bank of the State of Hawaii shall operate, manage, and control the bank. The board shall locate and maintain places of business of the bank and shall adopt and enforce rules, orders, and bylaws for the transaction of the bank's business. The powers of the board and the functions of the bank shall be implemented through actions taken and policies and rules adopted by the board.
(b) The board shall consist of seven directors who shall be appointed and serve their terms pursuant to section 26-34. The members of the board shall include representatives of the financial, business, labor union, and nonprofit sectors. At least three members shall be current or former officers of banks or credit unions incorporated in the State.
(c) The board shall adopt rules requiring the holding of regular meetings and specifying the means for providing notice of the meetings; provided that a special meeting of the board may be called at any time upon notice by the governor or by a majority of the members of the board.
(d) The presence of a majority of the board shall constitute a quorum to transact business and exercise all rights, duties, and powers of the board.
(e) The board shall appoint a president of the bank; provided that the person appointed shall have extensive experience in banking. The board may appoint and employ any subordinate officers, employees, and agents as the board considers necessary, and shall define the duties, designate the titles, and fix the compensation of those persons. The board may designate the president or other officers or employees as its agent with respect to the functions of the bank, subject to the supervision, limitation, and control of the board.
(f) The board may remove and discharge any person appointed in the exercise of its powers granted under this chapter.
(g) The board shall elect a chairperson, vice-chairperson, and secretary from among its members.
(h) The board shall participate on loan committees, pursuant to rules adopted by the board under section -6.
(i) The board may establish subsidiaries of the bank and may serve as the board of those subsidiaries or appoint other individuals with appropriate experience to serve on the board for those subsidiaries as appropriate.
§ -5 Advisory council of clean economy practitioners; appointment and duties. (a) To identify potential clean economy projects and technologies that may be deemed as qualifying clean economy projects that are eligible for investment by the bank, the board shall appoint an advisory council of clean economy practitioners that shall consist of eight members. Appointments to the council shall not be subject to section 26-34.
(b) The members of the council shall include representatives of the business, energy, environmental, and scientific sectors.
(c) The board shall appoint a chairperson, vice-chairperson, and secretary of the council from among the council members. The term of office, including renewability and maximum length of service; provisions for replacement of members of the council due to expiration of term, removal, or suspension; grounds for removal or suspension of a council member; and constitution of quorum for the conduct of business by the council shall be determined by the board by rule; provided that the term of office of a council member shall not exceed four years.
(d) The council shall:
(1) Meet quarterly with the management officers of the bank to review the bank's current list of qualifying clean economy projects and make recommendations regarding existing qualifying clean economy projects and potential qualifying clean economy projects; and
(2) Meet annually with the board to present any recommendations concerning the bank.
§ -6 Development of rules and standards. (a) Before making any loan, loan guarantee, debt securitization instrument, insurance, portfolio insurance, or any other form of financing support or risk management, the bank shall develop standards to govern the administration of the bank through policies and procedures adopted by rule pursuant to section -12 that specify:
(1) Requirements to facilitate opt-in participation by states, territories, and municipalities;
(2) Eligibility of borrowers including participating states, territories, and municipalities; businesses and farms located within the State or participating states, territories, and municipalities; and the types of projects eligible for financing support or risk management;
(3) Requirements concerning the technical and economic viability and revenue self-sufficiency of eligible projects;
(4) Required collateral or other security;
(5) Terms and conditions of financing support and risk management;
(6) Criteria to establish financial feasibility and to measure the amount of state assistance necessary for particular projects; and
(7) Other relevant criteria, standards, or procedures.
(b) Before making any loan, loan guarantee, debt securitization instrument, insurance, portfolio insurance, or any other form of financing support or risk management, the bank shall develop standards to govern the conduct of business of the bank through policies and procedures adopted by rule pursuant to section -12 that:
(1) Ensure the safety and soundness of the bank that, to the extent possible, reflect applicable standards for safety and soundness set forth in title 12 Code of Federal Regulations part 364;
(2) Specify the bank's powers and permissible investments and activities;
(3) Authorize specific services that the bank may provide;
(4) Specify limits for loans and other obligations the bank makes or undertakes;
(5) Specify reserve requirements; and
(6) Specify other requirements that the board considers necessary.
(c) Standards and rules adopted pursuant to this section shall be approved by majority vote of the board.
§ -7 Hawaii first fund. The bank shall establish the Hawaii first fund, separate from other funds of the bank, that shall be reserved to support qualified clean economy projects and businesses and farms located in the State and Hawaii-based businesses that seek financing for clean economy projects elsewhere in the United States.
§ -8 Funding sources. (a) The bank may accept deposits of public funds. All income earned by the bank for its own account on public funds shall be credited to and become a part of the revenues and income of the bank; provided that a public official who has control of the public funds deposited in the bank shall be exempt from liability for any loss of the funds as provided in section -15.
(b) The bank shall pay interest on deposits of public funds at a rate comparable to rates paid by private depositories of public funds. As determined by the board, the bank may offer other financial products to the department of budget and finance.
(c) The bank may receive and deposit charitable gifts, grants, contributions, and loans from individuals, corporations, and philanthropic foundations.
(d) The bank may raise capital through issuing its own bonds or notes, including tax-exempt and tax credit bond offerings, such as qualified energy conservation bonds and similar instruments, and small denomination clean economy bonds available for purchase by consumers on a retail basis. The bank may borrow from commercial lenders.
(e) In consultation with existing community development financial institutions, local community development organizations, and appropriate community stakeholders, one or more subsidiaries of the bank may seek to qualify as a community development financial institution and be eligible for funding from the community development financial institution fund administered by the United States Department of Treasury. Upon qualification and designation as a community development financial institution, the subsidiary shall, subject to applicable federal law, be eligible to receive discount loans from banks seeking to meet their community reinvestment act obligations and shall be treated as a qualified community development entity for purposes of section 45D and section 1400N(m) of the Internal Revenue Code and applicable regulations.
(f) Once the bank is capitalized and begins its clean economy financing support activities, the bank may provide loans to leverage and otherwise catalyze equity investments in clean economy projects. The bank may receive funds for its financing support, including through a return of and interest on its direct loans and partnerships with other investors, to cover administrative expenses and credit risk.
(g) In the event that a market for carbon emission credits emerges, the bank may participate as a credit supplier using credits earned from its clean economy financing projects, consistent with any federal or state rules or laws governing offsets, renewable energy credits, or other tradeable instruments.
(h) The legislature may appropriate additional funds from any appropriate source to provide financing support for qualifying clean economy projects.
§ -9 Powers of the bank. The bank may:
(1) Make, purchase, guarantee, or hold loans:
(A) To agencies or instrumentalities of the State of Hawaii;
(B) To agencies or instrumentalities of the counties in the State of Hawaii;
(C) To participating states, territories, and municipalities;
(D) To state-chartered or federally chartered lending agencies or institutions or other financial institutions;
(E) That are insured or guaranteed in whole or in part by the United States, its agencies, or instrumentalities; or
(F) Obtained as security pledged for or originated in the restructuring of any other loan properly originated or participated in by the bank;
(2) Purchase participation interests in loans made or held by banks, bank holding companies, state-chartered or federally chartered lending agencies or institutions, or any other financial institution or entity that provides financial services and meets underwriting standards established by rule by the board and that are generally accepted by state or federal financial regulatory agencies;
(3) Invest its funds in conformity with policies of the board and the department of budget and finance;
(4) Buy and sell federal funds;
(5) Lease, assign, sell, exchange, transfer, convey, grant, pledge, or mortgage all real and personal property, title to which has been acquired in any manner;
(6) Perform all acts and do all things necessary, convenient, advisable, or desirable to carry out the powers expressly granted or necessarily implied in this chapter through or by means of its president, officers, agents, or employees or by contracts with any person, firm, or corporation;
(7) Purchase, guarantee, or hold loans originated by financial institutions doing business in the State and in participating states, territories, and municipalities;
(8) Make loans in the form of participation loans to qualified persons residing in or doing business in the State where the originator of the loan is a private financial institution;
(9) Act as a custodian bank for financial institutions organized under the laws of the State and accept deposits from the financial institutions in connection with this function;
(10) Issue bank stock loans to financial institutions organized under the laws of the State; and
(11) For financial institutions that make the bank a reserve depository, perform the functions and render the services of a clearinghouse, including all facilities for providing domestic and foreign exchange, and rediscount paper on terms prescribed by the board of the bank.
§ -10 Lending; financing; expenditures. (a) The bank shall establish a program to provide on a competitive basis loans, loan guarantees, debt securitization, insurance, portfolio insurance, and other forms of financing support or risk management, as the bank determines appropriate, for any qualifying clean economy project.
(b) In making loans or providing financing support, the bank's priorities shall be for qualifying clean economy projects:
(1) In Hawaii that are entered into by agencies and instrumentalities of the State of Hawaii;
(2) In Hawaii that are entered into by agencies and instrumentalities of the counties in the State of Hawaii;
(3) In Hawaii that are entered into by federal agencies and instrumentalities;
(4) In Hawaii that are entered into by Hawaii-based, non-governmental, nonprofit entities;
(5) In Hawaii that are entered into by Hawaii-based, non-governmental, for-profit entities;
(6) Outside of Hawaii that are entered into by states, territories, or municipalities that have met the participation criteria established by the board;
(7) Outside of Hawaii that are entered into by Hawaii-based, non-governmental, nonprofit entities;
(8) Outside of Hawaii that are entered into by Hawaii-based, non-governmental, for-profit entities;
(9) Outside of Hawaii that are entered into by non-Hawaii-based, non-governmental, nonprofit entities; and
(10) Outside of Hawaii that are entered into by non-Hawaii-based, non-governmental, for-profit entities.
(c) The bank shall only provide financing support and risk management pursuant to subsection (a) if:
(1) The support or risk management is commercially reasonable and does not exceed eighty per cent of the capitalization of the qualifying clean energy project; and
(2) The support or risk management is secured by the underlying project or other collateral that the bank determines appropriate.
(d) The bank may facilitate financing transactions in tax equity markets and long-term purchasing of clean economy projects by governmental entities and non-governmental nonprofit entities to the degree and extent that the bank determines the financing activity is appropriate and consistent with carrying out the terms of this section.
(e) The bank is authorized to create, accept, execute, and otherwise administer in all respects trusts, receiverships, conservatorships, liquidating or other agencies, or other fiduciary and representative undertakings and activities, as appropriate for financing purposes. Instruments issued by the bank pursuant to this section shall be exempt securities within the meaning of laws administered by the Securities and Exchange Commission to the same extent as securities that are direct obligations of or obligations guaranteed as to principal or interest by the United States.
(f) The bank shall assess reasonable fees on its activities including loans, loan guarantees, insurance, portfolio insurance, and other forms of financing support or risk management it provides so as to cover its reasonable costs and expenses as determined by the board; provided that the bank operates as a nonprofit entity. To the extent a loan or loan guarantee is issued using funding from the United States Treasury, interest payments shall be sufficient to pay any applicable credit subsidy costs to the United States under the Federal Credit Reform Act of 1990, title 2 United States Code sections 661 et seq. The credit subsidy cost fee shall be paid by the borrower and shall be treated as a permitted project cost.
(g) The president of the bank:
(1) Shall require any entity receiving financing support or risk management including a loan, loan guarantee, debt securitization, insurance, portfolio insurance, and other forms of financing support pursuant to this section to report quarterly, in a format specified by the president, on the entity's use of the financing support and progress in fulfilling the objectives for which such support was granted; provided that the president of the bank shall make reports submitted pursuant to this paragraph available to the public;
(2) May establish additional reporting and information requirements for any recipient of financing support made available pursuant to this section;
(3) Shall establish appropriate mechanisms to ensure appropriate use and compliance with all terms of any financing support made available pursuant to this section;
(4) May, in addition to and consistent with any other authority under applicable law, deobligate financing support made available pursuant to this section to entities that demonstrate an insufficient level of performance or wasteful or fraudulent spending as determined by the president in advance of the award of financing support and may award deobligated funds competitively to new or existing applicants consistent with this chapter;
(5) Shall create and maintain a fully searchable database, accessible on the Internet or successor information protocol at no cost to the public that contains, at minimum:
(A) A list of each entity that has applied for a loan, loan guarantee, insurance, portfolio insurance, or other form of financing support or risk management under this section along with a brief description and status of each application;
(B) The name of each entity receiving funds made available pursuant to this section, the purpose for which each entity is receiving funds, and each quarterly report submitted by the entity pursuant to paragraph (1); and
(C) Any other information that the president determines is sufficient to allow the public to understand and monitor loans, loan guarantees, insurance, portfolio insurance, and other forms of financing support or risk management provided under this section.
(h) To the extent practicable, data maintained pursuant to subsection (g) shall be used to inform private capital markets, including for the development of underwriting standards for the financing of clean energy projects and energy efficiency projects.
(i) The bank shall make all financing transactions available for public inspection, including the accommodation of formal annual reviews by a private auditor and the state auditor.
(j) The bank shall at all times maintain a mechanism for the receipt, in writing, of public comment on the activities of the bank.
§ -11 Income; excess earnings. Except as otherwise provided, as soon as possible after the end of each calendar year, the board shall determine the amount of income that is in excess of amounts necessary to pay for expenses of administering the activities of the bank, if any, earned by the bank in that calendar year. The amount of the excess shall be used to create credit enhancement mechanisms such as loan loss reserves, revolving loan funds, interest rate buydowns, or other similar mechanisms to decrease cost of capital for certain types of qualifying clean economy projects, as determined by the board; provided that the qualifying clean economy projects shall include affordable housing retrofits and modifications in accordance with the purposes of this chapter.
§ -12 Rulemaking. (a) The board shall develop a process for approving standards and for adopting rules that is not subject to chapter 91 but includes public notice and an opportunity for interested stakeholders to submit comments on proposed standards.
(b) The department of commerce and consumer affairs shall examine the bank no less frequently than once each calendar year to verify that the bank is complying with rules adopted pursuant to subsection (a). The bank shall submit quarterly reports to the department of commerce and consumer affairs. The department of commerce and consumer affairs shall report the results of the examination to the board and to the legislature. The report shall be a public record subject to disclosure pursuant to chapter 92F, unless nondisclosure is required by federal or state law.
(c) The state auditor shall audit the accounts and financial affairs of the bank no less frequently than once every two years. The auditor's report shall be a public record subject to disclosure pursuant to chapter 92F.
§ -13 Deposits; exempt from taxation. The deposits and any income earned by the bank shall not be subject to state or local taxes of any kind.
§ -14 Civil actions. (a) Civil actions may be brought as provided in this section against the State for claims for relief asserted to have arisen out of transactions connected with the operation of the bank.
(b) In an action brought pursuant to this section, the State shall be designated as the State of Hawaii, doing business as the clean economy bank of the State of Hawaii.
(c) An action brought pursuant to this section may be brought in any circuit court of the State in the same manner and subject to the same laws and rules of the courts as other civil actions.
§ -15 Public officials; exemption from liability. Whenever any public funds are deposited in the bank, the public official who deposited the funds and the sureties on any bond of the public official shall be exempt from liability by reason of loss of any of the funds while the funds are deposited in the bank.
§ -16 Conduct of business; execution of instruments. (a) All business of the bank shall be conducted under the name of the clean economy bank of the State of Hawaii or the clean economy bank. Title to property pertaining to the operation of the bank shall be obtained and conveyed in the name of the State of Hawaii, doing business as the clean economy bank of the State of Hawaii.
(b) Instruments shall be executed in the name of the State of Hawaii. Within the scope of authority granted by the board, the president of the bank may execute instruments on behalf of the bank, including any instrument granting, conveying, or otherwise affecting any interest in or lien upon real or personal property.
(c) Other officers or employees of, and legal counsel to, the bank may execute instruments on behalf of the bank when authorized by the board.
§ -17 Certain records confidential. The following records of the bank shall be confidential and shall not be disclosed:
(1) Commercial or financial information of a customer of the bank, whether obtained directly or indirectly, other than information disclosed in routine credit inquiries concerning information that is required to be disclosed in accordance with due legal process and information required to be disclosed pursuant to section -10(g); and
(2) Except as provided in section -12, information that is contained in or related to a report of an examination or operating or condition reports prepared by, on behalf of, or for the use of, a state or federal agency responsible for the regulation or supervision of any bank activity.
§ -18 Allocation pooling. To the extent permitted by federal law or procedure, the bank may enter into an agreement with any entity authorized to issue bonds to pool allocations for the issuance of bonds. The total pool of allocations may exceed the state ceiling; provided that the entity with which the bank enters into an agreement is authorized to issue bonds in accordance with the laws of any state of the United States of America; provided further that the State's allocation to the pool does not exceed the state ceiling, as defined in section 39C-1."
SECTION 2. This Act shall take effect on July 1, 2012.
Public Finance; Clean Economy Bank
Establishes the clean economy bank of the State of Hawaii to, among other things: (1) Enable the State, along with other participating states, territories, and municipalities, to leverage aligned resources and collective influence to build a national clean economy that creates jobs, reduces carbon emissions, and ensures the nation's energy security; (2) Support clean economic development within the State and other participating entities; and (3) Lessen the burden on the State and other participating entities to finance qualified renewable energy and other related purposes. (SD1)
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