Report Title:

Agribusiness Development Corporation

 

Description:

Amends agribusiness development corporation law to refocus and direct the role of the corporation to one of taking control of infrastructure from closing large crop plantation operations and converting the infrastructure for use by multiple diversified agricultural enterprises.  Removes department of agriculture's oversight of the corporation.  Restores procurement code exemption to agribusiness development corporation.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

1114

TWENTY-FOURTH LEGISLATURE, 2007

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

relating to agriculture.

 

 

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

 


     SECTION 1.  During the last decade of the twentieth century the State was faced with the accelerated closure of a number of sugar cane and pineapple plantations across the State.  It was estimated that, by the end of the century, seventy-five thousand acres of cultivated agricultural lands and fifty million gallons per day of irrigation water would be released from plantation operations.

     The legislature viewed this situation with a degree of optimism, providing an opportunity for the dynamic growth in diversified agriculture, thereby revitalizing the agricultural industry for the State.  To ensure the success of the conversion from large plantation operations to smaller multiple diversified agricultural enterprises, the legislature created the agribusiness development corporation as a public body corporate to "administer an aggressive and dynamic agribusiness development program".

     In addition to its primary role to take control of the infrastructure of former plantations and to service agricultural lands dependent on that infrastructure, in particular irrigations systems, the agribusiness development corporation was granted other tasks and responsibilities, including but not limited to:

     (1)  Preparing the Hawaii agribusiness plan;

     (2)  Conducting detailed market analysis for existing and new crops;

     (3)  Developing marketing and promotional strategies to better exploit local, national, and international markets;

     (4)  Gathering data and identifying market demands and trends that can be used to plan future harvests and production;

     (5)  Providing loans, allowances, and grants for the development, expansion, or altering of new and existing agricultural enterprises;

     (6)  Ensuring the adequacy of surface and air transportation services and supporting facilities, allowing local agricultural enterprises to reach local, national, and international markets;

     (7)  Providing consultative, training, and educational services to persons engaged in agricultural activities;

     (8)  Preparing an inventory of agricultural lands with adequate water resources that are or will be available due to the closing of plantation operations;

     (9)  Preparing an inventory of agricultural infrastructure that will be abandoned by the closing plantations; and

    (10)  Purchasing securities of or otherwise investing in qualified enterprises for the purpose of providing seed money.

     In spite of all these tasks and responsibilities, along with the tools and powers to undertake them, the agribusiness development corporation has limited its activities to its primary responsibility, that is, to take over the infrastructure of closing plantation operations, particularly irrigation systems, repair and restore this infrastructure, and operate the infrastructure for the benefit of surrounding agricultural lands dependent on the infrastructure.  Many of the other tasks and responsibilities set forth in chapter 163D, Hawaii Revised Statutes, have not been undertaken by the agribusiness development corporation, but have been undertaken by other government agencies and quasi-public and private agricultural industry stakeholders.

     From its inception, the agribusiness development corporation was envisioned as a "dynamic and aggressive" entity that could respond to the "constantly evolving economies" in the private sector.  This required the ability to immediately react to changes and events in the private sector; however, any agricultural projects, development plans, or project facility programs developed by the agribusiness development corporation required the approval of the board of agriculture.

     As a further manifestation of this need to move in a dynamic and aggressive manner, at its inception, the agribusiness development corporation was granted an exemption from the Hawaii procurement code.  This allowed it to immediately respond to needs in the private sector.  It also allowed the corporation to immediately respond to acts of God and natural disasters to protect and repair facilities that may incur any damage that needed immediate attention.

     The purposes of this Act are to:

     (1)  Refocus and redefine the role and mission of the agricultural development corporation to its primary responsibility of taking over, repairing, and managing infrastructure, particularly irrigation systems, abandoned or left unused and unmaintained by closing plantation operations;

     (2)  Remove the oversight of the board of agriculture over the agribusiness development corporation's projects, plans, and programs; and

     (3)  Restore the agribusiness development corporation's exemption from the Hawaii procurement code.

     SECTION 2.  Chapter 163D, Hawaii Revised Statutes, is amended as follows:

     1.  By adding a new section to be appropriately designated and to read:

     "§163D-    Exemption of agribusiness development corporation from administrative supervision of boards and commissions.  Notwithstanding any law to the contrary, the authority shall be exempt from section 26-35 with the exception of subsection (a)(2), (3), and (8) and subsection (b)."

     2.  By amending section 163D-1, Hawaii Revised Statutes, to read:

     "[[]§163D-1[]]  Findings and purpose.  The legislature finds that the downsizing of the sugar and pineapple industries is presenting an unprecedented opportunity for the conversion of agriculture into a dynamic growth industry.  Within the next decade, seventy-five thousand acres of agricultural lands and fifty million gallons per day of irrigation water are expected to be released by plantations.  The downsizing of the sugar and pineapple industries will idle a valuable inventory of supporting infrastructure including irrigation systems, roads, drainage systems, processing facilities, workshops, and warehouses.  The challenge to government and business is to conserve and convert the arable lands and their associated production infrastructure in a timely manner into new productive uses [that are based upon strategies developed from detailed marketing analysis and monitoring of local, national, and international opportunities.  Constantly evolving economies require an aggressive and dynamic leadership for the promotion and development of agricultural enterprises, and centralized leadership to coordinate industry development, provide industry-wide services, provide marketing assistance, and facilitate investments and coventures in viable enterprises].

     The purpose of this chapter is to create a vehicle and process to make optimal use of agricultural assets for the economic, environmental, and social benefit of the people of Hawaii.  This chapter establishes a public corporation to administer an aggressive and dynamic agribusiness development program.  The corporation shall coordinate and administer programs to assist agricultural enterprises to facilitate the transition of agricultural infrastructure from plantation operations into other agricultural enterprises[, to carry on the marketing analysis to direct agricultural industry evolution, and to provide the leadership for the development, financing, improvement, or enhancement of agricultural enterprises]."

     3.  By amending section 163D-2, Hawaii Revised Statutes, by deleting the definitions of "coordinating entrepreneur", "coventure", "direct investment", "private lender", "professional investor", "qualified security", and "seed capital".

     [""Coordinating entrepreneur" means a qualified person capable of organizing, operating, and assuming the risk for enterprises that may include securing land and seed capital, locating farmers, arranging right-to-till agreements, supplying materials, maintaining equipment and infrastructure, and providing for the processing and marketing of products.

     "Coventure" means an investment by the corporation in qualified securities of an enterprise in which a substantial investment is also being made or has been made by a professional investor to provide seed capital to an enterprise.  A guarantee by the corporation of qualified securities provided by a professional investor shall be classified as a coventure.  An investment made by the corporation, which is a direct investment, may later be classified as a coventure upon an investment by a professional investor.

     "Direct investment" means an investment by the corporation in qualified securities of an enterprise in which no investment is being or has been made by a professional investor to provide seed capital to the enterprise.

     "Private lender" includes banks, savings and loan associations, mortgage companies, and other qualified companies whose business includes the making of loans in the State.

     "Professional investor" means any bank, bank holding company, savings institution, farm credit institution, trust company, insurance company, investment company registered under the federal Investment Company Act of 1940, financial services loan company, pension or profit-sharing trust or other financial institution or institutional buyer, licensee under the federal Small Business Investment Act of 1958, or any person, partnership, or other entity of whose resources, a substantial amount is dedicated to investing in securities or debt instruments, and whose net worth exceeds $250,000.

     "Qualified security" means any note, stock, treasury stock bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, preorganization certificate of subscription, transferable share, investment contract, certificate of deposit for a security, certificate of interest or participation in a patent or patent application, or in royalty or other payments under such a patent or application, or, in general, any interest or instrument commonly known as a "security" or any certificate for, receipt for, or option, warrant, or right to subscribe to or purchase any of the foregoing.

     "Seed capital" means financing that is provided for the development, refinement, and commercialization of a product or process and other working capital needs."]

     4.  By amending section 163D-3, Hawaii Revised Statutes, to read:

     "§163D-3  Agribusiness development corporation; board of directors; established.  (a)  There is established the agribusiness development corporation, which shall be a public body corporate and politic and an instrumentality and agency of the State.  The corporation shall be headed by a board of directors.  The corporation shall be placed within the department of agriculture for administrative purposes, but the corporation may later incorporate as a nonprofit corporation if this proves desirable to further its objectives; provided that such reorganization as a nonprofit corporation shall not adversely affect the federal tax status of the interest on any bonds issued to finance any project or project facility.

     (b)  The board of directors of the corporation shall consist of eleven voting members, of whom eight shall be appointed by the governor.  The terms of these eight members shall be four years; provided that, commencing on July 1, 2005, the governor shall reduce the terms of those initially appointed so as to provide, as nearly as can be, for the expiration of an equal number of terms at intervals of one year.  The eight members shall be selected on the basis of their knowledge, experience, and proven expertise in small and large businesses within the agricultural industry, agricultural economics, banking, real estate, finance, promotion, marketing, and management.  Of these eight members, one shall be from the city and county of Honolulu, one shall be from the county of Hawaii, one shall be from the county of Maui, one shall be from the county of Kauai, and four shall be appointed at-large.  The director of business, economic development, and tourism; the chairperson of the board of agriculture; and the chairperson of the board of land and natural resources, or their designated representatives, shall be ex-officio, voting members of the board.  All members shall continue in office until their respective successors have been appointed and qualified.  The board shall annually elect its chairperson from among its members; provided that the chairperson shall not be an ex-officio member.

     (c)  The members of the board shall serve without compensation, but shall be reimbursed for actual expenses incurred in the performance of their duties.

     (d)  The board shall appoint an executive director, who shall serve at the pleasure of the board and shall be exempt from chapter 76.  The salary of the executive director shall be set by the board.

     [(e)  The board, through its executive director, may appoint officers, agents, and employees; prescribe their duties and qualifications; and fix their salaries, without regard to chapter 76.]"

     5.  By amending section 163D-4, Hawaii Revised Statutes, to read:

     "§163D-4  Powers; generally.  [(a)]  Except as otherwise limited by this chapter, the corporation may:

     (1)  Sue and be sued;

     (2)  Have a seal and alter the same at its pleasure;

     (3)  Make and alter bylaws for its organization and internal management;

     (4)  Adopt rules under chapter 91 necessary to effectuate this chapter in connection with its projects, operations, and properties;

     (5)  Make and execute contracts and all other instruments necessary or convenient for the exercise of its powers and functions under this chapter;

    [(6)  Carry out surveys, research, and investigations into technological, business, financial, consumer trends, and other aspects of agricultural production in the national and international community;

     (7)] (6)  Acquire or contract to acquire by grant or purchase any real, personal, or mixed property or any interest therein for its immediate or future use for the purposes of this chapter; own, hold, improve, and rehabilitate any real, personal, or mixed property acquired, and sell, assign, exchange, transfer, convey, lease, or otherwise dispose of, or encumber the same;

    [(8)] (7)  By itself, or in partnership with qualified persons, acquire, construct, reconstruct, rehabilitate, improve, alter, or repair any infrastructure or accessory facilities in connection with any project; own, hold, sell, assign, transfer, convey, exchange, lease, or otherwise dispose of, or encumber any project;

    [(9)] (8)  In cooperation with the department of agriculture, pursuant to chapter 167, or otherwise through direct investment [or coventure with a professional investor or enterprise or any other person,] or otherwise, to acquire, construct, operate, and maintain water facilities for conveying, distributing, and transmitting water for irrigation and agricultural uses at rates or charges determined by the corporation; provided that:

         (A)  This chapter shall not be construed to permit or allow the department of agriculture or [any] the agribusiness development corporation to:

              (i)  Amend or modify rights or entitlements to water as provided for by Article XI, section 7, of the Constitution of the State of Hawaii, or the Hawaiian Homes Commission Act, 1920, as amended, and chapter 168;

             (ii)  Diminish or abridge the traditional and customary rights of ahupua‘a tenants who inhabited the Hawaiian [Islands] islands prior to 1778 under sections 1-1 and 7-1; and

             (iii)  Impair, abridge, or terminate the legal rights or interests to water and its uses, whether by lease, easement, or other means, [which] that are possessed or held by organizations whose primary purpose is to benefit people of Hawaiian ancestry; and

         (B)  All usage of water shall be in accordance with chapter [[]174C[]] and other applicable laws in the State;

   [(10)  Assist agricultural enterprises by conducting detailed marketing analysis and developing marketing and promotional strategies to strengthen the position of those enterprises and to better exploit local, national, and international markets;

    (11)  Carry out specialized programs designed to develop new markets for Hawaii agricultural products;

    (12)  Receive, examine, and determine the acceptability of  applications of qualified persons for allowances or grants for the development of new crops and agricultural products, the expansion of established agricultural enterprises, and the altering of existing agricultural enterprises;

    (13)] (9)  Coordinate its activities with any federal or state farm credit programs;

   [(14)] (10)  Grant options to purchase any project or to renew any lease entered into by it in connection with any of its projects, on the terms and conditions it deems advisable;

   [(15)] (11)  Provide advisory, consultative, [training, and educational services,] and technical assistance[,] and advice to any person, partnership, or corporation, either public or private, in order to carry out the purposes of this chapter, and engage the services of consultants on a contractual basis for rendering professional and technical assistance and advice;

   [(16)] (12)  Procure insurance against any loss in connection with its property and other assets and operations in [such] amounts and from [such] insurers as it deems desirable;

   [(17)] (13)  Accept gifts or grants in any form from any public agency or any other source; [and]

    (14)  Through its executive director, represent the corporation in communications with the governor and the legislature;

    (15)  Through its executive director, provide for the appointment of officers, agents, and employees, subject to the approval of the board, prescribing their duties and qualifications, and fixing their salaries, without regard to chapters 76 and 78, so long as funds have been appropriated by the legislature and allotted as provided by law;

    (16)  Through its executive director purchase supplies, equipment, or furniture;

    (17)  Through its executive director, allocate the space or spaces that are to be occupied by the corporations and its appropriate staff; and

    (18)  Do all things necessary or proper to carry out the purposes of this chapter.

     [(b)  The corporation shall develop, promote, assist, and market export crops and other crops for local markets.]"

     6.  By amending subsection (b) of section 163D-6, Hawaii Revised Statutes, to read:

     "(b)  If the corporation acquires the assets of a private or other corporation, then, notwithstanding any law to the contrary:

     (1)  Neither the corporation nor any subsidiary corporation vested with the assets shall be subject to chapter 91 with respect to the assets;

     (2)  Employees retained to operate the assets shall not be subject to chapter 76;

     (3)  Assets constituting real property interest shall not be subject to chapter 171;

     (4)  No investment, loan, or use of funds by the corporation or a subsidiary corporation vested with the assets shall be subject to chapter 42F [or], 103[;], or 103D; and

     (5)  Neither the corporation nor a subsidiary corporation vested with the assets shall constitute a public utility or be subject to the jurisdiction of the public utilities commission under chapter 269."

     7.  By amending section 163D-7, Hawaii Revised Statutes, to read:

     "[[]§163D-7[]]  Agricultural projects; agricultural development plans.  (a)  The corporation may develop and implement agricultural projects where large tracts of agricultural land have been or will be taken out of productive agriculture [or where, through detailed analysis, opportunities exist to exploit potential local, national, and international markets].

     (b)  The corporation may initiate and coordinate the preparation of [business and] agricultural development plans for its projects.  The plans shall include a proposal for the organization of the enterprise[, a marketing information and strategy, the impact on existing agricultural operations throughout the State,] and a recommendation for the construction, reconstruction, rehabilitation, improvement, alteration, or repair of any infrastructure or accessory facilities in connection with any project.

     (c)  The corporation may enter into cooperative agreements with [coordinating entrepreneurs] private persons or public agencies when the powers, services, and capabilities of the persons or agencies are deemed necessary and appropriate for the development and implementation of the [business and] agricultural development plans.

     (d)  The agricultural planning activities of the corporation shall be coordinated with the county planning departments and the county land use plans, policies, and ordinances.

     (e)  The corporation may amend the [business and] agricultural development plans as may be necessary.

     (f)  Any undertaking by the corporation pursuant to this chapter that directly affects private lands shall be with the express written consent of the landowner or landowners directly affected."

     8.  By amending subsection (g) of section 163D-8, Hawaii Revised Statutes, to read:

     "(g)  All sums collected under this section shall be deposited in the fund [established by section 163D-17], except that all moneys collected on account of assessments and interests thereon for any specific project facilities financed by the issuance of bonds, shall be set apart in a separate special fund and applied solely to the payment of:

     (1)  The principal and interest on [these] the bonds;

     (2)  The cost of administering, operating, and maintaining the program;

     (3)  The establishment of reserves; and

     (4)  Other purposes as may be authorized in the proceedings providing for the issuance of the bonds.

     If any surplus remains in any special fund after the payment of the bonds chargeable against that special fund, the surplus shall be credited to and become a part of the fund.  Notwithstanding any other law to the contrary, moneys in the fund may be used to make up any deficiencies in the special fund."

     9.  By amending subsection (b) of section 163D-15.5, Hawaii Revised Statutes, to read:

     "(b)  No expenditure, use, or transfer of funds from the Waiahole water system revolving fund by the corporation shall be subject to chapter 42F [or], 103[.], or 103D."

     10.  By amending section 163D-17, Hawaii Revised Statutes, to read:

     "§163D-17  Hawaii agricultural development revolving fund; established; use of corporation funds.  (a)  There is established the Hawaii agricultural development revolving fund, to which shall be credited any state appropriations to the fund or other moneys made available to the fund, to be expended as directed by the corporation.

     (b)  The corporation shall hold the fund in an account or accounts separate from other funds.  The corporation shall invest and reinvest the fund and the income thereof [to:

     (1)  Purchase qualified securities issued by enterprises for the purpose of raising seed capital; provided that the investment shall comply with the requirements of this chapter;

     (2)  Make grants, loans, and provide other monetary forms of assistance necessary to carry out the purposes of this chapter; and

     (3)  Purchase securities as may be lawful investments for fiduciaries in the State].

     All appropriations, grants, contractual reimbursements, and other funds [not designated for this purpose] may be used to pay for the proper general expenses and to carry out the purposes of the corporation.

     [(c)  The corporation shall purchase qualified securities issued by an enterprise only after:

     (1)  Receiving:

         (A)  An application from the enterprise containing a business plan, which is consistent with the business and agricultural development plan, including a description of the enterprise and its management, product, and market;

         (B)  A statement of the amount, timing, and projected use of the capital required;

         (C)  A statement of the potential economic impact of the enterprise, including the number, location, and types of jobs expected to be created; and

         (D)  Any other information as the corporation shall require;

     (2)  Determining, based upon the application submitted, that:

         (A)  The proceeds of the investment will be used only to cover the seed capital needs of the enterprise, except as authorized in this section;

         (B)  The enterprise has a reasonable chance of success;

         (C)  The enterprise has the reasonable potential to create employment within the State and offers employment opportunities to residents;

         (D)  The coordinating entrepreneur and other founders of the enterprise have already made or are prepared to make a substantial financial and time commitment to the enterprise;

         (E)  The securities to be purchased are qualified securities;

         (F)  There is reasonable possibility that the corporation will recoup at least its initial investment; and

         (G)  Binding commitments have been made to the corporation by the enterprise for adequate reporting of financial data to the corporation, which shall include a requirement for an annual or other periodic audit of the books of the enterprise, and for control by the corporation that it considers prudent over the management of the enterprise, in order to protect the investment of the corporation, including membership on the board of directors of the enterprise, ownership of voting stock, input in management decisions, and the right of access to the financial and other records of the enterprise; and

     (3)  Entering into a binding agreement with the enterprise concerning the manner of payback by the enterprise of the funds advanced, granted, loaned, or received from the corporation.  The manner of payback may include the payment of dividends, returns from the public sale of corporate securities or products, royalties, and other methods of payback acceptable to the corporation.  In determining the manner of payback the corporation shall establish a rate of return or rate of interest to be paid on any investment, loan, or grant of corporation funds under this section.

     (d)  If the corporation makes a direct investment, it shall also find that a reasonable effort has been made to find a professional investor to make an investment in the enterprise as a coventure, and that the effort was unsuccessful.  The findings, when made by the corporation, shall be conclusive.

     (e)  The corporation shall not make investments in qualified securities issued by an enterprise in excess of the following limits:

     (1)  Not more than $500,000 shall be invested in the securities of any one enterprise, except that more than a total of $500,000 may be invested in the securities of any one enterprise, if the corporation finds, after its initial investment, that additional investments in that enterprise are required to protect the initial investment of the corporation, and the other findings set forth in subsections (d) and (e) are made as to the additional investment;

     (2)  The corporation shall not own securities representing more than forty-nine per cent of the voting stock of any one enterprise at the time of purchase by the corporation after giving effect to the conversion of all outstanding convertible securities of the enterprise, except that in the event of severe financial difficulty of the enterprise, threatening the investment of the corporation in the enterprise, a greater percentage of those securities may be owned by the corporation; and

     (3)  Not more than fifty per cent of the assets of the corporation shall be invested in direct investments at any time.

     (f)] (c)  No [investment, loan, grant, or] use of corporate funds for the purposes of this chapter shall be subject to chapter 42F[.] or 103D."

     11.  By amending section 163D-19, Hawaii Revised Statutes, to read:

     "[[]§163D-19[]]  Annual report.  The corporation shall submit to the governor and directly to the legislature, no later than twenty days prior to the convening of each regular session, a complete and detailed report of its plans and activities."

     12.  By repealing section 163D-5.

     ["[§163D-5]  Hawaii agribusiness plan.  (a)  The corporation shall prepare the Hawaii agribusiness plan which shall define and establish goals, objectives, policies, and priority guidelines for its agribusiness development strategy.  The plan shall include but not be limited to:

     (1)  An inventory of agricultural lands with suitable adequate water resources that are or will become available due to the downsizing of the sugar and pineapple industries that can be used to meet present and future agricultural production needs;

     (2)  An inventory of agricultural infrastructure that will be abandoned by sugar and pineapple industries such as irrigation systems, drainage systems, processing facilities, and other accessory facilities;

     (3)  An analysis of imported agricultural products and the potential for increasing local production to replace imported products in a manner that complements existing local producers and increases Hawaii's agricultural self-sufficiency;

     (4)  Alternatives in the establishment of sound financial programs to promote the development of diversified agriculture;

     (5)  Feasible strategies for the promotion, marketing, and distribution of Hawaii agricultural products in local, national, and international markets;

     (6)  Programs to promote and facilitate the absorbing of displaced agricultural workers into alternative agricultural enterprises;

     (7)  Strategies to insure the provision of adequate air and surface transportation services and supporting facilities to support the agricultural industry in meeting local, national, and international market needs;

     (8)  Proposals to improve the gathering of data and the timely presentation of information on market demands and trends that can be used to plan future harvests and production; and

     (9)  Strategies for federal and state legislative actions that will promote the development and enhancement of Hawaii's agricultural industries.

     (b)  The corporation shall revise the Hawaii agribusiness plan from time to time and shall incorporate the plan in its annual report to the governor and the legislature as provided in section 163D-19."]

     13.  By repealing section 163D-8.5.

     ["[§163D-8.5  Approval of projects, plans, and programs.]  All agricultural projects, agricultural development plans, and project facility programs developed by the corporation must be approved by the board of agriculture before implementation."]

     SECTION 3.  The governor shall review the amendments made to chapter 163D, Hawaii Revised Statutes, by section 2 of this Act and report to the legislature twenty days prior to the convening of the regular session of 2008 on:

     (1)  The staffing, funding, and resources that are necessary for the agribusiness development corporation to carry out its mandate under chapter 163D, Hawaii Revised Statutes, as amended by this Act;

     (2)  How much of that staffing, funding, and resourcing can reasonably be accomplished through transfers within the executive branch of government; and

     (3)  Whether there are any public lands that should be withdrawn from or set aside to the agribusiness development corporation to allow it to carry out its mandate under chapter 163D, Hawaii Revised Statutes.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

 

INTRODUCED BY:

_____________________________