REPORT TITLE:
Agricultural Loans


DESCRIPTION:
Provides agricultural loans to qualified part-time farmers.
Reduces the state residency requirements for permanent resident
aliens seeking financing under the State's agricultural loan
program.  Enables the department of agriculture to provide credit
to food manufacturers located in the State that utilize Hawaii-
grown agricultural products.  (HB2996 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2996
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO AGRICULTURAL LOANS.



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

 1      SECTION 1.  The legislature finds that a substantial number
 
 2 of individuals and families are undertaking agricultural
 
 3 production on a part-time basis to supplement earnings obtained
 
 4 from full-time employment by one or more members of the
 
 5 household.  In many instances, the individual and family are
 
 6 dependent upon farm earnings to make ends meet and provide other
 
 7 amenities for the family.  With the uncertainties involved in
 
 8 farming, such as market demand, prices, government regulations,
 
 9 and weather, these people find that they are not able to leave
 
10 the security of a steady income provided by their full-time
 
11 employment and the benefits provided by their employer,
 
12 especially medical coverage.  Many part-time farmers want to
 
13 expand their farm production because their limited operation are
 
14 to be profitable.
 
15      Current government programs are tailored for full-time
 
16 farming, consequently leaving these entrepreneurial and hard-
 
17 working individuals with limited avenues for funding their
 
18 operation.  A loan program to assist part-time farmers would not
 
19 only enable these individuals to expand their farming enterprise,
 

 
Page 2                                                     2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 but would increase the export potential of certain crops, as many
 
 2 part-time farmers are nurturing crops that are exportable.
 
 3 Exportable crops include fruits (papayas), ornamentals (orchids
 
 4 for cut flower and potted plants, and certified potted foliage),
 
 5 and plants with pharmaceutical qualities (awa root).  Moreover,
 
 6 increasing exports would be beneficial to the state economy.
 
 7      Farming activities today are increasingly being undertaken
 
 8 by recent immigrants to the State.  Many of these immigrants are
 
 9 already skilled in farming techniques and have taken up farming
 
10 as a livelihood.  These immigrants are the "new wave" of farmers,
 
11 as older farming generations are ceasing their farming
 
12 activities, and turning their farmland into more profitable urban
 
13 investments.
 
14      The legislature also finds that diversified agriculture is
 
15 undergoing a significant period of transition and is a dynamic
 
16 growth industry.  With the closures of most of the State's sugar
 
17 plantations, prime agricultural land, water, and an
 
18 agriculturally-oriented labor force are now available for
 
19 diversified agricultural development and expansion.  As
 
20 diversified agriculture grows, there will be a greater need to
 
21 utilize and market the expected increase in agricultural
 
22 production.
 

 
 
 
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 1      One of the primary ways to utilize the increase in
 
 2 production is through further development of value-added
 
 3 products.  Processing and manufacturing present unlimited
 
 4 opportunities to sell agricultural products to vast export
 
 5 markets.  Unlike fresh agricultural products, processed products
 
 6 are not restricted in shipment to export markets by quarantine
 
 7 regulations pertaining to pests, such as fruit flies.  In
 
 8 addition, processed agricultural products are generally less
 
 9 perishable, allowing for greater ease in transport and shipment.
 
10 A strong link exists between the production of agricultural
 
11 products at the farm and the processing and marketing of those
 
12 products.  Just as there is a need for financing for farm
 
13 enterprises, a need for financing also exists for the processing
 
14 and manufacturing of the increase in agricultural production.
 
15      The purpose of this Act is to expand the agricultural loan
 
16 program by:
 
17      (1)  Reducing state residency requirements for permanent
 
18           resident aliens seeking financing under the State's
 
19           agricultural loan program; and
 
20      (2)  Enabling qualified part-time farmers, and food
 
21           manufacturers located in the State who use Hawaii-grown
 
22           agricultural products, to obtain loans under the
 
23           agricultural loan program.
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 2.  Section 155-1, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "155-1 Definitions.  Whenever used in this chapter:
 
 4      [(1) "Farm land" means land in the State used for
 
 5           agricultural purposes, including general farming, cane
 
 6           growing, fruit growing, flower growing, grazing,
 
 7           dairying, the production of any form of livestock or
 
 8           poultry, and any other form of agricultural activity.
 
 9           It includes land required for an adequate farm dwelling
 
10           and other essential farm buildings, roads, wasteland.
 
11      (2)  "Qualified farmer" means a person of proven farming
 
12           ability who operates the person's own farm on land
 
13           owned by the person in fee or on land rented or leased
 
14           from others and who is presently devoting, has recently
 
15           devoted, or intends to devote most of the person's time
 
16           or who derives a major portion of the person's net cash
 
17           income from direct participation in farming in its
 
18           broadest sense.  It includes Hawaii partnerships
 
19           controlled to the extent of seventy-five per cent by
 
20           persons who would qualify individually and would meet
 
21           the eligibility requirements of section 155-10.  It
 
22           also includes small corporations where at least
 
23           seventy-five per cent of each class of stock issued by
 

 
Page 5                                                     2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           the corporation is owned by persons who qualify
 
 2           individually and would meet the eligibility
 
 3           requirements of section 155-10 and where seventy-five
 
 4           per cent of the directors are qualified farmers.  It
 
 5           also includes corporations incorporated in the State
 
 6           primarily for agricultural production purposes;
 
 7           actively engaged in agricultural production for a
 
 8           minimum of two years; and with at least seventy-five
 
 9           per cent of each class of stock owned by residents of
 
10           this State.
 
11      (3)  "New farmer program" means a new farm enterprise for
 
12           qualified new farmers, including persons who are
 
13           displaced from employment in an agricultural production
 
14           enterprise, college graduates in agriculture, community
 
15           college graduates in agriculture, and members of the
 
16           Hawaii Young Farmer Association and Future Farmer of
 
17           America graduates with farming projects, persons who
 
18           have not less than two years' experience as part-time
 
19           farmers, persons who have been farm tenants or farm
 
20           laborers, or other individuals who have for the two
 
21           years last preceding their application obtained the
 
22           major portion of their income from farming operations,
 
23           and persons who by reason of ability, experience, and
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           training as vocational trainees are likely to
 
 2           successfully operate a farm, who otherwise meet the
 
 3           eligibility requirements of section 155-10.
 
 4      (4)  "Cooperative" means a nonprofit association of farmers
 
 5           organized under chapter 421.
 
 6      (5)  "Mortgage" includes such classes of liens on farm land
 
 7           and other authorized security as are approved by the
 
 8           department of agriculture and the credit instruments
 
 9           secured thereby.
 
10      (6)  "Private lender" includes banks, savings and loan
 
11           associations, credit unions, mortgage companies, and
 
12           other qualified companies whose business includes the
 
13           making of loans in the State.]
 
14      "Cooperative" means a nonprofit association of farmers
 
15 organized under chapter 421.
 
16      "Farm land" means land used for agricultural purposes,
 
17 including general farming, cane growing, fruit growing, flower
 
18 growing, grazing, dairying, the production of any form of
 
19 livestock or poultry, and any other form of agricultural
 
20 activity.  It includes land required for an adequate farm
 
21 dwelling and other essential farm buildings, roads, and
 
22 wasteland.
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "Food manufacturers" means entities that process Hawaii-
 
 2 grown agricultural products or that utilize Hawaii-grown
 
 3 agricultural products as an ingredient in the manufacturing
 
 4 process.  Processed and manufactured agricultural food products
 
 5 include items such as chips, dairy products, guava and papaya
 
 6 puree, macadamia nut products, fruit drinks, juices, nectars,
 
 7 jams, jellies, packaged coffee, processed vegetables, freeze-
 
 8 dried and fresh poi, processed meat products, cookies, and
 
 9 candies.
 
10      "Mortgage" includes such classes of liens on farm land and
 
11 other authorized security as are approved by the department of
 
12 agriculture and the credit instruments secured thereby.
 
13      "New farmer program" means a new farm enterprise for
 
14 qualified new farmers, including persons who are displaced from
 
15 employment in an agricultural production enterprise, college
 
16 graduates in agriculture, community college graduates in
 
17 agriculture, and members of the Hawaii Young Farmer Association
 
18 and Future Farmer of America graduates with farming projects,
 
19 persons who have not less than two years' experience as part-time
 
20 farmers, persons who have been farm tenants or farm laborers, or
 
21 other individuals who for the two years last preceding their
 
22 application have obtained the major portion of their income from
 
23 farming operations, and persons who by reason of ability,
 

 
Page 8                                                     2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 experience, and training as vocational trainees are likely to
 
 2 successfully operate a farm, who otherwise meet the eligibility
 
 3 requirements of section 155-10.
 
 4      "Part-time farmer" means a person of proven farming ability
 
 5 who:
 
 6      (1)  Has been operating the person's farm for at least two
 
 7           years on land owned by the person in fee or on land
 
 8           rented or leased from others;
 
 9      (2)  Is presently devoting a portion of the person's time to
 
10           farming; and
 
11      (3)  Derives between twenty-five to fifty per cent of the
 
12           person's net cash income from direct participation in
 
13           farming in its broadest sense.
 
14      "Private lender" includes banks, savings and loan
 
15 associations, credit unions, mortgage companies, and other
 
16 qualified companies whose business includes the making of loans
 
17 in the State."
 
18      "Qualified farmer" means a person of proven farming ability
 
19 who operates the person's own farm on land owned by the person in
 
20 fee or on land rented or leased from others and who is presently
 
21 devoting, has recently devoted, or intends to devote most of the
 
22 person's time or who derives a major portion of the person's net
 
23 cash income from direct participation in farming in its broadest
 

 
Page 9                                                     2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 sense.  It includes Hawaii partnerships controlled to the extent
 
 2 of seventy-five per cent by persons who would qualify
 
 3 individually and would meet the eligibility requirements of
 
 4 section 155-10.  It also includes small corporations where at
 
 5 least seventy-five per cent of each class of stock issued by the
 
 6 corporation is owned by persons who qualify individually and
 
 7 would meet the eligibility requirements of section 155-10 and
 
 8 where seventy-five per cent of the directors are qualified
 
 9 farmers.  It also includes corporations incorporated in the State
 
10 primarily for agricultural production purposes; actively engaged
 
11 in agricultural production for a minimum of two years; and with
 
12 at least seventy-five per cent of each class of stock owned by
 
13 residents of this State."
 
14      SECTION 3.  Section 155-2, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "155-2 Objectives.  One of the objectives of the
 
17 department of agriculture shall be to promote the agricultural
 
18 development of the State by stimulating, facilitating, and
 
19 granting loans to qualified farmers[.] and food manufacturers.
 
20      The department shall encourage the growth, development, and
 
21 [well being] well-being of agriculture in the State by maximizing
 
22 the use of limited state funds and resources in encouraging
 
23 development of new farmers and new crops; assisting qualified
 

 
Page 10                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 farmers and food manufacturers with loans; encouraging private
 
 2 lenders to make loans to qualified farmers and food manufacturers
 
 3 directly, or in cooperation, or in participation with the State;
 
 4 and providing relief to farmers in times of emergencies.
 
 5      The department shall also establish standards and criteria
 
 6 pursuant to which loans may be provided to qualified farmers and
 
 7 food manufacturers who cannot secure credit from other sources at
 
 8 reasonable rates and terms.  Any assessment of the program shall
 
 9 consider its purpose and intent which involves credit risk beyond
 
10 that of banks and other private lenders, and such assessment
 
11 shall be based on standards of similar programs."
 
12      SECTION 4.  Section 155-4, Hawaii Revised Statutes, is
 
13 amended as follows:
 
14      "155-4 Powers and duties of the department.  The
 
15 department of agriculture shall have the following powers:
 
16      (1)  Employ a secretary, who may be exempt from chapters 76
 
17           and 77, and such other full-time and part-time
 
18           employees, subject to chapters 76 and 77, as are
 
19           necessary to effectuate the purposes of this chapter,
 
20           subject further to the limitation of funds in the
 
21           agricultural loan reserve fund;
 
22      (2)  Designate such agents throughout the State as may be
 
23           necessary for property appraisal, the consideration of
 

 
Page 11                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           loan applications, and the supervision of farming
 
 2           operations of borrowers.  The agents may be compensated
 
 3           for their services at such rates as the department in
 
 4           its discretion may fix;
 
 5      (3)  Initiate and carry on a continuing research and
 
 6           education program, utilizing and coordinating the
 
 7           services and facilities of other government agencies
 
 8           and private lenders to the maximum, to inform qualified
 
 9           farmers concerning procedures for obtaining loans and
 
10           to inform private lenders concerning the advantages of
 
11           making loans to qualified farmers;
 
12      (4)  Cooperate with private and federal government farm loan
 
13           sources to increase the amount of loan funds available
 
14           to qualified farmers in the State;
 
15      (5)  Assist individual qualified farmers in obtaining loans
 
16           from other sources.  Insofar as available funds and
 
17           staff permit, counsel and assist individual farmers in
 
18           establishing and maintaining proper records to prove
 
19           their farming ability for loan purposes;
 
20      (6)  Insure loans made to qualified farmers and food
 
21           manufacturers by private lenders under section 155-5;
 
22      (7)  Participate in loans made to qualified farmers and food
 
23           manufacturers by private lenders under section 155-6;
 

 
Page 12                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (8)  Make direct loans to qualified farmers and food
 
 2           manufacturers under section 155-8;
 
 3      (9)  Borrow money for loan purposes;
 
 4     (10)  Assign and sell mortgages;
 
 5     (11)  Hold title to, maintain, use, manage, operate, sell,
 
 6           lease, or otherwise dispose of personal and real
 
 7           property acquired by way of foreclosure, voluntary
 
 8           surrender, or otherwise, to recover moneys loaned;
 
 9     (12)  Sue and be sued in the name of the "State of Hawaii";
 
10     (13)  Exercise such incidental powers as are deemed necessary
 
11           or requisite to fulfill its duty in carrying out the
 
12           purposes of this chapter;
 
13     (14)  Delegate authority to its chairperson to approve loans,
 
14           where the requested amount plus any principal balance
 
15           on existing loans to the applicant, does not exceed
 
16           $25,000 of state funds; and
 
17     (15)  Adopt rules pursuant to chapter 91 necessary for the
 
18           purpose of this chapter."
 
19      SECTION 5.  Section 155-5, Hawaii Revised Statutes, is
 
20 amended by amending subsections (a) and (b) to read as follows:
 
21      "(a)  The department of agriculture may insure up to ninety
 
22 per cent of the principal balance of a loan, plus interest due
 
23 thereon, made to a qualified farmer [or], qualified new farmer,
 

 
Page 13                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 or qualified food manufacturer by a private lender who is unable
 
 2 to otherwise lend the applicant sufficient funds at reasonable
 
 3 rates; provided that at no time shall the aggregate amount of the
 
 4 State's liability, contingent or otherwise, on loans insured
 
 5 under this section and section 155-6 exceed $10,000,000.
 
 6      (b)  Loans insured under this section shall be limited by
 
 7 the provisions of sections 155-9 through 155-13 for purposes of
 
 8 class "A" through class "F"[.]; provided that class "E" loans to
 
 9 food manufacturers shall not be subject to section 155-10."
 
10      SECTION 6.  Section 155-5.5, Hawaii Revised Statutes, is
 
11 amended by amending subsections (a) and (b) to read as follows:
 
12      "(a)  The department of agriculture may guarantee up to
 
13 ninety per cent of the principal balance of a loan, plus interest
 
14 due thereon, made to a qualified farmer, qualified food
 
15 manufacturer, or cooperative by a private lender; provided that
 
16 at no time shall the aggregate amount of the State's liability,
 
17 contingent or otherwise, on loans guaranteed under this section,
 
18 section 155-5, [and] section 155-6, and section 155-6.5 exceed
 
19 $10,000,000.
 
20      (b)  Loans guaranteed under this section shall be limited by
 
21 the provisions of sections 155-9 through 155-13 for purposes of
 
22 class "A", "B", "C", and "E"[.]; provided that class "E" loans to
 
23 food manufacturers shall not be subject to section 155-10.  No
 
24 class "D" and "F" loans shall be made under this section."
 

 
Page 14                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 7.  Section 155-6, Hawaii Revised Statutes, is
 
 2 amended by amending subsections (a) and (b) to read as follows:
 
 3      "(a)  The department of agriculture may provide funds for a
 
 4 share, not to exceed ninety per cent, of the principal amount of
 
 5 a loan made to a qualified farmer [or], qualified new farmer, or
 
 6 qualified food manufacturer by a private lender who is unable
 
 7 otherwise to lend the applicant sufficient funds at reasonable
 
 8 rates.
 
 9      (b)  Participating loans under this section shall be limited
 
10 by sections 155-9 to 155-13 for purposes of class "A" through
 
11 class "F", the department's share not to exceed the maximum
 
12 amounts specified therefor[.]; provided that class "E" loans to
 
13 food manufacturers shall not be subject to section 155-10."
 
14      SECTION 8.  Section 155-6.5, Hawaii Revised Statutes, is
 
15 amended as follows:
 
16      1.  By amending subsection (a) to read:
 
17      "(a)  The department of agriculture, for a fee, may
 
18 underwrite and service loans for cooperating private lenders and
 
19 government loan programs providing loan funds to qualified
 
20 farmers[.] and qualified food manufacturers.  All fees shall be
 
21 deposited into the agricultural loan reserve fund."
 
22      2.  By amending subsection (c) to read:
 
23      "(c)  Loans underwritten or serviced under this section
 
24 shall be limited by sections 155-1 and 155-9 to 155-12[.];
 
25 provided that class "E" loans to food manufacturers shall not be
 

 
Page 15                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subject to section 155-10.  No class "D" and "F" loans shall be
 
 2 underwritten or serviced under this section."
 
 3      SECTION 9.  Section 155-8, Hawaii Revised Statutes, is
 
 4 amended by amending subsections (a), (b) and (c) to read as
 
 5 follows:
 
 6      "(a)  The department of agriculture may make loans directly
 
 7 to qualified farmers [or], qualified new farmers, or qualified
 
 8 food manufacturers who are unable to obtain sufficient funds at
 
 9 reasonable rates from private lenders either independently or
 
10 under sections 155-5, 155-5.5, and 155-6.
 
11      (b)  Loans made under this section shall be limited by
 
12 sections 155-9 to 155-13[.]; provided that class "E" loans to
 
13 food manufacturers shall not be subject to 155-10.
 
14      (c)  Loans made under this section shall bear simple
 
15 interest on the unpaid principal balance, charged on the actual
 
16 amount disbursed to the borrower.  The interest rate on loans of
 
17 classes "A", "B", "C", [and] "E", and "G" shall be at a rate of
 
18 one per cent below the prime rate or at a rate of seven and one-
 
19 half per cent a year, whichever is less.  For purposes of this
 
20 subsection, the prime rate shall be determined on January 1 and
 
21 July 1 of each year, and shall be the prime rate charged by the
 
22 two largest banks in the State identified by the department of
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 commerce and consumer affairs.  If the prime rates of the two
 
 2 largest banks are different, the lower prime rate of the two
 
 3 shall apply.  The interest rate on class "F" loans shall be six
 
 4 per cent a year.  If the money loaned is borrowed by the
 
 5 department, then the interest on loans of such classes shall be
 
 6 the rate as determined above or one per cent over the cost to the
 
 7 State of borrowing the money, whichever is greater.  Interest on
 
 8 class "D" loans shall not be less than three per cent a year."
 
 9      SECTION 10.  Section 155-9, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "155-9 Classes of loans; purposes, terms, eligibility.
 
12 (a)  Loans made under this chapter shall be for the purposes and
 
13 in accordance with the terms specified in classes "A" through "F"
 
14 in this section and shall be made only to applicants who meet the
 
15 eligibility requirements specified therein and except as to class
 
16 "B" loans to associations and class "E" loans, the eligibility
 
17 requirements specified in section 155-10.  The maximum amount of
 
18 a loan for class "A", "C", "D", and "F" loans to an individual
 
19 applicant shall also apply to any loan application submitted by a
 
20 partnership, corporation, or other entity, and for the purpose of
 
21 determining whether the maximum loan amount to any individual
 
22 will be exceeded, outstanding loans to any partnership,
 
23 corporation, or other entity in which such individual has a legal
 

 
Page 17                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 or equitable interest in excess of twenty per cent shall be taken
 
 2 into account.
 
 3      (b)  Class A:  Farm ownership and improvement loans shall
 
 4 provide for:
 
 5      (1)  The purchase or improvement of farm land;
 
 6      (2)  The purchase, construction, or improvement of adequate
 
 7           farm dwellings, and other essential farm buildings; and
 
 8      (3)  The liquidation of indebtedness incurred for any of the
 
 9           foregoing purposes.
 
10      The loans shall be for an amount not to exceed $400,000 and
 
11 for a term not to exceed forty years.  To be eligible, the
 
12 applicant shall (A) derive, or present an acceptable plan to
 
13 derive, a major portion of the applicant's income from and
 
14 devote, or intend to devote, most of the applicant's time to
 
15 farming operations; (B) have or be able to obtain the operating
 
16 capital, including livestock and equipment, needed to
 
17 successfully operate the applicant's farm.
 
18      (c)  Class B:  Soil and water conservation loans shall
 
19 provide for:
 
20      (1)  Soil conservation practices;
 
21      (2)  Water development, conservation, and use;
 
22      (3)  Drainage; and
 
23      (4)  The liquidation of indebtedness incurred for any of the
 
24           foregoing purposes.
 

 
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 1      The loans shall be for an amount not to exceed $35,000 to an
 
 2 individual or $200,000 to an association and shall be for a term
 
 3 not to exceed twenty years for a loan to an individual and forty
 
 4 years to an association.  To be eligible, an individual applicant
 
 5 shall have sufficient farm and other income to pay for farm
 
 6 operating and living expenses and to meet payments on the
 
 7 applicant's existing debts, including the proposed soil and water
 
 8 conservation loan.  An association, to be eligible, shall be a
 
 9 nonprofit organization primarily engaged in extending services
 
10 directly related to the purposes of the loan to its members, and
 
11 at least sixty per cent of its membership shall meet the
 
12 eligibility requirements specified in section 155-10.
 
13      (d)  Class C:  Farm operating loans shall be for the purpose
 
14 of carrying on and improving a farming operation, including:
 
15      (1)  The purchase of farm equipment and livestock;
 
16      (2)  The payment of production and marketing expenses
 
17           including materials, labor, and services;
 
18      (3)  The payment of living expenses;
 
19      (4)  The liquidation of indebtedness incurred for any of the
 
20           foregoing purposes; and
 
21      (5)  The exportation of crops and livestock.
 
22      The loans shall be for an amount not to exceed $400,000 and
 
23 for a term not to exceed ten years.  To be eligible, an applicant
 

 
Page 19                                                    2996
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 1 shall derive, or present an acceptable plan to derive, a major
 
 2 portion of the applicant's income from and devote, or intend to
 
 3 devote, most of the applicant's time to farming operations.
 
 4      Qualified farmers affected by state eradication programs may
 
 5 also be eligible for loans under this subsection.  Loans made for
 
 6 rehabilitation from eradication programs shall be subject to the
 
 7 terms of class "C" loans; provided that the interest rate shall
 
 8 be three per cent a year and the requirements in section 155-3
 
 9 shall be waived and paragraph (4) shall not apply.
 
10      (e)  Class D:  Emergency loans shall be for the purpose of
 
11 providing relief and rehabilitation to qualified farmers without
 
12 limit as to purpose:
 
13      (1)  In areas stricken by extraordinary rainstorms,
 
14           windstorms, droughts, tidal waves, earthquakes,
 
15           volcanic eruptions, and other natural catastrophes;
 
16      (2)  On farms stricken by livestock disease epidemics and
 
17           crop blights;
 
18      (3)  On farms seriously affected by prolonged shipping and
 
19           dock strikes;
 
20      (4)  During economic emergencies caused by overproduction,
 
21           excessive imports, and the like; and
 
22      (5)  During other emergencies as determined by the board of
 
23           agriculture.
 

 
Page 20                                                    2996
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 1      The maximum amounts and period for the loans shall be
 
 2 determined by the board of agriculture; provided that the board
 
 3 shall require that any settlement or moneys received by qualified
 
 4 farmers as a result of an emergency declared under this section
 
 5 shall first be applied to the repayment of an emergency loan made
 
 6 under this chapter.
 
 7      (f)  Class E:  Loans to farmers' cooperatives [and],
 
 8 corporations, and food manufacturers shall provide credit to
 
 9 [farmers' cooperative associations and corporations] entities
 
10 engaged in marketing, purchasing, and processing, and providing
 
11 farm business services, including:
 
12      (1)  Facility loans to purchase or improve land, building,
 
13           and equipment for an amount not to exceed $500,000 and
 
14           a term not to exceed twenty years;
 
15      (2)  Operating loans to finance inventories of [supplies,]
 
16           supplies/materials, warehousing, and shipping
 
17           commodities, extension of consumer credit to justified
 
18           farmer-members, and other normal operating expenses for
 
19           an amount not to exceed $300,000 and a term not to
 
20           exceed seven years; and
 
21      (3)  The exportation of crops and livestock.
 
22      To be eligible, a farmers' cooperative or corporation shall
 
23 have a majority of its board of directors and a majority of its
 

 
Page 21                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 membership as shareholders who meet the eligibility requirements
 
 2 of section 155-10 and who devote most of their time to farming
 
 3 operations, and the facility loans shall be for an amount not to
 
 4 exceed $500,000 or eighty per cent of the cost of the project,
 
 5 whichever is the lesser.
 
 6      To be eligible, a food manufacturer shall be licensed to do
 
 7 business in the State, and the controlling interest of the entity
 
 8 shall possess a minimum of two years of relevant processing or
 
 9 manufacturing experience as acceptable to the department of
 
10 agriculture.  The entity shall process Hawaii-grown agricultural
 
11 products or use Hawaii-grown agricultural products as an
 
12 ingredient in the manufacturing process.  Facility loans shall be
 
13 for an amount not to exceed $500,000 or eighty per cent of the
 
14 cost of the project, whichever is the lesser.  The requirements
 
15 in section 155-10 shall be waived for food manufacturing loans;
 
16 however, the entity shall be a sound credit risk with the ability
 
17 to repay the money borrowed.
 
18      (g)  Class F:  Loans for new farmer programs shall provide
 
19 for costs of a new farm enterprise for qualified new farmers:
 
20      (1)  Initial loans made under this class shall be for
 
21           purposes and in accordance with the terms specified in
 
22           classes "A" and "C" only, and shall be made only for
 
23           full-time farming.  The loans shall be made for an
 

 
Page 22                                                    2996
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           amount not to exceed $100,000 or eighty-five per cent
 
 2           of the cost of the project, whichever is the lesser;
 
 3      (2)  Any subsequent loan shall be made from classes "A" to
 
 4           "D", respectively, depending upon the purpose for which
 
 5           the loan funds are used; and
 
 6      (3)  Borrowers shall comply with such special term loan
 
 7           agreements as may be required by the department and
 
 8           shall take such special training courses as the
 
 9           department deems necessary.
 
10      (h)  Class G:  Loans to part-time farmers shall be for farm
 
11 improvement and operating purposes for carrying on and improving
 
12 farming operations, including loans for:
 
13      (1)  The purchase, construction, and improvement of farm
 
14           production and growing structures;
 
15      (2)  The purchase of farm equipment or livestock; and
 
16      (3)  The payment of production and marketing expenses,
 
17           including materials, labor, and services.
 
18      The liquidation of indebtedness incurred for any of the
 
19 purposes under this subsection and for living expenses shall not
 
20 be authorized purposes.  Each loan shall be for an amount not to
 
21 exceed $25,000 and for a term not to exceed ten years."
 
22      SECTION 11.  Section 155-10, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "155-10  General eligibility requirements for loans.  To be
 
 2 eligible for loans under this chapter, an applicant shall be:
 
 3      (1)  A qualified farmer, [or] a person under the new farmer
 
 4           program[;], or a part-time farmer;
 
 5      (2)  A citizen of the United States who has resided in the
 
 6           State for at least three years, or any permanent
 
 7           resident alien who has resided in the State for at
 
 8           least [five] three years; provided that this
 
 9           requirement shall not apply to applicants for class "D"
 
10           loans who otherwise qualify.  In the case of
 
11           partnerships and corporations, the residence
 
12           requirement must be met by seventy-five per cent of the
 
13           members or stockholders;
 
14      (3)  A sound credit risk with the ability to repay the money
 
15           borrowed; and
 
16      (4)  Willing to carry out recommended farm management
 
17           practices."
 
18      SECTION 12.  Section 155-11, Hawaii Revised Statutes, is
 
19 amended as follows:
 
20      1.  By amending subsection (a) to read:
 
21      "(a)  Loans made under this chapter [shall] may be secured
 
22 by duly recorded first mortgages upon the following property
 
23 within the State:
 

 
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 1      (1)  Fee simple [farm] land;
 
 2      (2)  Leaseholds of [farm] land where the lease has an
 
 3           unexpired term at least two years longer than the term
 
 4           of the loan;
 
 5      (3)  Crops, livestock and equipment; and
 
 6      (4)  Other chattels."
 
 7      2.  By amending subsection (e) to read:
 
 8      "(e)  In case of the sale or transfer of the mortgaged land
 
 9 or goods in which the department has a security interest, as that
 
10 term is defined in section 490:1-201(37), the department may
 
11 permit the mortgage or encumbrance to be assumed by the
 
12 purchaser.  In case of the death of the borrower, the borrower's
 
13 heir or heirs, or the borrower's legal representative or
 
14 representatives, shall have the option within six months of the
 
15 death to assume the mortgage of the deceased.  The department or
 
16 its agents may, pending the exercise of the option and pending
 
17 possession being taken by the heirs or representatives, take
 
18 possession of all mortgaged property and carry on the
 
19 [agricultural] operation connected therewith, and the expense of
 
20 the same shall be added to the principal due upon the mortgage to
 
21 bear interest at the applicable rate."
 
22      SECTION 13.  Section 155-12, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "155-12  Conditions.  Every borrower who is granted a loan
 
 2 under this chapter shall comply with the following conditions:
 
 3      (1)  Expend no portion of the borrower's loan for purposes
 
 4           other than those sanctioned by the department of
 
 5           agriculture.
 
 6      (2)  Carry out recommended [farm] management practices,
 
 7           including the keeping of proper records.
 
 8      (3)  Not sell or otherwise dispose of the mortgaged property
 
 9           except on written consent of the lender, and except
 
10           upon such conditions as may be prescribed in writing by
 
11           the lender.
 
12      (4)  Undertake to pay, when due, all taxes, liens,
 
13           judgments, or assessments which may be lawfully
 
14           assessed against the property mortgaged, together with
 
15           the costs and expense of any foreclosure of such
 
16           mortgage.
 
17      (5)  Keep insured to the satisfaction of the department all
 
18           buildings and other insurable property covered by the
 
19           mortgage.  Insurance shall be made payable to the
 
20           mortgagee as its interests may appear at the time of
 
21           the loss.  At the option of the lender, and subject to
 
22           the general regulations of the department, sums so
 
23           received may be used to pay for reconstruction of the
 

 
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 1           buildings destroyed, or for decreasing the amount of
 
 2           the indebtedness.
 
 3      (6)  Keep buildings in good repair; provide proper care for
 
 4           improvements, stock, and implements; keep land free
 
 5           from noxious weeds; practice good systems of husbandry.
 
 6      (7)  All of the above conditions shall be held and construed
 
 7           to be a provision of any mortgage executed by virtue of
 
 8           this chapter whether appearing as a provision of the
 
 9           mortgage or not.
 
10      (8)  If the borrower is in default in respect to the above
 
11           conditions, or any other conditions, or any other
 
12           condition or covenant of the mortgage, the whole of the
 
13           loan shall, at the option of the lender become due and
 
14           payable forthwith.  The lender may, with or without
 
15           notice, take possession of the mortgaged property
 
16           pending a foreclosure and may carry on [agricultural]
 
17           the business pursuits upon the mortgaged premises,
 
18           expending all reasonable sums therefor.  Such sums
 
19           shall be a lien on the mortgaged premises and be
 
20           recoverable in any foreclosure proceedings or
 
21           otherwise.  The lender may foreclose the mortgage by
 
22           any method provided for by law."
 

 
 
 
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 1      SECTION 14.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 15.  This Act shall take effect upon its approval.