Financing Agreements

Repeals the requirement that an agency must have the approval of
the director or deputy director of finance and the attorney
general before entering into a financing agreement pursuant to
chapter 37D, HRS.

THE SENATE                              S.B. NO.           1432
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  Section 37D-1, Hawaii Revised Statutes, is
 2 amended by deleting the definition of "attorney general".
 3      [""Attorney general" means the attorney general of the State
 4 or any duly designated deputy attorney general."]
 5      SECTION 2.  Section 37D-2, Hawaii Revised Statutes, is
 6 amended to read as follows:
 7      "37D-2 Financing agreements.  [Only with the approval of
 8 the director, and the approval by the attorney general of form
 9 and legality, may the agency] An agency may enter into a
10 financing agreement in accordance with this chapter.  A financing
11 agreement may be entered into at the time (before or after
12 commencement or completion of any improvement to be financed) and
13 shall be upon terms the agency finds to be advantageous.  Any
14 financing agreement entered into by the agency without the
15 approvals required by this section shall be void and of no
16 effect.  Financing agreements shall be subject to the following
17 limitations:
18      (1)  Amounts payable by the agency under a financing
19           agreement shall be limited to available funds.  In no

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 1           circumstance shall the agency be obligated to pay
 2           amounts due under a financing agreement from any source
 3           other than available funds.  If, by reason of
 4           insufficient available funds or other reason, amounts
 5           due under a financing agreement are not paid when due,
 6           the lender may exercise any property right that the
 7           agency has granted to it in the financing agreement,
 8           against the property that was purchased with the
 9           proceeds of the financing agreement, and apply the
10           amounts so received toward payments scheduled to be
11           made by the agency under the financing agreement;
12      (2)  No property rights may be granted in property unless
13           the property is being acquired, is to be substantially
14           improved, is to be refinanced with the proceeds of a
15           financing agreement, or is land on which the property
16           is located;
17      (3)  The agency shall not enter into financing agreements
18           under any provision of law other than this chapter if
19           the principal amount of the financing agreement,
20           together with the principal amount of any financing
21           agreement previously issued by the agency for the same
22           project, exceeds $100,000; and
23      (4)  The sale, assignment, or other disposition of any

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 1           financing agreements, including certificates of
 2           participation, shall require the approval of the
 3           director."
 4      SECTION 3.  Section 37D-3, Hawaii Revised Statutes, is
 5 amended to read as follows:
 6      "37D-3 Related agreements.  [With the approval of the
 7 director and the approval by the attorney general of form and
 8 legality, an] An agency may:
 9      (1)  Enter into agreements with trustees, within or without
10           the State, to hold financing agreement proceeds,
11           payments, and reserves as security for lenders to
12           accept assignments of rights in the financing agreement
13           from, and to enforce such rights of, the lessor or
14           other party thereto, and to issue certificates of
15           participation for the right to receive payments due
16           from the agency under a financing agreement.  Amounts
17           held by a trustee shall be invested by the trustee at
18           the direction of the agency in such investments as
19           shall be specified in the agreement with the trustee.
20           Interest earned on any investment held by a trustee as
21           security for a financing agreement may, at the option
22           of the agency, be credited to the accounts held by the
23           trustee and applied in payment of sums due under a

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 1           financing agreement;
 2      (2)  Enter into credit enhancement agreements for financing
 3           agreements or certificates of participation; provided
 4           that the credit enhancement agreements shall be payable
 5           solely from available funds and amounts received from
 6           the exercise of property rights granted under such
 7           financing agreements;
 8      (3)  Use financing agreements to finance the costs of
 9           acquiring or refinancing property, plus the costs of
10           reserves and credit enhancements and costs associated
11           with obtaining the financing;
12      (4)  Use a single financing agreement to finance property to
13           be used by multiple agencies;
14      (5)  Grant leases of real property subject to section
15           37D-2(2).  The leases may be for a term that ends on
16           the date on which all amounts due under a financing
17           agreement have been paid or provision for payment has
18           been made or ten years after the last scheduled payment
19           under a financing agreement, whichever is later.  The
20           leases may grant the lessor the right to evict the
21           agency and exclude it from possession of the real
22           property for the term of the lease, if the agency fails
23           to appropriate or pay when due the amounts scheduled to

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 1           be paid under a financing agreement or otherwise
 2           defaults under a financing agreement.  Upon failure to
 3           pay or default, the lessor may sublease the land to
 4           third parties and apply any rentals toward payments
 5           scheduled to be made under a financing agreement;
 6      (6)  Grant security interests in personal property subject
 7           to section 37D-2(2).  The security interests shall
 8           attach and be perfected on the date the agency takes
 9           possession of the personal property, or the date the
10           lender advances money under a financing agreement,
11           whichever is later.  A security interest authorized by
12           this section shall have, except as otherwise provided
13           by law, priority over all other liens and claims.  Upon
14           failure to pay or default, the secured party shall have
15           the rights and remedies available to a secured party
16           under chapter 490 or a first, perfected security
17           interest in goods and fixtures.  No later than ten days
18           after a security interest authorized by this section
19           attaches, the agency shall cause a financing statement
20           for the security interest to be filed with the bureau
21           of conveyances in the same manner as financing
22           statements are filed for goods;
23      (7)  Pledge any amounts that are deposited with a trustee in

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 1           accordance with a financing agreement.  The pledge
 2           shall be valid and binding from the time it is made,
 3           the amounts so pledged shall immediately be subject to
 4           the lien of the pledge without filing, physical
 5           delivery, or other act, and the lien of the pledge
 6           shall be superior to all other claims and liens of any
 7           kind whatsoever;
 8      (8)  Bill any other agency that benefits from property
 9           acquired with the proceeds of a financing agreement for
10           an appropriate share of the financing costs, including
11           debt service, on a monthly or other periodic basis, and
12           deposit payments received in connection with the
13           billings with a trustee as security for a financing
14           agreement.  Any agency receiving such a bill shall be
15           authorized and shall pay the amounts billed from the
16           first amounts legally available to it;
17      (9)  Purchase fire and extended coverage or other casualty
18           insurance, or liability, title, rental interruption or
19           other insurance for property that is acquired or
20           refinanced with proceeds of a financing agreement,
21           assign the proceeds thereof to a lender or trustee to
22           the extent of their interest, and covenant to maintain
23           such insurance while the financing agreement is unpaid,

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 1           so long as available funds are sufficient to purchase
 2           such insurance; and
 3     (10)  In connection with any financing agreement by which any
 4           agency leases or purchases property from another party,
 5           notwithstanding and without regard to chapter 171 or
 6           any other law, the agency may lease or sell, on such
 7           terms as the agency shall determine, to that party the
 8           site or property to be improved or otherwise to be
 9           leased or sold back to the agency."
10      SECTION 4.  Statutory material to be repealed is bracketed.
11 New statutory material is underscored.
12      SECTION 5.  This Act shall take effect upon its approval.
14                           INTRODUCED BY:  _______________________