REPORT TITLE:
Technology


DESCRIPTION:
Allows qualified high technology businesses to sell their unused
net operating loss carryover to any other taxpayer.  Expands the
income tax exclusion for royalties and other income from high
technology businesses.  Allows partnership investors the
flexibility of allocating the high technology business investment
tax credit among partners without regard to their proportionate
interests in their partnership investment vehicle.  Makes the
high technology business investment tax credit and the tax credit
for increasing research activities refundable to the taxpayer or
allowing the credits to be used against the taxpayer's income tax
liability in subsequent years until exhausted.  Conforms the
state tax credit for increasing research activities with the
federal tax credit.  Allows the board of trustees of the
employees' retirement system (ERS) to invest ten percent of ERS
funds in qualified high technology businesses.  Appropriates
funds for education, workforce development, and University of
Hawaii research and training.  Exempts members of the governor's
special advisory council for technology development from the
senate confirmation process and from the need to file a
disclosure of financial interest with the state ethics
commission.  Promotes Hawaii, through a coordinated statewide
effort, as a place to do high technology business.  Gives
increased autonomy and authority to the high technology
development council (HTDC) over its fiscal and personnel matters.
Establishes the Hawaii venture capital technology revolving fund.
Requires HTDC to establish programs for seed capital assistance,
venture capital assistance, and capital access.  Puts a
designated member from the board of HTDC, a designated member
from the board of the natural energy laboratory of Hawaii
authority, and a designated member from the board of the Hawaii
strategic development corporation on each others' boards.
Requires DBEDT and HTDC to report on the Hawaii capital loan
program.  (SB2420 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
                                                        2420
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 2000                                H.D. 2
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO TECHNOLOGY.



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

 1                              PART I
 
 2      SECTION 1.  The purpose of this part is to:
 
 3      (1)  Allow qualified high technology businesses to sell
 
 4           their unused net operating loss carryover to any other
 
 5           taxpayer;
 
 6      (2)  Amend the high technology-related definitions in the
 
 7           income tax law by:
 
 8           (A)  Consolidating all of the high-technology
 
 9                definitions in chapter 235, Hawaii Revised
 
10                Statutes, into section 235-1, Hawaii Revised
 
11                Statutes;
 
12           (B)  Repealing the corresponding definitions from the
 
13                high technology tax credit sections;
 
14           (C)  Adding new definitions of "computer data" and
 
15                computer program"; and
 
16           (D)  Amending the definition of "qualified high
 
17                technology business" to mean a business that
 
18                conducts a majority, rather than one hundred per
 
19                cent, of its activities in performing qualified
 
20                research in Hawaii, or receives a majority, rather
 

 
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 1                than one hundred per cent, of its gross income
 
 2                derived from qualified research;
 
 3      (3)  Amend the income tax exclusion for royalties and other
 
 4           income from high technology businesses established by
 
 5           section 22 of Act 178, Session Laws of Hawaii 1999, by
 
 6           expanding that exclusion to include royalties derived
 
 7           from any patent, copyright, or trade secret for any
 
 8           individual or other person who owns the patent or
 
 9           copyright;
 
10      (4)  Amend the section relating to operation of certain
 
11           Internal Revenue Code provisions to allow partnership
 
12           investors the flexibility of allocating the high
 
13           technology business investment tax credit in section
 
14           235-110.9, Hawaii Revised Statutes, among partners
 
15           without regard to their proportionate interests in
 
16           their partnership investment vehicle;
 
17      (5)  Amend the high-technology business investment tax
 
18           credit under section 235-110.9, Hawaii Revised
 
19           Statutes, and the tax credit for increasing research
 
20           activities under section 235-110.91, Hawaii Revised
 
21           Statutes, by making the credit refundable to the
 
22           taxpayer in addition to allowing the credit to be used
 

 
 
 
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 1           against the taxpayer's income tax liability in
 
 2           subsequent years until exhausted; and
 
 3      (6)  Conform the tax credit for increasing research
 
 4           activities under section 235-110.91, Hawaii Revised
 
 5           Statutes, to that provided under the Internal Revenue
 
 6           Code, thereby increasing the tax credit from 2.5 per
 
 7           cent to twenty per cent to match the federal rate.
 
 8      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
 9 by adding a new section to be appropriately designated and to
 
10 read as follows:
 
11      "235-    High technology; sale of unused net operating loss
 
12 carryover.  (a)  A qualified high technology business may apply
 
13 to the department of taxation to sell its unused net operating
 
14 loss carryover to another taxpayer.  If approved by the
 
15 department of taxation, a qualified high technology business may
 
16 sell its unused net operating loss carryover for private
 
17 financial assistance to another taxpayer in an amount equal to at
 
18 least fifty per cent of the amount of the surrendered tax
 
19 benefit; provided that the qualified high technology business may
 
20 sell no more than $500,000 of its unused net operating loss
 
21 carryover to another taxpayer per year.  The tax benefit
 
22 purchased by the buyer shall be claimed in the year the sale is
 
23 approved by the department.  Any use of the purchased tax benefit
 

 
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 1 for tax carryback or carryforward purposes shall comply with
 
 2 applicable law.  The financial assistance gained by the seller,
 
 3 which is a qualified high technology business, shall be reported
 
 4 on its tax return but shall not be considered taxable income.
 
 5      (b)  No application for the sale of unused net operating
 
 6 losses shall be approved if the seller is a qualified high
 
 7 technology business that:
 
 8      (1)  Has demonstrated positive net income in any of the two
 
 9           previous full years of ongoing operations as determined
 
10           on its financial statements;
 
11      (2)  Has demonstrated a ratio in excess of one hundred ten
 
12           per cent or greater of operating revenues divided by
 
13           operating expenses in any of the two previous full
 
14           years of operations as determined on its financial
 
15           statements; or
 
16      (3)  Is directly or indirectly at least fifty per cent owned
 
17           or controlled by another corporation that has
 
18           demonstrated positive net income in any of the two
 
19           previous full years of ongoing operations as determined
 
20           on its financial statements or is part of a
 
21           consolidated group of affiliate corporations, as filed
 
22           for federal income tax purposes, that in the aggregate
 
23           has demonstrated positive net income in any of the two
 

 
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 1           previous full years of ongoing operations as determined
 
 2           on its combined financial statements;
 
 3 as certified and documented by a licensed certified public
 
 4 accountant.
 
 5      (c)  The department of taxation shall adopt rules pursuant
 
 6 to chapter 91 to implement this section, which shall include the
 
 7 following:
 
 8      (1)  Procedure and criteria for the approval or disapproval
 
 9           of applications filed by qualified high technology
 
10           businesses selling unused net operating losses; and
 
11      (2)  Criteria to provide for the equitable apportionment of
 
12           qualified sales allowed annually under this section to
 
13           eligible applicants."
 
14      SECTION 3.  Section 235-1, Hawaii Revised Statutes, is
 
15 amended by adding six new definitions to be appropriately
 
16 inserted and to read as follows:
 
17      ""Computer data" means any representation of information,
 
18 knowledge, facts, concepts, or instructions that is being
 
19 prepared or has been prepared and is intended to be processed, is
 
20 being processed, or has been processed in a computer or computer
 
21 network.  "Computer data" includes works in the performing arts
 
22 such as audio files, video files, audiovisual files, computer
 

 
 
 
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 1 animation, and other entertainment products that are perceived by
 
 2 or through the operation of a computer.
 
 3      "Computer program" means an ordered set of computer data
 
 4 representing coded instructions or statements, that, when
 
 5 executed by a computer, causes the computer to perform one or
 
 6 more computer operations.
 
 7      "Computer software" means computer data, a computer program,
 
 8 or a set of computer programs, procedures, or associated
 
 9 documentation concerned with the operation and function of a
 
10 computer system, and includes both systems and application
 
11 programs and subdivisions, such as assemblers, compilers,
 
12 routines, generators, and utility programs.
 
13      "Investment" means a nonrefundable investment, at risk, as
 
14 that term is used in section 465 (with respect to deductions
 
15 limited to amount at risk) of the Internal Revenue Code, in a
 
16 qualified high technology business, of cash that is transferred
 
17 to the qualified high technology business, the transfer of which
 
18 is in connection with a transaction in exchange for stock,
 
19 interests in partnerships, joint ventures, or other entities,
 
20 licenses (exclusive or nonexclusive), rights to use technology,
 
21 marketing rights, warrants, options, or any items similar to
 
22 those included in this definition, including but not limited to
 

 
 
 
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 1 options or rights to acquire any of the items included in this
 
 2 definition.  The nonrefundable investment is entirely at risk of
 
 3 loss where repayment depends upon the success of the qualified
 
 4 high technology business.  If the money invested is to be repaid
 
 5 to the taxpayer, no repayment except for dividends or interest
 
 6 shall be made for at least three years from the date the
 
 7 investment is made.  The annual amount of any dividend and
 
 8 interest payment to the taxpayer shall not exceed twelve per cent
 
 9 of the amount of the investment.
 
10      "Qualified high technology business":
 
11      (1)  Means a business employing or owning capital or
 
12           property, or maintaining an office, in this State that:
 
13           (A)  Conducts a majority of its activities in
 
14                performing qualified research in this State; or
 
15           (B)  Receives a majority of its gross income derived
 
16                from qualified research; provided that the income
 
17                is received from:
 
18                (i)  Products sold from, manufactured in, or
 
19                     produced in the State; or
 
20               (ii)  Services performed in this State; and
 
21      (2)  Does not include:
 
22           (A)  Any trade or business involving the performance of
 
23                services in the field of law, architecture,
 

 
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 1                accounting, actuarial science, performing arts,
 
 2                consulting, athletics, financial services, or
 
 3                brokerage services;
 
 4           (B)  Any banking, insurance, financing, leasing,
 
 5                rental, investing, or similar business;
 
 6           (C)  Any farming business, including the business of
 
 7                raising or harvesting trees;
 
 8           (D)  Any business involving the production or
 
 9                extraction of products of a character with respect
 
10                to which a deduction is allowable under section
 
11                611 (with respect to allowance of deduction for
 
12                depletion), 613 (with respect to basis for
 
13                percentage depletion), or 613A (with respect to
 
14                limitation on percentage depleting in cases of oil
 
15                and gas wells) of the Internal Revenue Code;
 
16           (E)  Any business operating a hotel, motel, restaurant,
 
17                or similar business; and
 
18           (F)  Any trade or business involving a hospital, a
 
19                private office of a licensed health care
 
20                professional, a group practice of licensed health
 
21                care professionals, or a nursing home.
 
22      "Qualified research" means:
 

 
 
 
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 1      (1)  The same as in section 41(d) of the Internal Revenue
 
 2           Code; or
 
 3      (2)  Developing, designing, modifying, programming, and
 
 4           licensing computer software;
 
 5 except that it shall not include research conducted outside the
 
 6 State."
 
 7      SECTION 4.  Section 235-2.4, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "235-2.4  Operation of certain Internal Revenue Code
 
10 provisions.(a)  Section 63 (with respect to taxable income
 
11 defined) of the Internal Revenue Code shall be operative for the
 
12 purposes of this chapter, except that the standard deduction
 
13 amount in section 63(c) of the Internal Revenue Code shall
 
14 instead mean:
 
15      (1)  $1,900 in the case of:
 
16           (A)  A joint return as provided by section 235-93; or
 
17           (B)  A surviving spouse (as defined in section 2(a) of
 
18                the Internal Revenue Code);
 
19      (2)  $1,650 in the case of a head of household (as defined
 
20           in section 2(b) of the Internal Revenue Code);
 
21      (3)  $1,500 in the case of an individual who is not married
 
22           and who is not a surviving spouse or head of household;
 
23           or
 

 
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 1      (4)  $950 in the case of a married individual filing a
 
 2           separate return.
 
 3      Section 63(c)(4) shall not be operative in this State.
 
 4 Section 63(c)(5) shall be operative, except that the limitation
 
 5 on basic standard deduction in the case of certain dependents
 
 6 shall be the greater of $500 or such individual's earned income.
 
 7 Section 63(f) shall not be operative in this State.
 
 8      The standard deduction amount for nonresidents shall be
 
 9 calculated pursuant to section 235-5.
 
10      (b)  Section 72 (with respect to annuities; certain proceeds
 
11 of endowment and life insurance contracts) of the Internal
 
12 Revenue Code shall be operative for purposes of this chapter and
 
13 be interpreted with due regard to section 235-7(a), except that
 
14 the ten per cent additional tax on early distributions from
 
15 retirement plans in section 72(t) shall not be operative for
 
16 purposes of this chapter.
 
17      (c)  Section 121 (with respect to exclusion of gain from
 
18 sale of principal residence) of the Internal Revenue Code shall
 
19 be operative for purposes of this chapter, except that for the
 
20 election under section 121(f), a reference to section 1034
 
21 treatment means a reference to section 235-2.4(n) in effect for
 
22 taxable year 1997.
 

 
 
 
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 1      (d)  Section 219 (with respect to retirement savings) of the
 
 2 Internal Revenue Code shall be operative for the purpose of this
 
 3 chapter.  For the purpose of computing the limitation on the
 
 4 deduction for active participants in certain pension plans for
 
 5 state income tax purposes, adjusted gross income as used in
 
 6 section 219 as operative for this chapter means federal adjusted
 
 7 gross income.
 
 8      (e)  Section 220 (with respect to medical savings accounts)
 
 9 of the Internal Revenue Code shall be operative for the purpose
 
10 of this chapter, but only with respect to medical services
 
11 accounts that have been approved by the Secretary of the Treasury
 
12 of the United States.
 
13      (f)  Section 408A (with respect to Roth Individual
 
14 Retirement Accounts) of the Internal Revenue Code shall be
 
15 operative for the purposes of this chapter.  For the purposes of
 
16 determining the aggregate amount of contributions to a Roth
 
17 Individual Retirement Account or qualified rollover contribution
 
18 to a Roth Individual Retirement Account from an individual
 
19 retirement plan other than a Roth Individual Retirement Account,
 
20 adjusted gross income as used in section 408A as operative for
 
21 this chapter means federal adjusted gross income.
 
22      (g)  In administering the provisions of sections 410 to 417
 
23 (with respect to special rules relating to pensions, profit
 

 
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 1 sharing, stock bonus plans, etc.), sections 418 to 418E (with
 
 2 respect to special rules for multiemployer plans), and sections
 
 3 419 and 419A (with respect to treatment of welfare benefit funds)
 
 4 of the Internal Revenue Code, the department of taxation shall
 
 5 adopt rules under chapter 91 relating to the specific
 
 6 requirements under such sections and to such other administrative
 
 7 requirements under those sections as may be necessary for the
 
 8 efficient administration of sections 410 to 419A.
 
 9      In administering sections 401 to 419A (with respect to
 
10 deferred compensation) of the Internal Revenue Code, Public Law
 
11 93-406, section 1017(i), shall be operative for the purposes of
 
12 this chapter.
 
13      In administering section 402 (with respect to the taxability
 
14 of beneficiary of employees' trust) of the Internal Revenue Code,
 
15 the tax imposed on lump sum distributions by section 402(e) of
 
16 the Internal Revenue Code shall be operative for the purposes of
 
17 this chapter and the tax imposed therein is hereby imposed by
 
18 this chapter at the rate determined under this chapter.
 
19      (h)  Section 468B (with respect to special rules for
 
20 designated settlement funds) of the Internal Revenue Code shall
 
21 be operative for the purposes of this chapter and the tax imposed
 
22 therein is hereby imposed by this chapter at a rate equal to the
 

 
 
 
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 1 maximum rate in effect for the taxable year imposed on estates
 
 2 and trusts under section 235-51.
 
 3      (i)  Section 469 (with respect to passive activities and
 
 4 credits limited) of the Internal Revenue Code shall be operative
 
 5 for the purposes of this chapter.  For the purpose of computing
 
 6 the offset for rental real estate activities for state income tax
 
 7 purposes, adjusted gross income as used in section 469 as
 
 8 operative for this chapter means federal adjusted gross income.
 
 9      (j)  Sections 512 to 514 (with respect to taxation of
 
10 business income of certain exempt organizations) of the Internal
 
11 Revenue Code shall be operative for the purposes of this chapter
 
12 as provided in this subsection.
 
13      "Unrelated business taxable income" means the same as in the
 
14 Internal Revenue Code, except that in the computation thereof
 
15 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
16 apply, and in the determination of the net operating loss
 
17 deduction there shall not be taken into account any amount of
 
18 income or deduction which is excluded in computing the unrelated
 
19 business taxable income.  Unrelated business taxable income shall
 
20 not include any income from a prepaid legal service plan.
 
21      For a person described in section 401 or 501 of the Internal
 
22 Revenue Code, as modified by section 235-2.3, the tax imposed by
 

 
 
 
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 1 section 235-51 or 235-71 shall be imposed upon the person's
 
 2 unrelated business taxable income.
 
 3      (k)  Section 521 (with respect to cooperatives) and
 
 4 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 5 and their patrons) of the Internal Revenue Code shall be
 
 6 operative for the purposes of this chapter as to any cooperative
 
 7 fully meeting the requirements of section 421-23, except that
 
 8 Internal Revenue Code section 521 cooperatives need not be
 
 9 organized in Hawaii.
 
10      (l)  Sections 527 (with respect to political organizations)
 
11 and 528 (with respect to certain homeowners associations) of the
 
12 Internal Revenue Code shall be operative for the purposes of this
 
13 chapter and the taxes imposed in each such section are hereby
 
14 imposed by this chapter at the rates determined under section
 
15 235-71.
 
16      (m)  Section 530 (with respect to education individual
 
17 retirement accounts) of the Internal Revenue Code shall be
 
18 operative for the purposes of this chapter.  For the purpose of
 
19 determining the maximum amount that a contributor could make to
 
20 an education individual retirement account for state income tax
 
21 purposes, modified adjusted gross income as used in section 530
 
22 for this chapter means federal modified adjusted gross income as
 
23 defined in section 530.
 

 
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 1      (n)  Section 641 (with respect to imposition of tax) of the
 
 2 Internal Revenue Code shall be operative for the purposes of this
 
 3 chapter subject to the following:
 
 4      (1)  The deduction for exemptions shall be allowed as
 
 5           provided in section 235-54(b).
 
 6      (2)  The deduction for contributions and gifts in
 
 7           determining taxable income shall be limited to the
 
 8           amount allowed in the case of an individual, unless the
 
 9           contributions and gifts are to be used exclusively in
 
10           the State.
 
11      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
12           Code as applied by section 641 of the Internal Revenue
 
13           Code is hereby imposed by this chapter at the rate and
 
14           amount as determined under section 235-51 on estates
 
15           and trusts.
 
16      (o)  Section 667 (with respect to treatment of amounts
 
17 deemed distributed by trusts in preceding years) of the Internal
 
18 Revenue Code shall be operative for the purposes of this chapter
 
19 and the tax imposed therein is hereby imposed by this chapter at
 
20 the rate determined under this chapter; except that the reference
 
21 to tax-exempt interest to which section 103 of the Internal
 
22 Revenue Code applies in section 667(a) of the Internal Revenue
 

 
 
 
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 1 Code shall instead be a reference to tax-exempt interest to which
 
 2 section 235-7(b) applies.
 
 3      (p)  Section 685 (with respect to treatment of qualified
 
 4 funeral trusts) of the Internal Revenue Code shall be operative
 
 5 for purposes of this chapter, except that the tax imposed under
 
 6 this chapter shall be computed at the tax rates provided under
 
 7 section 235-51, and no deduction for the exemption amount
 
 8 provided in section 235-54(b) shall be allowed.  The cost-of-
 
 9 living adjustment determined under section 1(f)(3) of the
 
10 Internal Revenue Code shall be operative for the purpose of
 
11 applying section 685(c)(3) under this chapter.
 
12      (q)  Section 704 of the Internal Revenue Code (with respect
 
13 to a partner's distributive share) shall be operative for
 
14 purposes of this chapter; except that subsection (b)(2) shall not
 
15 apply to allocations of the high-technology business investment
 
16 tax credit allowed by section 235-110.9.
 
17      [(q)] (r)  Section 1212 (with respect to capital loss
 
18 carrybacks and carryforwards) of the Internal Revenue Code shall
 
19 be operative for the purposes of this chapter; except that for
 
20 the purposes of this chapter the capital loss carryback
 
21 provisions of section 1212 shall not be operative and the capital
 
22 loss carryforward allowed by section 1212(a) shall be limited to
 

 
 
 
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 1 five years[.]; except for qualified high technology businesses
 
 2 under section 235-   , which shall be limited to fifteen years.
 
 3      [(r)] (s)  Subchapter S (sections 1361 to 1379) (with
 
 4 respect to tax treatment of S corporations and their
 
 5 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
 6 operative for the purposes of this chapter as provided in part
 
 7 VII.
 
 8      [(s)] (t)  Section 6015 (with respect to relief from joint
 
 9 and several liability on joint return) of the Internal Revenue
 
10 Code is operative for purposes of this chapter.
 
11      [(t)] (u)  Subchapter C (sections 6221 to 6233) (with
 
12 respect to tax treatment of partnership items) of chapter 63 of
 
13 the Internal Revenue Code shall be operative for the purposes of
 
14 this chapter.
 
15      [(u)] (v)  Subchapter D (sections 6240 to 6255) (with
 
16 respect to simplified audit procedures for electing large
 
17 partnerships) of the Internal Revenue Code shall be operative for
 
18 the purposes of this chapter, with due regard to chapter 232
 
19 relating to tax appeals.
 
20      [(v)] (w)  Section 6511(h) (with respect to running of
 
21 periods of limitation suspended while taxpayer is unable to
 
22 manage financial affairs due to disability) of the Internal
 
23 Revenue Code shall be operative for purposes of this chapter,
 

 
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 1 with due regard to section 235-111 relating to the limitation
 
 2 period for assessment, levy, collection, or credit.
 
 3      [(w)] (x)  Section 7518 (with respect to capital
 
 4 construction fund for commercial fishers) of the Internal Revenue
 
 5 Code shall be operative for the purposes of this chapter.
 
 6 Qualified withdrawals for the acquisition, construction, or
 
 7 reconstruction of any qualified asset which is attributable to
 
 8 deposits made before the effective date of this section shall not
 
 9 reduce the basis of the asset when withdrawn.  Qualified
 
10 withdrawals shall be treated on a first-in-first-out basis."
 
11      SECTION 5.  Section 235-7.3, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "[[]235-7.3[]]  Royalties [and other income from high
 
14 technology business] derived from patents, copyrights, or trade
 
15 secrets excluded from gross income.  [(a)] In addition to the
 
16 exclusions in section 235-7, there shall be excluded from gross
 
17 income, adjusted gross income, and taxable income, amounts
 
18 received by an individual or [a qualified high technology
 
19 business] other person as defined in section 1-19 as royalties
 
20 and other income derived from any patents [and], copyrights[:
 
21      (1)  Owned], or trade secrets owned by the individual or
 
22           [qualified high technology business; and
 

 
 
 
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 1      (2)  Developed and arising out of a qualified high
 
 2           technology business.] other person.
 
 3      [(b)  For the purposes of this section:
 
 4      "Computer software" means a set of computer programs,
 
 5 procedures, or associated documentation concerned with the
 
 6 operation and function of a computer system, and includes both
 
 7 systems and application programs and subdivisions, such as
 
 8 assemblers, compilers, routines, generators, and utility
 
 9 programs.
 
10      "Qualified high technology business" means a business
 
11 performing qualified research.  The term "qualified high
 
12 technology business" does not include:
 
13      (1)  Any trade or business involving the performance of
 
14           services in the field of law, architecture, accounting,
 
15           actuarial science, performing arts, consulting,
 
16           athletics, financial services, or brokerage services;
 
17      (2)  Any banking, insurance, financing, leasing, rental,
 
18           investing, or similar business; any farming business,
 
19           including the business of raising or harvesting trees;
 
20           any business involving the production or extraction of
 
21           products of a character with respect to which a
 
22           deduction is allowable under section 611 (with respect
 
23           to allowance of deduction for depletion), 613 (with
 

 
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 1           respect to basis for percentage depletion), or 613A
 
 2           (with respect to limitation on percentage depleting in
 
 3           cases of oil and gas wells) of the Internal Revenue
 
 4           Code;
 
 5      (3)  Any business operating a hotel, motel, restaurant, or
 
 6           similar business; and
 
 7      (4)  Any trade or business involving a hospital, a private
 
 8           office of a licensed health care professional, a group
 
 9           practice of licensed health care professionals, or a
 
10           nursing home.
 
11      "Qualified research" means:
 
12      (1)  The same as in section 41(d) of the Internal Revenue
 
13           Code; or
 
14      (2)  Developing, designing, modifying, programming, and
 
15           licensing computer software.]"
 
16      SECTION 6.  Section 235-9.5, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "[[]235-9.5[]]  Stock options from qualified high
 
19 technology businesses exempt from taxation.  [(a)]
 
20 Notwithstanding any law to the contrary, all income received from
 
21 stock options from a qualified high technology business [by an
 
22 employee] that would otherwise be taxed as ordinary income or as
 

 
 
 
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 1 capital gains [to those employees] is exempt from taxation under
 
 2 this chapter.
 
 3      [(b)  For the purposes of this section:
 
 4      "Computer software" means a set of computer programs,
 
 5 procedures, or associated documentation concerned with the
 
 6 operation and function of a computer system, and includes both
 
 7 systems and application programs and subdivisions, such as
 
 8 assemblers, compilers, routines, generators, and utility
 
 9 programs.
 
10      "Qualified high technology business" means a business
 
11 performing qualified research.  The term "qualified high
 
12 technology business" does not include:
 
13      (1)  Any trade or business involving the performance of
 
14           services in the field of law, architecture, accounting,
 
15           actuarial science, performing arts, consulting,
 
16           athletics, financial services, or brokerage services;
 
17      (2)  Any banking, insurance, financing, leasing, rental,
 
18           investing, or similar business; any farming business,
 
19           including the business of raising or harvesting trees;
 
20           any business involving the production or extraction of
 
21           products of a character with respect to which a
 
22           deduction is allowable under section 611 (with respect
 
23           to allowance of deduction for depletion), 613 (with
 

 
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 1           respect to basis for percentage depletion), or 613A
 
 2           (with respect to limitation on percentage depleting in
 
 3           cases of oil and gas wells) of the Internal Revenue
 
 4           Code;
 
 5      (3)  Any business operating a hotel, motel, restaurant, or
 
 6           similar business; and
 
 7      (4)  Any trade or business involving a hospital, a private
 
 8           office of a licensed health care professional, a group
 
 9           practice of licensed health care professionals, or a
 
10           nursing home.
 
11      "Qualified research" means:
 
12      (1)  The same as in section 41(d) of the Internal Revenue
 
13           Code; or
 
14      (2)  Developing, designing, modifying, programming, and
 
15           licensing computer software.]"
 
16      SECTION 7.  Section 235-110.9, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "[[]235-110.9[]]  High-technology business investment tax
 
19 credit.(a)  There shall be allowed to each taxpayer, subject to
 
20 the taxes imposed by this chapter, a high technology investment
 
21 tax credit that shall be deductible from the taxpayer's net
 
22 income tax liability, if any, imposed by this chapter for the
 
23 taxable year in which the credit is properly claimed.  The tax
 

 
Page 23                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1 credit shall be an amount equal to ten per cent of the investment
 
 2 made by the taxpayer in each qualified high technology business,
 
 3 up to a maximum allowed credit of $500,000 for the taxable year
 
 4 for the investment made by the taxpayer in a qualified high
 
 5 technology business.
 
 6      (b)  The credit allowed under this section shall be claimed
 
 7 against the net income tax liability for the taxable year.  For
 
 8 the purpose of this section, "net income tax liability" means net
 
 9 income tax liability reduced by all other credits allowed under
 
10 this chapter.
 
11      (c)  If the tax credit under this section exceeds the
 
12 taxpayer's income tax liability, the excess of the tax credit
 
13 over liability shall be refunded to the taxpayer or may be used
 
14 as a credit against the taxpayer's income tax liability in
 
15 subsequent years until exhausted[.]; provided that no refund on
 
16 account of the tax credit allowed by this section shall be made
 
17 for amounts less than $1.  All claims, including any amended
 
18 claims, for tax credits under this section shall be filed on or
 
19 before the end of the twelfth month following the close of the
 
20 taxable year for which the credit may be claimed.  Failure to
 
21 comply with the foregoing provision shall constitute a waiver of
 
22 the right to claim the credit.
 
23      [(d)  As used in this section:
 

 
Page 24                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      "Computer software" means a set of computer programs,
 
 2 procedures, or associated documentation concerned with the
 
 3 operation and function of a computer system, and includes both
 
 4 systems and application programs and subdivisions, such as
 
 5 assemblers, compilers, routines, generators, and utility
 
 6 programs.
 
 7      "Investment" means a nonrefundable investment, at risk, as
 
 8 that term is used in section 465 (with respect to deductions
 
 9 limited to amount at risk) of the Internal Revenue Code, in a
 
10 qualified high technology business, of cash that is transferred
 
11 to the qualified high technology business, the transfer of which
 
12 is in connection with a transaction in exchange for stock,
 
13 interests in partnerships, joint ventures, or other entities,
 
14 licenses (exclusive or nonexclusive), rights to use technology,
 
15 marketing rights, warrants, options, or any items similar to
 
16 those included herein, including but not limited to options or
 
17 rights to acquire any of the items included herein.  The
 
18 nonrefundable investment is entirely at risk of loss where
 
19 repayment depends upon the success of the qualified high
 
20 technology business.  If the money invested is to be repaid to
 
21 the taxpayer, no repayment except for dividends or interest shall
 
22 be made for at least three years from the date the investment is
 
23 made.  The annual amount of any dividend and interest payment to
 

 
Page 25                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1 the taxpayer shall not exceed twelve per cent of the amount of
 
 2 the investment.
 
 3      (e)  For the purposes of this section:
 
 4      "Qualified high technology business" means:
 
 5      (1)  A business, employing or owning capital or property, or
 
 6           maintaining an office, in this State; and which
 
 7      (2)  (A)  Conducts one hundred per cent of its activities in
 
 8                performing qualified research in this State; or
 
 9           (B)  Receives one hundred per cent of its gross income
 
10                derived from qualified research; provided that the
 
11                income is received from products sold from,
 
12                manufactured, or produced in the State; or
 
13                services performed in this State.
 
14      The term "qualified high technology business" does not
 
15 include:
 
16      (1)  Any trade or business involving the performance of
 
17           services in the field of law, architecture, accounting,
 
18           actuarial science, performing arts, consulting,
 
19           athletics, financial services, or brokerage services;
 
20      (2)  Any banking, insurance, financing, leasing, rental,
 
21           investing, or similar business; any farming business,
 
22           including the business of raising or harvesting trees;
 
23           any business involving the production or extraction of
 

 
Page 26                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1           products of a character with respect to which a
 
 2           deduction is allowable under section 611 (with respect
 
 3           to allowance of deduction for depletion), 613 (with
 
 4           respect to basis for percentage depletion), or 613A
 
 5           (with respect to limitation on percentage depleting in
 
 6           cases of oil and gas wells) of the Internal Revenue
 
 7           Code;
 
 8      (3)  Any business operating a hotel, motel, restaurant, or
 
 9           similar business; and
 
10      (4)  Any trade or business involving a hospital, a private
 
11           office of a licensed health care professional, a group
 
12           practice of licensed health care professionals, or a
 
13           nursing home.
 
14      "Qualified research" means:
 
15      (1)  The same as in section 41(d) of the Internal Revenue
 
16           Code; or
 
17      (2)  Developing, designing, modifying, programming, and
 
18           licensing computer software;
 
19 except that it shall not include research conducted outside the
 
20 State.
 
21      (f)] (d)  This section shall not apply to taxable years
 
22 beginning after December 31, 2005."
 

 
 
 
Page 27                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      SECTION 8.  Section 235-110.91, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]235-110.91[]]  Tax credit for increasing research
 
 4 activities.(a)  Section 41 (with respect to the credit for
 
 5 increasing research activities) and section 280C(c) (with respect
 
 6 to certain expenses for which the credit for increasing research
 
 7 activities are allowable) of the Internal Revenue Code shall be
 
 8 operative for the purposes of this chapter as provided in this
 
 9 section.  If section 41 of the Internal Revenue Code is repealed
 
10 or terminated prior to January 1, 2006, its provisions shall
 
11 remain in effect for purposes of the income tax law of the State
 
12 as provided for in subsection (j).
 
13      (b)  All references to Internal Revenue Code sections within
 
14 sections 41 and 280C(c) of the Internal Revenue Code shall be
 
15 operative for purposes of this section.
 
16      (c)  There shall be allowed to each taxpayer, subject to the
 
17 tax imposed by this chapter, an income tax credit for increased
 
18 research activities [that] equal to the credit for research
 
19 activities provided by section 41 of the Internal Revenue Code.
 
20 The credit shall be deductible from the taxpayer's net income tax
 
21 liability, if any, imposed by this chapter for the taxable year
 
22 in which the credit is properly claimed.
 

 
 
 
Page 28                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      [(d)  The tax credit for increased research activities shall
 
 2 be equal to the sum of:
 
 3      (1)  2.5 per cent of the excess (if any) of:
 
 4           (A)  The qualified research expenses for the taxable
 
 5                year; over
 
 6           (B)  The base amount; and
 
 7      (2)  2.5 per cent of the basic research payments determined
 
 8           under section 41(e)(1)(A) of the Internal Revenue Code.
 
 9      (e)  For purposes of this section:
 
10      (1)  The alternative incremental credit in section 41(c)(4)
 
11           of the Internal Revenue Code shall be equal to the sum
 
12           of 12.5 per cent of:
 
13           (A)  1.65 per cent of so much of the qualified research
 
14                expenses for the taxable year as exceeds one per
 
15                cent of the average described in section
 
16                41(c)(1)(B) but does not exceed 1.5 per cent of
 
17                such average;
 
18           (B)  2.2 per cent of so much of those expenses as
 
19                exceeds 1.5 per cent of the average but does not
 
20                exceed two per cent of the average; and
 
21           (C)  2.75 per cent of so much of those expenses as
 
22                exceeds two per cent of the average;
 

 
 
 
Page 29                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      (2)  The term "qualified research" under section 41(d)(1) of
 
 2           the Internal Revenue Code shall not include research
 
 3           conducted outside of the State; and
 
 4      (3)  The term "basic research" under section 41(e) of the
 
 5           Internal Revenue Code shall not include research
 
 6           conducted outside of the State.
 
 7      (f)  The amount of reduced credit in section 280C(c)(3)(B)
 
 8 of the Internal Revenue Code shall be equal to the excess of:
 
 9      (1)  The amount of credit determined under section 41(a) (as
 
10           provided for in this section) (without regard to this
 
11           paragraph); over
 
12      (2)  The product of:
 
13           (A)  The amount described in subsection (f)(1); and
 
14           (B)  12.5 per cent of the maximum rate of tax under
 
15                section 11(b)(1) of the Internal Revenue Code.
 
16      (g)] (d)  If the tax credit for increased research
 
17 activities claimed by a taxpayer exceeds the amount of income tax
 
18 payment due from the taxpayer, the excess of the tax credit over
 
19 payments due shall be refunded to the taxpayer or may be used as
 
20 a credit against the taxpayer's income tax liability in
 
21 subsequent years until exhausted[.]; provided that no refund on
 
22 account of the tax credit allowed by this section shall be made
 
23 for amounts less than $1.
 

 
Page 30                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      [(h)] (e)  All claims for a tax credit under this section
 
 2 [must] shall be filed on or before the end of the twelfth month
 
 3 following the close of the taxable year for which the credit may
 
 4 be claimed.  Failure to properly claim the credit shall
 
 5 constitute a waiver of the right to claim the credit.
 
 6      [(i)] (f)  The director of taxation may adopt any rules
 
 7 under chapter 91 and forms necessary to carry out this section.
 
 8      [(j)] (g)  This section shall not apply to taxable years
 
 9 beginning after December 31, 2005."
 
10                              PART II
 
11      SECTION 9.  The legislature finds that the shortage of
 
12 venture capital in Hawaii makes it difficult for local high
 
13 technology businesses to obtain the necessary financing to
 
14 develop products, enter new markets, and expand on their early
 
15 success.  The purpose of this part is to allow the board of
 
16 trustees of the employees' retirement system to invest ten per
 
17 cent of employees' retirement system funds in qualified high
 
18 technology businesses as a means of providing venture capital for
 
19 those businesses.
 
20      SECTION 10.  Section 88-119, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "88-119  Investments.  (a)  Investments may be made in:
 

 
 
 
Page 31                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      (1)  Real estate loans and mortgages.  Obligations (as
 
 2           defined in section 431:6-101) of any of the following
 
 3           classes:
 
 4           (A)  Obligations secured by mortgages of nonprofit
 
 5                corporations desiring to build multirental units
 
 6                (ten units or more) subject to control of the
 
 7                government for occupancy by families displaced as
 
 8                a result of government action;
 
 9           (B)  Obligations secured by mortgages insured by the
 
10                Federal Housing Administration;
 
11           (C)  Obligations for the repayment of home loans made
 
12                under the Servicemen's Readjustment Act of 1944 or
 
13                under Title II of the National Housing Act;
 
14           (D)  Other obligations secured by first mortgages on
 
15                unencumbered improved real estate owned in fee
 
16                simple; provided that the amount of the obligation
 
17                at the time investment is made therein shall not
 
18                exceed eighty per cent of the value of the real
 
19                estate and improvements mortgaged to secure it,
 
20                and except that the amount of the obligation at
 
21                the time investment is made therein may exceed
 
22                eighty per cent but no more than ninety per cent
 
23                of the value of the real estate and improvements
 

 
Page 32                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1                mortgaged to secure it; provided further that the
 
 2                obligation is insured or guaranteed against
 
 3                default or loss under a mortgage insurance policy
 
 4                issued by a casualty insurance company licensed to
 
 5                do business in the State.  The coverage provided
 
 6                by the insurer shall be sufficient to reduce the
 
 7                system's exposure to not more than eighty per cent
 
 8                of the value of the real estate and improvements
 
 9                mortgaged to secure it.  The insurance coverage
 
10                shall remain in force until the principal amount
 
11                of the obligation is reduced to eighty per cent of
 
12                the market value of the real estate and
 
13                improvements mortgaged to secure it, at which time
 
14                the coverage shall be subject to cancellation
 
15                solely at the option of the board of trustees.
 
16                Real estate shall not be deemed to be encumbered
 
17                within the meaning of this subparagraph by reason
 
18                of the existence of any of the restrictions,
 
19                charges, or claims described in section 431:6-308;
 
20           (E)  Other obligations secured by first mortgages of
 
21                leasehold interests in improved real estate;
 
22                provided that:
 

 
 
 
Page 33                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1                (i)  Each such leasehold interest at such time
 
 2                     shall have a current term extending at least
 
 3                     two years beyond the stated maturity of the
 
 4                     obligation it secures; and
 
 5               (ii)  The amount of the obligation at the time
 
 6                     investment is made therein shall not exceed
 
 7                     eighty per cent of the value of the
 
 8                     respective leasehold interest and
 
 9                     improvements, and except that the amount of
 
10                     the obligation at the time investment is made
 
11                     therein may exceed eighty per cent but no
 
12                     more than ninety per cent of the value of the
 
13                     leasehold interest and improvements mortgaged
 
14                     to secure it;
 
15                provided further that the obligation is insured or
 
16                guaranteed against default or loss under a
 
17                mortgage insurance policy issued by a casualty
 
18                insurance company licensed to do business in the
 
19                State.  The coverage provided by the insurer shall
 
20                be sufficient to reduce the system's exposure to
 
21                not more than eighty per cent of the value of the
 
22                leasehold interest and improvements mortgaged to
 
23                secure it.  The insurance coverage shall remain in
 

 
Page 34                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1                force until the principal amount of the obligation
 
 2                is reduced to eighty per cent of the market value
 
 3                of the leasehold interest and improvements
 
 4                mortgaged to secure it, at which time the coverage
 
 5                shall be subject to cancellation solely at the
 
 6                option of the board of trustees;
 
 7           (F)  Obligations for the repayment of home loans
 
 8                guaranteed by the department of Hawaiian home
 
 9                lands pursuant to section 214(b) of the Hawaiian
 
10                Homes Commission Act, 1920; and
 
11           (G)  Obligations secured by second mortgages on
 
12                improved real estate for which the mortgagor
 
13                procures a second mortgage on the improved real
 
14                estate for the purpose of acquiring the
 
15                leaseholder's fee simple interest in the improved
 
16                real estate; provided that any prior mortgage does
 
17                not contain provisions that might jeopardize the
 
18                security position of the retirement system or the
 
19                borrower's ability to repay the mortgage loan.
 
20           The board of trustees may retain such real estate,
 
21           including leasehold interests therein, as it may
 
22           acquire by foreclosure of mortgages or in enforcement
 
23           of security, or as may be conveyed to it in
 

 
Page 35                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1           satisfaction of debts previously contracted; provided
 
 2           that all such real estate, other than leasehold
 
 3           interests, shall be sold within five years after
 
 4           acquiring the same, subject to extension by the
 
 5           governor for additional periods not exceeding five
 
 6           years each, and that all such leasehold interests shall
 
 7           be sold within one year after acquiring the same,
 
 8           subject to extension by the governor for additional
 
 9           periods not exceeding one year each;
 
10      (2)  Government obligations, etc.  Obligations of any of the
 
11           following classes:
 
12           (A)  Obligations issued or guaranteed as to principal
 
13                and interest by the United States or by any state
 
14                thereof or by any municipal or political
 
15                subdivision or school district of any of the
 
16                foregoing; provided that principal of and interest
 
17                on such obligations are payable in currency of the
 
18                United States; or sovereign debt instruments
 
19                issued by agencies of, or guaranteed by foreign
 
20                governments;
 
21           (B)  Revenue bonds, whether or not permitted by any
 
22                other provision hereof, of the State or any
 
23                municipal or political subdivision thereof,
 

 
Page 36                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1                including the board of water supply of the city
 
 2                and county of Honolulu, and street or improvement
 
 3                district bonds of any district or project in the
 
 4                State; and
 
 5           (C)  Obligations issued or guaranteed by any federal
 
 6                home loan bank including consolidated federal home
 
 7                loan bank obligations, the Home Owner's Loan
 
 8                Corporation, the Federal National Mortgage
 
 9                Association, or the Small Business Administration;
 
10      (3)  Corporate obligations.  Below investment grade or
 
11           nonrated debt instruments, foreign or domestic, in
 
12           accordance with investment guidelines adopted by the
 
13           board of trustees;
 
14      (4)  Preferred and common stocks.  Shares of preferred or
 
15           common stock of any corporation created or existing
 
16           under the laws of the United States or of any state or
 
17           district thereof or of any country;
 
18      (5)  Obligations eligible by law for purchase in the open
 
19           market by federal reserve banks;
 
20      (6)  Obligations issued or guaranteed by the International
 
21           Bank for Reconstruction and Development, the Inter-
 
22           American Development Bank, the Asian Development Bank,
 
23           or the African Development Bank;
 

 
Page 37                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      (7)  Obligations secured by collateral consisting of any of
 
 2           the securities or stock listed above and worth at the
 
 3           time the investment is made at least fifteen per cent
 
 4           more than the amount of the respective obligations;
 
 5      (8)  Insurance company obligations.  Contracts and
 
 6           agreements supplemental thereto providing for
 
 7           participation in one or more accounts of a life
 
 8           insurance company authorized to do business in Hawaii,
 
 9           including its separate accounts, and whether the
 
10           investments allocated thereto are comprised of stocks
 
11           or other securities or of real or personal property or
 
12           interests therein;
 
13      (9)  Interests in real property.  Interests in improved or
 
14           productive real property in which, in the informed
 
15           opinion of the board of trustees, it is prudent to
 
16           invest funds of the system.  For purposes of this
 
17           paragraph, "real property" includes any property
 
18           treated as real property either by local law or for
 
19           federal income tax purposes.  Investments in improved
 
20           or productive real property may be made directly or
 
21           through pooled funds, including common or collective
 
22           trust funds of banks and trust companies, group or unit
 
23           trusts, limited partnerships, limited liability
 

 
Page 38                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1           companies, investment trusts, title-holding
 
 2           corporations recognized under section 501(c) of the
 
 3           Internal Revenue Code of 1986, as amended, similar
 
 4           entities that would protect the system's interest, and
 
 5           other pooled funds invested on behalf of the system by
 
 6           investment managers retained by the system;
 
 7     (10)  Other securities and futures contracts.  Securities and
 
 8           futures contracts in which in the informed opinion of
 
 9           the board of trustees it is prudent to invest funds of
 
10           the system, including currency, interest rate, bond,
 
11           and stock index futures contracts and options on such
 
12           contracts to hedge against anticipated changes in
 
13           currencies, interest rates, and bond and stock prices
 
14           that might otherwise have an adverse effect upon the
 
15           value of the system's securities portfolios; covered
 
16           put and call options on securities; and stock; whether
 
17           or not the securities, stock, futures contracts, or
 
18           options on futures are expressly authorized by or
 
19           qualify under the foregoing paragraphs, and
 
20           notwithstanding any limitation of any of the foregoing
 
21           paragraphs (including paragraph (4)); and
 
22     (11)  Private placements.  Investments in institutional blind
 
23           pool limited partnerships or direct investments that
 

 
Page 39                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1           make private debt and equity investments in privately
 
 2           held companies[.], including, but not limited to,
 
 3           investments in Hawaii high technology businesses or
 
 4           venture capital investments into which, in the informed
 
 5           opinion of the board of trustees, it is prudent to
 
 6           invest funds of the system.
 
 7      (b)  Ten per cent of alternative investments may be
 
 8 dedicated as venture capital investments by the board of trustees
 
 9 in qualified high technology businesses.  Investment under this
 
10 subsection shall be made under the condition that there shall be
 
11 three or more unrelated investors other than the system involved
 
12 in the investment.  The board, in making investments under this
 
13 subsection, may consult with knowledgeable state agencies,
 
14 corporations, and financial institutions before investing assets
 
15 in qualified high technology businesses.
 
16      For the purposes of this subsection:
 
17      "Computer software" means computer data, a computer program,
 
18 or a set of computer programs, procedures, or associated
 
19 documentation concerned with the operation and function of a
 
20 computer system, and includes both systems and application
 
21 programs and subdivisions, such as assemblers, compilers,
 
22 routines, generators, and utility programs.
 
23      "Qualified high technology business":
 

 
Page 40                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      (1)  Means a business employing or owning capital or
 
 2           property, or maintaining an office, in this State that:
 
 3           (A)  Conducts a majority of its activities in
 
 4                performing qualified research in this State; or
 
 5           (B)  Receives a majority of its gross income derived
 
 6                from qualified research; provided that the income
 
 7                is received from:
 
 8                (i)  products sold from, manufactured in, or
 
 9                     produced in the State; or
 
10               (ii)  Services performed in this State.
 
11      (2)  Does not include:
 
12           (A)  Any trade or business involving the performance of
 
13                services in the field of law, architecture,
 
14                accounting, actuarial science, performing arts,
 
15                consulting, athletics, financial services, or
 
16                brokerage services;
 
17           (B)  Any banking, insurance, financing, leasing,
 
18                rental, investing, or similar business;
 
19           (C)  Any farming business, including the business of
 
20                raising or harvesting trees;
 
21           (D)  Any business involving the production or
 
22                extraction of products of a character with respect
 
23                to which a deduction is allowable under section
 

 
Page 41                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1                611 (with respect to allowance of deduction for
 
 2                depletion), 613 (with respect to basis for
 
 3                percentage depletion), or 613A (with respect to
 
 4                limitation on percentage depleting in cases of oil
 
 5                and gas wells) of the Internal Revenue Code;
 
 6           (E)  Any business operating a hotel, motel, restaurant,
 
 7                or similar business; and
 
 8           (F)  Any trade or business involving a hospital, a
 
 9                private office of a licensed health care
 
10                professional, a group practice of licensed health
 
11                care professionals, or a nursing home.
 
12      "Qualified research" means:
 
13      (1)  The same as in section 41(d) of the Internal Revenue
 
14           Code; or
 
15      (2)  Developing, designing, modifying, programming, and
 
16           licensing computer software;
 
17 except that it shall not include research conducted outside the
 
18 State.
 
19      "Venture capital investment" means any of the following
 
20 investments in a qualified high technology business:
 
21      (1)  Common or preferred stock and equity securities without
 
22           a repurchase requirement for at least five years;
 
23      (2)  A right to purchase stock or equity securities;
 

 
Page 42                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      (3)  Any debenture or loan, whether or not convertible or
 
 2           having stock purchase rights, which:
 
 3           (A)  Is subordinated, together with security interests
 
 4                against the assets of the borrower, by their terms
 
 5                to all borrowings of the borrower from other
 
 6                institutional lenders;
 
 7           (B)  Is for a term of not less than three years; and
 
 8           (C)  Has no part amortized during the first three
 
 9                years;
 
10           and
 
11      (4)  General or limited partnership interests."
 
12                             PART III
 
13      SECTION 11.  The legislature finds that there is a need to
 
14 expand educational programs in science and math at Hawaii's "E
 
15 Academies", which were established by section 17 of Act 178,
 
16 Session Laws of Hawaii 1999.  These programs were created to give
 
17 students greater opportunities in new educational technologies,
 
18 and provide relevant, challenging, and meaningful course
 
19 offerings for students interested in pursuing a career in
 
20 advanced technology fields.  The legislature finds that the use
 
21 of "E Academies", which are virtual, site-based schools that
 
22 provide students with industry and academic standards-based
 
23 instruction and assessments in technology, science, math, and
 

 
Page 43                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1 engineering, offer enhanced opportunities to students who are
 
 2 interested in furthering their preparation for technology
 
 3 positions or who are interested in advanced studies in post
 
 4 secondary information technology, science, engineering, and math.
 
 5      The legislature also finds that there is a need to expand
 
 6 the millennium workforce development training program, which was
 
 7 created by section 12 of Act 178, Session Laws of Hawaii 1999,
 
 8 and placed within the department of labor and industrial
 
 9 relations for administrative purposes.  In particular, the
 
10 legislature finds that there is a need for Hawaii's public
 
11 community colleges to develop training programs to improve the
 
12 skills of students in those colleges for jobs in the new economy,
 
13 in such industries as biotechnology, health care, information
 
14 technology, environmental science and technology, and
 
15 telecommunications.  The development of new or enhanced programs
 
16 in these and related areas at the State's community colleges will
 
17 help to lessen the need to import workers and increase job
 
18 opportunities for Hawaii's residents by improving their skills in
 
19 these areas.
 
20      The legislature further finds that funding programs related
 
21 to the developing new economy at the University of Hawaii will
 
22 assist in lessening the need to import workers and increase job
 

 
 
 
Page 44                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1 opportunities for Hawaii's residents by improving their skills in
 
 2 these areas.
 
 3      The purpose of this part is to appropriate funds:
 
 4      (1)  To expand the department of education's E Academies;
 
 5      (2)  For the establishment of the Pacific center for
 
 6           advanced technology training by the University of
 
 7           Hawaii's community colleges;
 
 8      (3)  For the expansion of the millennium workforce
 
 9           development program to prepare students for the
 
10           workforce of the new economy; and
 
11      (4)  For the University of Hawaii's college of engineering,
 
12           college of business administration, and school of
 
13           medicine, and the University of Hawaii at Hilo to
 
14           develop new programs and enhance existing programs to
 
15           enable Hawaii's students to more effectively compete
 
16           for jobs in the new economy.
 
17      SECTION 12.  There is appropriated out of the general
 
18 revenues of the State of Hawaii the sum of $        or so much
 
19 thereof as may be necessary for fiscal year 2000-2001 for the
 
20 expansion of the department of education's E Academies to provide
 
21 students at virtual onsite locations based at selected high
 
22 schools with industry and academic standards-based instruction
 
23 and assessments in technology, science, math, and engineering.  
 

 
Page 45                                                    2420
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        

 
 1      The sum appropriated shall be expended by the department of
 
 2 education for the purposes of this part.
 
 3      SECTION 13.  There is appropriated out of the general
 
 4 revenues of the State of Hawaii the sum of $        or so much
 
 5 thereof as may be necessary for fiscal year 2000-2001 to be
 
 6 expended by the University of Hawaii's community colleges to
 
 7 establish the Pacific center for advanced technology training
 
 8 where a coordinated statewide approach to designing and
 
 9 delivering customized training to the high technology industry in
 
10 Hawaii will be implemented.
 
11      The sum appropriated shall be expended by the University of
 
12 Hawaii for the purposes of this part.
 
13      SECTION 14.  There is appropriated out of the general
 
14 revenues of the State of Hawaii the sum of $          or so much
 
15 thereof as may be necessary for fiscal year 2000-2001 for the
 
16 expansion of the millennium workforce development program
 
17 established in section 371-17, Hawaii Revised Statutes, in the
 
18 University of Hawaii's community colleges to prepare students for
 
19 the workforce of the new economy.
 
20      The sum appropriated shall be expended by the department of
 
21 labor and industrial relations for the purposes of this part.
 
22      SECTION 15.  There is appropriated out of the general
 
23 revenues of the State of Hawaii the sum of $        or so much
 

 
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 1 thereof as may be necessary for fiscal year 2000-2001 to conduct
 
 2 advanced communications research at the University of Hawaii's
 
 3 college of engineering.  
 
 4      The sum appropriated shall be expended by the University of
 
 5 Hawaii for the purposes of this part.
 
 6      SECTION 16.  There is appropriated out of the general
 
 7 revenues of the State of Hawaii the sum of $        or so much
 
 8 thereof as may be necessary for fiscal year 2000-2001 for the
 
 9 expansion of research, scholarship, and instruction in electronic
 
10 commerce at the University of Hawaii's college of business
 
11 administration.  
 
12      The sum appropriated shall be expended by the University of
 
13 Hawaii for the purposes of this part.
 
14      SECTION 17.  There is appropriated out of the general
 
15 revenues of the State of Hawaii the sum of $         or so much
 
16 thereof as may be necessary for fiscal year 2000-2001 to conduct
 
17 research in molecular genetics at the University of Hawaii's
 
18 school of medicine.  
 
19      The sum appropriated shall be expended by the University of
 
20 Hawaii for the purposes of this part.
 
21      SECTION 18.  There is appropriated out of the general
 
22 revenues of the State of Hawaii the sum of $        or so much
 
23 thereof as may be necessary for fiscal year 2000-2001 to develop
 

 
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 1 new programs and enhance existing programs at the University of
 
 2 Hawaii at Hilo to prepare students for the workforce of the new
 
 3 economy.  
 
 4      The sum appropriated shall be expended by the University of
 
 5 Hawaii for the purposes of this part.
 
 6                              PART IV
 
 7      SECTION 19.  The legislature finds that the governor's
 
 8 special advisory council for technology development, which was
 
 9 established under section 3 of Act 178, Session Laws of Hawaii
 
10 1999, has the potential to make significant contributions to the
 
11 development of the State's high technology industry.  The intent
 
12 of the advisory council was to attract leaders in high technology
 
13 development from around the world to Hawaii.  However, the
 
14 legislature finds it highly unlikely that these individuals will
 
15 come to Hawaii for this purpose if they are faced with a possibly
 
16 lengthy senate confirmation process and must file financial
 
17 disclosure forms with the state ethics commission.
 
18      The legislature finds that there is no reason to subject
 
19 these individuals to confirmation hearings and the filing of
 
20 ethics disclosure forms, in view of the fact that the advisory
 
21 council is strictly advisory in nature and the members of that
 
22 council have no influence over spending or budgetary matters.
 
23 The legislature also recognizes the need to bring in persons who
 

 
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 1 have international prestige and expertise in high technology.  It
 
 2 would be extremely difficult to find such highly qualified people
 
 3 to serve on the council before its expiration on December 31,
 
 4 2005.  Accordingly, the purpose of this part is to exempt the
 
 5 members of the governor's special advisory council for technology
 
 6 development from the senate confirmation process and from the
 
 7 need to file a disclosure of financial interests with the state
 
 8 ethics commission.
 
 9      SECTION 20.  Section 27-42, Hawaii Revised Statutes, is
 
10 amended by amending subsection (a) to read as follows:
 
11      "(a)  There is established within the office of the
 
12 governor, for administrative purposes, an advisory council to be
 
13 known as the governor's special advisory council for technology
 
14 development, that shall review and make recommendations on
 
15 matters relating to the marketing and promotion of Hawaii as a
 
16 location for high technology companies.  The council shall be
 
17 composed of at least eleven but no more than twenty-five members
 
18 [appointed in accordance with section 26-34], and shall include
 
19 representatives of the high technology industry, business
 
20 leaders, educators, government leaders, and legislators."
 
21      SECTION 21.  Section 84-17, Hawaii Revised Statutes, is
 
22 amended by amending subsection (c) to read as follows:
 

 
 
 
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 1      "(c)  The following persons shall file annually with the
 
 2 state ethics commission a disclosure of financial interests:
 
 3      (1)  The governor, the lieutenant governor, the members of
 
 4           the legislature, and delegates to the constitutional
 
 5           convention; provided that delegates to the
 
 6           constitutional convention shall only be required to
 
 7           file initial disclosures;
 
 8      (2)  The directors and their deputies, the division chiefs,
 
 9           the executive directors and the executive secretaries
 
10           and their deputies, the purchasing agents and the
 
11           fiscal officers, regardless of the titles by which the
 
12           foregoing persons are designated, of every state agency
 
13           and department;
 
14      (3)  The permanent employees of the legislature and its
 
15           service agencies, other than persons employed in
 
16           clerical, secretarial, or similar positions;
 
17      (4)  The administrative director of the State, and the
 
18           assistants in the office of the governor and the
 
19           lieutenant governor, other than persons employed in
 
20           clerical, secretarial, or similar positions;
 
21      (5)  The hearings officers of every state agency and
 
22           department;
 

 
 
 
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 1      (6)  The president, the vice presidents, assistant vice
 
 2           presidents, the chancellors, and the provosts of the
 
 3           University of Hawaii and its community colleges;
 
 4      (7)  The superintendent, the deputy superintendent, the
 
 5           assistant superintendents, the district
 
 6           superintendents, the state librarian, and the deputy
 
 7           state librarian of the department of education;
 
 8      (8)  The administrative director and the deputy director of
 
 9           the courts;
 
10      (9)  The members of every state board or commission whose
 
11           original terms of office are for periods exceeding one
 
12           year and whose functions are not solely advisory;
 
13           provided that the governor's special advisory council
 
14           for technology development established pursuant to
 
15           section 27-42 shall be exempt from this subsection;
 
16     (10)  Candidates for state elective offices, including
 
17           candidates for election to the constitutional
 
18           convention, provided that candidates shall only be
 
19           required to file initial disclosures; and
 
20     (11)  The administrator and assistant administrator of the
 
21           office of Hawaiian affairs."
 

 
 
 
 
 
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 1                              PART V
 
 2      SECTION 22.  The legislature finds that the internet is a
 
 3 critical component of the new economy because of its enormous
 
 4 potential to increase efficiency and raise productivity.
 
 5 Internet commerce, which is probably the most significant
 
 6 component of electronic commerce, or "e-commerce", includes such
 
 7 areas as online financial services, consumer retain and business-
 
 8 to-business transactions, media, infrastructure, and consumer and
 
 9 business internet access services.
 
10      The legislature further finds that the total United States
 
11 internet economy more than doubled between 1996 and 1997, from
 
12 $15,500,000,000 to $38,800,000,000.  By 2001, it has been
 
13 projected that the total United States internet economy will be
 
14 over $350,000,000,000.  Of this amount, business-to-business e-
 
15 commerce is expected to account for the largest share, while
 
16 consumer retail activity is expected to emerge more slowly,
 
17 totaling over $18,000,000,000 in the year 2001.
 
18      The purpose of this part is to increase the State's share of
 
19 this significant economic activity and the facilitation of e-
 
20 commerce in Hawaii through the development of partnerships
 
21 between the Hawaii tourism authority and Hawaii's business
 
22 community to promote the State, through a coordinated statewide
 

 
 
 
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 1 effort, as an internet and server-friendly place to conduct
 
 2 electronic commerce.
 
 3      SECTION 23.  Section 201B-7, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  The authority may enter into contracts and agreements
 
 6 that include the following:
 
 7      (1)  Tourism promotion, marketing, and development;
 
 8      (2)  Market development-related research;
 
 9      (3)  Product development and diversification issues;
 
10      (4)  Promotion, development, and coordination of sports-
 
11           related activities and events;
 
12      (5)  Promotion of Hawaii, through a coordinated statewide
 
13           effort, as a place to do high technology business;
 
14     [(5)] (6)  Reduction of barriers to travel;
 
15     [(6)] (7)  Tourism public information and educational
 
16           programs;
 
17     [(7)] (8)  Programs to monitor and investigate complaints
 
18           about the problems resulting from the tourism industry
 
19           in the State; and
 
20     [(8)] (9)  Any and all other activities necessary to carry
 
21           out the intent of this chapter;
 
22 provided that for the purposes of continuity, the Hawaii Visitors
 
23 and Convention Bureau shall be the designated agency to conduct
 

 
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 1 the marketing and promotion of the State until the end of fiscal
 
 2 year 1998-1999 or until a date specified by the board."
 
 3                              PART VI
 
 4      SECTION 24.  The purpose of this part is to improve the
 
 5 effectiveness of the high technology development corporation by
 
 6 providing increased autonomy and authority over its personnel and
 
 7 fiscal matters.
 
 8      SECTION 25.  Chapter 206M, Hawaii Revised Statutes, is
 
 9 amended as follows:
 
10      1.  By adding three new parts to be appropriately designated
 
11 and to read:
 
12           "PART  .  PROGRAM FOR SEED CAPITAL ASSISTANCE
 
13      206M-    Establishment.  The corporation shall establish a
 
14 program for seed capital assistance.
 
15      206M-    Seed capital investments.  Subject to this
 
16 chapter, the corporation may invest in:
 
17      (1)  A certified development company under sections 501 to
 
18           503 of the Small Business Investment Act of 1958, 15
 
19           U.S.C. sections 695 to 697, and the regulations adopted
 
20           under those sections;
 
21      (2)  A small business investment company under the Small
 
22           Business Investment Act, 15 U.S.C. sections 631 to 634,
 

 
 
 
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 1           636 to 649, and the regulations adopted under those
 
 2           sections;
 
 3      (3)  A minority enterprise small business investment
 
 4           corporation or equivalent venture capital corporation;
 
 5      (4)  A similar entity that may leverage its capital under a
 
 6           federal program; or
 
 7      (5)  A seed capital fund or partnership.
 
 8      206M-    Purposes and terms of investments.  (a)
 
 9 Investments may be used for any purpose consistent with the
 
10 purposes and objectives of this chapter, including but not
 
11 limited to:
 
12      (1)  Developing a working prototype;
 
13      (2)  Preparing a development plan;
 
14      (3)  Performing an initial market analysis;
 
15      (4)  Organizing a management team; and
 
16      (5)  Any other purpose reasonably related to an economic
 
17           development project.
 
18      (b)  Investments may be made on such terms and conditions as
 
19 the corporation shall determine to be reasonable, appropriate,
 
20 and consistent with the purposes and objectives of this chapter.
 
21         PART   .  PROGRAM FOR VENTURE CAPITAL ASSISTANCE
 
22      206M-  Establishment.  The corporation shall establish a
 
23 program for venture capital assistance.
 

 
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 1      206M-    Venture capital investments.  Subject to this
 
 2 chapter, the corporation may invest in:
 
 3      (1)  A certified development company under sections 501 to
 
 4           503 of the Small Business Investment Act of 1958, 15
 
 5           U.S.C. sections 695 to 697, and the regulations adopted
 
 6           under those sections;
 
 7      (2)  A small business investment company under the Small
 
 8           Business Investment Act, 15 U.S.C. sections 631 to 634,
 
 9           636 to 649, and the regulations adopted under those
 
10           sections;
 
11      (3)  A minority enterprise small business investment
 
12           corporation or equivalent venture capital corporation;
 
13      (4)  A similar entity that may leverage its capital under a
 
14           federal program; or
 
15      (5)  A venture capital fund or partnership.
 
16      206M-  Purposes and terms of investments.  (a)
 
17 Investments may be used for any purpose consistent with the
 
18 purposes and objectives of this chapter.
 
19      (b)  Investments may be made on such terms and conditions as
 
20 the corporation shall determine to be reasonable, appropriate,
 
21 and consistent with the purposes and objectives of this chapter.
 
22               PART   .  PROGRAM FOR CAPITAL ACCESS
 
23      206M-  Establishment.  The corporation shall establish a
 
24 program for capital access.
 

 
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 1      206M-    Financial assistance.  The corporation, through
 
 2 the program for capital access, may:
 
 3      (1)  Procure insurance, a guarantee, or a letter of credit
 
 4           from any source for all or a part of a loan, debenture,
 
 5           or lease of others, public or private, or a revenue
 
 6           bond issue of the State or other entity or authority
 
 7           authorized by law to issue revenue bonds; and
 
 8      (2)  Procure insurance, a guarantee, or a letter of credit
 
 9           for either:
 
10           (A)  A single loan, debenture, or lease, or for any
 
11                combination of loans, debentures, or leases; or
 
12           (B)  A single revenue bond issue or for all or a part
 
13                of any combination of revenue bond issues.
 
14      206M-  Purposes and priorities required in the procuring
 
15 of insurance, loan guarantees, or letters of credit.(a)
 
16 Insurance, guarantees, or letters of credit procured pursuant to
 
17 section 211F-42 shall be procured only for economic development
 
18 projects within the State that are consistent with the purposes
 
19 and objectives of this chapter.
 
20      (b)  The corporation shall give paramount priority in
 
21 procuring insurance, guarantees, and letters of credit to
 
22 economic development projects that have the greatest potential
 
23 for creating new jobs or retaining current jobs within the State.
 

 
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 1      206M-    Conditions for procuring of insurance, loan
 
 2 guarantees, or letters of credit.  (a)  Insurance, guarantees, or
 
 3 letters of credit shall not be procured pursuant to section
 
 4 211F-42 unless the corporation is assured that the loans,
 
 5 debentures, or leases insured, or guaranteed, or for which
 
 6 letters of credit are issued, shall be used to assist economic
 
 7 development projects that also have significant private sector
 
 8 financial support.
 
 9      (b)  Insurance, guarantees, or letters of credit may be
 
10 procured on such terms and conditions as the corporation, in its
 
11 sole discretion, shall determine to be reasonable, appropriate,
 
12 and consistent with the purposes and objectives of this chapter.
 
13      (c)  The corporation shall charge the lender or the
 
14 borrower, or both, a fee or premium for procuring loan,
 
15 debenture, lease insurance, guarantee, or a letter of credit.
 
16 Rules for premiums or fees shall be established by the
 
17 corporation.
 
18      206M-  Program for capital access participation
 
19 agreements.  The corporation shall enter into agreements with
 
20 lenders for participation in the program for capital access that
 
21 shall include but not be limited to:
 
22      (1)  Authorization for the lender to determine, collect, and
 
23           transmit to the corporation a fee or premium charge
 

 
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 1           within a specified range established consistent with
 
 2           the purposes and objectives of the corporation;
 
 3      (2)  Specification of whether the premium charge shall be
 
 4           paid by the lender, the borrower, the corporation, or
 
 5           by a combination thereof in specified proportions;
 
 6      (3)  The procedure by which a lender may make a claim upon
 
 7           the corporation upon default by the borrower, and the
 
 8           conditions under which a claim may be made; and
 
 9      (4)  The maximum amount of claims a lender may make upon the
 
10           corporation, which amount may be equal to or less than
 
11           the proportion of the total premiums contributed by the
 
12           corporation.
 
13      206M-    Establishment of special funds to secure loan
 
14 insurance obligations; source of funds.  The corporation may
 
15 establish a special fund or funds for capital access into which
 
16 fees or premiums collected by the corporation are deposited."
 
17      2.  By adding six new sections to be appropriately
 
18 designated and to read:
 
19      "206M-    Hawaii venture capital technology revolving fund.
 
20 There is established the Hawaii venture capital technology
 
21 revolving fund for the purpose of seed capital and venture
 
22 capital investment in technology development in Hawaii.  The
 
23 following shall be deposited into the Hawaii venture capital
 
24 technology revolving fund:
 

 
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 1      (1)  Appropriations from the legislature;
 
 2      (2)  Moneys received as repayments of loans;
 
 3      (3)  Investment earnings;
 
 4      (4)  Moneys received pursuant to a venture agreement;
 
 5      (5)  Royalties; and
 
 6      (6)  Premiums or fees charged by the corporation, or
 
 7           otherwise received by the corporation.
 
 8      206M-    Contracts for services necessary for management
 
 9 and operation of corporation.  The corporation may contract with
 
10 others, public or private persons, for the provision of all or a
 
11 portion of the services necessary for the management and
 
12 operation of the corporation.  The corporation shall have the
 
13 power to use all appropriations, grants, contractual
 
14 reimbursements, and all other funds not appropriated for a
 
15 designated purpose to pay for the proper general expenses and to
 
16 carry out the purposes of the corporation.
 
17      206M-    Confidentiality of trade secrets or the like;
 
18 disclosure of financial information.  (a)  Notwithstanding
 
19 chapters 92, 92F, or any other law to the contrary, any documents
 
20 or data made or received by any member or employee of the
 
21 corporation shall not be a public record to the extent that the
 
22 material or data:
 

 
 
 
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 1      (1)  Consists of trade secrets;
 
 2      (2)  Consists of commercial or financial information
 
 3           regarding the operation of any business conducted by an
 
 4           applicant for, or recipient of, any form of assistance
 
 5           that the corporation is empowered to render; or
 
 6      (3)  Relates to the competitive position of that applicant
 
 7           in a particular field of endeavor;
 
 8 provided that if the corporation purchases a qualified security
 
 9 from an applicant, the commercial and financial information,
 
10 excluding confidential business information, shall be deemed to
 
11 become a public record of the corporation.  If the information is
 
12 made or received by any member or employee of the corporation
 
13 after the purchase of the qualified security, it shall become a
 
14 public record three years from the date the information was made
 
15 or received.
 
16      (b)  Any discussion or consideration of trade secrets or
 
17 commercial or financial information shall be held by the board,
 
18 or the subcommittee of the board, in executive sessions closed to
 
19 the public; provided that the purpose of any such executive
 
20 session shall be set forth in the official minutes of the
 
21 corporation, and business that is not related to that purpose
 
22 shall not be transacted nor shall any vote be taken during the
 
23 executive sessions.
 

 
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 1      206M-    Private sector financial support.  Significant
 
 2 private sector financial support shall be associated with any
 
 3 technology development project for which the corporation provides
 
 4 assistance.
 
 5      206M-    Limitations on debt owed to corporation.  Not more
 
 6 than $           in financial assistance, excluding rights and
 
 7 royalties under a venture capital agreement, shall be provided to
 
 8 any one enterprise at any time.  The direct investments of the
 
 9 corporation shall not exceed       per cent of the assets of the
 
10 corporation, excluding rights and royalties under a venture
 
11 capital agreement; provided that this amount may be increased to
 
12 a limit of       per cent of the total assets of the corporation
 
13 by a two-thirds vote of the board.
 
14      206M-    Limitation on liability.  Chapters 661 and 662 or
 
15 any other law to the contrary notwithstanding, nothing in this
 
16 chapter shall create an obligation, debt, claim, cause of action,
 
17 claim for relief, charge, or any other liability of any kind
 
18 whatsoever in favor of any person or entity, against the State or
 
19 its officers and employees, without regard to whether that person
 
20 or entity receives any benefits under this chapter.  The State
 
21 and its officers and employees shall not be liable for the
 
22 results of any investment, purchase of securities, loan, or other
 
23 assistance provided pursuant to this chapter.  Nothing in this
 

 
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 1 chapter shall be construed as authorizing any claim against the
 
 2 corporation in excess of any note, loan, or other specific
 
 3 indebtedness incurred by the corporation or in excess of any
 
 4 insurance policy acquired for the corporation or its employees."
 
 5      3.  By amending section 206M-1 by adding four new
 
 6 definitions to be appropriately inserted and to read:
 
 7      ""Direct investment" means an investment by the corporation
 
 8 in qualified securities of an enterprise to provide capital to an
 
 9 enterprise.
 
10      "Qualified security" means any note, stock, treasury stock
 
11 bond, debenture, evidence of indebtedness, certificate of
 
12 interest or participation in any profit-sharing agreement,
 
13 preorganization certificate of subscription, transferable share,
 
14 investment contract, certificate of deposit for a security,
 
15 certificate of interest or participation in a patent or patent
 
16 application, or in royalty or other payments under such a patent
 
17 or application, or, in general, any interest or instrument
 
18 commonly known as a "security" or any certificate for, receipt
 
19 for, or option, warrant, or right to subscribe to or purchase any
 
20 of the foregoing.
 
21      "Seed capital" means financing provided for the earliest
 
22 stage of business development, including but not limited to
 

 
 
 
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 1 developing a working prototype, preparing a business plan,
 
 2 performing an initial market analysis, or organizing a management
 
 3 team.
 
 4      "Venture capital investment" means any of the following
 
 5 investments in a business:
 
 6      (1)  Common or preferred stock and equity securities without
 
 7           a repurchase requirement for at least five years;
 
 8      (2)  A right to purchase stock or equity securities;
 
 9      (3)  Any debenture or loan, whether or not convertible or
 
10           having stock purchase rights, which:
 
11           (A)  Are subordinated, together with security interests
 
12                against the assets of the borrower, by their terms
 
13                to all borrowings of the borrower from other
 
14                institutional lenders;
 
15           (B)  Are for a term of not less than three years; and
 
16           (C)  Has no part amortized during the first three
 
17                years;
 
18           and
 
19      (4)  General or limited partnership interests."
 
20      SECTION 26.  Section 36-27, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "36-27  Transfers from special funds for central service
 
23 expenses.  Except as provided in this section, and
 

 
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 1 notwithstanding any other law to the contrary, from time to time,
 
 2 the director of finance, for the purpose of defraying the
 
 3 prorated estimate of central service expenses of government in
 
 4 relation to all special funds, except the:
 
 5      (1)  Special summer school and intersession fund under
 
 6           section 302A-1310;
 
 7      (2)  School cafeteria special funds of the department of
 
 8           education;
 
 9      (3)  Special funds of the University of Hawaii;
 
10      (4)  State educational facilities improvement special fund;
 
11      (5)  Convention center capital and operations special fund
 
12           under section 206X-10.5;
 
13      (6)  Special funds established by section 206E-6;
 
14      (7)  Housing loan program revenue bond special fund;
 
15      (8)  Housing project bond special fund;
 
16      (9)  Aloha Tower fund created by section 206J-17;
 
17     (10)  Domestic violence prevention special fund under section
 
18           321-1.3;
 
19     (11)  Spouse and child abuse special account under section
 
20           346-7.5;
 
21     (12)  Spouse and child abuse special account under section
 
22           601-3.6;
 

 
 
 
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 1     (13)  Funds of the employees' retirement system created by
 
 2           section 88-109;
 
 3     (14)  Unemployment compensation fund established under
 
 4           section 383-121;
 
 5     (15)  Hawaii hurricane relief fund established under chapter
 
 6           431P;
 
 7     (16)  Hawaii health systems corporation special funds;
 
 8     (17)  Boiler and elevator safety revolving fund established
 
 9           under section 397-5.5;
 
10     (18)  Tourism special fund established under section 201B-11;
 
11     (19)  Department of commerce and consumer affairs' special
 
12           funds;
 
13     (20)  Compliance resolution fund established under section
 
14           26-9;
 
15     (21)  Universal service fund established under chapter 269;
 
16     (22)  Integrated tax information management systems special
 
17           fund under section 231-3.2;
 
18     (23)  Insurance regulation fund under section 431:2-215;
 
19     (24)  Hawaii tobacco settlement special fund under section
 
20           328L-2; [and]
 
21     (25)  Emergency budget and reserve fund under section 328L-3;
 
22           and
 

 
 
 
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 1     (26)  High technology special fund under section 206M-15.5;
 
 2 shall deduct five per cent of all receipts of all other special
 
 3 funds, which deduction shall be transferred to the general fund
 
 4 of the State and become general realizations of the State.  All
 
 5 officers of the State and other persons having power to allocate
 
 6 or disburse any special funds shall cooperate with the director
 
 7 in effecting these transfers.  To determine the proper revenue
 
 8 base upon which the central service assessment is to be
 
 9 calculated, the director shall adopt rules pursuant to chapter 91
 
10 for the purpose of suspending or limiting the application of the
 
11 central service assessment of any fund.  No later than twenty
 
12 days prior to the convening of each regular session of the
 
13 legislature, the director shall report all central service
 
14 assessments made during the preceding fiscal year."
 
15      SECTION 27.  Section 36-30, Hawaii Revised Statutes, is
 
16 amended by amending subsection (a) to read as follows:
 
17      "(a)  Each special fund, except the:
 
18      (1)  Transportation use special fund established by section
 
19           261D-1;
 
20      (2)  Special summer school and intersession fund under
 
21           section 302A-1310;
 
22      (3)  School cafeteria special funds of the department of
 
23           education;
 

 
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 1      (4)  Special funds of the University of Hawaii;
 
 2      (5)  State educational facilities improvement special fund;
 
 3      (6)  Special funds established by section 206E-6;
 
 4      (7)  Aloha Tower fund created by section 206J-17;
 
 5      (8)  Domestic violence prevention special fund under section
 
 6           321-1.3;
 
 7      (9)  Spouse and child abuse special account under section
 
 8           346-7.5;
 
 9     (10)  Spouse and child abuse special account under section
 
10           601-3.6;
 
11     (11)  Funds of the employees' retirement system created by
 
12           section 88-109;
 
13     (12)  Unemployment compensation fund established under
 
14           section 383-121;
 
15     (13)  Hawaii hurricane relief fund established under chapter
 
16           431P;
 
17     (14)  Convention center capital and operations special fund
 
18           established under section 206X-10.5;
 
19     (15)  Hawaii health systems corporation special funds;
 
20     (16)  Tourism special fund established under section 201B-11;
 
21     (17)  Compliance resolution fund established under section
 
22           26-9;
 
23     (18)  Universal service fund established under chapter 269;
 

 
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 1     (19)  Integrated tax information management systems special
 
 2           fund;
 
 3     (20)  Insurance regulation fund under section 431:2-215;
 
 4     (21)  Hawaii tobacco settlement special fund under section
 
 5           328L-2; [and]
 
 6     (22)  Emergency and budget reserve fund under section 328L-3;
 
 7           and
 
 8     (23)  High technology special fund under section 206M-15.5;
 
 9 shall be responsible for its pro rata share of the administrative
 
10 expenses incurred by the department responsible for the
 
11 operations supported by the special fund concerned."
 
12      SECTION 28.  Section 206M-2, Hawaii Revised Statutes, is
 
13 amended by amending subsections (a) and (b) to read as follows:
 
14      "(a)  There is established the high technology development
 
15 corporation, which shall be a public body corporate and politic
 
16 and an instrumentality and agency of the State.  The development
 
17 corporation shall be placed within the department of business,
 
18 economic development, and tourism for administrative purposes,
 
19 pursuant to section 26-35.  The purpose of the development
 
20 corporation shall be to facilitate the growth and development of
 
21 the commercial high technology industry in Hawaii.  Its duties
 
22 shall include[, but not be limited to: developing]:
 

 
 
 
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 1      (1)  Developing industrial parks as high technology
 
 2           innovation centers and the developing of projects
 
 3           within or outside of industrial parks; [providing]
 
 4      (2)  Providing support and services to Hawaii-based high
 
 5           technology companies; [collecting]
 
 6      (3)  Collecting and analyzing information on the state of
 
 7           commercial high technology activity in Hawaii;
 
 8           [promoting]
 
 9      (4)  Promoting and marketing Hawaii as a site for commercial
 
10           high technology activity; [and providing]
 
11      (5)  Providing advice on policy and planning for technology-
 
12           based economic development[.];
 
13      (6)  Making equity investments either directly or indirectly
 
14           in technology companies, venture capital funds, or
 
15           other type of investment for technology development in
 
16           the state;
 
17      (7)  Establishing programs to stimulate private capital
 
18           investment in Hawaii toward investments that support
 
19           technology development;
 
20      (8)  Providing incentives to private investment activity by
 
21           coinvesting public funds in private financial
 
22           organizations to increase the impact of the public
 

 
 
 
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 1           investment while using the investment acumen of the
 
 2           private sector; and
 
 3      (9)  Using public fund to reduce the risks of private
 
 4           investments.
 
 5 The corporation shall have the flexibility to provide various
 
 6 types of financial assistance.  When providing financial
 
 7 assistance, the corporation shall make provision for the recovery
 
 8 of its expenditures, as far as possible.
 
 9      (b)  The governing body of the development corporation shall
 
10 consist of a board of directors having [nine] eleven voting
 
11 members.  Seven of the members shall be appointed by the governor
 
12 for staggered terms pursuant to section 26-34.  Six of the
 
13 appointed members shall be from the general public and selected
 
14 on the basis of their knowledge, interest, and proven expertise
 
15 in, but not limited to, one or more of the following fields:
 
16 finance, commerce and trade, corporate management, marketing,
 
17 economics, engineering, and telecommunications, and other high
 
18 technology fields.  The other appointed member shall be selected
 
19 from the faculty of the University of Hawaii.  All appointed
 
20 members of the board shall continue in office until their
 
21 respective successors have been appointed.  The director of
 
22 business, economic development, and tourism [and], the director
 
23 of finance, an appointed member from the board of the Hawaii
 

 
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 1 strategic development corporation, and an appointed member from
 
 2 the board of the natural energy laboratory of Hawaii authority,
 
 3 or their designated representatives, shall serve as ex officio
 
 4 voting members of the board.  The director of business, economic
 
 5 development, and tourism shall serve as the chairperson until
 
 6 such time as a chairperson is elected by the board from the
 
 7 membership.  The board shall elect such other officers as it
 
 8 deems necessary."
 
 9      SECTION 29.  Section 206M-2.5, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "[[]206M-2.5[]]  Meetings of the board.  (a)  The meetings
 
12 of the board shall be open to the public as provided in section
 
13 92-3, except that when it is necessary for the board to receive
 
14 information that is proprietary to a particular enterprise that
 
15 seeks entry into or use of one of its facilities or the
 
16 disclosure of which might be harmful to the business interests of
 
17 the enterprise, the board may enter into an executive meeting
 
18 that is closed to the public.
 
19      (b)  The board shall be subject to the procedural
 
20 requirements of section 92-4, and this authorization shall be an
 
21 addition to the exceptions listed in section 92-5, to enable the
 
22 development corporation to respect the proprietary requirements
 
23 of enterprises with which it has business dealings.
 

 
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 1      (c)  The board shall be exempt from section 26-35(4) and
 
 2 (5)."
 
 3      SECTION 30.  Section 206M-3, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "206M-3 Powers, generally.  (a)  The development
 
 6 corporation shall have all the powers necessary to carry out its
 
 7 purposes, including the [following powers:] powers to:
 
 8      (1)  [To sue] Sue and be sued; 
 
 9      (2)  [To have] Have a seal and alter the same at its
 
10           pleasure; 
 
11      (3)  [To make] Make and execute, enter into, amend,
 
12           supplement, and carry out contracts and all other
 
13           instruments necessary or convenient for the exercise of
 
14           its powers and functions under this chapter including,
 
15           subject to approval of the governor, a project
 
16           agreement with a qualified person, and any other
 
17           agreement whereby the obligations of a qualified person
 
18           under a project agreement shall be unconditionally
 
19           guaranteed or insured by, or the performance thereof
 
20           assigned to, or guaranteed or insured by, a person or
 
21           persons other than the qualified person; and to grant
 
22           options or renew any project agreement entered into by
 

 
 
 
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 1           it in connection with any project or industrial park,
 
 2           on terms and conditions as it deems advisable;  
 
 3      (4)  [To make] Make and alter bylaws for its organization
 
 4           and internal management; 
 
 5      (5)  [To adopt] Adopt rules under chapter 91 necessary to
 
 6           effectuate this chapter in connection with industrial
 
 7           parks, projects, and the operations, properties, and
 
 8           facilities of the development corporation;
 
 9      (6)  Through its chief executive officer, [to] appoint
 
10           officers, agents, and employees, prescribe their duties
 
11           and qualifications, and fix their salaries, without
 
12           regard to chapters 76 and 77;  
 
13      (7)  [To prepare] Prepare or cause to be prepared
 
14           development plans for industrial parks;
 
15      (8)  [To acquire,] Acquire, own, lease, hold, clear,
 
16           improve, and rehabilitate real, personal, or mixed
 
17           property and to assign, exchange, transfer, convey,
 
18           lease, sublease, or encumber any project including by
 
19           way of easements; 
 
20      (9)  [To construct,] Construct, reconstruct, rehabilitate,
 
21           improve, alter, or repair, or provide for the
 
22           construction, reconstruction, rehabilitation,
 
23           improvement, alteration, or repair of any project and
 

 
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 1           to designate a qualified person as its agent for such
 
 2           purpose[, and to own,];
 
 3      (10) Own hold, assign, transfer, convey, exchange, lease,
 
 4           sublease, or encumber any project;
 
 5    [(10)] (11) [To arrange] Arrange or initiate appropriate
 
 6           action for the planning, replanning, opening, grading,
 
 7           or closing of streets, roads, roadways, alleys,
 
 8           easements, or other places, the furnishing of
 
 9           improvements, the acquisition of property or property
 
10           rights, or the furnishing of property or services in
 
11           connection with an industrial park; 
 
12    [(11)] (12) [To prepare] Prepare, or cause to be prepared,
 
13           plans, specifications, designs, and estimates of cost
 
14           for the construction, reconstruction, rehabilitation,
 
15           improvement, alteration, or repair of any project or
 
16           industrial park, and from time to time to modify such
 
17           plans, specifications, designs, or estimates;
 
18    [(12)] (13) [To engage] Engage the services of consultants on
 
19           a contractual basis for rendering professional and
 
20           technical assistance and advice;
 
21    [(13)] (14) [To procure] Procure insurance against any loss in
 
22           connection with its property and other assets and
 

 
 
 
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 1           operations in such amounts and from such insurers as it
 
 2           deems desirable; 
 
 3    [(14)] (15) [To accept] Accept and expend gifts or grants in
 
 4           any form from any public agency or from any other
 
 5           source; 
 
 6    [(15)] (16) [To issue] Issue bonds pursuant to this chapter in
 
 7           such principal amounts as may be authorized from time
 
 8           to time by law to finance the cost of a project or an
 
 9           industrial park as authorized by law and to provide for
 
10           the security thereof as permitted by this chapter;
 
11    [(16)] (17) [To lend] Lend or otherwise apply the proceeds of
 
12           the bonds issued for a project or an industrial park
 
13           either directly or through a trustee or a qualified
 
14           person for use and application in the acquisition,
 
15           construction, installation, or modification of a
 
16           project or industrial park, or agree with the qualified
 
17           person whereby any of these activities shall be
 
18           undertaken or supervised by that qualified person or by
 
19           a person designated by the qualified person;
 
20    [(17)] (18) With or without terminating a project agreement,
 
21           [to] exercise any and all rights provided by law for
 
22           entry and [re-entry] reentry upon or to take possession
 
23           of a project at any time or from time to time upon
 

 
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 1           breach or default by a qualified person under a project
 
 2           agreement, including any action at law or in equity for
 
 3           the purpose of effecting its rights of entry or [re-
 
 4           entry] reentry or obtaining possession of the project
 
 5           or for the payments of rentals, user taxes, or charges,
 
 6           or any other sum due and payable by the qualified
 
 7           person to the development corporation pursuant to the
 
 8           project agreement;
 
 9    [(18)] (19) [To enter] Enter into arrangements with qualified
 
10           county development entities whereby the board would
 
11           provide financial support to qualified projects
 
12           proposed; 
 
13    [(19)] (20) [To create] Create an environment in which to
 
14           support high technology economic development, including
 
15           but not limited to:  supporting all aspects of
 
16           technology-based economic development; developing
 
17           instructive programs, identifying issues and
 
18           impediments to the growth of high technology industry
 
19           in Hawaii; and providing policy analysis and
 
20           information important to the development of high
 
21           technology industries in Hawaii; 
 
22    [(20)] (21) [To develop] Develop programs that support start-
 
23           up and existing high technology companies in Hawaii and
 

 
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 1           to attract new companies to relocate to or establish
 
 2           operations in Hawaii by assessing the needs of these
 
 3           companies and providing the physical and technical
 
 4           infrastructure to support their operations;
 
 5    [(21)] (22) [To coordinate] Coordinate its efforts with other
 
 6           public and private agencies involved in stimulating
 
 7           technology-based economic development in Hawaii,
 
 8           including but not limited to:  the department of
 
 9           business, economic development, and tourism; the
 
10           Pacific international center for high technology
 
11           research; and the office of technology transfer and
 
12           economic development of the University of Hawaii;
 
13    [(22)] (23) [To promote] Promote and market Hawaii as a site
 
14           for commercial high technology activity;  
 
15    [(23)] (24) [To provide] Provide advice on policy and planning
 
16           for technology-based economic development; [and]
 
17     (25)  Finance, conduct, or cooperate in financing or
 
18           conducting technological, business, financial, or other
 
19           investigations that are related to or likely to lead to
 
20           business, technology, and economic development by
 
21           making and entering into contracts and other
 
22           appropriate arrangements, including the provision of
 

 
 
 
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 1           loans, start-up and expansion capital, and other forms
 
 2           of assistance;
 
 3     (26)  Solicit, study, and assist in the preparation of
 
 4           business plans and proposals of new or established
 
 5           businesses;
 
 6     (27)  Provide advice, technical and marketing assistance,
 
 7           support, and promotion to enterprises in which
 
 8           investments have been made;
 
 9     (28)  Acquire, hold, and sell qualified securities;
 
10     (29)  Consent, subject to the provisions of any contract with
 
11           noteholders or bondholders, whenever the corporation
 
12           deems it necessary or desirable in the fulfillment of
 
13           the purposes of this chapter, to the modification, with
 
14           respect to rate of interest, time of payment of any
 
15           installment of principal or interest, or any other
 
16           terms, of any contract or agreement of any kind to
 
17           which the corporation is a party;
 
18     (30)  Accept donations, grants, bequests, and devises of
 
19           money, property, service, or other things of value that
 
20           may be received from the United States or any agency
 
21           thereof, any governmental agency, or any public or
 
22           private institution, person, firm, or corporation, to
 
23           be held, used, or applied for any or all of the
 

 
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 1           purposes specified in this chapter.  Receipt of each
 
 2           donation or grant shall be detailed in the annual
 
 3           report of the corporation.  The report shall include
 
 4           the identity of the donor or lender, the nature of the
 
 5           transaction, and any conditions attaching thereto;
 
 6     (31)  Invest any funds held in reserves or sinking funds, or
 
 7           any funds not required for immediate disbursement, in
 
 8           such investment as may be lawful for fiduciaries in the
 
 9           State;
 
10     (32)  Acquire real property, or an interest therein, by
 
11           purchase or foreclosure, where that acquisition is
 
12           necessary or appropriate to protect or secure any
 
13           investment or loan in which the corporation has an
 
14           interest;
 
15     (33)  Sell, transfer, and convey the property acquired under
 
16           paragraph (32) to a buyer, and if the sale, transfer,
 
17           or conveyance cannot be effected with reasonable
 
18           promptness or at a reasonable price, to lease the
 
19           property to a tenant;
 
20     (34)  Procure insurance against any losses in connection with
 
21           its property in such amounts, and from such insurers,
 
22           as may be necessary or desirable; and
 

 
 
 
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 1    [(24)  To do] (35)  Do all things necessary or proper to carry
 
 2           out the purposes of this chapter.
 
 3      (b)  The corporation shall be exempt from chapters 102 and
 
 4 103D."
 
 5      SECTION 31.  Section 211F-3, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (a) to read as follows:
 
 7      "(a)  The governing body of the corporation shall be a board
 
 8 of directors consisting of [nine] eleven members.  Eight of the
 
 9 members shall be from the general public and appointed by the
 
10 governor for staggered terms pursuant to section 26-34, and shall
 
11 be selected on the basis of their knowledge, skill, and
 
12 experience in the scientific, business, or financial fields.  The
 
13 director of business, economic development, and tourism, an
 
14 appointed member from the board of the high technology
 
15 development corporation, and an appointed member from the board
 
16 of the natural energy laboratory of Hawaii authority, or [a]
 
17 their designated [subordinate,] representatives, shall serve as
 
18 [an] ex officio voting [member.] members.  Not more than two of
 
19 the eight appointed members of the board, during their term of
 
20 office on the board, shall be employees of the State.  Of the
 
21 members appointed by the governor, one member shall be appointed
 
22 from a list of nominees provided by the speaker of the house of
 
23 representatives and one member shall be appointed from a list of
 

 
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 1 nominees provided by the president of the senate.  All appointed
 
 2 members of the board shall continue in office until their
 
 3 respective successors have been appointed."
 
 4      SECTION 32.  Section 227D-2, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (b) to read as follows:
 
 6      "(b)  The governing body of the authority shall consist of a
 
 7 board of directors having [nine] eleven voting members.  Three
 
 8 members from the general public shall be appointed by the
 
 9 governor for staggered terms pursuant to section 26-34, except
 
10 that one of these members shall be a resident of the county of
 
11 Hawaii.  For the first term, one of these members shall be
 
12 appointed from the board of the high technology development
 
13 corporation.  The members shall be selected on the basis of their
 
14 knowledge, interest, and proven expertise in, but not limited to,
 
15 one or more of the following fields: finance, commerce and trade,
 
16 corporate management, marketing, economics, engineering, energy
 
17 management, real estate development, property management,
 
18 aquaculture, and ocean science.  The chairperson and secretary of
 
19 the research advisory committee shall serve on the board.  The
 
20 director of business, economic development, and tourism, the
 
21 chairperson of the board of land and natural resources, the
 
22 president of the University of Hawaii, [and] the mayor of the
 
23 county of Hawaii, an appointed member from the board of the high
 

 
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 1 technology development corporation, and an appointed member from
 
 2 the board of the Hawaii strategic development corporation, or
 
 3 their designated representatives, shall serve as ex officio,
 
 4 voting members of the board.  The director of business, economic
 
 5 development, and tourism shall serve as the chairperson until
 
 6 such time as a chairperson is elected by the board from the
 
 7 membership.  The board shall elect other officers as it deems
 
 8 necessary."
 
 9      SECTION 33.  The department of business, economic
 
10 development, and tourism and the high technology development
 
11 corporation shall:
 
12      (1)  Evaluate the effectiveness of the Hawaii capital loan
 
13           program;
 
14      (2)  Examine how the Hawaii capital loan program can
 
15           increase its support of capital loan financing needs of
 
16           high technology businesses in the state; and
 
17      (3)  Submit a report of the findings and recommendations,
 
18           including an implementation plan, to increase the
 
19           capital loan financing needs of high technology
 
20           businesses in the state to the legislature no later
 
21           than twenty days before the convening of the regular
 
22           session of 2001.
 

 
 
 
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 1      SECTION 34.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 35.  This Act shall take effect upon its approval;
 
 4 provided that:
 
 5      (1)  Part I, upon its approval, shall apply to taxable years
 
 6           beginning after December 31, 1999; and
 
 7      (2)  Part III shall take effect on July 1, 2000.