Report Title:

Hawaii Innovations Partnership Corporation

Description:

Establishes the Hawaii Innovations Partnership Corporation to provide research and development grants and to invest in enterprises in advanced technology, life sciences, and renewable energy fields. (HB2181 HD2)

HOUSE OF REPRESENTATIVES

H.B. NO.

2181

TWENTY-THIRD LEGISLATURE, 2006

H.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to economic Development.

 

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

SECTION 1. This Act shall be known as The Hawaii Innovations Partnership Act.

SECTION 2. The legislature finds that during this robust economy, long-range planning is essential to ensure that Hawaii’s economy is diversified, provides high-paying jobs to retain the best and brightest of its children, and can sustain growth into the future. The legislature finds that emerging Hawaii-based entrepreneurs in the fields of advanced technology, life sciences, and renewable energy represent the future for Hawaii. These types of enterprises are poised at the earliest stages of product development and need public financial support to move to the next level on the road to commercial success.

The purpose of this Act is to aggressively jump-start a new economy in Hawaii based on advanced technology, life sciences, and renewable energy by establishing a $100,000,000 fund to invest in these entrepreneurial ventures.

SECTION 3. The Hawaii Revised Statutes is amended by adding to title 5 a new chapter to be appropriately designated and to read as follows:

"CHAPTER

THE HAWAII INNOVATIONS PARTNERSHIP CORPORATION

§ -1 The Hawaii innovations partnership corporation; purpose. (a) There is established the Hawaii innovations partnership corporation, which shall be a public body corporate and politic and an instrumentality and agency of the State. The corporation shall be placed within the department of budget and finance for administrative purposes only.

    1. The purpose of this corporation shall be to:

(1) Stimulate economic development in the fields of advanced technology, life sciences, and renewable energy in Hawaii through research and development grants for commercially viable products and services;

(2) Provide seed capital investment for entrepreneurial ventures to assist the enterprise toward commercial success;

(3) Provide business technical support for funded enterprises to achieve commercial success and independent capitalization;

(4) Promote high quality, high-income job opportunities for Hawaii’s residents and graduates of Hawaii’s educational institutions; and

(5) Manage the Hawaii innovations partnership special fund to ensure stable funding for projects and preserve the fund corpus.

§ - 2 Definitions. As used in this chapter, unless the context requires otherwise:

"Advanced technology" means new and emerging technology in digital media, telecommunications, sensor and optic technology, and information technologies.

"Board" means the board of directors of the Hawaii innovations partnership corporation.

"Corporation" means the Hawaii innovations partnership corporation.

"Direct investment" means an investment by the corporation in qualified securities of an enterprise to provide capital to the enterprise.

"Economic development project" means a commercially viable endeavor related to advanced technology, life sciences, and renewable energy.

"Enterprise" means a person with a primary place of business in Hawaii that is engaged in activities relating to the commercial development of a product or service in the fields of advanced technology, life sciences, or renewable energy.

"Life sciences" means biology, cancer research, community healthcare, ocean sciences, agriculture, pharmacology, biotechnology, medical technology, or related fields.

"Person" means a sole proprietorship, partnership, joint venture, corporation, or other association of persons organized for commercial or industrial purposes.

"Professional investor" means any bank, bank holding company, savings institution, trust company, insurance company, investment company registered under the federal Investment Company Act of 1940, financial services loan company, or other financial institution or institutional buyer, licensee under the federal Small Business Investment Act of 1958, or any person, partnership, or other entity of whose resources a substantial amount is dedicated to investing in securities or debt instruments, and whose net worth exceeds $500,000.

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

"Renewable energy" means new and emerging technologies to produce electrical energy, without the use of fossil fuels, by wind, solar energy, hydropower, landfill gas, waste to energy, geothermal resources, ocean thermal energy conversion, wave energy, biomass, including municipal solid waste, biofuels, or fuels derived from organic sources, hydrogen fuels derived from renewable energy, or fuel cells where the fuel is derived from renewable sources.

"Seed capital" means:

(1) Financing provided for the earliest stage of business development that enables a project or idea to develop into a business;

(2) Equity or loan capital provided for a new or existing business undertaking;

(3) Funding to develop a concept or product idea to the state at which its practical and commercial viability can be assessed; and

(4) Funds invested in new and young companies that have not yet fully established commercial operations.

"Venture capital investment" means any of the following investments in a business:

(1) Common or preferred stock and equity securities without a repurchase requirement for at least five years;

(2) A right to purchase stock or equity securities;

(3) Any debenture or loan, whether or not convertible or having stock purchase rights, which are subordinated, together with security interests against the assets of the borrower, by their terms to all borrowings of the borrower from other institutional lenders, and that is for a term of not less than three years, and that has no part amortized during the first three years; and

(4) General or limited partnership interests.

§ - 3 Board of directors. (a) The governing body of the corporation shall be a board of directors consisting of seven voting members to be appointed by the governor for staggered terms pursuant to section 26-34 as follows:

(1) Three to be appointed directly by the governor;

(2) Two to be appointed from a list of nominees submitted by the president of the senate; and

(3) Two to be appointed from a list of nominees submitted by the speaker of the house of representatives,

and shall be selected on the basis of their national academic or industry reputations as experts or industry leaders in fields of economic diversification and development, venture capital or private equity investing, or technical knowledge in the fields of advanced technology, life sciences, or renewable energy technologies. The director of budget and finance shall serve as an ex officio nonvoting member. No voting member shall be an employee of the state during the member's term of office on the board. All appointed members of the board shall continue in office until their respective successors have been appointed.

(b) The chairperson of the board shall be selected by majority vote of the members of the board.

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

(d) The board shall appoint a chief executive officer of the corporation who shall serve at the pleasure of the board and shall be exempt from chapter 76. The board shall set the salary and duties of the chief executive officer.

(e) A board member shall not participate in any corporation decision to invest in, purchase from, sell to, borrow from, loan to, contract with, or otherwise deal with any person with whom or entity in which the board member has a substantial financial interest.

(f) Decisions shall be made based on majority vote of quorum, except for decisions to reject recommendations from technical advisory committees relating to research and development grants, in which case decisions shall be made based on a two-thirds majority of the board. A quorum shall be four members.

§ - 4 Funds. There are established the following revolving funds:

(1) The Hawaii innovations partnership special fund. All moneys appropriated by the legislature, received as repayments of loans, earned on investments, received pursuant to a venture agreement, received as royalties, received as premiums or fees charged by the corporation, or otherwise received by the corporation shall be deposited into the Hawaii innovations partnership special fund, which shall be a revolving fund and shall not be considered part of the general fund. The corporation may expend moneys from this fund for the general operating costs of the corporation and costs for professional investor services, as provided in section -6. The corpus of this special fund shall not be reduced below $50,000,000, except by prior authorization of the legislature;

(2) The Hawaii innovations partnership research and development fund. Subject to legislative appropriation, the board may transfer from the Hawaii innovations partnership special fund to the Hawaii innovations partnership research and development fund up to $10,000,000 for the first year of operation and thereafter, for each year, an amount not to exceed four per cent of the fiscal year-end corpus balance of the Hawaii innovations partnership special fund. Funds from the Hawaii innovations partnership research and development fund may be expended for:

(A) Research and development grants as provided in the research and development grant program under section -5;

(B) Costs to administer the research and development grant program; and

(C) Costs to provide funded projects with technical business support; and

(3) The Hawaii innovations partnership investment fund. Subject to legislative appropriation, the board may transfer from the Hawaii innovations partnership special fund to the Hawaii innovations partnership investment fund, which shall be a revolving fund, up to $25,000,000 for the first two years of operation and thereafter for each year, an amount not to exceed fifty per cent of any new funding appropriated by the legislature to the Hawaii innovations partnership special fund or five per cent of the fiscal year-end corpus balance of the Hawaii innovations partnership special fund, whichever is greater; provided that the corpus shall not be reduced below $50,000,000. Moneys from the Hawaii innovations partnership investment fund may be expended for:

(A) Investments as provided in the venture capital investment program under section -6;

(B) Costs to administer the venture capital investment program; and

(C) Costs to provide funded projects with technical business support.

§ - 5 Research and development grant program. The corporation shall establish a research and development grant program to provide seed capital to develop a commercially viable new idea for a product or service in the fields of advanced technology, life sciences, or renewable energy. Grants shall be awarded to Hawaii-based enterprises through a competitive process and reviewed by technical advisory committees with subject matter expertise. Criteria for the award of grants shall include:

(1) A market need for the product or service;

(2) Commercial viability;

(3) Development timeline;

(4) Ability to receive matching funding from other sources; and

(5) Potential to return, within seven years, revenue or profit sharing, royalties, license fees, or other income equal to three times the amount of the initial grant, and to provide high-paying jobs for residents.

The technical advisory committees shall make recommendations to the board on grant awards, which shall be approved by a majority of the quorum of the board or rejected by a two-thirds majority of the board. Grants shall not exceed $250,000 for a project. No additional funding shall be awarded except upon demonstrated progress toward product development and commercial success.

§ - 6 Venture capital investment program. The corporation shall establish a venture capital investment program to fund Hawaii-based enterprises with economic development projects that require seed capital to achieve commercial success. The board shall select professional investors who manage venture capital investment programs through a competitive process and may use technical advisors to evaluate the proposals. Criteria for selection of professional investors shall include:

(1) A demonstrated ability to provide matching funds for venture capital or private equity investments in Hawaii;

(2) Having a principal place of business and substantial operations in Hawaii;

(3) Providing high-paying jobs for Hawaii residents;

(4) The potential to provide significant returns on investments; and

(5) Relevant professional expertise, experience, understanding, and commitment necessary to address the capital formation and funding needs of Hawaii’s emerging growth enterprises involved in advanced technology, life sciences, and renewable energy.

§ - 7 Duty to invest the corpus of the Hawaii innovations partnership special fund. The professional investor selected by the board shall invest and manage the corpus of the Hawaii innovations partnership special fund. The investment of the corpus shall be in low-risk qualified securities as described in section 36-21, to preserve the corpus while providing a reasonable rate of return on the investment to fund the research and development grant and venture capital investment programs. To the extent possible, the professional investor shall have a principal place of business and substantial operations in Hawaii and provide high-paying jobs to Hawaii’s residents.

§ - 8 Powers of corporation. (a) The corporation shall have all powers necessary to carry out its purposes, which shall include the power to:

(1) Adopt guidelines and procedures to carry out the purposes of this chapter that shall not be subject to chapter 91;

(2) Adopt an official seal;

(3) Sue and be sued, in its own name;

(4) Enter into contracts and other appropriate arrangements to carry out the research and development grant and venture capital investment programs, and to invest the corpus of the Hawaii innovations partnership special fund, as well as other operations of the corporation;

(5) Contract with experts who can provide advice and technical and marketing assistance, support, and promotion to enterprises in which investments or grants have been made;

(6) Coordinate the corporation's programs with any education and training program in Hawaii’s educational institutions;

(7) Provide and pay for advisory services and technical, managerial, and marketing assistance, support, and promotion as may be necessary or desirable to carry out the purposes of this chapter;

(8) Acquire, hold, and sell qualified securities;

(9) Accept donations, grants, bequests, and devises of money, property, service, or other things of value that may be received from the United States or any agency thereof, any governmental agency, or any public or private institution, person, firm, or corporation, to be held, used, or applied for any or all of the purposes specified in this chapter. Receipt of each donation or grant shall be detailed in the annual report of the corporation. The report shall include the identity of the donor or lender, the nature of the transaction, and any conditions attaching thereto;

(10) Acquire, own, hold, dispose of, and encumber personal property of any nature or any interest therein;

(11) Enter into agreements or other transactions with any federal, state, or county agency;

(12) Make contracts and execute all instruments necessary or convenient for the carrying on of its business;

(13) Appear in its own behalf before state, county, or federal agencies;

(14) Procure insurance as may be necessary;

(15) Appoint officers, employees, consultants, agents, and advisors, who shall not be subject to chapter 76, and prescribe their duties and fix compensation within the limitations provided by law;

(16) Appoint technical advisors or advisory committees as deemed necessary; and

(17) Exercise any other powers of a corporation organized under the laws of the State.

(b) The corporation shall not promise to answer for the debts of any other person.

§ - 9 Contracts for services necessary for management and operation of corporation. The corporation may contract with others, public or private, for the provision of all or a portion of the services necessary for the management and operation of the corporation. The corporation shall have the power to use all appropriations, grants, contractual reimbursements, and all other funds not appropriated for a designated purpose to pay for the proper general expenses and to carry out the purposes of the corporation. The corporation shall adopt procedures for competitive selection of contractors as required under this chapter and shall not be subject to the state procurement code under chapter 103D.

§ - 10 Meetings of the board. (a) The meetings of the board shall be open to the public as provided in section 92-3; provided that when it is necessary for the board to receive information that is proprietary to a particular enterprise the disclosure of which might be harmful to the business interests of the enterprise, the board may enter into an executive meeting that is closed to the public.

(b) The board shall be subject to the procedural requirements of section 92-4; provided that this authorization to hold closed meetings in accordance with subsection (a) shall be in addition to the exceptions listed in section 92-5, to enable the corporation to respect the proprietary requirements of enterprises with which it has business dealings.

§ - 11 Confidentiality of trade secrets or the like; disclosure of financial information. Notwithstanding chapters 92, 92F, or any other law to the contrary, any documents or data made or received by any member or employee of the corporation, to the extent that the material or data consist of trade secrets, commercial or financial information regarding the operation of any business conducted by an applicant for, or recipient of, any form of assistance that the corporation is empowered to render, or regarding the competitive position of that applicant in a particular field of endeavor, shall not be a government record; provided that if the corporation purchases a qualified security from an applicant, the commercial and financial information, excluding confidential business information, shall be deemed to become a government record of the corporation. If the information is made or received by any member or employee of the corporation after the purchase of the qualified security, it shall become a government record three years from the date the information was made or received. Any discussion or consideration of trade secrets or commercial or financial information shall be held by the board, or any subcommittee of the board, in executive sessions closed to the public; provided that the purpose of any such executive session shall be set forth in the official minutes of the corporation, and business that is not related to that purpose shall not be transacted, nor shall any vote be taken during the executive sessions.

§ - 12 Limitation on liability. Chapters 661 and 662 or any other law to the contrary notwithstanding, nothing in this chapter shall create an obligation, debt, claim, cause of action, claim for relief, charge, or any other liability of any kind whatsoever in favor of any person or entity, without regard to whether that person or entity receives any benefits under this chapter, against the State or its officers and employees. The State and its officers and employees shall not be liable for the results of any investment, purchase of securities, loan, or other assistance provided pursuant to this chapter. Nothing in this chapter shall be construed as authorizing any claim against the corporation in excess of any note, loan, or other specific indebtedness incurred by the corporation or in excess of any insurance policy acquired for the corporation or its employees.

§ - 13 Annual report. The corporation shall submit a complete and detailed report of the corporation's activities to the legislature not later than twenty days before the convening of the regular session of 2007, and every year thereafter.

§ - 14 Audit. Commencing with the second year of operation, the auditor shall conduct annual audits of the corporation."

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $100,000,000 or so much thereof as may be necessary for fiscal year 2006-2007 to be deposited into the Hawaii innovations partnership special fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 5. There is appropriated out of the Hawaii innovations partnership special fund the sum of $100,000,000 or so much thereof as may be necessary for fiscal year 2006-2007 to be used for the purposes of this Act.

The sum appropriated shall be expended by the Hawaii innovations partnership corporation for the purposes of this Act.

SECTION 6. There is appropriated out of the general revenues of the State of Hawaii the sum of one-half of one per cent of the general revenues of the State or so much thereof as may be necessary for fiscal year 2007-2008 to be deposited into the Hawaii innovations partnership special fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 7. There is appropriated out of the Hawaii innovations partnership special fund the sum of one-half of one per cent or so much thereof as may be necessary for fiscal year 2007-2008 to be used for the purposes of this Act.

The sum appropriated shall be expended by the Hawaii innovations partnership corporation for the purposes of this Act.

SECTION 8. There is appropriated out of the general revenues of the State of Hawaii the sum of one-half of one per cent of the general revenues of the State or so much thereof as may be necessary for fiscal year 2008-2009 to be deposited into the Hawaii innovations partnership special fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 9. There is appropriated out of the Hawaii innovations partnership special fund the sum of one-half of one per cent or so much thereof as may be necessary for fiscal year 2008-2009 to be used for the purposes of this Act.

The sum appropriated shall be expended by the Hawaii innovations partnership corporation for the purposes of this Act.

SECTION 10. There is appropriated out of the general revenues of the State of Hawaii the sum of one-half of one per cent of the general revenues of the State or so much thereof as may be necessary for fiscal year 2009-2010 to be deposited into the Hawaii innovations partnership special fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 11. There is appropriated out of the Hawaii innovations partnership special fund the sum of one-half of one per cent or so much thereof as may be necessary for fiscal year 2009-2010 to be used for the purposes of this Act.

The sum appropriated shall be expended by the Hawaii innovations partnership corporation for the purposes of this Act.

SECTION 12. There is appropriated out of the general revenues of the State of Hawaii the sum of one-half of one per cent of the general revenues of the State or so much thereof as may be necessary for fiscal year 2010-2011 to be deposited into the Hawaii innovations partnership special fund.

The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 13. There is appropriated out of the Hawaii innovations partnership special fund the sum of one-half of one per cent or so much thereof as may be necessary for fiscal year 2010-2011 to be used for the purposes of this Act.

The sum appropriated shall be expended by the Hawaii innovations partnership corporation for the purposes of this Act.

SECTION 14. This Act shall take effect on July 1, 2010; provided that sections 4 and 5 shall take effect on July 1, 2010, sections 6 and 7 shall take effect on July 1, 2010, sections 8 and 9 shall take effect on July 1, 2010, sections 10 and 11 shall take effect on July 1, 2010, and sections 12 and 13 shall take effect on July 1, 2010.