Ed. note: The following piece is reproduced, with permission, from the blog of State Sen. Laura Thielen (D., Kailua, Waimanalo, Hawaii-Kai).
Your General Election ballot will include several proposed constitutional amendments. Two proposals relate to agriculture. They both deal with Special Purpose Revenue Bonds (SPRBs).
There might be four words that are more boring than “Special Purpose Revenue Bonds,” but you’d be hard pressed to find them.
I’m voting for one of these amendments, and against another. But first let me quickly explain what a SPRB is:
In a nutshell, our State Constitution lists specific public purposes that are so important that the state authorizes private businesses to issue bonds as a way to raise capital. The banks work with the businesses to issue the SPRBs, investors buy the bonds, and the businesses pay back the bondholders (but see below for more info). These SPRBs allow businesses to borrow money at lower-than-market-rates – so long as the business uses the funds for the specific purpose listed in the State Constitution.
The first amendment would allow owners of dams or reservoirs to issue SPRBs to upgrade, repair and maintain reservoirs and dams. I support this amendment.
Many of our reservoirs feed water into irrigation systems used for agriculture. These systems were built and operated by plantations. We no longer have big agricultural businesses that can afford to maintain them. Many dams and reservoirs are located on private land. We can’t afford to let them fall into disrepair (remember Kaloko?), and if they are decommissioned, it will devastate a lot of small and mid-sized farms which rely on this water.
I think reservoirs and dams serve a broader public purpose (often the water flows to farms on land not owned by the owner of the reservoir). Agricultural water rates have to be low enough for farmers to use them, so the reservoir owner will never make a profit on the system. I’m voting “yes” on this amendment so we can keep these water systems working, and keep people below them safe from any breach.
The second amendment would allow businesses on any kind of agricultural land access to SPRBs to build any agricultural enterprise. I don’t support this amendment.
Several years ago we amended the Constitution to allow landowners who voluntarily designate their land as Important Agricultural Land (IAL) to issue SPRBs. The IAL designation provides some guarantee that the land will remain in agricultural zoning, and not be developed for other purposes. Authorizing SPRBs for IAL was an incentive to get the large agricultural landowners to commit to keeping land in agriculture and putting fallow land into production. We have way too much privately held agricultural land that is fallow because it’s essentially being “banked” for future development.
I don’t see why we would approve SPRBs for agricultural landowners who are not willing to put their land into IAL. If anything, that eliminates any incentive for them to commit to agriculture over the long term. I don’t want to see landowners putting in improvements that later serve a different purpose when the land is developed. Therefore I am voting “no” on this amendment.
Here’s the actual language for the two amendments that you’ll see on your ballot.
CON AMEND: Relating to Dams and Reservoirs
Shall the State be authorized to issue special purpose revenue bonds and use the proceeds from the bonds to offer loans to qualifying dam and reservoir owners to improve their facilities to protect public safety and provide significant benefits to the general public as important water sources?
CON AMEND: Relating to Agricultural Enterprises
Shall the State be authorized to issue special purpose revenue bonds and use the proceeds from the bonds to assist agricultural enterprises on any type of land, rather than only important agricultural lands?
What happens if I leave the question blank on my ballot?
A “yes” vote counts as a “yes”; a “no” vote counts as a “no”; and a blank vote counts as a “no.”
What happens if the business defaults on repaying the bonds? Is the state on the hook?
I have been trying to find out what happens if the business defaults. So far I haven’t got a definitive answer. I believe the investor in the bond takes the risk that the business will be able to repay; and the bond issuer evaluates that risk in rating the bonds. But I am not 100% certain that the state is not on the hook at all.
AMENDMENT: Someone brought to my attention an FAQ posted by the Department of Budget and Finance on SPRBs. According to that FAQ, the State is not on the hook in the event the private business defaults on the bonds. You can access the DB&F FAQ here.
Do these bonds affect the State’s bond rating?
The state issues a limited dollar amount of bonds in any given year. We use a “ceiling” on the amount of bonds to protect our bond rating (a higher rating means we pay less interest on the borrowed money). The SPRBs are counted in that total ceiling. So the more SPRBs issued may mean there are fewer bonds issued for state capital improvement projects.
For a list of all the Constitutional Amendments proposals that will be on the General Election ballot, click here.