PROPOSING AMENDMENTS TO ARTICLE VII, SECTIONS 12 AND 13, OF THE CONSTITUTION OF THE STATE OF HAWAII TO EXPRESSLY PROVIDE THAT THE LEGISLATURE MAY AUTHORIZE THE COUNTIES TO ISSUE TAX INCREMENT BONDS AND TO EXCLUDE TAX INCREMENT BONDS FROM DETERMINATIONS OF THE FUNDED DEBT OF THE COUNTIES.

SB3269

THE SENATE

S.B. NO.

3269

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

PROPOSING AMENDMENTS TO
ARTICLE VII, SECTIONS 12 AND 13, OF THE CONSTITUTION OF THE STATE OF HAWAII TO
EXPRESSLY PROVIDE THAT THE LEGISLATURE MAY AUTHORIZE THE COUNTIES TO ISSUE TAX
INCREMENT BONDS AND TO EXCLUDE TAX INCREMENT BONDS FROM DETERMINATIONS OF THE
FUNDED DEBT OF THE COUNTIES
.

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

����
SECTION 1.
�
The purpose of this Act is to propose
amendments to article VII, sections 12 and 13, of the Constitution of the State
of Hawaii to:

����
(1)
�
Expressly provide that the legislature
may authorize political subdivisions, such as the counties, to issue tax
increment bonds; and

����
(2)
�
Exclude tax increment bonds from
determinations of the funded debt of the political subdivisions.

����
SECTION

2
.
�
Article VII,
section 12, of the Constitution of the State of Hawaii is amended to read as
follows:

"DEFINITIONS;
ISSUANCE OF INDEBTEDNESS

����
Section
12.
�
For the purposes of this
article:

����
1.
�
The term "bonds" shall include
bonds, notes and other instruments of indebtedness.

����
2.
�
The term "dam and reservoir owner"
means any person who has a right to, title to, or an interest in, a dam, a
reservoir, or the property upon which a dam, a reservoir, or appurtenant work
is located or proposed to be located.

����
[
2.
]

3.
�
The term "general
obligation bonds" means all bonds for the payment of the principal and
interest of which the full faith and credit of the State or a political
subdivision are pledged and, unless otherwise indicated, includes reimbursable
general obligation bonds.

����
[
3.
]

4.
�
The term "net
revenues" or "net user tax receipts" means the revenues or
receipts derived from:

�����
a.
�
A public undertaking, improvement or
system remaining after the costs of operation, maintenance and repair of the
public undertaking, improvement or system, and the required payments of the
principal of and interest on all revenue bonds issued therefor, have been made;
or

�����
b.
�
Any payments or return on security
under a loan program or a loan thereunder, after the costs of operation and
administration of the loan program, and the required payments of the principal
of and interest on all revenue bonds issued therefor, have been made.

����
[
4.
�
The term "dam and reservoir owner"
means any person who has a right to, title to, or an interest in, a dam, a
reservoir, or the property upon which a dam, a reservoir, or appurtenant work
is located or proposed to be located.
]

����
5.
�
The term "person" means an
individual, firm, partnership, corporation, association, cooperative or other
legal entity, governmental body or agency, board, bureau or other
instrumentality thereof, or any combination of the foregoing.

����
6.
�
The term "rates, rentals and
charges" means all revenues and other moneys derived from the operation or
lease of a public undertaking, improvement or system, or derived from any
payments or return on security under a loan program or a loan thereunder;
provided that insurance premium payments, assessments and surcharges, shall
constitute rates, rentals and charges of a state property insurance program.

����
7.
�
The term "reimbursable general
obligation bonds" means general obligation bonds issued for a public
undertaking, improvement or system from which revenues, or user taxes, or a
combination of both, may be derived for the payment of the principal and
interest as reimbursement to the general fund and for which reimbursement is
required by law, and, in the case of general obligation bonds issued by the
State for a political subdivision, general obligation bonds for which the
payment of the principal and interest as reimbursement to the general fund is
required by law to be made from the revenue of the political subdivision.

����
8.
�
The term "revenue bonds" means all
bonds payable from the revenues, or user taxes, or any combination of both, of
a public undertaking, improvement, system or loan program and any loan made
thereunder and secured as may be provided by law, including a loan program to
provide loans to a state property insurance program providing hurricane
insurance coverage to the general public.

����
9.
�
The term "special purpose revenue
bonds" means all bonds payable from rental or other payments made to an
issuer by a person pursuant to contract and secured as may be provided by law.

����
10.
�
The term "tax increment bonds"
means all bonds, the principal of and interest on which are payable from and
secured solely by the amount of real property taxes levied and collected by a
political subdivision, such as a county, on the difference between the assessed
value of the taxable real property located within the boundaries of a tax
increment district established by a political subdivision in a given year and
the assessed value of the taxable real property in the tax increment district
during the year of creation of that tax increment district.

����
[
10.
]

11.
�
The term "user tax"
means a tax on goods or services or on the consumption thereof, the receipts of
which are substantially derived from the consumption, use or sale of goods and
services in the utilization of the functions or services furnished by a public
undertaking, improvement or system; provided that mortgage recording taxes
shall constitute user taxes of a state property insurance program.

����
The
legislature, by a majority vote of the members to which each house is entitled,
shall authorize the issuance of all general obligation bonds, bonds issued
under special improvement statutes and revenue bonds issued by or on behalf of
the State and shall prescribe by general law the manner and procedure for [
such
]

the
issuance.
�
The legislature by
general law shall authorize political subdivisions to issue general obligation
bonds, bonds issued under special improvement statutes and revenue bonds
and
tax increment bonds
and shall prescribe the manner and procedure for [
such
]

the
issuance.
�
All [
such
]
bonds issued by or on behalf of a political subdivision shall be authorized by
the governing body of [
such
]
that
political subdivision.

����
Special
purpose revenue bonds shall only be authorized or issued to finance facilities
of or for, or to loan the proceeds of [
such
]
the
bonds to assist:

�����
1.
�
Manufacturing, processing or industrial
enterprises;

�����
2.
�
Utilities serving the general public;

�����
3.
�
Health care facilities provided to the
general public by not-for-profit corporations;

�����
4.
�
Early childhood education and care
facilities provided to the general public by not-for-profit corporations;

�����
5.
�
Low and moderate income government
housing programs;

�����
6.
�
Not-for-profit private nonsectarian and
sectarian elementary schools, secondary schools, colleges and universities;

�����
7.
�
Agricultural enterprises; or

�����
8.
�
Dam and reservoir owners; provided that
the bonds are issued for and the proceeds are used to offer loans to assist dam
and reservoir owners to improve their facilities to protect public safety and
provide significant benefits to the general public as important water sources,

each of
which is hereinafter referred to in this paragraph as a special purpose entity.

����
The
legislature, by a two-thirds vote of the members to which each house is
entitled, may enact enabling legislation for the issuance of special purpose
revenue bonds separately for each special purpose entity, and, by a two-thirds
vote of the members to which each house is entitled and by separate legislative
bill, may authorize the State to issue special purpose revenue bonds for each
single project or multi-project program of each special purpose entity;
provided that the issuance of [
such
]
the
special purpose revenue
bonds is found to be in the public interest by the legislature; [
and
]
provided further that the State may combine into a single issue of special
purpose revenue bonds two or more proposed issues of special purpose revenue
bonds to assist:

����
(1)
�
Not-for-profit private nonsectarian and
sectarian elementary schools, secondary schools, colleges[
,
] and
universities;

����
(2)
�
Dam and reservoir owners; or

����
(3)
�
Agricultural enterprises,

separately
authorized as aforesaid, in the total amount not exceeding the aggregate of the
proposed separate issues of special purpose revenue bonds.
�
The legislature may enact enabling
legislation to authorize political subdivisions to issue special purpose
revenue bonds.
�
If so authorized, a
political subdivision by a two-thirds vote of the members to which its
governing body is entitled and by separate ordinance may authorize the issuance
of special purpose revenue bonds for each single project or multi-project
program of each special purpose entity; provided that the issuance of [
such
]

the
special purpose revenue bonds is found to be in the public interest
by the governing body of the political subdivision.
�
No special purpose revenue bonds shall be
secured directly or indirectly by the general credit of the issuer or by any
revenues or taxes of the issuer other than receipts derived from payments by a
person or persons under contract or from any security for [
such
]
the

contract or contracts or special purpose revenue bonds and no moneys other than
such receipts shall be applied to the payment thereof.
�
The governor shall provide the legislature in
November of each year with a report on the cumulative amount of all special
purpose revenue bonds authorized and issued, and [
such
] other
information as may be necessary."

����
SECTION

3
.
�
Article VII,
section 13, of the Constitution of the State of Hawaii is amended to read as
follows:

"
DEBT LIMIT; EXCLUSIONS

����
Section 13.
�
General obligation bonds may be issued by the
State; provided that [
such
]
the
bonds at the time of issuance
would not cause the total amount of principal and interest payable in the
current or any future fiscal year, whichever is higher, on [
such
]
the

bonds and on all outstanding general obligation bonds to exceed:
�
a sum equal to twenty percent of the average
of the general fund revenues of the State in the three fiscal years immediately
preceding [
such
]
the
issuance until June 30, 1982; and
thereafter, a sum equal to eighteen and one‑half percent of the average
of the general fund revenues of the State in the three fiscal years immediately
preceding [
such
]
the
issuance.
�

Effective July 1, 1980, the legislature shall include a declaration
of findings in every general law authorizing the issuance of general obligation
bonds that the total amount of principal and interest, estimated for [
such
]

the
bonds and for all bonds authorized and unissued and calculated for
all bonds issued and outstanding, will not cause the debt limit to be exceeded
at the time of issuance.
�
Any bond issue
by or on behalf of the State may exceed the debt limit if an emergency
condition is declared to exist by the governor and concurred to by a two-thirds
vote of the members to which each house of the legislature is entitled.
�
For the purpose of this paragraph, general
fund revenues of the State shall not include moneys received as grants from the
federal government and receipts in reimbursement of any reimbursable general
obligation bonds [
which
]
that
are excluded as permitted by this
section.

����
A
sum equal to fifteen percent of the total of the assessed values for tax rate
purposes of real property in each political subdivision, as determined by the
last tax assessment rolls pursuant to law, is established as the limit of the
funded debt of [
such
]
the
political subdivision that is
outstanding and unpaid at any time.

����
All
general obligation bonds for a term exceeding two years shall be in serial form
maturing in substantially equal installments of principal, or maturing in
substantially equal installments of both principal and interest.
�
The first installment of principal of general
obligation bonds and of reimbursable general obligation bonds shall mature not
later than five years from the date of issue of [
such
]
the

series.
�
The last installment on general
obligation bonds shall mature [
not
]
no
later than twenty-five years
from the date of [
such
]
the
issue and the last installment on
general obligation bonds sold to the federal government, on reimbursable
general obligation bonds and on bonds constituting instruments of indebtedness
under which the State or a political subdivision incurs a contingent liability
as a guarantor shall mature not later than thirty-five years from the date of [
such
]

the
issue.
�
The interest and
principal payments of general obligation bonds shall be a first charge on the
general fund of the State or political subdivision, as the case may be.

����
In
determining the power of the State to issue general obligation bonds or the
funded debt of any political subdivision under section 12[
,
]
of this
article,
the following shall be excluded:

����
1.
�
Bonds that have matured, or that mature in
the then current fiscal year, or that have been irrevocably called for
redemption and the redemption date has occurred or will occur in the then
fiscal year, or for the full payment of which moneys or securities have been
irrevocably set aside.

����
2.
�
Revenue bonds, if the issuer thereof is
obligated by law to impose rates, rentals and charges for the use and services
of the public undertaking, improvement or system or the benefits of a loan
program or a loan thereunder or to impose a user tax, or to impose a
combination of rates, rentals and charges and user tax, as the case may be,
sufficient to pay the cost of operation, maintenance and repair, if any, of the
public undertaking, improvement or system or the cost of maintaining a loan
program or a loan thereunder and the required payments of the principal of and
interest on all revenue bonds issued for the public undertaking, improvement or
system or loan program, and if the issuer is obligated to deposit [
such
]

the
revenues or tax or a combination of both into a special fund and to
apply the same to [
such
]
the
payments in the amount necessary
therefor.

����
3.
�
Special purpose revenue bonds, if the issuer
thereof is required by law to contract with a person obligating [
such
]
the

person to make rental or other payments to the issuer in an amount at least
sufficient to make the required payment of the principal of and interest on [
such
]

the
special purpose revenue bonds.

����
4.
�
Bonds issued under special improvement
statutes when the only security for [
such
]
the
bonds is the
properties benefited or improved or the assessments thereon.

����
5.
�
General obligation bonds issued for
assessable improvements, but only to the extent that reimbursements to the
general fund for the principal and interest on [
such
]
the
bonds
are in fact made from assessment collections available therefor.

����
6.
�
Reimbursable general obligation bonds issued
for a public undertaking, improvement or system but only to the extent that
reimbursements to the general fund are in fact made from the net revenue, or
net user tax receipts, or combination of both, as determined for the
immediately preceding fiscal year.

����
7.
�
Reimbursable general obligation bonds issued
by the State for any political subdivision, whether issued before or after the
effective date of this section, but only for as long as reimbursement by the
political subdivision to the State for the payment of principal and interest on
[
such
]
the
bonds is required by law; provided that in the case of
bonds issued after the effective date of this section, the consent of the
governing body of the political subdivision has first been obtained; and
provided further that during the period that [
such
]
the
bonds are
excluded by the State, the principal amount then outstanding shall be included
within the funded debt of [
such
]
the
political subdivision.

����
8.
�
Bonds constituting instruments of
indebtedness under which the State or any political subdivision incurs a
contingent liability as a guarantor, but only to the extent the principal
amount of [
such
]
the
bonds does not exceed seven percent of the
principal amount of outstanding general obligation bonds not otherwise excluded
under this section; provided that the State or political subdivision shall
establish and maintain a reserve in an amount in reasonable proportion to the
outstanding loans guaranteed by the State or political subdivision as provided
by law.

����
9.
�
Bonds issued by or on behalf of the State or
by any political subdivision to meet appropriations for any fiscal period in
anticipation of the collection of revenues for [
such
]
the
period
or to meet casual deficits or failures of revenue, if required to be paid
within one year, and bonds issued by or on behalf of the State to suppress
insurrection, to repel invasion, to defend the State in war or to meet
emergencies caused by disaster or act of God.

����
10.
�
Tax increment bonds issued by a political
subdivision, such as a county.

����
The
total outstanding indebtedness of the State or funded debt of any political
subdivision and the exclusions therefrom permitted by this section shall be
made annually and certified by law or as provided by law.
�
For the purposes of section 12
of this
article
and this section, amounts received from on-street parking may be
considered and treated as revenues of a parking undertaking.

����
Nothing
in section 12
of this article
or in this section shall prevent the
refunding of any bond at any time."

����
SECTION
4.
�
The question to be printed on the
ballot shall be as follows:

����
"Shall
the Constitution of the State of Hawaii be amended to:

���������
(1)
�
Expressly provide that the legislature
may, by general law, authorize political subdivisions, such as the counties, to
issue tax increment bonds, which are payable from and secured solely by the
amount of real property taxes levied and collected by a political subdivision,
to pay for specified public works, public improvements or other actions by the
political subdivision within the tax increment district established by the
political subdivision; and

����������
(2)

Exclude tax increment bonds in
determining the funded debt of the political subdivisions?"

����
SECTION
5.
�
Constitutional material to be
repealed is bracketed and stricken.
�
New
constitutional material is underscored.

����
SECTION
6.
�
This amendment shall take effect upon
compliance with article XVII, section 3, of the Constitution of the State of
Hawaii.

INTRODUCED BY:

_____________________________

Report Title:

Tax Increment Bonds; Constitutional Amendment

Description:

Proposes amendments to the Constitution of the State of
Hawaii to expressly provide that the Legislature may authorize, by general law,
political subdivisions, such as counties, to issue tax increment bonds and to
exclude tax increment bonds in calculating the debt limit of the political
subdivisions.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.