March 4th, 2005

Rep. Karamatsu's Floor Speech on his H.B. 531, Linked Investments

Representative Jon Riki Karamatsu
Floor Speech on House Bill 531
Linked Investments
Friday, March 4, 2005


Mr. Speaker, I rise in support.

House Bill 531 is a pro-business bill. This bill will help Hawaii's small businesses by giving them the opportunity to receive low-interest loans. At the same time, the State will earn money through interest on the certificate of deposit purchases from the lending institutions.

Thank you Mr. Speaker.

Written remarks entered into the journal:

House Bill 531 will create a linked investment program, a concept that follows a program started in Iowa in 1986, initially as a horticultural and alternative crops loan program to help diversify Iowa's agricultural-based economy, and since expanded to assist other businesses. The linked investments program operates on the premise that the State deposits its revenues with a financial institution under an agreement with the lender that the State will forego some interest earned on the deposits and the lender will make below market rate loans to qualified businesses.

Under the linked investment program, a person or enterprise proposing to engage in a business will apply to a lending institution, which will evaluate the proposal and qualify the borrower. The lending institution, after evaluating the proposal and determining that the proposed business is a sound viable proposal will certify the applicant as an eligible borrower under the linked investment program. The institution will then prepare a linked investment loan package and submit it to the Director of Finance. If the Director accepts the loan package, the State will buy a certificate of deposit for the loan amount from the lending institution.

The lending institution will pay an interest rate to the State for the certificate of deposit of not more than two percent below current market rates. The lending institution will lend the value of the deposit to an eligible borrower at a rate not more than the prime rate or seven and one-half percent a year, whichever is lower.

A linked investment certificate of deposit shall: (1) Earn a rate of interest of not less than two percent per annum; (2) Not be subject to a penalty for early withdrawal; and (3) Have a maturity of one year for the initial linked investment, which may be renewed for eight additional one-year periods. The term of the certificates of deposit shall not exceed one year, but may be renewed for eight additional one-year periods.

This measure will not expose state funds to losses from default. A certificate of deposit is a banker's certificate acknowledging the receipt of money and promising to repay the depositor.