May 13th, 2008

Written Remarks on S.B. 2646, S.D.2, H.D. 2, C.D. 1, Important Agricultural Lands: Part 1

Rep. Jon Riki Karamatsu

Final Reading Written Remarks

Senate Bill 2646, Senate Draft 2, House Draft 2, Conference Draft 1

Relating to Important Agricultural Lands

Thursday, May 1, 2008

 

            I rise in support.

 

            In 1978, voters approved Article XI, Section 3, of the Constitution of the State of Hawaii, which sets out the framework for state policies to promote agriculture and the conservation of productive agricultural lands in the State.  Article XI, Section 3, reads as follows:

 

     "The State shall conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self sufficiency and assure the availability of agriculturally suitable lands.  The legislature shall provide standards and criteria to accomplish the foregoing.

 

     Lands identified by the State as important agricultural lands needed to fulfill the purposes above shall not be reclassified by the State or rezoned by its political subdivisions without meeting the standards and criteria established by the legislature and approved by a two-thirds vote of the body responsible for the reclassification or rezoning action."

 

            To address the issue of important agricultural lands, Act 183, Session Laws of Hawaii 2005, established standards, criteria, and mechanisms to identify important agricultural lands and to implement the intent and purpose of Article XI, Section 3, of the Hawaii Constitution.

 

            Act 183 also recognized that while the supply of lands suitable for agriculture is critical, the long-term viability of agriculture also depends on other factors, including:

            (1)  Commodity prices;

            (2)  Availability of water for irrigation;

            (3)  Agricultural research and outreach;

            (4)  Application of production technologies;

            (5)  Marketing; and

            (6)  Availability and cost of transportation services.

    

            The purpose of Senate Bill 2646, Senate Draft 2, House Draft 2, Conference Draft 1 (Senate Bill 2646) is to establish a variety of incentives that meet the requirements of Act 183 by:

(1)        Providing incentives and protections to establish and sustain viable agricultural operations on important agricultural lands; and

(2)        Providing for the designation of important agricultural lands on public lands by:

 

(A)       Requiring the Department of Agriculture and Department of Land and Natural Resources to jointly identify the state-owned lands that should be designated as "important agricultural lands"

(B)       Transferring management authority over those lands to the department of agriculture; and

(3)        Providing for the combined designation of important agricultural land and reclassification to other land use districts by declaratory order of the land use commission.

 

            Senate Bill 2646 is a comprehensive bill that addresses the issue of designating our important agricultural lands that has remained unresolved for thirty years.  The following are the details of Senate Bill 2646.

 

Important Agricultural Land; Farm Dwellings and Employee Housing

 

            Farm dwellings and employee housing on important agricultural lands were identified as essential for a farm operation.  The farmers expressed that they wanted to be able to live and work on important agricultural land.

 

            Senate Bill 2646 amends Chapter 205, Hawaii Revised Statutes by adding a new section to Part III that allows a landowner whose agricultural lands are designated as important agricultural lands to develop, construct, and maintain farm dwellings and employee housing for farmers, employees, and their immediate family members on these lands; provided that:

(1)        The farm dwellings and employee housing units shall be used exclusively by farmers and their immediate family members who actively and currently farm on important agricultural land upon which the dwelling is situated; provided further that the immediate family members of a farmer may live in separate dwelling units situated on the same designated land;

(2)        Employee housing units shall be used exclusively by employees and their immediate family members who actively and currently work on important agricultural land upon which the housing unit is situated; provided further that the immediate family members of the employee shall not live in separate housing units and shall live with the employee;

(3)        The total land area upon which the farm dwellings and employee housing units and all appurtenances are situated shall not occupy more than five per cent of the total important agricultural land area controlled by the farmer or the employee's employer or fifty acres, whichever is less;

(4)        The farm dwellings and employee housing units shall meet all applicable building code requirements;

(5)        Notwithstanding section 205-4.5(a)(12), the landowner shall not plan or develop a residential subdivision on the important agricultural land;

(6)        Consideration may be given to the cluster development of farm dwellings and employee housing units to maximize the land area available for agricultural production; and

(7)        The plans for farm dwellings and employee housing units shall be supported by agricultural plans that are approved by the Department of Agriculture."

 

Important Agricultural Land Qualified Cost Tax Credit

 

            Tax incentives are a critical component of the long-term viability of agriculture on important agricultural lands in the State.  The legislature finds that it is in the public's interest to assist agricultural businesses in establishing and sustaining viable agricultural operations on important agricultural lands by providing incentives such as income tax credits.

    

            The purpose of this part is to establish an important agricultural land qualified agricultural cost tax credit to establish and sustain viable agricultural operations on important agricultural lands. 

 

            Senate Bill 2646 amends Chapter 235, Hawaii Revised Statutes, by adding a new section that establishes the important agricultural land qualified agricultural cost tax credit.  The credit shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.  The tax credit amount shall be determined as follows:

(1)        In the first year in which the credit is claimed, twenty-five per cent of the lesser of the following:

(A)       The qualified agricultural costs incurred by the taxpayer after July 1, 2008; or

            (B)       $625,000;

(2)        In the second year in which the credit is claimed, fifteen per cent of the lesser of the following:

            (A)       The qualified agricultural costs incurred by the taxpayer after July           1, 2008; or

            (B)       $250,000; and

(3)  In the third year in which the credit is claimed, ten per cent of the lesser of the following:

            (A)       The qualified agricultural costs incurred by the taxpayer after July           1, 2008; or

            (B)       $125,000.

 

            If the credit under this section exceeds the taxpayer's net income tax liability for the taxable year, the excess of the credit over liability shall be refunded to the taxpayer; provided that no refunds or payments on account of the credits allowed by this section shall be made for amounts less than $1.

 

            If in any taxable year the annual amount of certified credits reaches $7,500,000 in the aggregate, the Department of Agriculture shall immediately discontinue certifying credits and notify the department of taxation.  In no instance shall the Department of Agriculture certify a total amount of credits exceeding $7,500,000 per taxable year.  To comply with this restriction, the Department of Agriculture shall certify credits on a first come, first served basis.

 

            "Agricultural business" means any person with a commercial agricultural, silvicultural, or aquacultural facility or operation, including: (1) The care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for nonfood uses; (2) The planting, cultivating, harvesting, and processing of crops; and (3) The farming or ranching of any plant or animal species in a controlled salt, brackish, or freshwater environment; provided that the principal place of the agricultural business is maintained in the State and more than fifty per cent of the land the agricultural business owns or leases, excluding land classified as conservation land, is important agricultural land.

 

            "Qualified agricultural costs" means expenditures for:

(1)        The plans, design, engineering, construction, renovation, repair, maintenance, and equipment for:

(A)  Roads or utilities, primarily for agricultural purposes, where the majority of the lands serviced by the roads or utilities, excluding lands classified as conservation lands, are important agricultural lands;

(B)       Agricultural processing facilities in the State, primarily for agricultural purposes, where the majority of the crops or livestock processed, harvested, treated, washed, handled, or packaged are from agricultural businesses;

(C)  Water wells, reservoirs, dams, water storage facilities, water pipelines, ditches, or irrigation systems in the State, primarily for agricultural purposes, providing water for lands, the majority of which, excluding lands classified as conservation lands, are important agricultural lands; and

(D)  Agricultural housing in the State, exclusively for agricultural purposes; provided that:

(i)         The housing units are occupied solely by farmers or employees for agricultural businesses and their immediate family members;

(ii)        The housing units are owned by the agricultural business;

(iii)       The housing units are in the general vicinity, as determined by the department of agriculture, of agricultural lands owned or leased by the agricultural business; and

(iv)       The housing units conform to any other conditions that may be required by the department of agriculture;

(2)        Feasibility studies, regulatory processing, and legal and accounting services related to the items under paragraph (1);

(3)        Equipment, primarily for agricultural purposes, used to cultivate, grow, harvest, or process agricultural products by an agricultural business; and

(4)        Regulatory processing, studies, and legal and other consultant services related to obtaining or retaining sufficient water for agricultural activities and retaining the right to farm on lands identified as important agricultural lands.

 

            The Department of Taxation, in consultation with the Department of Agriculture, shall submit to the legislature an annual report, no later than twenty days prior to the convening of each regular session, beginning with the regular session of 2010, regarding the quantitative and qualitative assessment of the impact of the important agricultural land qualified agricultural cost tax credit.

 

            There is appropriated out of the general revenues of the State of Hawaii the sum of $50,000, or so much thereof as may be necessary for fiscal year 2008-2009 for the Department of Agriculture to administer the important agricultural land qualified agricultural cost tax credit.

 

Loan Guaranty; Important Agricultural Lands; Agricultural and Aquacultural Loans

 

            Financing is also a critical component of the long-term viability of agriculture on important agricultural lands in the State.  The legislature finds that it is in the public interest to assist agricultural producers in meeting their financing needs for projects that are located on important agricultural lands.

 

            The purpose of this part is to further implement Act 183, Session Laws of Hawaii 2005, by authorizing the chairperson of the Board of Agriculture to guarantee loans relating to agricultural projects located on important agricultural lands.

 

            Senate Bill 2646 amends Chapter 155, Hawaii Revised Statutes, by adding a new section to establish a loan guaranty on important agricultural lands for agricultural and aquacultural loans.

 

            From July 1, 2009, the chairperson of the Board of Agriculture may guarantee loans made by commercial lenders authorized to do business in this State, to agricultural producers for the purpose of developing and implementing agricultural projects; provided that the chairperson of the Board of Agriculture shall determine that: (1) The agricultural projects are located on lands designated as important agricultural lands pursuant to Part III of Chapter 205; and (2) The commercial lender has completed its due diligence in approving the loan, including ensuring adequate collateral.

 

            Any loan guaranty made pursuant to this section shall meet the following conditions:

            (1)        For any loan that finances operating costs, the maximum term of the loan                                    shall be ten years;

(2)        For any loan that finances capital improvement costs, the maximum term of the loan shall be twenty years;

(3)        The interest rate charged on any loan shall be one per cent below the commercial lender's prime rate for as long as the loan guaranty is in effect;

(4)        The loan guaranty may be up to eighty-five per cent of the outstanding principal amount of any single loan, but shall not include any fees or accrued interest associated with the loan or its collection; and

(5)        The total principal amount of the guaranteed portion of all loans outstanding at any time shall not exceed $2,500,000.

 

            "Agricultural producer" means a farmer, cooperative association, or landowner who derives at least fifty per cent of its gross income from agricultural or aquacultural activities.

 

            The Department of Taxation, in consultation with the Department of Agriculture, shall submit to the legislature an annual report, no later than twenty days prior to the convening of each regular session, beginning with the regular session of 2010 that provides a quantitative and qualitative assessment of the impact of the loan guaranty program.

 

Hawaii Water Plan

 

            Water is essential for productivity on agricultural lands.  Senate Bill 2646 amends the Hawaii Water Plan in Section 174C-31 of the Hawaii Revised Statutes to ensure the availability of water on important agricultural lands.  Section 174C-31, Hawaii Revised Statutes, is amended by amending subsections (e) and (f) to read as follows:

 

            "(e)       The department of agriculture shall prepare a state agricultural water use and development plan for agricultural uses in the State in accordance with chapter 167 and this chapter, and subsequently modify and update the plan as necessary.  The state agricultural water use and development plan shall include but not be limited to a master irrigation inventory plan [which] that shall:

            (1)        Inventory [the] public and private irrigation water systems;

            (2)        Identify the extent of rehabilitation needed for each system;

(3)        Identify sources of water used by agricultural operations and particularly those on lands identified and designated as important agricultural lands under part III of chapter 205;

(4)        Identify current and future water needs for agricultural operations and particularly those on lands identified and designated as important agricultural lands under part III of chapter 205;

    [(3)] (5)        Subsidize the cost of repair and maintenance of the systems;

    [(4)] (6)        Establish criteria to prioritize the rehabilitation of the systems;

    [(5)] (7)        Develop a five-year program to repair the systems; and

    [(6)] (8)        Set up a long-range plan to manage the systems.

The commission shall coordinate the incorporation of the state agricultural water use and development plan into the state water projects plan.

(f)         Each county water use and development plan shall include but not be limited to:

(1)        Status of water and related land development, including an inventory of existing water uses for domestic, municipal, and industrial users, agriculture, particularly agriculture on lands designated as important agricultural lands under part III of chapter 205, aquaculture, hydropower development, drainage, reuse, reclamation, recharge, and resulting problems and constraints;

(2)        Future land uses and related water needs; and

(3)        Regional plans for water developments, including recommended and alternative plans, costs, adequacy of plans, and relationship to the water resource protection and water quality plans."

 

Agricultural Processing Facilities; Permits; Priority

 

            Expediting the permitting process for agricultural process facilities will further support farm operations in the State of Hawaii.  Senate Bill 2646 amends Chapter 205 and Chapter 321 of the Hawaii Revised Statutes, by adding new sections to require any agency subject to these chapters that issues permits to establish and implement a procedure for the priority processing of permit applications and renewals, at no additional cost to the applicant, for agricultural processing facilities that process crops or livestock from an agribusiness; provided that the majority of the lands held, owned, or used by the agribusiness shall be land designated as important agricultural lands pursuant to this part, excluding lands held, owned, or used by the agribusiness in a conservation district.

 

Important Agricultural Lands; Public Lands

 

            Before December 31, 2009, the Department of Agriculture and the Department of Land and Natural Resources shall collaborate to identify public lands as defined under Section 171‑2, Hawaii Revised Statutes that should be designated important agricultural lands as defined in Section 205‑42, Hawaii revised Statutes and shall prepare maps delineating those lands.  In making the designations, the departments shall use the standards and criteria of Section 205-44, Hawaii Revised Statutes.

 

            Beginning January 1, 2010, after receipt of the maps of public lands identified as important agricultural lands, the Land Use Commission shall designate the public lands as important agricultural lands and adopt the maps of those public lands.

Written Remarks on S.B. 2646, S.D.2, H.D. 2, C.D. 1, Important Agricultural Lands: Part 2

Rep. Jon Riki Karamatsu

Final Reading Written Remarks

Senate Bill 2646, Senate Draft 2, House Draft 2, Conference Draft 1

Relating to Important Agricultural Lands

Thursday, May 1, 2008


Continued...

Designation of Important Agricultural Land and Reclassification to Other Land Use Districts by Declaratory Order of the Land Use Commission

 

            Chapter 205-44, Hawaii Revised Statutes, defines the standards and criteria for the identification of important agricultural lands.  Lands identified as important agricultural lands need not meet every standard and criteria listed below.  Rather, lands meeting any of the criteria below shall be given initial consideration; provided that the designation of important agricultural lands shall be made by weighing the standards and criteria with each other to meet the constitutionally mandated purposes in Article XI, Section 3, of the Hawaii Constitution and the objectives and policies for important agricultural lands in sections 205-42 and 205-43 of the Hawaii Revised Statutes.

           

            Section 205-44 of the Hawaii Revised Statutes lists that the standards and criteria to designate land as important agricultural lands shall be as follows:

            (1)        Land currently used for agricultural production;

(2)        Land with soil qualities and growing conditions that support agricultural production of food, fiber, or fuel- and energy-producing crops;

(3)        Land identified under agricultural productivity rating systems, such as the agricultural lands of importance to the State of Hawaii (ALISH) system adopted by the board of agriculture on January 28, 1977;

(4)        Land types associated with traditional native Hawaiian agricultural uses, such as taro cultivation, or unique agricultural crops and uses, such as coffee, vineyards, aquaculture, and energy production;

(5)        Land with sufficient quantities of water to support viable agricultural production;

(6)        Land whose designation as important agricultural lands is consistent with general, development, and community plans of the county;

(7)        Land that contributes to maintaining a critical land mass important to agricultural operating productivity; and

(8)        Land with or near support infrastructure conducive to agricultural productivity, such as transportation to markets, water, or power.

 

            Senate Bill 2646 amends Chapter 205-44, Hawaii Revised Statutes to include a petition for a declaratory order submitted under Section 205-45, Hawaii Revised Statutes that seeks to both designate lands as important agricultural lands and reclassify lands in the agricultural district to the rural, conservation, or urban district, the lands shall be deemed qualified for designation as important agricultural land if the commission reasonably finds that the lands meet at least the criteria of "(5) Land with sufficient quantities of water to support viable agricultural production" and (7) Land that contributes to maintaining a critical land mass important to agricultural operating productivity" of this section.  Therefore, when using this declaratory incentive, the criteria for designating important agriculture lands is much stricter than designating important agricultural lands without the declaratory incentive where a petitioner can basically use only one criterion.  The farmers felt that of the eight criteria in Chapter 205-44, Hawaii Revised Statutes, land with sufficient quantities of water and land that contributes to maintaining a critical land mass were the most important for agricultural productivity.

 

            Prior to the Land Use Commission considering a petition for a declaratory order to designate important agricultural land in combination with the reclassification of agricultural land to the rural, urban, or conservation district, the petitioner shall submit to the commission a certification issued by the Department of Agriculture as to the quality of the land for which designation as important agricultural land is being sought.

 

            The Land Use commission may include reasonable conditions in the declaratory order.  The declaratory order is an incentive for landowners to designate their lands as important agricultural lands because under the Hawaii Administrative Rules Title 15, Chapter 15, Subchapter 14, Section 15-15-103, the Land Use Commission may, but shall not be required to, conduct a hearing on a petition for a declaratory order.  However, a contested hearing can be requested.  Any petitioner or party in interest who desires a hearing on a petition for a declaratory order shall set forth in detail in the request the reasons why the matters alleged in the petition, together with supporting affidavits or other written briefs or memoranda or legal authorities, will not permit the fair and expeditious disposition of the petition, and to the extent that the request for a hearing is dependent upon factual assertion, shall accompany the request by affidavit establishing those facts.  Further, under Hawaii Administrative Rules Title 15, Chapter 15, Subchapter 7, Section 15-15-75, parties to proceedings to amend land use district boundaries may obtain judicial reviews thereof in the manner set forth in Section 91-14, Hawaii Revised Statutes.

 

            A farmer or landowner with lands qualifying under Section 205-44, Hawaii revised Statutes may file with the commission a petition for declaratory order to designate the lands as important agricultural lands.  The petition may be filed at any time in the designation process.  Within this same petition for declaratory order, the petitioner may seek a reclassification of land in the agricultural district to the rural, urban, or conservation district, or a combination thereof; provided that:

(1)        The land sought to be reclassified to the rural, urban, or conservation district is within the same county as the land sought to be designated as important agricultural lands;

(2)        If the reclassification of the land is proposed to the  urban district, that reclassification to urban is consistent with the relevant county general and community, development, or community development plans; and

(3)        The total acreage of the land sought to be designated or reclassified in the petition complies with the following proportions:

(A)       At least eighty-five per cent of the total acreage is sought to be designated as important agricultural land; and

(B)       The remainder of the acreage is sought to be reclassified to the rural, urban, or conservation district.

 

            The Land Use Commission may grant declaratory orders pursuant to this section before the commission receives from any county a map delineating recommended important agricultural lands.

 

            A petitioner granted a declaratory order that designates important agricultural land, whether or not combined with the reclassification of land to the rural, urban, or conservation district, shall earn credits if the amount of land reclassified to the rural, urban, or conservation district is less than fifteen per cent of the total acreage of land subject to the order.  The credits shall equal the difference between the following, rounded to the nearer tenth of an acre: (1) The number that is fifteen per cent of the total acreage of land subject to the order; less (2) The amount of the petitioner's land that is reclassified from the agricultural district to the rural, urban, or conservation district by the declaratory order.

 

            A petitioner with credits earned within a county may petition the Land Use Commission for a declaratory order to reclassify any of the petitioner's other land in the same county from the agricultural district to the rural, urban, or conservation district until the credits are exhausted or expired.  The "petitioner's other land in the same county" means land owned by the petitioner that is in the same county as the land designated or reclassified under the petition.  The commission may issue the declaratory order if it finds that the land is suitable for reclassification in accordance with Section 205-2, Hawaii Revised Statutes and that the reclassification is consistent with the relevant county general and community, development, or community development plans.  The petitioner may petition for such reclassification until all of the petitioner's credits are exhausted.  Any unexhausted credits shall expire and become unusable ten years after the granting of the declaratory order that designated the important agricultural land and, if applicable, reclassified land to the rural, urban, or conservation district.  A petitioner with unused and unexhausted credits shall not transfer the credits to another person.

 

            The Land Use Commission may grant declaratory orders pursuant to this section before the commission receives from any county a map delineating recommended important agricultural lands.

 

            Land designated as important agricultural land pursuant to a declaratory order that both designates land as important agricultural land and reclassifies land in the agricultural district to the rural, urban, or conservation district, or a combination thereof pursuant to this section shall be re-designated only with the prior authorization of the legislature.  The authorization shall be expressed by the adoption of a concurrent resolution approved by a two-thirds vote of each house of the legislature voting separately.  When making its decision, the legislature shall consider the standards and criteria in Section 205-50, Hawaii Revised Statutes.

 

            A farmer or landowner with qualifying lands may also petition the Land Use Commission to remove the "important agricultural lands" designation from lands if a sufficient supply of water is no longer available to allow profitable farming of the land due to government actions, acts of God, or other causes beyond the farmer's or landowner's reasonable control.  If the "important agricultural lands" were designated by a declaratory order in combination with the reclassification of land in the agricultural district to the rural, urban, or conservation district pursuant to Section 205-45 of the Hawaii Revised Statutes, the commission shall not remove the designation unless the legislature provides prior authorization by adoption of a concurrent resolution in accordance with Section 205-45, Hawaii Revised Statutes."

 

            In conclusion, Senate Bill 2646 is a historical bill that provides incentives for landowners to designate lands into important agricultural lands and incentives for farmers to have productive and profitable farm operations.  In addition, it requires the Department of Agriculture and Department of Land and Natural Resources to jointly identify the state-owned lands that should be designated as "important agricultural lands."

 

            This legislation will begin the process of identifying and protecting our most important agricultural land.  It is my hope that thousands of years from now, agricultural lands in Hawaii will be an important part of our economy, culture, and way of life.

 

Thank you.