Hawaii-2014-HB488-Amended

SECTION 1. The legislature finds that the appraisal processes utilized by the department of land and natural resources to determine fair lease rent for state lands to be used for agricultural and aquacultural production and support are overly burdensome to the State's commercial agriculture and aquaculture industries, add substantially to the time and costs associated with establishing or expanding farming and ranching enterprises in the State, and negatively impact long-term agricultural and aquacultural tenure and investment. These effects are contrary to the State's goals of expanding local food production, increasing the State's self-sufficiency, and improving the economic well-being of the State's rural farming communities.

The legislature also finds that in order for agriculture and aquaculture to flourish and reach their full potential in the State, land availability and long-term tenure at affordable and predictable lease rental rates are critical. When lease rents are based solely on monetary considerations of fair market value and highest and best use, local agriculture and aquaculture industries suffer.

The appraisal valuation process instead should consider factors such as physical site characteristics, past market prices, global economic factors, percentage of usable land for agricultural or aquacultural purposes, and the influence of risk factors outside of farmers' and ranchers' control, such as natural disasters. The process should also recognize the numerous societal benefits of agriculture and aquaculture, including sustainable food production, land conservation, and preservation of open and green space.

Farmers and ranchers frequently make substantial investments during the life of their leases, often financing investments based on the income and expense projections existing at the time. However, significant changes to projected land rent can alter the viability of these investments.

Placing limits on potential appraisal costs may help farmers and ranchers to manage their costs.

The purpose of this Act is to:

(1) Provide that the valuation of public agricultural or aquacultural land be based on the land's agricultural or aquacultural use, economic considerations, relevant risk factors, and societal benefits; and

(2) Provide that for disinterested appraisals, costs greater than one year's existing rent shall be borne by the department of land and natural resources.

SECTION 2. Section 171-17, Hawaii Revised Statutes, is amended to read as follows:

"§171-17 Appraisals. (a) The appraisal of public lands for sale or lease at public auction for the determination of the upset price may be performed by an employee of the board of land and natural resources qualified to appraise lands, or by one but not more than three disinterested appraisers whose services shall be contracted for by the board; provided that the upset price or upset rental shall be determined by disinterested appraisal whenever prudent management so dictates. No such lands shall be sold or leased for a sum less than the value fixed by appraisal; provided that [~~for~~]:

(1) For any sale or lease at public auction, the board may establish the upset sale or rental price at less than the appraisal value set by an employee of the board and the land may be sold or leased at that price[.] and;

(2) The value of land classified or used for agriculture or aquaculture, including the value of land classified for conservation, shall be the value of the land for agricultural or aquacultural use without regard to any value that the land might have for other purposes or uses, or to neighboring land uses.

The board shall be reimbursed by the purchaser or lessee for the cost of any appraisal required to be made by a disinterested appraiser or appraisers contracted for by the board[.]; provided that for a lease renewal or conversion from a revocable permit to a long-term lease, any appraisal cost greater than one year's existing rent shall be borne by the department.

(b) The sale price or lease rental of lands to be disposed of by drawing or by negotiation shall be no less than the value determined by:

(1) An employee of the board qualified to appraise lands; or

(2) A disinterested appraiser or appraisers whose services shall be contracted for by the board, and such appraisal, and any further appraisal with the approval of the board, shall be at the cost of the purchaser;

provided that the sale price or lease rental shall be determined by disinterested appraisal whenever prudent management so dictates[;]. The value of land classified or used for agriculture or aquaculture, including the value of land classified for conservation, shall be the value of the land for agricultural or aquacultural use without regard to any value that the land might have for other purposes or uses, or to neighboring land uses. [~~provided further that should~~] If the purchaser [~~fail~~] fails to agree upon the sale price or lease rental, the purchaser may appoint an appraiser who together with the board's appraiser shall appoint a third appraiser, and the sale price or lease rental shall be determined by arbitration as provided for in chapter 658A, which shall be final and binding. The purchaser shall pay for all appraisal costs, except that the cost of the third appraiser shall be borne equally by the purchaser and the board[.]; provided that for a lease renewal or conversion from a revocable permit to a long-term lease, any appraisal cost greater than one year's existing rent shall be borne by the department.

(c) In the repurchase of any land by the board, the board shall have the option to repurchase the land for the original sale price or the fair market value at the time of repurchase, whichever is the lower. Any improvements affixed to the realty shall be purchased at their fair market value. At the time of the repurchase, the fair market value of the land, and the improvements, if any, shall be determined by a qualified appraiser whose services shall be contracted for by the board; provided that should the owner fail to agree upon the value, the owner may appoint the owner's own appraiser who together with the board's appraiser shall appoint a third appraiser, and the value shall be determined by arbitration as provided in chapter 658A. The owner shall pay for all appraisal costs, except that the cost of the third appraiser shall be borne equally by the purchaser and the board.

(d) In the event of reopening of the rental to be paid on a lease, the rental for any ensuing period shall be the fair market rental at the time of reopening[.]; provided that the value of land classified or used for agriculture or aquaculture, including the value of land classified for conservation, shall be the value of the land for agricultural or aquacultural use without regard to any value that the land might have for other purposes or uses, or to neighboring land uses. At least six months prior to the time of reopening, the fair market rental shall be determined by:

(1) An employee of the department qualified to appraise lands; or

(2) A disinterested appraiser whose services shall be contracted for by the board;

and the lessee shall be promptly notified of the determination; provided that should the lessee fail to agree upon the fair market rental, the lessee may appoint the lessee's own appraiser who together with the board's appraiser shall appoint a third appraiser and the fair market rental shall be determined by arbitration as provided in chapter 658A. The lessee shall pay for the lessee's own appraiser, the board shall pay for its appraiser, and the cost of the third appraiser shall be borne equally by the lessee and the board[.]; provided that any appraisal cost greater than one year's existing rent shall be borne by the department. Any language in present leases to the contrary notwithstanding, the provisions of this subsection, when possible and notwithstanding the six-month notice required, shall apply to leases with original lease rental reopening dates effective before and after July 1, 1996.

(e) Whenever more than one appraiser is appointed, each shall prepare and submit an independent appraisal. All appraisal reports shall be available for study by the public.

(f) In determining the fair market value and highest and best use of lands that are classified or used for agriculture or aquaculture, consideration shall be given to rent; productivity; nature of actual agricultural or aquacultural use; location; accessibility; transportation facilities; size; shape; percentage of usable land for intended purpose; elevation; topography; quality of soil; insolation and wind conditions; water privileges; availability and cost of water and utilities; easements and appurtenances; the opinions of persons who may be considered to have special knowledge of agricultural and aquacultural land values; past, current, and anticipated market prices; global economic factors; the influence of risk factors outside of farmers' and ranchers' control, such as natural disasters; and societal benefits of agriculture and aquaculture, including sustainable food production, land conservation, and preservation of open and green space."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2020.

HOUSE OF REPRESENTATIVES	H.B. NO.	488
TWENTY-SEVENTH LEGISLATURE, 2013		H.D. 1
STATE OF HAWAII