STATE OF HAWAIIHAWAII COMMUNITY-BASED ECONOMIC DEVELOPMENTTECHNICAL AND FINANCIAL ASSISTANCE PROGRAM

FY 2019
ANNUAL & FINANCIAL REPORTS
TO THE 30th LEGISLATURE
As required by Section 201-10, Hawaii Revised Statutes
and Section 201D-14, Hawaii Revised Statutes

CBED Program Annual Report 2019

EXECUTIVE SUMMARY
The Legislature created a Community-Based Economic Development (CBED) Program in1991 in the Department of Business, Economic Development and Tourism (DBEDT) with
Act 111, SLH 1991, codified as Chapter 210D, Hawaii Revised Statutes. As part of thestatute, the CBED Advisory Council and the CBED Revolving Fund were also created.
The Council reviews CBED financing requests and makes recommendations on theawarding of loans and grants, subject to the final approval of the DBEDT director. The
Council also advises the director on program implementation, and members represent theirisland in liaison with community-based organizations.
The Hawaii Community-Based Economic Development Revolving Fund (CBED
Revolving Fund) was established to provide training and capacity-building opportunities
and invest in community economic development projects that result in measurable
economic impact. Sources of revenue include repayments of loan principal, loan interest,and interest from the department’s participation in the State’s investment pool. As ofJune 30, 2019, the CBED Revolving Fund had a balance of $448,087.
The CBED Revolving Fund may be used for loans, grants and technical assistance. The
CBED Program has focused most of its recent efforts on 1) loans to small businesses thathave expansion plans or projects with a community economic impact; and, 2) technicalassistance that can grow small businesses and non-profits seeking to diversify their funding
streams with recurring revenue-generating projects.
Through the CBED Revolving Fund, the CBED Program may assist eligible communitybased organizations (CBOs) with financial and/or technical assistance.

The CBED

Program continues to support community efforts statewide. In FY 2019, the CBED
Revolving Fund continued its partnership with the Department of Agriculture’s MicroCBED Program Annual Report 2019-1-

Loan Program, servicing each of the five earlier agricultural business loans made in 2013
through 2017.
The recently passed Federal Tax Cuts and Jobs Act of 2017 authorized a community
economic development program called the Opportunity Zones Program. The Opportunity
Zones Program will be promoted through the Community-Based Economic Development(CBED) Program to enhance efforts to bring community economic development to thoseunderserved and low-income sectors of the State. This initiative provides incentives forinvestors to re-invest realized capital gains into Opportunity Funds in exchange fortemporary tax deferral and other benefits. The Opportunity Funds are then used to provide
investment capital in certain low-income communities, i.e., Opportunity Zones.
DBEDT views the new Opportunity Zone Initiative as an economic development tool (taxshelter) that uses Federal tax incentives to direct investment capital to underserved, low
income areas and targeted communities defined as Opportunity Zones. On October 4th,2018 a half day seminar in Honolulu was held titled “Understanding Opportunity Zones in
Hawaii.” The event was co-sponsored by DBEDT, Hawaii Community Reinvestment
Corporation, and the Federal Reserve Bank of San Francisco. Almost 200 people attended
the event and joined the conversation exploring possibilities for Opportunity Zones in
Hawaii.
The total number of CBO’s, cooperatives, and small businesses assisted in FY 2019
numbered to more than 1,000 through the co-sponsorship of the annual Hawaii Small
Business Fair and sponsorship of the Native Hawaiian Small Business Resources Fair heldin conjunction with the Council for Native Hawaiian Advancement’s (CNHA) Annual
Convention, plus other outreach initiatives on all major islands providing business training
and informational workshops.
DBEDT co-hosted the “Launch Your Dreams into Reality” Hawaii Small Business Fair at
the University of Hawaii’s Leeward Community College. More than 200 small business
CBED Program Annual Report 2019-2-

owners, entrepreneurs, and community organizations attended the event. The free one-day
event featured 26 business-related workshops and one-on-one business counseling sessions
conducted by the Hawaii Small Business Development Center and Patsy T. Mink Center
for Business & Leadership. Exhibits with 35 business resource exhibitors from federal,state and local agencies, private non-profit organizations and community development
financial institutions (CDFIs) were also on-hand to assist and provide information to
Hawaii’s small business sector and entrepreneurs.
The CNHA’s 17th Annual Convention at the Prince Waikiki on October 8-10, 2018 boasted
more than 800 attendees, with over one dozen panels and workshops related to economic
development, Native Hawaiian health, education, housing, intellectual property and more,
a two-day marketplace and more than twenty Federal, State, County and private agencies
and organizations to provide information for entrepreneurs and small business owners.
The CBED Program staff and CBED Advisory Council Members continue to develop
program strategy and partnerships that helps revitalize the CBED Program’s loan, grant
and technical assistance initiatives that support DBEDT’s goals, community revitalizationand cultural and community values. Entrepreneurial small businesses and communitybased economic development initiatives to be funded by the CBED Program and Revolving
Fund are anticipated to support a broad range of agricultural-related and urban businesses
and projects such as small business manufacturing enterprises, food security, andagricultural enterprises, including value-added business development and manufacturing.
On Saturday, April 27, 2019, CBED staff conducted a workshop to provide information
and answer question regarding the CBED Loan Program, technical assistance, and other
DBEDT programs such as the Hawaii Enterprise Zone Program and the Hawaii State Trade
Expansion Program (HiSTEP) to help companies who seek export opportunities. CBED
staff also staffed an exhibitor table to distribute DBEDT program brochures and flyers for
future workshops and 2020 Census materials to one hundred and twelve (112) Waianae
Small Business Symposium attendees.
CBED Program Annual Report 2019-3-

The Waianae Small Business Symposium is sponsored by the Waianae Economic
Development Council, a 501 (c) (3), community development corporation with a mission
to expand economic opportunities for Waianae Coast community residents. Initiatives
include supporting start-up and existing businesses in need of development services and/or
financing.

Quarterly symposiums offer general information, exhibits, presentations,workshops and other services focused on the needs of small business owners in the
Waianae community.
The revolving fund, technical assistance, and capacity-building program initiatives willcontinue to be a crucial resource for Hawaii’s entrepreneurs and community-basedorganizations to create jobs, implement or expand their businesses, and develop sustainable
revenue generating initiatives. Community-based economic development is a bottom-up
approach and can play an important role in the State’s larger economic development
strategy. As the assistance from the CBED Program helps rejuvenate the entrepreneurialand community economic development sectors, the CBED Program itself will also be
rejuvenated.

CBED Program Annual Report 2019-4-

COMMUNITY-BASED ECONOMIC DEVELOPMENT PROGRAM
CBED: Revolving Fund
The Hawaii Alliance for Community-Based Economic Development (HACBED) wasestablished in 1989 by a group of community development practitioners. HACBED
formulated strategies for the state government to support community-based organizations(CBOs) that wanted to create economic development initiatives. These efforts resulted inprogram legislation to provide financial and technical assistance to local groups. The
Legislature created a Community-Based Economic Development (CBED) Program in the
Department of Business, Economic Development and Tourism (DBEDT) with Act 111,
SLH 1991, codified as Chapter 210D, Hawaii Revised Statutes. The legislation created the
CBED Advisory Council and the CBED Revolving Fund with an appropriation of$900,000, in 1991. Today, more than ever, Hawaii must move toward a new economy.
The forces of globalization and economic transition have created great challenges in theworld economy. Hawaii’s isolation and dependence on tourism and fossil fuel energy havemade the islands more susceptible to these effects.
CBED strategies and practices can play a valuable part in an overall economic development
strategy for Hawaii. Specifically, CBED is a bottom-up economic development initiativethat can supplement more centralized or top-down approaches. This bottom-up approach
begins by sourcing economic development opportunities from local communities
themselves, which can be “demographic communities” or “communities of interest.”
These opportunities, which usually become projects, not only have community-backing,but usually have some form of community control. The CBED approach can help build
new infrastructure for a more sustainable Hawaii economy, based on decentralization,
partnerships, human resource development, and innovation.
The foundation created by community-based economic development leads to long-term
capacity-building for local communities and residents and provides backward linkages to
CBED Program Annual Report 2019-5-

ancillary firms to sustain and expand the main sectors of the economy. Hawaii’s economy
is in need of true diversification. CBED is a practical way to achieve a true restructuringof Hawaii’s economy. As the old economic engines become obsolete, the state must lookfor new alternatives. CBED is a key strategy for not leaving behind the lower income
urban and rural communities in the State of Hawaii.
The Hawaii CBED Revolving Fund was established to provide training and capacitybuilding opportunities and invest in community economic development projects that result
in measurable economic impact. Sources of revenue include repayments of loan principal,
loan interest, “Transfers” of revenue collections from other closed DBEDT loan programs(i.e., Capital Loan Program, Small & Large Fishing Vessel Loan Programs), and fees from
community conferences and other events sponsored through the CBED Program.
CBED Revolving Fund AccountBeginning balance as of July 1, 2018
Revenues for fiscal year:
Loan Interest Payments
Loan Principal Payments
Investment Pool Earnings
Transfers
Expenditures for fiscal year
Encumbrances
Balance as of June 30, 2019

$124,954$1,585$13,525$444,893($136,870)$448,087

The CBED Revolving Fund may be used for loans, grants and technical assistance. The
CBED Program focused most its efforts in FY19 on outreach and technical assistance that
can help grow small businesses and non-profits seeking to diversify their funding streams
with recurring revenue-generating projects.
CBED Revolving Loan Report
In 2017 the CBED Revolving Fund approved a loan to Kohala Meats & Deli, LLC for$25,000.00, matched by an additional $25,000.00 from the State Department of

CBED Program Annual Report 2019-6-

Agriculture’s Micro-Loan Program. These funds provided capital to complete renovationsof a 1,592 square foot store space located in Kohala, Hawaii.
The intention of the business owners is to develop a business that sells butchered meat,deli/processed foods, as well as hot prepared foods. The business also provides training incooperation with Hawaii Community College for local youth to earn a certificate inbutchering as well as an opportunity to learn business management. And, area residents
will have an opportunity to purchase locally grown, high quality meats and produce atreasonable prices. This loan is performing well and payments are current.
In 2015, CBED loan funds provided capital to the Chandara Farm to purchase farm supplies
and working capital needed to expand crop production. In November 2015, CBED staff
members were informed by the Department of Agriculture’s Loan Division that Mr.
Chandara had sold his farm and equipment to another farmer. In January 2016, due to theinability to contact Mr. Chandara, the case was referred to an investigator with the
Department of the Attorney General for assistance in tracking the debtor.
In 2015, CBED loan funds provided capital to the Luangrath Farm to purchase farm
supplies to expand farm production to an adjacent 8-acre parcel. Mr. Luangrath was
successfully able to put the 8-acre parcel into production with a variety of crops such as
sweet peppers, tomatoes, long beans, string beans, eggplant, and cucumbers. This loan is
performing well and payments are current.
In 2013, CBED loan funds provided capital to relocate the Chanthabouasith Farm to alarger 14-acre parcel located in Kahuku. The new farm is operating well and is very
productive with a wide variety of crops such as sequa, eggplant, sweet potato, long beans,chili pepper, okra, bittermelon, jackfruit, bananas, cucumber, taro and long squash. Thisloan is performing well and payments are current.

CBED Program Annual Report 2019-7-

In 2011, CBED loan funds provided capital to Hawaiian Agricultural Products, LLC andbusiness owners, Mr. and Mrs. Ken Hirata, to finance the purchase and installation of asteam boiler for a shochu distillery. The distillery began production of shochu in 2013. It
is currently producing at its capacity of approximately 6,500 bottles per year. This loan is
performing well and payments are current.
CBED: Technical Assistance Activities
OPPORTUNITY ZONES PROGRAM

The recently passed Federal Tax Cuts and Jobs Act of 2017 authorized a community
economic development program called the Opportunity Zones Program. This initiative
provides incentives for investors to re-invest realized capital gains into Opportunity Funds
in exchange for temporary tax deferral and other benefits. The Opportunity Funds are thenused to provide investment capital in certain low-income communities, i.e., Opportunity
Zones.
Benefits to Investors•

A temporary tax deferral for capital gains reinvested in an Opportunity Fund. The
deferred gain must be recognized on the earlier of the date on which theOpportunity Zone investment is sold or December 31, 2026.

•

A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis of
the original investment is increased by 10% if the investment in the qualified
Opportunity Zone fund is held by the taxpayer for at least 5 years, and by anadditional 5% if held for at least 7 years, excluding up to 15% of the original gainfrom taxation.

•

A permanent exclusion from taxable income of capital gains from the sale or
exchange of an investment in a qualified Opportunity Zone Fund if the investment
is held for at least 10 years. (Note: this exclusion applies to the gains accrued froman investment in an Opportunity Fund, not the original gains).

CBED Program Annual Report 2019-8-

Additional Incentives
All the Opportunity Zones in Hawaii overlay with other economic development initiatives
such as New Market Tax Credits, Enterprise Zones and Transit Orient Development (TOD)
Zones. There are also many other non-census tract-based programs that can be applied suchas Low-Income Housing Tax Credits (LIHTC). Additionally, there may be synergies
between investors and their missions and the major property holders and businesses in an
Opportunity Zone.
25 Census Tracts Designated as Opportunity Zones
Hawaii designated 25 census tracts as Opportunity Zones as part of the new federal
community development program established by Congress in the Tax Cuts and Jobs Act
of 2017 to encourage long-term investments in low-income urban and rural communities
nationwide. Its stated purpose is to encourage entrepreneurship and expansion capital for
economically distressed areas of the country.
UNDERSTANDING OPPORTUNITY ZONES IN HAWAII SEMINAR

On October 4th, 2018 a half day seminar in Honolulu was held titled “Understanding
Opportunity Zones in Hawaii.” The event was co-sponsored by DBEDT, Hawaii
Community Reinvestment Corporation, and the Federal Reserve Bank of San Francisco.
Almost 200 people attended the event and joined the conversation exploring possibilities
for Opportunity Zones in Hawaii. Local and national experts (including Maurice Jones of
LISC and a Brent Parker from Novogradac & Company) spoke and focused on what weknow so far about how this new tax incentive can be used and the roles regional
stakeholders can play to ensure the benefits of this investment vehicle are broadly shared.

CBED Program Annual Report 2019-9-

Tina Rasmussen talks about potential Opportunity Zone projects in Maui County
HI OZ INVESTMENT READY WORKSHOPS

DBEDT is organizing workshops for owners of Businesses or developers of Business Real
Estate Projects located in OZs and are interested in receiving an investment from an OZ
Fund. The workshops will help the participants understand what it takes to become“investment ready” for an OZ Fund Investment. Qualified businesses and projects will havethe option to participate in the HI OZ Investment Ready Program. DBEDT is particularlyinterested

inprojects

that

have

positive

community

economic

benefits.

Opportunity Zone panelists answer questions for the publicMore information on DBEDT’s role in the Opportunity Zones can be found at:https://invest.hawaii.gov/oz/
CBED Program Annual Report 2019-10-

CBED sponsors Hawaii Small Business Fairs and Opportunity Zone Seminars

HAWAII SMALL BUSINESS FAIR

The number of community-based organizations, cooperatives, and small businesses
assisted numbered more than 1,000 through the co-sponsorship of the Hawaii Small
Business Fair at University of Hawaii’s Leeward Community College, Council for Native
Hawaiian Advancement’s 17th Annual Convention – Business Resource Fair, and otheroutreach initiatives on all major islands to provide business information and training
workshops.
Attendees of the fairs and workshops are offered valuable information on a wide range ofbusiness topics that included, but not limited to: Copyrights, Patents & Trademarks,
Financing Your Business, Professional Networking, and Tax Tips for Small Business, andmuch more. Members of the Hawaii Small Business Development Center, Patsy T. Mink
Center for Business & Leadership and other professionals are on hand to provide small
business owners and entrepreneurs with free one-on-one business counseling. A wide-

CBED Program Annual Report 2019-11-

range of thirty-five (35) Federal, State and private agencies, including major Hawaii
financial institutions are also on hand to provide business resources and information.
Comments provided by attendees are consistently positive:•“I was impressed with the turnout and the quality of the guest speakers. I reallylearned a lot from all three workshops I attended.”•“Great service for the community.”•“Excellent workshops, excellent vendors. Thank you!!”•“Very valuable information.”•“It was great! I look forward to the next fair.”These free workshops and exhibits provided an opportunity for small business owners andfuture business owners to learn to grow or start their own business.

CBED: A Continuing Strategy
Community-based economic development is specifically a strategy for addressing theneeds of low–income communities. CBED has been implemented in the United States formore than 40 years, and in Hawaii for 20 years. As the dialogue about incorporating
community vision and values into present day Hawaii continues, CBED stands out as aneffective strategy to achieve those goals by empowering the community, increasing
capacity, and conserving local resources. CBED is a proven strategy that differs fromtraditional economic development because it emphasizes community reinvestment andlocal economic opportunities. It is a complete process that addresses a community’s
economic and social needs. CBED strategies help maintain Hawaii’s cherished quality oflife for its residents over the long term, while Community-Based Organizations (CBOs)
provide social services and ecosystem services that make a locality attractive to new,appropriate investment and economic development. In the spirit of creating “PublicPrivate Partnerships,” the CBED Program has focused on partnering with other state,federal and private agencies to help build the capacity of small businesses, entrepreneurs,and CBOs through training workshops, conferences, conventions, and other events.
CBED Program Annual Report 2019-12-

CBED ADVISORY COUNCILThe CBED Advisory Council now consists of 10 members. The Director of DBEDT, theChairperson of the Board of Agriculture, and the Chairperson of the Office of Hawaiian
Affairs, or their respective designees, are ex-officio members. The Governor appoints theremaining seven members, representing all counties plus one member who has specificcommercial finance experience.
The Council reviews CBED financing requests and makes recommendations on theawarding of loans and grants, subject to the final approval of the DBEDT director. The
Council also advises the director on program implementation, and members represent theirisland in liaison with community-based organizations.
Council members bring a myriad of skills sets to the Department and the CBED Program.
Skill sets of current CBED Advisory Council Members include, but are not limited to:Strategic Communications, Program Management, Community Outreach, ProjectManagement, Government, Strategic Planning, Public Speaking, Nonprofits, Leadership,
Business Strategy/Business Analytics, Financial Modeling, Process Improvement,
Finance, Risk Management, Public Policy, Grants, Public Administration, Customer
Service, Legislative Relations, and Policy Analysis.
In 2016, during a strategic planning session, the Council voiced its agreement andunderstanding of the importance of partnerships and emphasized the need to leverage andobtain additional CBED funding and seek loan servicing services to address the fact that
DBEDT does not have a loan officer to service loans made through the CBED Revolving
Fund.
The CBED Advisory Council listed the following as desired program goals:
Create jobs & opportunities (such as new businesses) in economically disadvantaged areas
andempower

communities

tocontrol

their

own

CBED Program Annual Report 2019-13-

economic

destinyby:Targeting communities in disadvantaged areas of the state such as those located inenterprise zones (EZ);1) Supporting start-ups, business expansions, social enterprises, co-ops, andentrepreneurship;2) Considering youth training and mentorship/apprentice programs in projects;
3) Facilitating sustainability among communities and organizations so they cancontinue operating;4) Including multiple communities – by demographic, by island;5) Leveraging program funds through partnerships;
6) Dovetailing CBED program with EZ and other state, county, federal, private
programs;
7) Seeking ways CBED can uniquely impact, not replicate, what others are
doing.
The Council also noted that while specific industries should not be targeted or given
preference, the CBED program should consider which industries will create the most jobs
and jobs requiring skilled workers.
CBED Tools/Resources/Strategies/Program Activities
In implementing the CBED program, chapter 210D, Hawaii Revised Statutes, allows
DBEDT to make grants, loans and offer technical assistance.
The Council’s guidance on how to use these tools were as follows:
Grants should be used for:

Non-profit organizations determined to be exempt from federal
income tax by the IRS;

Technical Assistance for grant writing – “Grantsmanship Center”
and other resource centers for grant writing;Train-the–trainer programs – i.e., HANO; Hawaii Community
Foundation; Hawaii County;Capacity-building – building a community’s financial expertise;
CBED Program Annual Report 2019
-14-



Development of business mentorship programs;



The Council suggested that grants be 10% of the CBED budget
with 90% for loans and technical assistance, e.g. $500,000 budget
would allocate $50,000 to grants.

Loans:


CBED could use EZ program as “filter” for guidance – geographic
target areas such as Enterprise Zones;Consider start-ups/business growth/entrepreneurship/youth
training;

Targets for loans may include for-profits, social enterprises andcooperatives that produce and/or utilize community
resources/products;

Consideration towards partnerships to leverage CBED funds:- Department of Agriculture- Small Business Administration (SBA)- Maui Economic Opportunity (MEO)- Pacific Gateway- Office of Hawaiian Affairs (OHA)- Contact counties to identify other organizations providing microloans;Council agreed that loans should on average be $25,000 but can goas high as $100,000 depending on the project and partner(s).

Technical Assistance:
For consideration:
One Stop Centers/CBED Resources;

Web portal site for Hawaii community-based economic
development;

Financial Information/Training;
CBED Program Annual Report 2019
-15-



Business Resource Centers – i.e., SBDC, UH & Community
Colleges; Innovation Centers

Accelerators – Designed to assist community-based non-profitsthat have an economic impact mission. Seek to diversify nonprofits’ funding streams through the development of projects thatgenerate recurring unrestricted revenue.

Outcomes/metrics-Measuring Success
The Advisory Council agreed on the following tracking metrics that could be used tomeasure success:Jobs created

Jobs retained

Earnings

Training hours



Revenue increases



Local sourcing of inputs (multiplier effect)Satisfaction by program

Social impact – use same metrics as partner non-profit
organizationNew businesses created

Current CBED Advisory Council Members

Mr. Matthew K. Loke, Representative for Chair Phyllis Shimabukuro-Geiser
Department of Agriculture (DOA)

CBED Program Annual Report 2019-16-

Mr. James Patterson, Representative for Chair Colette Y. Machado
Office of Hawaiian Affairs (OHA)

Mr. Dennis T. Ling, Representative for Director Mike McCartney
Deprtment of Business, Economic Development & Tourism (DBEDT)

Ms. Rachel James, Chair - CBED Advisory Council (Oahu)

Ms. Elvira Lo, CBED Advisory Council Member (Oahu)

Mr. Kaleokalani Kuroda, CBED Advisory Council Member (Oahu-Financial)

CBED Program Annual Report 2019-17-

Ms. JoAnn Inamasu, CBED Advisory Council Member (Maui)

Ms. Jane Horike, CBED Advisory Council Member (Hawaii Island)

Mr. Ernest Matsumura, CBED Advisory Council Member (Hawaii Island)

VACANT, CBED Advisory Council Member (Maui)

VACANT, CBED Advisory Council Member (Kauai)

CBED Program Annual Report 2019-18-

Mr. Mark J. Ritchie, DBEDT
Branch Chief – Business Support Branch
CBED Staff

Mr. Wayne Thom, DBEDT
Community Economic Development (CED) Manager
CBED Staff

CONCLUSION
Traditional top-down economic development is focused on business and profit, but manyof Hawaii’s rural and disadvantaged urban communities and residents do not reap the
benefits or resist a centralized approach to economic development. CBED is a positive
program that empowers the community, strengthens the knowledge base and provides
access to the resources to expand economic and social development. CBED supplies theinfrastructure for long-term self-sufficiency, entrepreneurial opportunities, jobs, andrevenue for Hawaii’s local communities. CBED is a bottom-up approach and plays animportant role in the State’s overall economic development strategy. An expanded fundcommitment to the Statewide CBED Program serves to make Hawaii stronger byempowering communities and increasing self-sufficiency and economic diversification.
For more information on DBEDT’s CBED Program go to:https://invest.hawaii.gov/business/cbed/ .

CBED Program Annual Report 2019-19-

CBED Program Annual Report 2019-20-