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The Honolulu Advertiser
Posted on: Sunday, November 11, 2001

Some find Legislature's special session no help

 •  What the Legislature did during the special session

By John Duchemin
Advertiser Staff Writer

Hawai'i lawmakers, facing a $1 billion loss in economic activity following Sept. 11, declared an economic emergency and held a two-week special legislative session to do something about it.

From left, state Reps. Mindy Jaffe, Emily Auwae and Barbara Marumoto compared notes during the special session.

Advertiser library photo • Oct. 22, 2001

They passed a package of bills intended to assuage the pain of thousands of laid-off workers and help companies survive. Their accomplishment drew applause from the tourism industry, a direct beneficiary of some of the 15 bills signed into law last week by Gov. Ben Cayetano.

But whether the measures will ultimately provide the state's economy the widespread boost it needs to weather the current downturn is unclear.

Businesses not directly related to tourism said the state's effort is limited and ineffective in dealing with current problems, noting there is little to support small businesses, create jobs for those without work, or address Hawai'i's reliance on tourism that has worsened the downturn.

"I really don't think they did anything that will help get the economy going," said commercial real estate developer Andres Albano, vice president of business development for CB Richard Ellis in Honolulu. "On the whole, I see only short-term fixes that do very, very little. They certainly have not addressed how to diversify the economy so that the next time something like this happens, the effects won't be so great."

Defenders of the special session said spending millions on tourism advertising, extra unemployment benefits and public construction, will ultimately lift the economy.

At least 10 of the special-session bills are intended to stimulate the economy in several ways: ease taxes and other costs for Hawai'i businesses and residents; bring more visitors to the state; and boost the construction industry with public projects.

Unemployed workers, hotels, public schools, construction companies, the University of Hawai'i, transport companies and airport concessionaires are among those who benefit most directly from the legislation.

Cayetano has signed bills to spend $10 million to market tourism, give tax credits on hotel construction, let the governor waive landing fees for airlines and drop rents for airport tenants, and help pay for the planned UH medical school in Kaka'ako.

Several tourism observers said the $10 million in marketing money will be particularly helpful, and will benefit everyone in the long run.

"If the state is able to apply that money right, it's probably the fastest way to put money back into the economy," said David Carey, president and chief executive officer of Outrigger Enterprises.

He said that money would help bring a quicker recovery in visitor count, which would directly lead to more hotel jobs, more tax revenues, and more visitor spending on shopping and dining.

Stan Brown, vice president of Pacific Islands operations for Marriott, agreed, but said the state is committing less money to marketing than some rival destinations in the wake of Sept. 11.

"Clearly, that's money that is good to have and will be spent wisely, but it could have been significantly more," Brown said. "Compared to other destinations, we're fairly low in that category."

'Off the mark'

Outside the tourism industry, several observers approved of the state's plan to appropriate tobacco settlement money in support of the planned $150 million medical school complex in Kaka'ako. But other than that, observers said, the legislative bills either lacked substance or were off the mark.

For instance, the temporary 10 percent tax credit for hotel construction and renovation may fail to generate new development — not because it's a bad idea, but because financing has dried up, Albano said.

"Sept. 11 has really hurt the conduit for new financing," Albano said. "A lot of the major capital investors are being much more conservative on loans in cities that can only be reached by air — and that unfortunately includes Honolulu."

Others said that the tax credit — along with one giving a 4 percent credit for residential construction and renovation — is flawed because it's not refundable. The credit must be applied against tax liability, and the state won't write a check if the credit exceeds the amount of tax owed. Since many hotels' incomes have plummeted since Sept. 11, they may not owe much tax to begin with — so the tax credit may not do any good, said Lowell Kalapa, executive director of the Tax Foundation of Hawai'i, a private advocacy group and tax watchdog.

Hoteliers Brown and Carey favored the credit but agreed that the bill could have been stronger.

"We would rather have seen a refund instead of a deferral, because that would immediately help the cash flow for projects that are ongoing," Brown said. "Also, while a 10 percent credit is definitely a benefit for projects currently under way, we'd look for something more to really stimulate new projects."

Kalapa said that bill was not the only one with problems. Most of the others were "token" and amounted to a knee-jerk reaction by a Legislature unwilling to take bold steps in a time of crisis, he said.

"Many, if not all, of these measures have been tried before, and with questionable results," he said. "With all these reports about how there were all these discussions and meetings with the community, there still is not any think-outside-the-box discussion."

Small businesses complain

Others said the Legislature ignored many Hawai'i residents and businesses in desperate need of immediate economic aid.

While much was done to help big employers like hotels, little was done to help the small businesses that depend, either directly or indirectly, on tourism, said Beth Tom, owner of local discount retailer Price Busters. She said the renovation tax credit, or measures to let some businesses pay taxes less frequently and change the way transportation companies are taxed, won't do anything for the majority of businesses.

"The small businesses with 10 or fewer employees are really struggling to the max right now," she said. "Those are the people you need to focus your energies on. Why focus on the businesses who have big bank accounts? Their biggest concern is maintaining profits. But the small business is worried about survival. The biggest problem is the government still isn't thinking about the little people."

Raymond Siu, owner and chef at Pah Ke's Chinese Restaurant in Kane'ohe, said the government's efforts may not trickle down to his level.

"From what I can see, they haven't really done anything that will be effective in helping small businesses," Siu said. He added that he is concerned that reduced consumer spending will eventually hurt his business.

While the Legislature passed several measures to help unemployed workers — including increasing the duration of unemployment insurance — little was done to create new jobs for those without work, Tom said.

"You have lots of people out there who live in Kalihi and Waipahu and work two 40-hour-a-week jobs just to make ends meet, and they're not going to qualify for unemployment, and therefore they won't have income," Tom said. "If you're in that situation, are you going to care about a renovation credit? I don't think so."