Legislators plan tax breaks
| • | Constituents voice concerns |
By Kevin Dayton
Advertiser Capitol Bureau Chief
A new capital gains tax break designed to encourage investors to buy property in Hawai'i was tentatively approved by House and Senate leaders yesterday.
The tax break will be included in one of 17 bills lawmakers agreed to push through the Legislature in the special session that begins at 10 a.m. today.
Gov. Ben Cayetano called the Legislature back into session to try to cope with the plunge in tourism following the Sept. 11 attacks on the Mainland. It is the fourth time lawmakers have met this year, a record.
Lawmakers agreed yesterday afternoon to provide $8 million to plan and design the University of Hawai'i-West O'ahu that is planned for Kapolei, far less than the $150 million Cayetano had requested to build the new West O'ahu campus.
"I think, for us, it's a start," Senate President Robert Bunda said. "We know that it's an important project, and we want to go with it. It's just that we want to make sure that we do the responsible thing, and that is to make sure that our finances are in place."
Cayetano had wanted permission to borrow and spend $1 billion on schools and other construction projects to boost the building industry, but legislators balked.
An agreement reached yesterday will provide Cayetano with authority to borrow only $100 million that would have to be repaid out of the state's general treasury. Of that money, $75 million will go to repair and maintain public schools, and $25 million will be spent on University of Hawai'i facilities, Bunda said.
School officials estimate they have a $600 million backlog of repair and maintenance work that needs to be done.
Lawmakers also have agreed to allow the administration to borrow $150 million for a new medical school and research facility in Kaka'ako. The money borrowed for that project will be repaid from about one-third of the proceeds from the state settlement with tobacco companies over the health effects of smoking, and will not have to be repaid out of the general treasury.
House Speaker Calvin Say said the capital gains tax break will offer investors a window from Nov. 1, 2001, to Dec. 31, 2002. Investors who buy business-related property in Hawai'i during that time will be allowed to claim a tax credit against their state income taxes equal to any capital gains tax they are required to pay on gains from the property.
To claim the credit, investors would have to hold the property for at least two years and would have to claim all credits by 2011. The tax break would not apply to gains from home sales.
That proposal, which emerged from the state Senate, will offer investors far more opportunities to offset their profits with other tax write-offs, said Say, D-18th (Palolo, St. Louis, Kaimuki).
"We're in a crisis situation. What we wanted to do was to make sure that investments flow into the community, and that's one way that you can get people to invest in the state in a big way," said Bunda, D-22nd (Wahiawa, Waialua, Sunset Beach).
Lawmakers also agreed to offer a new 4 percent tax credit to encourage homeowners to build or renovate their homes. Tax credits of up to $10,000 could be used to reduce the homeowners' income taxes, provided the work is done before July 1.
The Legislature also plans to expand a tax credit already being offered to hotels to encourage them to build or renovate resorts before July 1. The 4 percent credit would be increased to 6 percent.
Say and Bunda said they had no estimates of how much the tax breaks will cost the state in lost collections. They argued the tax incentives will encourage construction work and investment in Hawai'i that otherwise might not happen, and therefore the state loses nothing.
Lawmakers already had agreed to provide $10 million more in state money to launch a new tourism marketing blitz, and yesterday agreed to provide $1.25 million from the state's emergency "rainy day fund" for extra food and emergency shelter for the poor.
Social programs report far greater demands on their services as a result of the economic downturn.
House Republicans yesterday criticized another bill that would provide Cayetano with increased powers to cope with an economic emergency, including the power to waive rents and concession payments owed to the state.
The Republicans argued that Cayetano is already "quite powerful," and complained the Democrats' package of bills was drafted with little input from the public.
The GOP House members also argued that leaders of the House and Senate should establish "tax holidays" where purchases are exempt from the excise tax as a way to encourage people to shop; and should suspend the 4 percent excise tax on food for three or six months.
