Construction tax credits, tourism fund get initial OK

By Kevin Dayton
Advertiser Capitol Bureau Chief

Tax credits to encourage investment in hotels and home construction won preliminary approval from state lawmakers last night along with a bill to inject an extra $10 million in state money into an emergency tourism promotion effort.

But legislators rejected a proposal to provide a modest capital gains tax credit to encourage investment in Hawai'i business properties.

Another bill to authorize $100 million in school and university repairs and maintenance also won preliminary approvals from the House Finance and Senate Ways and Means committees.

Lawmakers approved a bill to relax state bidding requirements to allow construction jobs worth up to $250,000 to be awarded without competitive bidding, which is intended to help the administration award contracts quicker.

The committees held a marathon meeting in the State Capitol auditorium that lasted almost 12 hours yesterday to hear public testimony on 17 bills the House and Senate have proposed for this week's special session. Gov. Ben Cayetano summoned lawmakers to the session to pass bills to boost the economy and provide benefits to laid-off workers.

Much of the focus yesterday was on the plan to lure tourists back to Hawai'i with a $20 million promotional push.

Of that money, $15 million would be from state sources, including $5 million that has already been authorized. Another $5 million would be from private sources.

Hawai'i Visitors and Conventions Bureau chief executive Tony Vericella said the target of the campaign is to get "stable" visitor arrivals by mid-2002. By that, Vericella said he meant that arrivals in June 2002 would be equal to arrivals last June.

As of mid-October, passenger volumes arriving in Hawai'i from the Mainland at 90 percent of last year's levels, and arrivals from Japan were less than 50 percent of last year's level. As of the end of last week, westbound arrivals were at 42 percent of last year's level.

Seiji Naya, director of the state Department of Business, Economic Development & Tourism, said the economic crisis will intensify as tourism workers who lose their jobs or see their work hours reduced cut back on their spending.

That will ripple through the rest of the economy, Naya said. "I feel that the worst is yet to come."

Jobless figures understated

Naya is predicting a loss of 11,000 to 25,000 jobs this year alone.

The unemployment statistics actually understate the problem because many laid-off hotel workers held two jobs, said Keith Vieria, director of operations for Hawai'i and French Polynesia for Starwood Hotels & Resorts Worldwide. After they lose one job they don't qualify for unemployment benefits, and therefore don't appear in state jobless worker tallies, he said.

Adding to the grim chorus was Hilton Hawaiian Village Managing Director Peter Schall, who said he expects business in Waikiki in November to be slower than in October.

Naya and tourism officials urged lawmakers to approve the extra money for tourism marketing.

The theme of the planned promotional campaign is "Live Aloha Now More than Ever." The effort would be fueled by $7 million in media and other promotion efforts in Japan, and $8 million to be spent on the Mainland.

Lawmakers approved a plan to expand an existing tax credit for hotel construction and renovations from 4 to 10 percent, and to create a new 4 percent tax credit for homeowners to encourage them to build or renovate as well.

The hotel and homeowner tax credits would be used to reduce the amount of income taxes that investors or homeowners owe.

Legislators originally considered a 6 percent tax credit for hotels and resorts, but opted last night to increase that to 10 percent after developers argued resorts should be granted larger tax credits.

Jeff Stone, managing partner for Ko Olina Resort & Marina, said construction projects are being canceled or delayed week by week, and said investors are watching Hawai'i closely.

"What would it take to get you to invest $100 million?" Stone asked lawmakers. "We have a chance to send a message to Marriott and others: bring your money here."

The 10 percent tax credit for developers may run into trouble later when it reaches Gov. Ben Cayetano. Cayetano has warned lawmakers he will veto the bill if the tax credit is too large, and the governor has vetoed at least one similar tax bill. Cayetano argues the state should not use tax credits to heavily subsidize hotel development.

The bill would offer homeowners who undertake renovations a tax credit of 4 percent, which would offset the state's 4 percent excise tax on construction work and materials.

Developers also said they needed more time to make investments that would qualify for the tax credit, so lawmakers extended the deadline for expenses eligible for the credit until July 1, 2003.

State Tax Director Marie Okamura said the tax credits for homeowners would cost the state $12 million to $18 million a year.

The resort tax credit would cost the state about $3 million a year if it were set at 6 percent, she said. Estimates of what the credit would cost the state at 10 percent were unavailable last night.

Capital gains break fails

One measure that failed last night was a bill to offer a capital gains tax break to people who invest in business property in Hawai'i.

Okamura said there were problems with the tax break as proposed. She said the window of opportunity for investors to take advantage of the tax break was too small, and doesn't encourage long-term investment in the state.

The bill would have required investors to buy a business property in Hawai'i by the end of 2002, and to sell their property within 10 years to claim the tax break.

Lawmakers also approved a bill that would expand Cayetano's powers in an economic emergency, including allowing him to waive rents and concession payments.

Airport businesses hurting

Lobbying for the bill was DFS Hawai'i, which is required by contract to pay the state a minimum annual guarantee of $60 million a year for its Duty Free Shoppers concession at the Honolulu International Airport, and another $9.2 million a year for other retail operations at the airport.

Sharon Weiner, group vice president for administration for DFS Hawai'i, said business at Honolulu airport has taken an enormous hit because concessions there are heavily dependent on Japanese tourists.

"No business can survive with these kinds of losses," she said, adding that airports in San Francisco, Phoenix, Dallas and Denver have already granted relief to their concessionaires through the end of the year.

Hawai'i Republican Party Chairwoman Linda Lingle said the bill is undemocratic and warned lawmakers that "some of you are panicking" and turning over too much power to Cayetano. She said the law would signal outside investors that Hawai'i laws are "fluid" and subject to the interpretation of one person.

The Associated Press contributed to this report.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.