Posted on: Friday, October 26, 2001
Editorial
To do good, tax relief must be fair, sensible
The last thing Hawai'i needs right now is a political showdown over economic relief proposals coming out of the state Capitol. But unhappily, that is precisely what we appear to be getting.
The issue is the fight between Gov. Ben Cayetano and the Legislature over the best way to stimulate our economy and help struggling local industries. Both sides agree that something must be done, so that's the good news. The bad news is they have fairly strong differences on how that should be accomplished.
Cayetano has promised a veto of a legislative proposal that would grant a tax credit of 10 percent to hotels and resorts that build or renovate over the next couple of years.
That compares with a more limited 4 percent tax credit for individual homeowners and to the existing 4 percent credit for resorts and hotels.
Cayetano is correct. The tax credit as proposed does more than offer an incentive to hotels and resorts with construction plans; it offers them a gift.
For instance, the biggest hotel/resort project on the books at the moment is most likely developer Jeff Stone's $500 million project at Ko Olina. Stone has said the events of Sept. 11 have forced him to put that project on ice for now. But if the tax credit becomes law, there is a potential for a $50 million tax savings (or close to it). That could make the project viable once again.
Another big project on the books is the plan by Outrigger Hotels for a $300 million renovation and rebuilding project for its properties on Lewers Street in Waikiki. That would be good for a tax break approaching $30 million.
Both projects are exciting, good for Hawai'i's visitor industry and will produce both short-term construction jobs and long-term employment.
The question lawmakers must ask themselves, however, is whether giving these two worthy projects this kind of incentive is the best use of public money. We have agreement that we must diversify from our reliance on tourism. What kind of signal does this send?
Could that same $80 million or so be better used, say, in upgrading public school classrooms for computers, the Internet and — dare we say it? — even air-conditioning?
Spending it this way would also produce jobs and would be more likely to focus on companies that would keep the cash in state.
Furthermore, this is the kind of investment that can only come from the state — investment in public education that will pay off better quality "human capital" for tomorrow's economy. It is an appropriate use of public capital.
Private investors will continue to put money into tourism when they perceive a potential profit. That is as it should be. And, like Cayetano, we agree that there is value in offering the existing 4 percent credit for hotel construction or renovation — in effect, returning the 4 percent excise tax the builders would have paid on construction costs.
Furthermore, as a matter of public policy, lawmakers must think clearly about whether they want to transfer public money to some private projects — no matter how worthy — while not offering the same boon to others. While tourism is important, our economy depends on a variety of industries, from retail to academic to banking and investment. All these have a need to build or renovate from time to time.
On a philosophical basis, are they any less worthy of help in the form of an infusion of tax dollars?
Hawai'i faces difficult times, and there is no single answer to our economic problems. But this is not a case where our government can stand divided.
The two sides must come up with a relief bill that is fair, measured and aimed precisely at the areas where it will do the most good.
