Legislature breaks logjam on construction tax credits

By Lynda Arakawa
Advertiser Capitol Bureau

Gov. Ben Cayetano and state legislative leaders have reached an agreement on granting construction and remodeling tax credits for hotel and residential homeowners, a key component of the special session aimed at addressing the state's economic downturn stemming from the Sept. 11 terrorist attacks.

Cayetano earlier indicated he would veto the tax-credit measure, but yesterday said he and lawmakers reached a compromise that would allow hotels to reduce their state income liability by 10 percent of the cost of construction and renovation. Homeowners would be able to reduce their income tax liability by up to 4 percent of new construction and remodeling.

The governor's objection to the earlier draft of the bill was that the 10 percent credit was not limited to the hotels' tax liability, which could have given owners a refund that he called a "gift to the developers."

But yesterday senators approved a floor amendment to eliminate any refunds so that the tax credits would only be used to reduce income taxes owed.

Under the bill, residential homeowners could reduce their state income tax liability by up to 4 percent of the cost — up to $250,000 —of remodeling their homes or building new ones. For homeowners, the most they could reduce their taxes would be by $10,000. There is no cost cap for hotel owners.

"Now if I had my way I would give the hotel owners the same thing (as homeowners): 4 percent," Cayetano said. "But this is a compromise."

House Speaker Calvin Say, D-18th (Palolo, St. Louis, Kaimuki), said he was happy with the compromise and that House Democrats would support the amendment.

"I think the caucus agrees with keeping it alive and not having it vetoed," he said.

Because of the amendment, the special session will be extended to Wednesday.

Meanwhile, lawmakers in the House and Senate passed other measures — including a controversial bill granting the governor emergency powers — and swapped them for further consideration. Both sides must approve each other's version to pave the way for the bill to become law.

Those against the bill — mostly Republicans — argued that the bill is too broad and gives the governor too much power. The bill gives Cayetano authority to suspend laws and rules that affect businesses, and to waive rents and concession charges.

"This is nothing short of near martial law in the economic arena," said Rep. Charles Djou, R-47th (Kahalu'u, Kane'ohe). "What this Legislature is doing with this bill, which in my opinion is the defining bill of this special session, is that it is throwing up its hands and in a near state of panic basically saying to the executive branch that we here in the Legislature cannot save the economy."

But proponents of the bill said there are safeguards against possible abuse and that the governor's emergency powers would expire June 30.

Rep. Ed Case, D-23rd (Manoa), said: "These are anything but normal times. We must rise above those concerns, view realistically what Sept. 11 has brought and what its aftermath might still wreak to our home and our people, and ask simply what is the right thing to do.

Cayetano called the debate "legitimate," saying: "I think that before you give any governor or mayor the kind of powers that they're going to give me, that it has to be discussed, it has to be debated. There are arguments on both sides, and I understand fully and respect the arguments."

Cayetano also announced yesterday that the state Tax Department will grant businesses that have been struggling since Sept. 11 a deferral of their general excise tax payments. To qualify for the General Excise Tax Deferred Payment Plan Program, the business must have seen at least a 25 percent decline in gross revenues since Sept. 11 and have paid their taxes.

For details about the program, call the Department of Taxation's Taxpayer Services Branch at 587-4242 or toll-free at (800) 222-3229.

Reach Lynda Arakawa at 525-8070 or larakawa@honoluluadvertiser.com