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The Honolulu Advertiser
Posted on: Sunday, December 15, 2002

New search for high-tech

By John Duchemin
Advertiser Staff Writer

During her election campaign, Gov. Linda Lingle took pains not to personally denigrate members of Gov. Ben Cayetano's staff — except for one: Joseph Blanco, the governor's special advisor for technology, whom Lingle called a purely political appointee who detracted from the state's promotion of the high-tech industry.

Joe Blanco, whose background is in real estate, has weathered strong criticism as the state's "technology czar."

Jeff Widener • The Honolulu Advertiser

"Mainland investors are fully aware of this, and local people realize he is not the right person for the job," she said during an October campaign debate.

For Blanco, the verbal attack was nothing new. Not only did both Lingle and Democratic candidate Mazie Hirono single him out as a living example of flawed government, but he drew frequent criticism from business leaders, who said he lacked credentials to be the government's No. 1 advocate for economic diversity and high-tech development.

"He was the wrong person for that position," said Ann Chung, executive director of the Hawaii Technology Trade Association, a nonprofit lobbying and economic development group representing several hundred local firms.

But Blanco, a 49-year-old real estate developer, doggedly defends his record as the governor's "technology czar," the person tasked with shaping the government's vision for developing technology in Hawai'i.

"There was a lot of rhetoric, but people didn't understand my role," he said in an interview Nov. 29, the Cayetano administration's last official workday. "When I think back on how far we came, with what little we had, I'm pretty proud of what we did."

Still, during his three years on the job, Blanco was one of the more controversial figures in Cayetano's inner circle.

During the November interview, Banco admitted that he angered Democratic gubernatorial candidate Mazie Hirono by openly supporting her opponent, Ed Case, in the Democratic primary; struggled for power with government administrators; battled with state Sen. Rod Tam; and gave preferential treatment to well-connected local law and accounting firms seeking to take advantage of the state's high-technology tax incentive known as Act 221.

Now, as Lingle forms her Cabinet, some view her pending choice of a replacement for Blanco as an acid test of her willingness to reform government.

The new governor, whose promise to be friendly to business was a key part of her campaign, has not said whether she will retain a technology adviser. But Lingle has promised to appoint either a committee or a person to tackle high-tech industry development, and vows that the effort will be led by people with iron-clad credentials.

Lingle "has made it a priority that she would want someone respected in the technology field to take a position like that," said Lenny Klompus, Lingle's director of communications.

Real estate background

Blanco's credentials for the technology position have been a source of controversy since he was appointed in 1999.

After earning a bachelor's degree from the University of Hawai'i College of Business Administration, Blanco spent most of his career working for a real estate company founded by his father. He developed Neighbor Island properties for The Harry & Jeanette Weinberg Foundation and befriended some of the state's most powerful Democrats.

Blanco was appointed to the University of Hawai'i Board of Regents by Gov. John Waihee in the 1990s, at one point becoming chairman of the board, the university's top policy-making body.

In 1995 he joined the Cayetano administration as an executive assistant specializing in land sales and public-private partnerships, and helped arrange the sale of state land near the airport to the U.S. government for the new federal prison; the state's purchase of the Waiahole irrigation ditch; and a $2 million donation from the Weinberg Foundation to help buy telemedicine equipment for state hospitals.

By the late 1990s Blanco was a Cayetano confidant, traveling on many of the governor's business trips.

He says his relationship with Cayetano made him a natural choice when the governor, looking to gain support for efforts to grow the technology industry, asked him to be tech czar.

"There's been a lot of people saying, 'Oh, you don't have a technology background, how can you do that,' but what's more important is that I have a background in facilitation and business entrepreneurship," Blanco said. "The technology side, there's plenty of people that can talk in scientific terms; but this job is more one to facilitate, and bring the parties together."

Many technology advocates, however, saw it differently, and argued that Blanco's lack of contacts and expertise in high-tech industries crippled his dealings with the industry.

"If you have to go talk to a venture capitalist from Silicon Valley, or a company with no Hawai'i ties, to convince them to come here and spend some money, you don't want to send someone whose background is in hospitality or real estate," said Mike Browning, founder of Honolulu wireless company Pacific DirectConnect. "Credibility becomes a core issue."

HTTA's Chung said Blanco seemed to try his best despite being put in a difficult position.

"But it would have been easier for him if he had experience in the technology industry," she added. "He could have understood the key concerns, been aware of some of the issues a technology person is experiencing, and had that as part of his vernacular."

Ruffled feathers

Blanco said he knows he "wasn't Mister Popularity." When both gubernatorial candidates, during an Oct. 24 debate, revealed their intention to eliminate or reform Blanco's position, the audience of businesspeople gave their loudest applause of the evening.

He ruffled feathers in the High Technology Development Council when he proposed changes to that organization's oversight of the state's technology incubators on Maui and O'ahu. As a protege of the governor, he drew the ire of Cayetano opponent Sen. Tam, who repeatedly introduced legislative bills to eliminate the tech czar position.

And his unabashed support of Case in the Democratic primary caused an irked Hirono to declare that Blanco's position would be the first she would eliminate if elected governor.

Blanco said he and fellow Cayetano staffer Arnold Kishi played key volunteer roles in the Case campaign. On their own time, he said, they helped design Case's Web site, producing videos and arranging for the online dissemination of a widely publicized video featuring Sen. Dan Inouye praising Case.

He said he helped Case because the former state representative, who now is serving out the late Rep. Patsy Mink's term with the U.S. House, had been a strong supporter of the governor's technology initiatives.

"I supported Ed, and I was very open about it, so I didn't expect those guys (Lingle and Hirono) to come and help me," he said.

But Blanco also insists the good things done on his watch outweigh the controversy. He said his office was behind many of the Cayetano administration's chief high-tech accomplishments, both within government and externally.

Blanco said that with the help of Kishi, a former East-West Center official, he helped the government increase its use of computers, improved the high-speed communications network at state offices, and pushed through upgrades of state Web sites. Blanco also said his office played a critical role in shepherding through the Act 221 tax law, getting millions of dollars in extra research money for the University of Hawai'i, and presenting a consolidated information technology budget to the state legislature.

He said most people, including the gubernatorial candidates, were "clueless" about most of his duties.

"We ended up doing a lot of little things, just to say, 'Hey, these things can be done,'" he said. "Maybe they were kind of minutiae for the tech adviser, but if you only look for the home run, it's not going to happen."

But Blanco's role in promoting use of Act 221 helped stir controversy around the tax incentive. The act, which lets high technology businesses and their investors claim a half-dozen forms of tax credits, is seen as a potent tool to stimulate investment in start-up Hawai'i businesses. Critics have said the government has been too vague in setting guidelines as to who qualifies for the tax credits, and that some investors have exploited loopholes in the law.

The controversy was enflamed when investors in surf movie "Blue Crush" — of which Blanco was a key figure in attracting to Hawai'i — were able to secure $18 million in state tax credits in a deal that many technology advocates feel was an improper use of the act.

Blanco now praises the "Blue Crush" deal as a demonstration of the "scalability" of the tax credit, but rising criticism this year caused him, on Cayetano's behalf, to lobby for changes to Act 221 that would make future movie deals much more difficult to construct.

That futile effort mainly served to prompt further criticism from Act 221 proponents who don't want the act itself amended, fearing that would scare off investors.

The Act 221 debate also added fuel to assertions by Lingle and others that Blanco acted as an unofficial "gatekeeper" who prevented political outsiders from gaining easy access to the tax benefits, but helped secure extra access to those with money and influence.

Blanco denies the assertion that he favored some investors, companies and professional firms seeking to profit from the tax credits. He said a firm "firewall" existed between him and former state Tax Director Marie Okamura.

But he admits that he helped funnel Act 221-related business to some of Hawai'i's largest law and accounting firms including KPMG, Goodsill Anderson Quinn & Stifel and Cades Schutte Fleming & Wright.

When the act became law, Blanco said, he sought out those firms because they represent the best potential Act 221 investors — large Hawai'i companies that have substantial state tax liabilities.

"I went and specifically pitched the law firms and the CPAs who are actually representing the money," he said. "I know that he who has the gold, rules — that's the Golden Rule. So I went where the money is, and said, 'Hey, guys, you may want to look at this law.'"

Blanco said that when companies seeking Act 221 investment dollars would ask him what to do, he would suggest they seek help from an influential law or accounting firm with big clients. His rationale was that a law or accounting firm without good contacts would be useless for a company seeking investments.

"We can't recommend anybody," he said. "But we did tell them, 'You may want to go to the guys who represent clients who have these big liabilities.' That's the reason why they say I may be favoring some people. But you got to know who in town is making the deals."

Morass of issues

Having spent three years defending himself from critics, Blanco said he doesn't expect that the new governor's choice to head the state's technology efforts will have an easier time.

He predicted Lingle's administration will quickly encounter a morass of technology-related issues: the lack of a chief information officer for the state government, for which Blanco's office unsuccessfully lobbied; a pending contract to replace 40,000 state telephones and the accompanying wiring; ongoing efforts to digitize government; and continued sticky issues relating to Act 221.

He also strongly recommended Lingle keep the tech czar position, and not delegate key technology issues to a committee or to a state department.

"If technology is going to be an important part of the next governor's agenda, that person clearly has to be in the governor's office," Blanco said. "If you relegate this task to one of the departments, it will become very difficult to coordinate your efforts — you can't have one department telling another one what to do. And you can't do it by committee.

"What you need is a person with people skills, who knows when to ask nicely and when to carry the big club to get things done."

As for Blanco, he said he'll "be Mrs. Blanco for a while" before seeking work — probably back in real estate, which he still calls his "first love."