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The Honolulu Advertiser
Posted on: Sunday, December 29, 2002

Lingle to step up efforts to invigorate economy

By Sean Hao
Advertiser Staff Writer

With Hawai'i's dominant business of tourism still suffering the effects of 9/11 and a sluggish global economy, the emphasis on diversifying the state's economy is expected to remain a cornerstone of development efforts in 2003.

Linda Lingle, the state's first Republican governor in 40 years, highlighted the need to diversify the economy during her recently concluded campaign. And in the next year, efforts can be expected to create additional tax breaks for businesses as well as a more coordinated marketing campaign as the state strives to diversify and market its economy.

But observers say any changes put into place in 2003 will likely take years to bear fruit and create an impression in business leaders' minds that the state is open for business. Significant progress in such a short time frame is unlikely because it is partly dependent on external economic factors as well as overcoming some of Hawai'i's many long-standing hurdles including geographic isolation, high labor costs, a tough tax environment and lack of available workers with high-tech skills.

Salvation from dependence on tourism lies in diversifying the state's tourism base while at the same time expanding technology, healthcare and resurrecting the agriculture sector, said Leroy Laney, a Hawai'i Pacific University economics professor.

"All of this probably won't happen in the next year. I think in the short span of a year, it's hard to significantly diversify the economy," he said.

In the past several years, progress has been made in boosting areas of diversification such as agriculture, and eco-, health- and edu-tourism. And among the most significant incentives created recently to spur the state's fledgling high-tech sector was the Legislature's passage of Act 221, which provides tax credits for investors in technology.

Mike Fitzgerald, president and chief executive of Enterprise Ho-nolulu, a nonprofit economic development organization, said he's working with the Hawai'i Tourism Authority and economic development agencies on the Neighbor Islands to develop marketing material that tries to attract more than tourists.

He said there's also ongoing discussions between Enterprise Honolulu, the governor's office and the Legislature to develop additional tax incentives for businesses in low-income areas and for locally based enterprises.

Such moves are needed not only to attract new business but to retain existing businesses as nearly every community seeks out high-tech, high-wage employers, Fitzgerald said.

"Every state and every county now is really on the same strategy," he said. "People are so aggressive about this now that every year what people put up to attract these businesses increases."

Whether additional tax incentives for businesses will pass the Democratic-controlled Legislature remains to be seen. But given the state's weak economic footing, as well as recent concerns of abuses of Act 221, new tax breaks won't be easy to sell to the public, Laney said.

"In that type of environment, it's difficult to get tax-credit legislation passed," he said. "You have to have a good economy to get a diversified economy because then you can afford it."

Fitzgerald agreed. "It will be tough," he said. "We've got to be able to show people that there's a return" in taxes paid and investments made in the state.

Jim McGraw, president and chief executive of KMK Consulting, a Cincinnati-based economic development and business consulting firm, said Act 221 is a step in the right direction for the state. KMK has consulted with Hawai'i economic development groups in the past.

But ultimately the state's marketing efforts will need to reflect that the state is more than just a tourist destination, McGraw said. That's where the state's sizable tourism business is an advantage.

"In doing that, you're trying to sell to the business person who's there on vacation and let him or her know that Hawai'i has a lot to offer in terms of business," McGraw said. "You don't have that ability where tourism is not a big business of its own.

"That gives you more bang for the buck."

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.