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The Honolulu Advertiser
Posted on: Friday, March 29, 2002

Rules on tax breaks remain a little fuzzy

Gov. Ben Cayetano questions the strategic purpose of a proposal to grant up to $100 million in tax credits to developers who would finance Ko Olina resort amenities such as an aquarium, marine research facility and sports complex. The amenities, they say, would trigger the growth of a major new resort area at the Leeward O'ahu site.

Cayetano has a good point: If tax credits are supposed to be used strategically to develop new industries, such as high-tech and biotech, what's the point of using them to boost what is already well-established here?

Indeed, if the state finances one development via tax credits, what's to stop other developers from demanding the same perks?

But there's another way to look at this issue.

Developer Jeff Stone, manager of the Ko Olina Development Co. LLC, contends that the huge Neighbor Island-style "destination resort" project would help revive the economy with thousands of jobs and tens of millions of dollars in annual tax revenues. It would create a visitor attraction that O'ahu does not currently offer, he contends.

But without those sparkling new "world class" attractions propelled by state tax credits, he says, it won't fly.

Granted, all this doesn't constitute a "new industry," unless one makes a distinction between destination resorts and the more typical urban form of tourism offered in Waikiki.

But then, neither does the film industry. And yet, under legislation passed last year, a teen surf film will get almost $16 million in state tax credits that were intended to attract high-technology ventures and permanent jobs to Hawai'i.

We're not ready to endorse special tax breaks for the Ko Olina development. That proposal must be put to much more rigorous examination before lawmakers can conclude it meets Cayetano's "strategic" test. It's the job of the Ko Olina developers to make that case.

But in the meantime, the experience of the film industry credits suggests that the state's rules for deciding which projects qualify for tax credits are less clear-cut and more arbitrary than the governor appears to suggest.