Tax credit to be vetoed

By Kevin Dayton and Stephen Tsai
Advertiser Staff Writers

Gov. Ben Cayetano yesterday promised to veto a bill to provide tax credits to encourage new commercial construction projects, arguing that the building would occur even without the credits.

Construction industry groups lobbied aggressively for the tax benefits as a way to boost the state economy and create jobs, but Cayetano said yesterday lawmakers didn't study the effect that credit and others would have on state tax collections.

State tax officials estimated that the 4 percent tax credit for commercial construction and renovations would have cost the state $30 million a year or more in lost tax revenue.

Cayetano said he is also concerned that some projects may claim several different kinds of tax credits.

"That's the problem the Legislature has not dealt with," Cayetano said. "They just kept throwing these tax credits out, you know, almost mindlessly, without seeing what the impact would be."

Cayetano said the commercial construction tax-credit measure "doesn't make sense," and added: "I'll be vetoing that bill. I'm telling you that now."

Cayetano said he is still considering a separate bill that would provide up to $75 million in tax credits to developers who want to build an aquarium and marine mammal research facility at Ko Olina.

House Speaker Calvin Say said the idea behind the commercial construction tax credit is to attract outside investors into the state and help the economy gain momentum, but said lawmakers will still be able to point to income-tax cuts and other tax credits to demonstrate they've helped the economy.

The commercial construction tax credit was backed by the Chamber of Commerce of Hawaii, the Building Industry Association, the Subcontractors Association of Hawaii and a variety of construction industry unions.

Carol Pregill, executive director of the Retail Merchants of Hawai'i, said a veto would be "very disappointing." Retail centers such as the Royal Hawaiian Shopping Center, the International Marketplace and many others need upgrades, and the credits would have helped to make that happen, she said.

"There were projects last year that were trying to get off the ground, particularly renovations in Waikiki, and with 9/11 they were put aside," Pregill said. "But they're still there, and the hope was a tax credit would really help to resurrect these projects, which would be investment from outside of the state."

Pregill said she doesn't disagree with Cayetano that some of those upgrades will happen even without the credits, but said things may move more slowly now.

"The question is, when will they move forward?" she said.