HI. TECH
High-tech supporters of Act 221 must act soon or risk losing investors
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Hawai'i technology on Hawai'i Public Radio
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Backers of the legislation, which allows several kinds of tax breaks for high-tech companies, say the act has helped attract investment dollars, which eventually will lead to jobs and a more diverse economy. They also say the act gives the Hawai'i government something concrete for its "we're-not-just-tourism" marketing campaigns, and could attract companies, entrepreneurs and talented workers to the state.
This message, however, has come across vaguely. Compelling "Act 221 success stories" appear to be few, and little has been done to broadcast those that do exist. The number and dollar amount of total investments under the act is also unknown — the state Department of Taxation isn't saying, citing confidentiality.
Meanwhile, critics of the act have steadily compiled ammunition. Some have muttered darkly of abuse since the production company behind surf movie "Blue Crush" convinced the government it was a technology business worthy of a $16 million tax credit under the act. The movie received tax credits even though the production company closed shop after filming, an apparent conflict with Act 221's mandate of funding long-lasting ventures.
Critics also point to national surveys of investors and executives that show tax breaks are of questionable value as economic incentives. Corporate America routinely ranks tax credits as far less important than factors such as education infrastructure, work-force availability and usable land — all of which have long been cited as chronic Hawai'i deficiencies.
Now comes Gov. Ben Cayetano in the midst of campaign season, hinting he will try for the second time to change the law. Republican gubernatorial candidate Linda Lingle has already said she wants to investigate the act. Democratic gubernatorial candidate Mazie Hirono said yesterday that she would convene a group of industry experts to discuss what changes should be made.
In the face of criticism, the act's backers need to come up with a unified, credible and articulate defense — perhaps sharing as many success stories as possible, so that "Blue Crush" no longer seems like the only Act 221 beneficiary.
Supporters of this approach say the law has clearly led to several multimillion-dollar investments, and more money seems to be lined up, waiting for signs of legal stability.
They point to companies such as Hawaii Biotech, which for years has worked on government grant dollars to develop a dengue fever vaccine — and now, thanks in part to Act 221, has secured private investors' money. At least a half-dozen other start-up companies across several industries also are known to have received investments under the act.
Even in the technology industry, however, the idea of an unamended act is not universally supported, as some industry insiders also seek reform — either a tightening of the legislation's language, or at least clearer guidelines from the Tax Department, which has been forming its Act 221 policy on the fly.
The debate has surged to life even as local venture capitalists say big Mainland firms have started to pay closer attention to Hawai'i. These investors won't wait forever. If Hawai'i technology backers don't find a way to show firm support for their act — either to fix it, or to preserve it — the new money could easily find another home.
Reach John Duchemin by e-mail at jduchemin@honoluluadvertiser.com or by phone at 525-8062.
