Act 221: Approval of amendment expected today

By Lynda Arakawa
Advertiser Capitol Bureau

The Senate leadership is expected today to revive Gov. Linda Lingle's proposal to tighten the high-tech tax incentive law known as Act 221.

The Lingle administration has lobbied lawmakers to limit eligibility for the tax credits under Act 221, which among other things, offers a 20 percent refundable credit on research activities. Lingle has proposed a more conservative, nonrefundable research and development credit that would only apply to increasing research activities.

A refundable credit allows claimants to receive money from the state even if they do not have a tax liability. A nonrefundable credit would prevent that.

Both the House and Senate rejected the proposed changes earlier, but Senate President Robert Bunda yesterday said Senate Majority Leader Colleen Hanabusa, D-21st (Nanakuli, Makaha), will introduce a floor amendment reflecting the administration's proposal on the Senate floor today.

Bunda, D-22nd (North Shore, Wahiawa), said Senate leaders want to keep as many proposals alive as possible to help balance the budget and preserve money for public education.

"Looking at the overall financial picture, when you consider the fact that we're trying to balance the budget, that education programs will take a hit, we wanted to at least consider all the options," he said. "We want to see that the funding for education really doesn't get negatively impacted. Really, when you consider the cuts and the Council on Revenues numbers, it just made sense for us to ... put everything on the table."

While there will likely be concerns about the Act 221 amendment among some senators, Bunda said he expects a majority in the Senate will approve the amendment.

The proposed changes would remove language in the act that says it will "be liberally construed." The provision directed state officials to lean in favor of approving the tax credits.

Lingle proposed the tightened requirements last month as part of her plan to help balance the budget. Her push for changes followed the state Council on Revenues' lowered revenue projections, which left the state with an anticipated $119 revenue loss spread over the current fiscal year and the next two years. The council and critics of Act 221 have blamed the revenue drop on liberal tax credits.

Lingle has said tightening requirements for Act 221 would save the state tens of millions of dollars. Act 221 supporters say the proposal would hurt high-tech investment efforts that would help diversify the economy.

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or 525-8070.