DBEDT expects loss of two special funds programs
By Sean Hao
Advertiser Staff Writer
State lawmakers today are expected to vote on a bill that eliminates programs providing business loans-of-last resort and venture capital for high-tech companies.
Special funds for both programs ultimately overseen by the Department of Business, Economic Development and Tourism are being diverted to free up $5.3 million to help balance the state's fiscal 2004-05 budget.
Of the $5.3 million, about $1.3 million would be removed from Hawai'i Strategic Development Corp.'s strategic development revolving fund that provides start-up and expansion capital to technology businesses.
The remaining $4 million would come from DBEDT's capital loan fund, which provides money to businesses that can't borrow capital from elsewhere. Both funds would be eliminated entirely in mid-2004.
The move to do away with the programs follows the Legislature's rejection of changes to Act 221, the state's technology tax-credit program. Lawmakers said the amendments sought by Gov. Linda Lingle would hamper efforts to diversify the economy.
Ted Liu, DBEDT's director, said eliminating the venture capital revolving fund could similarly dampen efforts to diversify the economy away from tourism.
"I don't think the efforts are contradictory on purpose, but it is ironic," Liu said.
The bill would do away with both special funds on July 1, 2004, but lower the spending allowed this year to cover only the programs' operational expenses. Once the funds are repealed, any remaining money would be shifted into the state general fund and current program staff positions would be financed through the general fund.
The handful of employees would continue to oversee loans and investments made from the funds. Liu said both programs are self-sufficient and do not rely on general-fund monies. He said DBEDT is still trying to estimate how the loss of the two programs would affect the department's economic development efforts.
"It came up so suddenly that we've been scrambling to figure out what it all means," Liu said.
Hawai'i Strategic Development Corp. has committed $14 million to venture firms investing in about 50 Hawai'i start-up companies.
The capital loan fund was singled out for criticism during a recent state audit that showed $5.57 million, or 59 percent, of all program loans were more than 90 days past due. The revolving fund loan program also granted only 16 loans totaling $2.33 million in the past five years, according to the audit.
Liu acknowledged that the capital loan program needed better marketing and management. However, high-risk loans made from the fund should not be expected to perform in traditional fashion, he said.
