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The Honolulu Advertiser
Posted on: Wednesday, January 8, 2003

Legislature pledges to tighten tax-incentive accountability

By Sean Hao
Advertiser Staff Writer

Key lawmakers yesterday said they would seek more accountability over the way the state Legislature hands out tax incentives to businesses.

Their remarks came in response to a recent report issued by the state's Tax Review Commission, which called for an overhaul of the tax incentive system because there was no clear way to determine how the concessions were benefiting the economy.

Tax incentives such as rebates typically are given to spur businesses to move or expand, thus creating local jobs and additional tax revenues. However, the Tax Review Commission, which is charged with reviewing the state's tax structure, said the state lacks critical information on how much tax incentives are costing and what the state is receiving in return.

After discussing the report with the House leadership yesterday, Majority Whip Brian Schatz pledged to implement some of the report's recommendations, including allowing more public input into the process and conducting a cost-benefit analysis before creating new tax incentives.

"I think we have to with the limited resources in state government," he said. "We think the thrust of the commission's report is that there needs to be increased accountability and we agree wholeheartedly with that."

State Sen. Colleen Hanabusa agreed that discussions of future business tax incentives need to weigh potential benefits against revenues losses.

"You cannot simply look at it as a loss," she said. "You have to factor in the dynamic impact — the gain in jobs and other tax revenues."

Schatz said the Department of Business, Economic Development and Tourism will need to provide the financial impact analysis of the tax incentives and their impact on the economy.

The Tax Review Commission also criticized the amount and duration of many existing tax incentives. Among the tax breaks raising particular concern is Act 221, the state's technology investment tax credit. The commission, which was appointed by Gov. Ben Cayetano in 2001, said the act has become a tax credit for more than just technology companies.

Yesterday, Gov. Linda Lingle said she had yet to read the Tax Review Commission report, but she said there are mixed opinions about Act 221.

"There are some strong feelings in the tech community not to do anything to touch 221, and there are some equally strong feelings that changes have to be made in the way it's structured," she said. "We're going to take a look internally at whether or not it's through existing rules or policies that some of the abuses that have been identified have been occurring."

Advertiser staff writer Lynda Arakawa contributed to this report. Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.