Lingle's veto may curtail Waikiki plans

By Kelly Yamanouchi
Advertiser Staff Writer

Outrigger, owner of 16 Waikiki hotels including The Outrigger Reef, says it may have to scale back its $300 million retail, entertainment and hotel revitalization project. Advertiser library photo

Many Waikiki hoteliers and retailers hope Outrigger's $300 million retail, entertainment and hotel project will lead to a sorely needed revitalization of Waikiki.

But Lingle objected to including commercial buildings in resort areas, as provided in the bill, and said the state could not afford the tax credit any longer.

The 10 percent tax credit for hotel construction and remodeling is due to expire this year; the measure would have extended it for seven more years. The bill would have cut the tax credit to 8 percent for the first three years and 4 percent thereafter, but it provided no ceiling on the cost to the state.

Outrigger chief executive David Carey said that the tax credits were a critical part of plans for the 7.7-acre redevelopment and that the project likely would be delayed for six months as a result of the veto. He said the company has been looking for financing, but has not completed any deals.

"I don't think we're at the point of pulling the plug, but it obviously causes us to relook at it," Carey said. "We may reduce the size of the project."

The company may pull back on the hotel development and include condominiums in addition to time-share units more appealing to investors.

Construction of the first phase initially was scheduled to begin next year, and the project was set to open by 2006.

When the company unveiled its plans in 2001, the project did not depend on tax credits. But a tourism downturn after the Sept. 11 attacks and difficulty in finding financing caused Outrigger to pin its hopes on the tax credits.

"We were really taken by surprise" by the governor's dissatisfaction with parts of the bill, Carey said. He said the tax credits are positive for the state, because the projects they involve generate tax revenues.

Brian Schatz, D-25th (Makiki, Tantalus), chairman of the House Economic Development Committee, said he was disappointed with the veto.

"Waikiki needs revitalization, and this tax credit was going to spur hundreds of millions of dollars of that kind of investment," Schatz said. "That would have resulted in lots of part-time jobs, lots of temporary construction jobs, and more importantly it would have upgraded the international image of Waikiki — and that's why we find it particularly disappointing."

Schatz said he thinks Lingle made "a wrong choice" in supporting a $75 million tax credit for construction of an aquarium in the resort community of Ko Olina and vetoing the hotel construction tax credit.

"If there was a problem with the affordability with either of these credits, then clearly she should have signed into law the one that had a more far-reaching effect," Schatz said.

"The issue of how to improve Waikiki's physical plant is not going to go away, and our commitment to revitalizing the tourism industry is not going to go away."

Lingle has said the difference between the Ko Olina and hotel construction tax credits is that the first was capped, the second was not.

Reach Kelly Yamanouchi at 535-2470 or at kyamanouchi@honoluluadvertiser.com.