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The Honolulu Advertiser

Posted on: Friday, May 16, 2003

State urged to release data on tax credits

By Gordon Y.K. Pang
Advertiser Capitol Bureau

The Lingle administration's refusal to give definitive data about the impact that Act 221 tax credits have on the state budget prompted local venture capitalists yesterday to ask the Office of Information Practices to compel the state to release more details.

Bill Spencer, president of the Hawai'i Venture Capital Association, made the request of the Department of Taxation through the Office of Information Practices, saying Gov. Linda Lingle and her administration are unfairly overestimating the impact of Act 221 high technology investment and research tax credits on the budget while not releasing any numbers to back up their claims.

"Our concern is that there have been extensive reports of tax losses that have been loosely attributed to Act 221, and our sense of the information that's being provided is that it appears overly aggressive compared to what we know to be the case," Spencer said.

On Monday, Tax Director Kurt Kawafuchi issued a press release showing that revenues are short $100 million from original forecasts, setting off yet another round of budget belt-tightening by the administration. Tax officials said about $83 million of that lost revenue can be attributed to underestimation of tax credits, including Act 221, but they gave no breakdown for each of about a dozen different credits of how much the estimates deviated from their original numbers.

"The tax credits that are having the biggest impact are the 100 percent high technology business investment income tax credit and the 20 percent refundable research credit provided under Act 221, and the 4 percent residential-construction and 10 percent hotel-remodeling credits," Kawafuchi said in his release.

Following a Tuesday workshop of the Council on Revenues, which makes the forecasts upon which the state budget is based, tax officials told The Advertiser that they believe the residential construction and remodeling credit will cost about $20 million more than the original forecast and that the Act 221 credits will cost only about $1.4 million more. Tax officials have declined to provide other specifics, such as what they think accounts for the rest of the $100 million shortfall from original forecasts.

Spencer said that he and others involved in the high tech industry, including the Hawai'i Technology Trade Association, have repeatedly been rebuffed when they've asked to see precise numbers about Act 221's impacts on the revenue stream. Lingle lobbied hard during the closing weeks of the recently completed legislative session to persuade lawmakers to tighten up the availability of Act 221 credits to close what the administration perceives as loopholes. But the Democratic-led House leadership refused to hear a bill that incorporated the Republican governor's proposed changes.

As a gubernatorial candidate last year, Lingle promised not to touch Act 221. Since taking office in December, Lingle has said she still supports the tax credits but believes some changes need to be made to curb the abuses that tax officials project could cost the state $55 million over the upcoming biennium.

Yesterday afternoon, commission chairman Mike Sklarz said he did not believe it should be his decision whether to release such numbers and deferred The Advertiser's request for detailed data to the Tax Department. Kawafuchi was in the middle of a week-long business trip in Washington, D.C., yesterday, but Francis Okano, research and planning officer for the Tax Department, said that it should be Sklarz who decides whether numbers should be released. Both Sklarz and Okano stressed that the figures are only estimates of anticipated revenues.

State Rep. Brian Schatz, D-25th (Makiki, Tantalus), said that the high tech organization is making "a legitimate request." Legislators have been asking for the same information from the Tax Department for several months. "We know they have the data, we know they're able to provide it to us and yet it has not been forthcoming."

The lack of information has made it difficult for lawmakers to make decisions, Schatz said. "They've given bits and pieces through the media in press conferences but they refuse to talk with any degree of specificity and we think it's because the facts bump up against their claims. The problem for them is that their Department of Taxation has numbers that disprove the administration's assertions so they're feeling a little bit stuck," he said.

In late April, Kawafuchi issued a press release stating that corporate income tax receipts totaled $26.4 million in the first nine months of the year, but that the Tax Department issued $40.8 million in refunds. He did not, however, say how much of that came from Act 221 credits. A few days later, Republican lawmakers held a press conference and pulled out statistics provided by the Department of Taxation showing jobs and wage growth dropping among 23 qualifying high-tech companies that took the credits. That same day, the Hawai'i Technology Trade Association issued a report showing 4,000 jobs were created directly and indirectly since Act 221 took effect in 2001.