EDITORIAL
Let high technology put down its roots

Geographically, Hawai'i is vastly limited in the types of industry it can sustain. Which is why high tech, which can be operated from pretty much anywhere that has electricity and high-speed communications lines (of which Hawai'i has many), is regarded as a promising alternative to tourism in the Islands.

And which is also why the previous administration of Gov. Ben Cayetano fought hard for tax credits by way of Act 221 to build a technology industry virtually from the ground up.

In contrast, the Lingle administration has exerted more effort to challenge Act 221, blaming the state's budget woes on the cost of the credits.

As part of a crackdown, the state tax department is auditing nearly 60 percent of technology research tax-credit claims made in 2001, the act's first year. Among other possible abuses, the tax department is looking into:

• Research credits by ineligible tax-exempt organizations.

• Financial institutions using the credits to offset franchise taxes.

• Research spending that was inflated.

We know the law has been exploited by investors who wrote off millions of dollars that they pumped into projects such as the movie "Blue Crush."

But so far the audit suggests Act 221 has not been subject to the widespread abuse alleged by critics. Only two out of 137 claims for research credits and two out of 268 claims for investment tax credits have been denied. That indicates the vast majority of credit seekers qualify for these breaks and few are actually questionable.

We've consistently held that these tax breaks are needed to foster Hawai'i's fledgling technology industry. The law expires in 2005, and has barely had a chance to make a difference, what with all the controversy.

As yet, the tax department has not compiled figures on all the jobs or salaries created under Act 221. That data should provide a clearer picture of the costs and benefits of the law.

At this point, we suggest backing off Act 221and letting it do its thing. If it is proven that the law is so loosely written as to invite abuse, then new legislation proposed in 2005 can address the loopholes. We sincerely hope the effort to provide technology incentives won't die with Act 221.