Economic issues still key in '04

By Sean Hao
Advertiser Staff Writer

Schools superintendent Pat Hamamoto delivered her vision for school reform in a speech last month at the State Capitol. The key to reform, and virtually all other issues, said Sen. Sam Slom, is a strong and diversified economy. Bruce Asato • The Honolulu Advertiser

The shift in priorities comes on the heels of a strong year for Hawai'i's economy, which has allowed politicians to turn their attention elsewhere. But that doesn't mean the business lobby won't be in there fighting for its agenda.

Key economic issues likely to come up in the 2004 legislative session include new or modified tax incentives for businesses, amending or repealing gasoline price controls and perennial issues such as health insurance and workers' compensation reform.

"Part of our challenge is to fight the complacency that comes with economic good times," said Rep. Brian Schatz, D-25th (Makiki, Tantalus), chairman of the House committee on economic development.

Among the proposals receiving early enthusiasm is an administration plan that would allow the state to borrow money for venture capital funds. The funds would invest in Hawai'i companies, with the loans backed by tax credits.

During a legislative briefing on the plan last week Mike Fitzgerald, president and chief executive of Enterprise Honolulu, said Hawai'i high-tech stars Hawaii Biotech, Hoku Scientific, Hoana Medical and others may be forced to leave the state if more isn't done to attract venture capital.

"They all may pull out of Hawaii, if we can't find them the follow-up financing that will help them grow," he said.

The proposed program, now being called the State Private Investment Fund, is part of Lingle's economic package. The governor is also pushing to give the state insurance commissioner broader powers to investigate workers' compensation insurance fraud and tax credits for investments in University of Hawai'i research. Also part of the administration's priorities are bills requiring health insurers to provide group rates to business trade groups and changes to technology industry tax incentive program Act 221.

Democrats, who control the Legislature, last week rolled out a package that included creating development zones for agriculture, which would give businesses in certain areas access to tax rebates for agriculture-related spending on equipment, cleaning the environment and new jobs. Also included was an income-tax credit for companies that create high-paying jobs.

Other more divisive business issues, such as changing Act 221, extending tax credits to encourage hotel and commercial construction, and providing an earned income tax credit for low-income families weren't among the majority party's early priorities.

"Anything where there wasn't clear consensus didn't make it into the package," said Schatz.

Among the more divisive issues expected back again: capping state gasoline prices and changing Act 221, which expires in 2005. Some legislators want to change the state gasoline price-cap law, which was passed in 2002 and takes effect in July. Others, including Lingle, want price controls repealed.

As far as Act 221 goes, both Democrat and Republican lawmakers support extending the tax credits in some form. Last week Lingle proposed changes to the program that would extend the research and investment tax credits of the act for an additional five years, but limit the credits to certain companies, such as those engaged in technology.

The proposed Act 221 changes would also make the application of the act less liberal and provide guidance meant to curtail investment tax credit returns that in some cases have been higher than intended. Those changes are less severe than changes proposed last year by Lingle. Act 221 credits have come under intense review as the cost of the program to the state escalates and critics question the eligibility of some of the recipients, including nonprofits and movie productions.

Schatz said Lingle's proposal is a good starting point for discussions on the future of Act 221.

"It's not an attack (on Act 221) as it was last year," he said. "That's a reasonable starting point, but we're going to have to take a hard look at them and find a consensus.

"That won't be easy. At the end of the day, hard decisions will have to be made about it."

For the Chamber of Commerce of Hawai'i, priorities in the current legislative session include cutting health and workers' compensation insurance costs, said chamber president Jim Tollefson. However, fixing Hawai'i's education system and dealing with the Islands' ice problem also benefits businesses, he said.

The solution to those problems as well as how to pay for new services such as a prescription-drug program won't be found unless more is done to improve the state's business climate, said Sen. Sam Slom, R-8th (Wai'alae Iki, Hawai'i Kai).

"You can't have any of that unless you have a strong and diversified economy," said Slom, who also is president of Small Business Hawai'i. Slom also advocated for measures to cut healthcare and workers' compensation costs for businesses. "The job has been started, but the job has not been finished," he said.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.