Posted on: Tuesday, February 24, 2004

EDITORIAL
Act 221's revisions must include openness

State lawmakers are making progress on reforms to the Act 221 high-tech tax credit bill that will increase its effectiveness, reduce opportunities for abuse and give policy-makers a clearer idea of how it is working.

The trick now is to finish work on the measure as soon as possible so our fledgling high-tech industry and the investors who support it will know precisely what the rules are. Until that moment arrives, many investors and companies will be reluctant to move forward.

By the same token, lawmakers will probably have to extend the law based on a good-faith assumption that it is working. Demands for greater information on the costs and benefits of the law are unlikely to produce results early enough to guide legislators in their deliberations this session.

On balance, it is a gamble worth taking.

The cornerstone to the changes proposed is an extension of the law for five years. It was due to expire next year.

But also important are changes that would give policy-makers and the public a better idea of how the law is working, which companies are receiving benefits and whether jobs are being created. Hawai'i cannot go forward with this innovative law in an information vacuum.

In this regard, the House version of the measure appears to be on the right track. It would require public disclosure of the types of companies claiming credits, the size of credits claimed by companies and/or investors and the nature of the work being supported.

This is a compromise with those who were asking for disclosure of the exact names of those who claimed credits under 221 and the amounts they received.

There are legitimate fears that disclosure at this level of detail would discourage venture capitalists from investing in Hawai'i start-ups.

The fundamental goal here is not to get into the tax returns and books of those who invest in the Hawai'i economy. Rather, it is to achieve a level of disclosure that tells the public what it is getting for the tens of millions in tax credits it has authorized.

Supporters of the law insist the "investment" is well worth it. That may be so, although, as Jim Dooley reported Sunday, there are suggestions that some credits went for investments in anything but a high-tech enterprise. In other cases, local firms enjoyed tax savings in excess of their investment.

The underlying concept of Act 221 appears sound. Let's get enough information on the table — not just costs but benefits real and potential — to settle once and for all whether this law is accomplishing what it was designed to do.