Posted on: Sunday, July 18, 2004
EDITORIAL
'Act 221' on stronger footing but not perfect
Those with hopes for Hawai'i's high-tech industry should be pleased with Gov. Lingle's decision to approve a bill that extends the innovative Act 221 tax credit law for another five years.
The law, now known as Act 215, will provide stability to the high-tech industry and encourage more investment in this promising sector of the economy.
Act 221 was born with great promise as a way to put Hawai'i on the map and in the minds of the high-tech industry. But critics suggested it was too much promise, offering tax breaks and investment money for ventures that had little resemblance to what the law's authors had in mind.
In signing the revised version of the law, Lingle was critical of lawmakers who placed a companion program in a one-year freeze so it can be further studied.
The companion bill would create a new state-backed investment fund that would provide capital to companies in the second stage of their development.
The first stage, which attracts Act 221 investors, provides money for people to convert an idea into plausible reality.
The second stage provides investment to bring that plausible reality into actual development. Without local sources of this second-stage investment, start-up companies typically have to move to the Mainland to get their money.
Democratic lawmakers said that because the idea is so new and because it involves up to $100 million in taxpayer money, they wanted more time to study it before it takes effect.
While they are conducting that study, they should also take a fresh look at remaining unfinished business with the former Act 221.
While the new law tightens up eligibility for tax-credit-spurred investment, it still has a major loophole.
Public information about who benefits from Act 221 investments, let alone who is making them, will be in short supply.
An effort to open the books on Act 221 failed in the waning days of the 2004 session.
One can see both sides of the argument that investors benefiting from tax credits may not want their business made public. Such publicity could discourage investment, critics say.
But there is also an argument that if an individual or company is benefiting from a state-granted tax credit, the taxpaying public has a right to know who it is and how much they are getting.
Less ambiguous is the second part of the secrecy issue. There is no strong reason why the benefiting companies — the start-ups, if you will — should not be publicly disclosed.
How else will taxpayers and policy-makers know if they are getting their money's worth in terms of jobs and economic stimulation?
The Legislature should make it an early matter of business next session to launch the second-stage venture capital fund and open the books on the inner workings of Act 221.
