Insurer benefits from Act 221
By Sean Hao
Advertiser Staff Writer
Computer-related programmers and technicians at AIG Hawaii work in the same office next to the same people they did a couple of years ago. But they no longer work directly for the insurer. Instead they work for a wholly owned subsidiary called AIG Hawaii Technology Center.
By spinning off its 17 technology employees, AIG Hawaii was able to save $1.9 million thanks to the state's Act 221 technology income-tax credits. Robin Campaniano, AIG Hawaii president and CEO, says the credits were crucial to keeping 17 technology jobs in the state and adding another 10.
"I would have had to close it down," Campaniano said. "All development work would have to be done through an AIG Technology Center" on the Mainland.
AIG Hawaii's use of the credits presents state policy-makers with a dilemma. Act 221 was passed in 2001 to boost investment in Hawai'i's high-tech industry by creating a generation of startup companies that could reshape the state's tourism- and military-dominated economy.
But some question whether AIG has stretched the intent of Act 221 by shifting employees into a subsidiary, which provides similar services, then writing off its investment.
The proliferation of so called "drop-down" subsidiaries has taken on greater significance since the state released data showing Act 221 resulted in $112 million in technology investments, without a comparable impact on the state's technology industry.
Concerns about potential abuses of the act, which cost the state $57 million in its first two years, have led lawmakers to consider tightening qualifying requirements before extending the act.
Act 221 was not meant as a subsidy to keep jobs in Hawai'i, said Honolulu attorney Greg Kim, who has assisted companies applying for Act 221 credits.
The reason for that, Kim said in a letter to state lawmakers last week, is "once Act 221 goes away, so go the jobs. Also, it is unlikely that a wholly owned subsidiary will receive sufficient capital from its parent company to grow into a large, independent business — the ultimate objective with incentives such as Act 221."
With the credits, AIG Hawaii spent $4 million during the past two years building its own technology center.
Now as one of seven centers for technology development and production, the AIG Hawaii Technology Center is poised to take jobs from other AIG operations, Campaniano said. Future plans include attracting outside investment capital and selling products to customers other than AIG, he said.
"We've been a very successful beneficiary," Campaniano said.
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
