Legislature ensures Act 221 anonymity

By Sean Hao
Advertiser Staff Writer

The identities of companies and investors benefiting from generous state technology tax credits won't be available to the public under a bill passed by the state Legislature yesterday.

Lawmakers sent to Gov. Linda Lingle for her signature a bill that extends the Act 221 tax credits for five years and adds stricter eligibility requirements. But they removed language from earlier versions that would have forced companies using the tax credits to identify themselves.

"All I can think of is that somebody chickened out at the last minute," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i, who had supported the disclosure of company names.

Act 221, which was set to expire next year, stirred controversy when taxpayers learned the credits were used to finance one-shot movie deals, including "The Big Bounce" and the teen surf movie "Blue Crush."

Kalapa said public disclosure would help taxpayers assess whether the program was creating high technology jobs as intended or being abused.

Some technology advocates opposed public disclosure of the names, saying it could discourage companies from participating in the program.

Act 221 was intended to help the state diversify the economy away from tourism and the military. It generated an estimated 600 jobs in 2002. Firms and investors have claimed $161 million in tax credits.

The bill extending Act 221 requires more disclosure to the state Department of Taxation, but not to the public. Information the tax department says it needs to quantify the costs and benefits of the program, some of which was provided before on a voluntary basis, will now be required. There's no requirement that any of that information be made public.

"It's a step in the right direction," said Rep. Brian Schatz, D-25th (Makiki, Tantalus), chairman of the economic development committee. "The negotiations between the House and Senate, and the administration, didn't get us all of the way there in terms of disclosure. It gets us about halfway to where we wanted to be."

Part of the problem was agreeing on the level of disclosure needed, said Sen. David Ige, D-16th (Pearl City, 'Aiea), chairman, Science, Art and Technology Committee. In the end lawmakers opted for a tax department certification process that "will allow the tax department to decline a credit, if they feel a company is not providing information," he said. "Up until this point, anybody could file for a tax credit."

Ted Liu, director for the Department of Business, Economic Development and Tourism, has said disclosure of the identities of companies benefitting from the program would shine sunlight that could prevent abuse. Yesterday Liu said the bill passed provides ambient light. But, "That is a step in the right direction."

Liu said the department supports the bill. Democrats adopted much of what Republican Gov. Linda Lingle proposed, including taking out a provision that the act be "liberally" construed by tax officials, restricting research credits to technology companies and providing scrutiny of certain types of claims.

The bill's disclosure requirements are adequate to remove much of the cloud of uncertainty that hangs over the program, Liu said.

Those sentiments were echoed by former state tax director Ray Kamikawa, who was one of the architects of Act 221. Kamikawa said the changes to the program strike a fair balance between investor privacy and the public's right to know how its money is spent.

Public disclosure requirements wouldn't be unprecedented for the state. A tax credit given to developers of an aquarium at the Ko Olina Resort & Marina last year included a provision that the identities of those claiming up to $75 million in tax credits as well as the amount of credits claimed be made public. Additionally, 10 states nationwide require companies receiving tax breaks to disclose how much money they save, according to Good Jobs First, an independent group that tracks economic development incentives.

Kurt Kawafuchi, tax department director, said his intention is to provide information on the costs and benefits of the program, within the department's limited means.

"To the extent that we have the resources we would like to provide more information to the public," he said.

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