Tax-break estimates can be kept secret
By Sean Hao
Advertiser Staff Writer
The state Office of Information Practices has upheld a decision by tax officials to withhold from the public the estimated costs of various tax breaks granted to the technology, hotel, film and television industries.
The Department of Taxation generates the estimates to aid the Council on Revenues in making tax-revenue projections used in creating the state budget.
The tax department has maintained that the information should be kept confidential because the estimates for future tax credit costs are subjective and essentially represent a best guess.
The OIP, which administers the state's open records law, ruled that the forecasts are shielded by a rules that prevent the disclosure of drafts and other subjective documents used in the decision making process.
Releasing the estimates would "frustrate" the ability of the Department of Taxation and Council on Revenues to carry out their jobs, the OIP wrote in an opinion sent to the Advertiser this week. The Advertiser requested OIP issue an opinion after the tax department and the council denied a request for the forecasts in March.
"The council must be able to ensure that its staff produces future forecasts uninhibited by fear of public ridicule or criticism and to prevent the confusion of the issues and the misleading of the public that might occur by dissemination of staff-prepared forecasts that do not in fact reflect the ultimate basis for the council's revenue estimates," the OIP said in its letter.
The tax credit cost estimates can affect how much money will be budgeted for a host of government services, including healthcare and education.
Deputy Tax Director Marie Laderta said the department is working on a way to generate better estimates.
"That's when we'll be comfortable releasing them," she said.
Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i, said the tax department should make its tax credit estimates public.
"I think it's unfortunate because if they're making the projections, whether or not they're comfortable with them, because they're not giving them to lawmakers and the public, we can't assess whether or not we want to support" the credits, he said. "You're asking us to make decisions in the dark.
"If they don't have confidence (in the forecasts), then back to the drawing board," Kalapa added. "We should have confidence in what we're producing."
The state previously has released information on the estimated costs of the credits. According to a projection provided to the public last spring, tax department projected that the cost of tax credits would soar from $89.3 million in fiscal 2002 to $180.1 million in fiscal 2003, which ended June 30, then drop to $159.4 million in fiscal 2004.
Although those figures seem small compared with the state's $3.9 billion annual budget, a lack of oversight and accountability in the way the state gives tax incentives to businesses was criticized last year by a state advisory panel, which found there was no way to determine whether the incentives actually benefit the economy.
That report, issued by the state Tax Review Commission, recommended the Legislature overhaul the tax-incentive system for businesses by narrowing the scope and duration of tax incentives, conducting cost-benefit studies before creating new tax breaks and periodically evaluating existing tax incentives meant to spur business investment and job creation.
Since the report's release in January of last year, the Legislature has yet to conduct a comprehensive cost-benefit analysis of any new or existing tax credit.
"The commission found these could be a real drag on the revenues system," said commission member and University of Hawai'i economics Professor James Moncur. "To what extent, we don't know.
"Without knowing what we're doing, we need to be cautious about approving these tax credits."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
