"Film, hotel (credits) — they're all dead," said Rep. Jerry Chang, D-2nd (Hilo), chairman of the House Tourism and Culture Committee. Today is the deadline for the key tax credit bills to pass out of committees, and no meetings were scheduled to consider them.

The failure to adopt tax credits to spur the economy reverses the trend in recent years when lawmakers passed a $75 million tax credit for an aquarium at Ko Olina Resort & Marina and extended technology tax credits available for use by the film industry through 2010.

Proponents of such industry incentives contend they result in new jobs and increased tax revenue. Others complain they're costly, unneeded and unfair to taxpayers not fortunate enough to be in one of the chosen industries.

Each year, the state forgoes about $500 million in tax revenue by giving income tax credits and general excise tax exemptions to companies and individuals.

The high number of tax breaks given to Hawai'i businesses and a lack of cost/benefit data drew criticism in a 2003 report by the state's Tax Review Commission. Just what benefits the state gets in return from business incentives related to economic development remains largely unknown.

"Overall, the whipping that the Tax Review Commission gave tax credits has left lawmakers smarting," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "That, I think, has made most of them steer away from tax credits."

Between 1957 and 1969, the state had only three tax credits. As of 2003, there were 20. In addition, revenue from more than 40 types of transactions are exempt from the state's general excise tax.

Sour taste

The tax credit for Ko Olina in particular took a toll on the popularity of credits, Chang said.

"I think that after the Ko Olina tax credit went through, everybody had a sour taste in their mouths," he said.

The Ko Olina credit has been criticized because unlike many other credits, it favored a specific project, rather than an entire industry.

"They don't want to be painted in the same way — that they're taking care of their friends," Kalapa said of lawmakers.

Sectors that missed out on tax credits this year maintain that jobs and sales are a risk.

Film industry representatives yesterday were puzzled by a lack of action on a proposal to raise the 4 percent production tax credit to 15 percent on O'ahu and 20 percent on the Neighbor Islands. Hawai'i already offers producers a 4 percent tax credit on qualifying expenses and a 100 percent tax credit on investments under the state's Act 215 technology incentive program.

Proponents of the film credits say Hawai'i's tax credit is not competitive with incentives offered by other communities, particularly when the high cost of filming in Hawai'i is taken into account.

"I don't think it's enough to lure people here with our beauty," said James Sereno, owner of Kinetic Productions, a Honolulu production company. "Right now other states are offering too many tax credits and breaks. We need to keep up with them to compete."

Earlier this year producers for ABC's popular show "Lost" warned that without added incentives to reduce costs, the show might leave Hawai'i. Ultimately "Lost" committed to producing a second season locally.

Tax subsidies for "Lost," "North Shore" and "Hawaii" and other entertainment projects cost the state an estimated $28 million in lost tax revenue last year, according to state calculations.

At the same time, the film and television industry spent $161 million in the state — including at least $100 million on TV shows — and at its peak employed 700 actors, directors, camera operators and other industry workers.

Without the added incentives Hawai'i will lose film and TV projects to other areas that offer greater incentives, said Ted Liu, director of the state Department of Business, Economic Development and Tourism.

"I just don't think that policy makers understand the impact that this bill will have in terms of direct benefits for the economy now," Liu said.

Tourism committee chairman Chang said a proposal to extend and increase the hotel redevelopment tax credit to 8 percent will not pass this session. Hotel industry officials have said the credit would help preserve Hawai'i's hotel room inventory by providing financial incentives to renovate and build rooms rather than convert them to time-shares or condominiums. The current 4 percent tax credit expires this year.

"Obviously we'd be disappointed if the tax credit is not extended," said Murray Towill, president of the Hawai'i Hotel & Lodging Association. "It was certainly beneficial in helping to encourage people to upgrade and renovate their properties."

Redevelopment break

Outrigger Hotels & Resorts was the most visible backer of the hotel redevelopment tax credit. The hotel chain was able to claim the tax credit on part of its $460 million Waikiki Beach Walk project, which began this month.

Perry Sorenson, chief operating officer for Outrigger Hotels & Resorts, said the company supported the bill "to maintain a balance in the inventory in Waikiki and on O'ahu between hotels, condominiums and timeshares.

A high-rise building scheduled for the second phase of the Beach Walk project was planned as a full-service hotel, but will likely become a combination of hotel rooms, condominiums and residential units — "just because of the difficulty of making the numbers work," Sorenson said.

"Certainly a hotel would have been more viable through a tax credit situation," he said. "It would have put it on an equal footing with the other alternatives."