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The Honolulu Advertiser
Posted on: Monday, March 5, 2007

Bills aim to shine light on spending

 •  Legislature 2007
Read up on the latest happenings in the Legislature, find out how to contact your lawmakers, and explore other resources.

By Sean Hao
Advertiser Staff Writer


State lawmakers were considering a variety of measures that would make government spending more transparent:

Senate bill 709: Requires the Department of Business, Economic Development and Tourism to investigate, collect, analyze, and publish research and data to track economic progress and aid in the development and economic health of growth industries.

SB 898: Requires the Department of Taxation to report annually on information collected on qualified high-technology businesses and related tax incentives to properly evaluate their effectiveness.

House bill 122: Requires full disclosure online of all entities and organizations receiving state funds.

HB 1659: Provides that money received for the benefit of the state to cover the costs and expenses of state-sponsored trips and other state-sponsored endeavors be deposited into the general fund and disbursed via legislative appropriation.

HB 1631: Requires qualified high-technology businesses claiming the High Technology Business Investment or Research Tax Credit to file with the Department of Taxation an annual survey about employment positions in the state. Provides that by claiming the credit, the business consents to disclosure of its name.

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Taxpayers could soon learn where the state spends hundreds of millions of dollars for economic development and whether the money is indeed boosting the economy.

Until now it has been difficult to track the effectiveness of state grants, loans, contracts, tax breaks and other financial aid. Details about some incentives, such as tax credits, often are kept secret. In other cases the information may be public, but hard to find.

"That kind of information should be made public so we can decide whether that's a good use of public money," said Lowell Kalapa, head of the Tax Foundation of Hawai'i research group.

State lawmakers are considering measures that would make government spending more transparent including:

  • Making public the identities of companies benefiting from state technology tax credits.

  • Requiring state agencies to collect, analyze and distribute information concerning the costs and benefits of tax credits.

    The effort follows the release of a recent report that criticized the state for providing generous tax credits to technology companies without tracking the costs and benefits. Lawmakers admit they don't know whether the credits are working as intended.

    "If it's working, great," said state Rep. Kyle Yamashita, D-12th (Pukalani, Makawao, Olinda), chairman of the House Economic Development and Business Concerns Committee. "If not, then we need to look at what it is we're doing here. Bottom line is we need good information to make good decisions."

    Yamashita introduced House Bill 1631, which requires qualified high-technology businesses claiming tax credits to file an annual employment survey with the state. The bill also requires that businesses claiming the credit consent to disclosing their names, but not the individual amounts of the credits or the identities of investors claiming the credits.

    The state adopted the technology tax credit when it created Act 221 in 2001. The credits were updated in 2004 as Act 215. The goal was to boost Hawai'i's economy and move it away from dependency on tourism. The credits have helped generate about $185 million in investment into Hawai'i companies since 2001, according to the state tax department. And since then, the state has forgone $110 million in tax revenues as a result of the program. Some of the tax credits will be taken in future years.

    Evaluating the credits is difficult because identities of the companies benefiting from the credits are confidential, and the state does not track the number of jobs created. Also, the state releases data on the cost of the credits sometimes years after they're claimed.

    David Watumull, a board member for the Hawaii Science & Technology Council, said the trade group supports efforts to make public the names of companies benefiting from the credits, but not the amounts of the credits or the names of investors.

    He said the state also can do a better job of analyzing and releasing tax credit job data, which technology companies already file with the state.

    The credits have been crucial to many local high-tech companies. However, there's not enough information available to ascertain the effectiveness of the program, which gives investors a $1 tax credit for every $1 invested in a qualified technology company.

    "We're in favor of aggregate release of data," Watumull said.

    State officials also have been slow at releasing the identities of companies benefiting from other tax credits, even when they are required to do so. The Department of Business, Economic Development and Tourism took four months to disclose the identities of TV and film productions benefiting from state tax credits. The agency disclosed the names in January under orders from the Office of Information Practices, which administers the state's open records laws.

    Other information, including the identities of state contractors and grant recipients, is sometimes public. However, to obtain the information, people must approach individual agencies, which sometimes balk or attempt to charge high fees for the data.

    For example, in March 2006 The Advertiser requested financial details on all money given by one agency DBEDT to nonprofits during a three-year period. DBEDT said it would cost $21,491.50 to assemble the requested documents. The quote included costs for 1,122 hours of labor to search and review relevant documents.

    House Bill 122 could make it easier to determine who benefits from taxpayer money by disclosing the identities of entities and organizations that receive $25,000 or more in state funds via a searchable Web page. Separately, lawmakers are considering House Bill 1659, which would require that money raised by state agencies for state purposes be deposited into the general fund and disbursed via legislative appropriation.

    The proposed legislation would eliminate activities such as DBEDT's use of a nonprofit organization to handle $268,000 in private sponsorships raised for Gov. Linda Lingle's trade mission to China in 2005, said state Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee. Because the nonprofit was not a state agency, its actions were not bound by procurement or sunshine laws.

    The decision highlighted an apparent hole in the state's procurement law that allows agencies to avoid compliance with the procurement code by funneling money through a private entity.

    Oshiro, who introduced HB 122 and HB 1659, said he thinks there's support to pass such transparency measures this session.

    "Everybody wants good accountability of taxpayer money and greater transparency of how our monies are spent," he said. "The idea is the more transparency you have when taxpayer money is being spent, the better."

    The tax foundation's Kalapa said increased transparency over government expenditures such as trade missions is overdue. Practices that obscure the entities sponsoring state activities create the perception that government is hiding something from the public.

    "It's kind of an unethical way to pay for something that should be paid for by government," Kalapa said. "Government should pay for (trade missions) rather than soliciting contributions, which could curry favor.

    "Whether or not it's perception or reality it's still there. It certainly makes you wonder."

    Reach Sean Hao at shao@honoluluadvertiser.com.