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The Honolulu Advertiser
Posted on: Wednesday, April 22, 2009

Tax-credit cutback could pass today

By Greg Wiles
Advertiser Staff Writer

Hawai'i's technology industry mounted a frenzied lobbying effort yesterday in a last-ditch effort to block legislation it says will damage high-technology investments here.

Barring a last-minute change, legislators are scheduled for a final vote today on a measure that would temporarily cap Hawai'i's controversial tax credit program and the practice of allowing Mainland investors to transfer their tax credits to local investors. The new restrictions would be in place until 2010, under the bill.

"This would really constrain investing and have a real chilling effect," said Bill Spencer of the Hawaii Venture Capital Association.

"It would just really cripple tech."

The industry has battled efforts all session long to amend the program, which allows investors to recoup 100 percent of their money over a five-year period. They also can get more credits by trading their ownership in high-tech companies with Mainland investors who can't use the state tax credits.

The program, known as Act 221, features among the most generous credits nationally and has come in for criticism because of its estimated $747 million cost from 1999 to 2007 and questions about the number of jobs created.

Proponents have argued that the credits helped diversify the economy, created thousands of jobs and attracted $1.2 billion in investments in companies that spent $1.4 billion locally.

Yesterday, supporters of the credits contended that the pending bill is flawed and unconstitutional in retroactively applying restrictions to investments made before its enactment.

Rob Robinson, co-founder of Kolohala Ventures, which invests in technology firms, said the industry was surprised that SB 199 was amended with the restrictions over the weekend during conference committee negotiations.

The industry had favored another bill, HB 1451, which also would reduce credits but be less onerous, Robinson said.

The industry's criticisms of the pending measure were countered yesterday by state Rep. Pono Chong, D-49th (Maunawili, Olomana, Enchanted Lake). He said legislators had looked into concerns about the constitutionality of limiting tax credits on investments made before this year. That included having attorneys review SB 199 before its passage out of a conference committee.

"We did look into that before," Chong said. "The state at any time has the ability to change tax law."

Moreover, he said the bill represented a compromise between a more onerous Senate measure that would have done away with the credits and the House version that cut them back.

He said they also wanted to do something about people being able to obtain credits from non-Hawai'i residents. Chong said conference committee members thought getting more credits than what was invested was overly generous.

"We felt this (SB 199) was something that was a good compromise," Chong said. "The industry might not think so, but we thought it was fair."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.