The criticism of Act 221 has continued unabated since the original article regarding financing of "Blue Crush" using Act 221. A June 24 Advertiser article ("Millions in tax credits unused," Page A33) described how many tax credits have been "left on the table" and will not be claimed.

If the critics believe that all the law accomplishes is to deprive the state of tax revenues, this fact ought to be positive, not negative. Yet the article was replete with the two criticisms recently leveled at the law: (1) it cost the state $125 million in "forgone" tax revenues, and (2) it is ineffective at creating new jobs. Both criticisms are misplaced.

I am certain that Act 221 has stimulated many start-ups in new and exciting industries, yet the state has yet to measure whether it is "revenue neutral." A tax incentive or tax cut is revenue neutral if it stimulates enough economic activity to generate more tax revenues than have been "foregone" as a result of the tax cut or credit. In determining if a measure is revenue neutral, economists take into account the "multiplier effect," a basic and very important economic concept.

All financial activity reverberates throughout the economy culminating in greater tax revenues. If a business hires an employee, that employee earns income and spends it locally in stores, restaurants, grocery stores and everywhere people spend money. That in turn produces income for those businesses and they pay taxes. The more business they have, the more employees they hire. And the more employees they hire, the more this economic activity multiplies throughout the economy.

The question in evaluating Act 221 is not how much tax revenue has been "foregone" or how many jobs have been created. Rather it is how much economic activity has been generated and whether that activity has been sufficient to make the law revenue neutral. Unless and until we measure whether the law is revenue neutral we cannot know the effect of Act 221 on the local economy.

This law is one of the most creative mechanisms in the country for stimulating business activity. It is clear that many businesses have come here or been started here by locals because of the law.

But these businesses are still "start-ups," and their success and economic effects may not be known for years, which is why measuring job growth is pointless. Other states have tried a variety of tax incentives for stimulating business activity and many have been hugely successful. These incentives include such things as property tax relief, low-interest loans and business investment tax credits like Act 221. All of these measures took time to operate and to become effective.

Hawai'i desperately needs economic diversification which we will achieve only if we stop rebuffing new businesses with our criticism of the incentives likely to lead them to start up or come here. Many of the start-ups that have used Act 221 have become successful enough that they need second-round financing. But venture capitalists will not come here. They insist that these companies move to the Mainland if they want new financing. This may in part be because of the business-negative attitudes that prevail here. And the result will be losing the very businesses we have sought to create.

We need patience. Lots of it. And we need to recognize what so many other states have: that we are competing for business activity with other jurisdictions, and business will go where it gets the best deal. Act 221 is a great deal and can compete with other incentives if we can sit back, allow it to work and stop criticizing it.

Nancy N. Grekin is an attorney who has represented Act 221 clients, including Universal Studios when it produced "Blue Crush." She wrote this commentary for The Advertiser.