The master developer of Ko Olina Resort & Marina has reneged on a public pledge made last year to not use state tax credits for building an aquarium at the West O'ahu resort.

In January 2007, local developer Jeff Stone announced he was canceling the proposed aquarium and would not use the $75 million in tax credits the state had approved for developing the attraction.

Stone, however, recently used $3.45 million of the tax credits to pay for aquarium expenses, mostly for design and planning.

"We tried to give them (the credits) back several times," Stone said yesterday in a telephone interview. "It just kept sitting there and sitting there" because lawmakers couldn't agree on how to redeploy them, he said.

When Stone said last year he would give up the credits, he suggested they could be used for other priorities. But several bills introduced last year that intended to redirect the tax credits for affordable housing, education and other purposes failed. Other bills that would have rescinded the tax credit also died last year.

Stone said yesterday he is still supportive of redirecting the credits for affordable housing, and that there is still plenty of the $75 million in credits available for such use.

This year, at least two bills aiming to redirect the aquarium tax credit stalled. But one bill, Senate Bill 1934, was amended two weeks ago to repeal the Ko Olina tax credits, and it is still alive.

The Ko Olina credits are already factored into the state budget, so they essentially represent a surplus if they aren't used.

CHANGE OF HEART

Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), an initial sponsor of the tax credits, asked Stone before his January 2007 announcement to relinquish the credits for alternate use, given many other pressing needs of the state.

Stone agreed, in large part because the credit's aim to stimulate economic development at the resort and surrounding West O'ahu community had been accomplished by market forces and perhaps the expectation of the aquarium.

"You don't really need an attraction (at Ko Olina) anymore," Stone said in an interview at the time. "Our feeling was, 'Give the money back.' "

The developer also said at the time that he would continue funding a $2.5 million scholarship program that was a condition of Gov. Linda Lingle approving the credit. To date, a Stone nonprofit has spent about $2 million in scholarship awards to roughly 1,000 people. Stone yesterday said this effort will continue. "We'll finish funding it," he said.

REDEMPTIONS LIMITED

The aquarium tax credit was established primarily to build a major aquarium to bring more development, jobs and visitors to Ko Olina, but also covered marine science and sports training projects at the resort, including the Dolphin Institute and NFL Pro Bowl facilities.

Under the tax credit, Stone has until 2009 to spend up to $75 million on the aquarium and other facilities to qualify for the tax savings. Rules prohibited Stone from claiming any credits until last year, and limit credit redemptions to $7.5 million a year.

Because the credits are nonrefundable, they can only be taken when taxes are owed, though there is no limit on how long credits earned may be held before being claimed.

Stone's claiming of credits re-ignites some controversy that has swirled around the aquarium development plan proposed through legislation in 2002 by Hanabusa and Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai).

The Legislature in 2002 approved the initiative, but then-Gov. Ben Cayetano vetoed it on grounds that the tax credit would mainly benefit one interest group and could be spent on projects defined too broadly. Cayetano also argued at the time that hotel, condo and time-share developers would build at Ko Olina without the promise of a taxpayer-financed aquarium.

Hanabusa, an attorney, sued Cayetano over the veto and re-introduced the bill in January 2003. The Legislature approved it that year, and it was signed by Lingle.

Stone had counted on a taxpayer-financed aquarium to help revive a then-struggling resort and pay dividends in the form of more development that would create more jobs and higher tax revenue for the state.

Ko Olina no longer plans to build an aquarium. A hotel and time-share project by Walt Disney Parks & Resorts at Ko Olina is expected to include an aquarium or aquarium elements, though Stone said Disney has indicated it won't claim any credits.

CREDITS CLAIMED

West Honolulu Attractions LLC, an aquarium development entity formed by Stone, claimed the $3.45 million in credits last month in a filing with the state Department of Business, Economic Development and Tourism.

The claim was submitted for expenditures made at Ko Olina from 2003 to 2005.

The developer also filed a report stating that it spent another $322,952 in 2007 mostly on aquarium-related planning, and it intends to recoup those expenditures under the tax credit authorization. Last year's spending is still subject to review and certification by DBEDT.

There was no claim for expenditures made in 2006 because West Honolulu Attractions filed its 2006 spending report after a March 31, 2007, deadline. However, the developer in its late filing reported spending $1.34 million in 2006, including nearly $600,000 in aquarium-related construction activity.

Much of the recent spending was for a saltwater well initially envisioned to supply an aquarium. The seawater supply is being pursued to fuel an air conditioning system and possibly to produce desalinated bottled water.

Stone and his partners bought the financially struggling and largely undeveloped Ko Olina in 1999 at the tail end of a statewide economic downturn. Since then however, hundreds of homes, condominiums and time-share units have been built.

And much more is planned, including the 800-room hotel and time-share complex announced in October by Disney, which paid $144 million for 21 acres next to the JW Marriott Ihilani Resort & Spa on which to develop the project slated for completion in 2011.

Ko Olina also plans a 1,000-room hotel and condo called the Grand Ko Olina Resort Hotel & Spa. And a 247-unit beachfront luxury condo by Centex Destination Properties is under construction.