Are Hawaii's Tech Tax Credit Worth the Cost?

Comment

Comment by Bruce M. Bird on May 2, 2009 at 2:59pm

The proposed legislation with the changes that Bill mentioned in his previous post can be accessed at: http://www.capitol.hawaii.gov/session2009/bills/SB199_CD2_.pdf . The proposed change involving "80% of tax liability" takes some time to read.

Comment by Ken Berkun on May 2, 2009 at 1:43pm

Thanks Bill, what is the capital goods excise tax credit? I'm not familiar with that.

Ken

Comment by Bill Spencer on May 2, 2009 at 11:23am

A House draft, SB199 CD2 was passed by the conference committee Thursday. Senator Fukunaga was the only "NO" vote. Rep. Gene Ward, a Republican who usually supports Act 221 voted YES with reservations. The draft will go to both houses for floor vote on Tuesday morning. The draft has three provisions that the conferees believe will reduce tax credits by more than $130M. The provisions are as follows:

1) tax payersm may only apply credits earned up to 80% of their tax liability between May 1 2009 and December 31, 2010. Unused tax credits can be claimed after January 1, 2011.
2) the bill eliminates the ability for Hawaii tax payers to shift equity in exchange for credits from non-Hawaii tax payers. In other words only 1:1 rather than the Act 215 authorized 2:1
3) the bill puts a moratorium on the capital goods excise tax credit for fiscal year 2010 beginning July 1, 2009.

The tech industry position is that disallowing 2:1 will impact mainland investing and will hurt the local film and digital media industry in particular, and other companies that rely on non-tax advantaged investment. Allowing only 80% of credits to be taken against tax liability is deemed retroactive and may be unconstitutional giving way to a flood of lawsuits. Overall industry believes that this version of the bill will have a severe chilling effect on tech investment.

I will be advising HVCA members and friends that there is still a chance to kill this bill on the House floor by contacting legislators and telling them to vote against passage. We believe there is a better chance to kill the bill in the House than the Senate. There is little chance the Governor will veto the bill since she has been trying to kill it ever since coming into office. She does not like the "capital goods excise tax credit moratorium" but I do not believe that is enough to override her desire to kill Act 221. If she does veto the bill, there may not be enough votes to override it.

Stay tuned for a letter from me to our members and friends as well as a sample letter that you can use to send your own state representative. Next year is an election year and the House members are vulnerable and more attentive to constituency concerns.

Comment by Ken Berkun on May 2, 2009 at 11:00am

Someone who is up on things (Bill?) can you please post a summary of what finally came out of legislature? It looks like we're down to 80% for local investors and nothing for out-of-staters. Anything else? And what are the chances of Lingle approving it?

Thanks,
Ken

Comment by GB Hajim on April 30, 2009 at 11:16am

I just want to point out that most of the people that are trying to cut Act 221 see it as a handout. They think investors jump at the opportunity to take advantage of the 2:1 tax credit.

Well, to all those people: For 2009, we have a quarter of a million dollars of mainland investment from people who receive NO TAX CREDIT and we are struggling to find matching investors here.

Comment by Bruce M. Bird on April 30, 2009 at 11:08am

Hi, Bill.

On a totally unrelated note, I heard an "economist joke" today from a colleague who has a PhD in Economics.

Here it is:

"Early one morning, three economists went out hunting for deer. The first economist fired, but missed. 4 feet to the left. The second economist fired, but missed. 4 feet to the right. The third economist put down his unfired gun as he stood up and shouted in triumph, "We got it! We got it!"

Comment by Bill Spencer on April 28, 2009 at 6:50pm

I apologize for being somewhat defensive and for the sarcastic remark about Brewbaker, but economists in my experience rarely get it right. They certainly missed predicting the latest economic catastrophe even when the hand writing was on the wall, and now they are all happily predicting the end of the recession. They seem no better at predicting when things will improve than when things will go south. I know Paul well enough to tease him about his planet. I truly believe economic balance is the key. I believe Hawaii has the potential to capitalize on its strategic advantages. When I came here in 1985 there were four tech companies, one of them is now the biggest locally born and raised tech company in town, Oceanit. Pat didn't need 221 to grow his company, but I think he would agree that Act 221 helped him spin out Hoana and Nanopoint. We need deal flow and we need capital. One begets the other. Act 221 has improved deal flow and better deals have improved the amount of capital. I don't know if we can grow tech as fast as we need to without incentives. I don't think 221 is perfect, but it sure has helped. No one has come up with a better idea. Time will tell.

Comment by Bruce M. Bird on April 28, 2009 at 6:32pm

Hi, Bill.

1) Paul Brewbaker is a respected economist. "If we all lived on Brewbaker planet" carries with it all sorts of connotations, many of which are quite unflattering. Bill, I know you are a "stand up" guy and, on balance, I genuinely appreciate reading your many posts. But I would also like to mention that there are a few members of the pro-Act 221 community who, on occasion, attempt to either "mock" or "demonize" those with whom they disagree. This blog is somewhat unique in that civility --and respect for the opinions of others-- are encouraged. And, as Martha Stewart might say, "It's a good thing!"

2) Yes, the tech sector is growing in Hawaii. But it would also be growing --albeit more slowly-- even if Act 221 did not exist. Why? Because our lives are becoming inexorably more and more tied to technology.

3) Reasonable minds can disagree about how the tech sector is defined and about how tech sector jobs are defined.

4) Your point about wanting to encourage "balance" in Hawaii's economy is well-taken.

Comment by Bill Spencer on April 28, 2009 at 5:28pm

You could say Spencer planet is unidimensional in its pro-tech landscape, but if you actually knew me, and had followed my writings over the last 15 years you would be wrong. I don't dismiss tourism as a viable part of Hawaii's landscape, I'm seeking balance in the economy, capitalization of Hawaii's strengths in the global marketplace and creating opportunities for those among us in Hawaii inclined to follow a tech entrepreneurial pathway. Brewbaker and others of his ilk have staunchly denied that tech has a place in Hawaii and placed all of their faith in tourism. Earl Anzai former DBEDT director used to say tech will never be greater than 3% of the economy. Now it represents $3B in gross revenues which is equal to the hospitality sector (hotels) and almost as big as the $3.5B construction sector which does not provide steady employment to its workers. Think of the billions in infrastructure costs it took to build all those hotels which lay barely 65% occupied or less at the moment, compared to the mere $1.2B invested in QHTB's. I don't dismiss Brewbaker, but I do think he neglects the advantages of balance in our economy. The world's tourists will not keep coming to our shores forever, especially if we don't increase our tax base enough to protect our environment and maintain our tourism infrastructure, something sorely neglected. Have you been to a beach park bathroom lately? We can't even afford to keep even the most basic amenities in first class shape. We have to export knowledge and quit hopeing that tourists will continually save the day.

Comment by John on April 28, 2009 at 3:09pm

Bill, couldn't people say the reverse about you? "If we lived on a Spencer planet, we would need to launch multi-million dollar startups and get the state to pay for it. Bill has always been pro-high-tech because he believes hi-tech is Hawaii's strategic niche and we will certainly build a tech industry."

My point is that people should neither dismiss your nor Brewbaker's position simply because of the strength or consistency of their advocacy.

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