Hawaiʻi's Technology Community

Tech Industry Awaits Lingle's Final Decision on SB 199

Posted on behalf of Jay Fidell from ThinkTech and the July 12, 2009 Honolulu Advertiser


In her veto list of June 30, Gov. Linda Lingle said she would veto SB 199, the bill that pulled the wings off Act 221, the high-tech tax credit.

This unleashed an endless chain of e-mail within the tech industry. Some were overjoyed, others were skeptical. There was no one who wasn't surprised.

The veto list is only a statement of intention. She must now actually veto by Wednesday. What will she do? Only her chief policy adviser knows for sure.


Perhaps she'll veto SB 199:

In her 2002 campaign, she promised the industry she'd let 221 "run its course." The industry wants her to keep that promise.

After SB 199 was passed, she met with industry members to discuss the merits of a veto, and seemed fair-minded.

She did put SB 199 on the veto list, and many people expect her to veto it just as she said. They will be profoundly disappointed if she doesn't.

SB 199 also suspended the capital goods excise tax credit. This is a tax increase, and some constituents may be asking her to veto on that basis.

She knows tech is ticked that the Legislature passed SB 199, with special enmity for those who pushed it and would try to override a veto.

With SB 199, Act 221 is dead. Startups are not asking for 221 comfort letters and no one's getting one. Investors are looking at other ways to shelter their taxes. Veto or not, the damage is done, and what's left of 221 expires in 2010.

As a result, there are already job losses, deals have been killed, companies are closing and other companies are staying away.

Perhaps she won't veto it:

She and her kitchen cabinet have been trying to undo 221 for years, using the state tax office to cram down regulations and DBEDT to lobby draconian changes. Her enforcement has been political, putting it mildly.

She's been trying to "tighten" 221 all session, and the "cap" in the bill she proposed was a whopping 25 percent less than the one proposed by industry.

If she felt strongly about SB 199, as she apparently did about HB 1405, the Internet tax, she could have vetoed SB 199 early. She didn't.

She's in a shooting war over the "$730 million shortfall," fighting with the unions and legislators on both sides about tax increases, furloughs and layoffs.

The Advertiser, in last Sunday's editorial, came out in favor of SB 199 and opposed a veto. This should have come as no surprise to those who have followed its editorial policy on this issue.

Although to the naked eye there are more factors working against a veto than for it, it's not simple and we really can't say which will prevail.


Some people will be optimistic and others cynical, but here are some logical possibilities:

She could veto SB 199, leaving layoffs or a tax increase to cover the gap. The $221 question is whether the leadership can override that veto.

She could veto and cut a deal with the leadership for a son-of-221 that would really make your hair stand on end.

She could veto and re-attack 221 next year, opposing any extension.

She could let SB 199 pass into law, trying to co nvince us that intervening events have again somehow changed her mind.


She put SB 199 on the veto list to keep her options open, but none of us can be sure what she'll do at the moment of truth. Horse trading is still in the room.

Lately, she's been arranging unprecedented meetings with longtime 221 antagonists against selected members of the tech industry. Insiders say she already knows what she's going to do, so this is theater designed only for political cover.

If she vetoes SB 199, the tech industry will be delighted and give her credit. If she doesn't veto it, the tech industry will consider that another betrayal.

She's got our attention, but is this sincere or just mid-game sport? We can hardly wait until Wednesday to see what happens.

A veto would be a big legacy point for her, but there are no guarantees. As an optimist, my bet would be on the veto. As a realist, my bet is on the budget.

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Comment by Bruce M. Bird on July 16, 2009 at 9:31am
Hi, Daniel. You make a number of good points.

Please note that the "rips the rug out from under us" argument is an all-purpose one that can be trotted out any time any change is proposed to Act 221. Taken together, Act 221 and SB 199 kind of remind me of the ad on cable TV for Ally Bank ( here's your new bicycle, but just try to use it). SB 199 is unfair to the extent it changes the rules in midstream and blindsides investors. On the other hand, Act 221 also has its own share of issues (not the least of which is that it's a law that is much harder to defend politically when total state tax revenues are falling than rising).

SB 199 would have benefited from having a "phase-in" provision to protect investors concerned with timing issues. Maybe this concern can somehow be addressed in any "Son of Act 221" legislation.
Comment by Daniel Leuck on July 15, 2009 at 6:41pm
Hi Bruce - The filing of an intent to veto bought the Governor a couple extra weeks to request research and form a focus group before rendering her final decision. Whether or not a veto was seriously considered is impossible to know. There are a variety of possibly motivations for doing this. This whole process has been an education for me in terms of our incredibly byzantine state government.

The sad thing is that we, as an industry, didn't just bitch and complain. We offered alternatives (including one that made it to the floor) and discussed ways of adjusting the law in a controlled and structured manner that wouldn't kill deals currently on the table. We told the governor we would support adjustments that would give people currently working on deals a chance to prepare. SB199 rips the rug out from under us and makes Hawaii look like a very unpredictable place to do business. This whole scenario is much worse than if Act 221 had never existing in the first place!
Comment by Ryan on July 15, 2009 at 2:59pm
Indeed, it became law today. Posted a strong statement released by Bill Spencer (HVCA), as well as one from Lt. Gov. Duke Aiona, decrying the lack of a veto.
Comment by Bruce M. Bird on July 15, 2009 at 2:08pm
I'm surprised. It just doesn't make sense to me for Governor Lingle to put it on her veto list and then not to veto it. That part I just don't get.
Comment by Ken Berkun on July 15, 2009 at 1:14pm
Nate, I think a more accurate statement is that because of the uncertainty nobody has been promised any money at all this year. Or few, in any case.
Comment by Nate Sanders on July 15, 2009 at 1:10pm
Apologies, as I realize that there have been many posts about all of this, but I haven't been able to keep up with it all. Am I correct in assuming that people who were essentially promised money are now not going to get it?
Comment by Daniel Leuck on July 15, 2009 at 10:54am
Contrary to information from multiple sources inside the leg, Lingle decided not to veto SB199.
Comment by Bruce M. Bird on July 15, 2009 at 5:54am
Hi, Daniel. Jay Fidell's article covers a lot of bases. His section dealing with the options available to Governor Lingle is quite insightful. From a "game theory" perspective, it would seem to me that Governor Lingle would veto SB 199, but, then again, it's just a guess on my part.
Comment by Daniel Leuck on July 14, 2009 at 7:43am
We just received word that Lingle is likely to veto SB199. If this happens a battle will likely ensue to either override or "correct" the bill in an amendment session.


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