Nonetheless, Gov. Ben Cayetano said he supports a bill now on his desk that requires the state to select local firms for public works projects even if their bids are 15 percent higher than those by mainland companies.
Cayetano said he doesn't know the financial effect of the measure, unanimously approved by the Legislature last week.
But that cost is offset because the bill churns the local economy, giving jobs to construction workers who have been idled, Cayetano said.
There are other reasons, Cayetano maintained, for establishing a preference for isle businesses: "They're more familiar with the process of doing business in the state. That's important. Their leadership is here. If something goes wrong, you can find them. They're probably more knowledgeable and sensitive to the local culture and local lifestyle."
In many cases, mainland firms can underbid local firms because they have lower operating expenses than Hawaii firms, Cayetano said. They also bring in their own workers.
Cayetano added: "The law allows discrimination if there's a compelling state interest, and I think there's a compelling state interest in this area. We have a history of people being flown in from Micronesia and the mainland to take jobs. We're trying to correct that."
Lowell Kalapa, executive director of the Tax Foundation of Hawaii, countered that the bill doesn't address the underlying and more significant problem: the high cost of doing business in Hawaii.
"How long can the state be in the business of handing out juicy contracts? That's really the germane question," Kalapa said. "Can our contractors continue to compete if it weren't for pernicious proposals like this?
"This is a measure to take care of local contractors but have taxpayers end up paying the bill."
The bill increases the current local preference from 5 percent, which was established about five years ago, to 15 percent.
Lloyd Unebasami, state chief procurement officer, said he's unaware of any study that quantifies the financial effect of the 5 percent local preference. But it appears to have been minimal, he said. With the downturn in Hawaii's economy in recent years, mainland firms, which usually bid only on "huge contracts," haven't sought much business in the islands, he added.
Many of the recent state contracts have been for school construction, and that has attracted bids mainly from local companies, all of whom qualified for the 5 percent preference, Unebasami said.
A company is considered local if it has paid state employment, general excise and income taxes.
Under the bill, companies that have paid those three taxes for four consecutive years can exceed the low bid by as much as 15 percent and be awarded the contract for a project totaling $5 million or less. Companies that have paid the three taxes for eight consecutive years qualify for the 15 percent local preference on contracts of more than $5 million.
"This is the policy of this administration: As much as possible, we will do everything we can to give business to local companies," Cayetano said.
Sen. Cal Kawamoto (D, Waipahu), one of the biggest proponents of increasing the local preference to 15 percent, said the change was pushed by the unions for ironworkers, electricians, masons and operating engineers to get more jobs for their members.
The percentage of the local preference was raised because mainland firms don't pay the 4 percent state general excise tax and because it is estimated that workers compensation premiums for mainland companies are about 7.5 percent less than what isle firms pay, Kawamoto said.
So even if the cost of a construction project is higher because a local company does it, at least the additional cost stays in the state, Kawamoto said.
"The contractors and their workers buy houses, cars, food and entertainment. All of that money trickles down," Kawamoto said.
"If it were mainland companies, they would take the profits and go."