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Tuesday, September 16, 2003



Loss from tax credits
deemed overblown

Critics blame credits for high
tech for the state's revenue loss


The chairman of the state Council on Revenues says concerns that the state was losing too much money because of generous high-tech tax credits may have been "overblown."

State of Hawaii Michael Sklarz said that because tax collections were up at the end of fiscal 2003 and are forecast to grow by the end of fiscal 2004, tax credits were not as much of a problem as speculated earlier by the Council on Revenues.

"It was obviously an issue with tax credits, but it was blown out of proportion," Sklarz said.

Sklarz called the state's economy "robust" yesterday and predicted that it would continue to grow.

The Council on Revenues predicted yesterday that state revenues would grow 6.2 percent for this fiscal year -- a rerun of its Sept. 3 decision. Officials failed to give the required six-day public notice for the Sept. 3 meeting, prompting yesterday's meeting to confirm the financial numbers.

The council is charged with giving the governor and the Legislature a revenue prediction to determine how much money the state budget has available.

The council members had the benefit of the data from August tax collections, which showed that collections for the first two months of this fiscal year were running 6.2 percent lower than at the same time last year. But Sklarz said the council was confident the rest of the year would bear out their higher predictions.

The Lingle administration, heeding earlier council concerns about the tax credits, had offered legislation to cut the credits, a move protested by state House Democrats and members of Hawaii's high-tech community.

Act 221, which went into effect in 2001, gives a 100 percent tax credit for technology investment. State officials had reported that in the first year, the revenue loss was about $45 million, three times more than expected.

House Speaker Calvin Say welcomed the council's revised comments, saying the state had offered a lot of tax credits to spur the economy last year and that it was unfair to single out the high-tech credits.

"I was upset that that they (the Lingle administration) just highlighted Act 221 as the culprit," Say said. "I stood my ground because, yes, there have been abuses, but there were a lot of positives."

The Lingle administration, however, is still watching the tax collection numbers and has asked economists at the University of Hawaii to form a independent group to look at how state tax credits affect the state budget.

Randy Roth, Linda Lingle's senior policy adviser, said yesterday that the administration remains concerned about the effect of the tax credits in Act 221 and that it would ask the Legislature next year to tighten up the law.

"She is proposing changes that would still leave it as one of the most generous in the country," Roth said.



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