Existing Act 221 data deserve accurate review
THE draft study by Bruce Bird and Marcia Sakai presented to the Hawaii Tax Review Commission last Friday (Star-Bulletin, Oct. 7
) uncovers some promising data on significant investment and job growth already realized from Act 221, which allows tax credits for investors in high-tech businesses in Hawaii. For some reason, these positive data are lost in interpretation. The way the data were interpreted, the multiple contradictions they contain and even how the study was conducted do not meet the level of accuracy and objectivity required in a responsible analysis. The authors themselves acknowledged inaccuracies and limitations on the study's findings and their omission in failing to talk to the basic participants in Act 221.
Industry members agree that a study of Act 221 should be done. But such a study must be accurate, objective and not based on static model analysis, inaccurate press reports, misleading hypotheticals, incorrect assumptions and, in particular, it should not erroneously interpret data that are not even related to Act 221.
» The study contains multiple instances where the authors make conclusions that contradict their own cited data.
The state Tax Department data cited in the study reported more than $81.8 million of Act 221 investments made in 2002. Contradicting this primary source data, the study concludes that Act 221 has failed to increase investments in Hawaii based on secondary data from a mainland study that inaccurately showed 2002 investments of only $2.9 million because most Hawaii investors were not included in this mainland study.
The Tax Department reported that more than 4,000 Act 221-related jobs were created in 2002 and 2003. But the study concludes that there was an overall loss in technology jobs, based on data from the Department of Business, Economic Development and Tourism that showed job losses. Unfortunately, the DBEDT data erroneously included non-Act 221 industry sectors. A closer analysis of DBEDT's data actually shows an increase of more than 23 percent of tech jobs in actual qualified Act 221 sectors.
» The study uses static input-output economic models that do not account for dynamic contributions to the economy. It ignores jobs created for independent contractors, employee leasing companies and other vendors and service providers to high-tech companies. It fails to sufficiently consider increased payroll, income and general excise taxes generated not only by tech companies, but also their vendors and service providers.
» The study fails to account for qualitative benefits that accrue with a vibrant tech presence. Act 221 has contributed to making Hawaii known as a tech-friendly place to do business. Never before has Hawaii experienced so many inquiries about starting tech businesses here. Not to mention the countless number of companies that have chosen to remain in Hawaii rather than relocate to the mainland, or that avoided insolvency from undercapitalization.
» One goal specifically contemplated by the Legislature for Act 221 was to attract capital from mainland, foreign and tax-exempt sources by permitting the allocation of credits from their investments to Hawaii taxpayers. Act 221 has fostered these new sources of capital. The professors failed to include this obvious benefit in their analysis.
» The study maintains that Hawaii does not have the infrastructure or labor expertise to keep successful tech companies here and that Hawaii is the most expensive state in which to conduct business. Act 221 has helped to level the playing field by supporting home-grown startups, attracting out-of-state investors, drawing mainland companies to relocate to Hawaii, and enabling companies to be successful and stay in Hawaii. It also is important to note that Act 221/215 has not only provided high-paying local jobs, but has significantly enabled growing numbers of kamaaina to come back home -- reversing the brain drain of the past.
A comprehensive and thoughtful analysis is needed, and this requires collaboration between private and public sectors. Those in the industry are committed to working together on this effort.
Lisa Gibson is the president and Ann H. Chung the vice president of Hawaii Science & Technology Council; Mike Fitzgerald is president of Enterprise Honolulu; Bill Spencer is president of Hawaii Venture Capital Association; and Rob Robinson is the founder and convener of UH Angels, which mentors and invests in start-up firms.