Raising Cane
By Rob Perez
Sunday, May 20, 2001
State legislators have become overly infatuated with high technology. They have become so enthralled by the sex appeal of high-tech jobs that they've lost sight of what is sound public policy. Tax-exempt bonds
won’t help publicEvidence of that came this month when the Legislature passed a bill authorizing up to $10 million in special purpose revenue bonds to help Science and Technology International, a high-tech imaging company, relocate. Although the state bears no financial risk by floating such bonds, they are a form of tax-payer-subsidized financing (interest earned on the bonds typically is tax-exempt) and can be used only on projects that are in the public's interest and that relate to public health, safety or welfare.
Hospital and power-generation utility projects have been financed in such a manner. The benefit to the public from those kinds of projects was obvious.
But relocating a high-tech company in Hawaii? Hardly.
"Providing subsidized financing like this for something that is of questionable public purpose should raise the eyebrows of public officials," said Lowell Kalapa of the Tax Foundation of Hawaii.
"I just don't see the public purpose," agreed Rep. Barbara Marumoto, one of only two lawmakers in the Legislature to oppose the STI bill.
But Rep. Ezra Kanoho, who sponsored the legislation, argued that the project will serve a public purpose because it will help Hawaii's high-tech industry and the local economy.
STI, which has several downtown locations and employs about 100 workers, hopes to find an old building that can be transformed into an industrial laboratory. All its operations would be housed there.
The company has said it envisions employing as many as 300 people at its new headquarters. When some legislators balked at supporting the bond measure, the company won their support by explaining that it hired locally and worked on projects that served the local community.
"This is one way for the government to help companies that play an important part in helping the economy of a community," Kanoho says.
The state, however, already has other policies to help nurture a high-tech industry. Some, such as tax incentives, are aimed at luring new companies to the islands, which would add jobs and diversity to the economy. Just because STI got legislative approval doesn't mean the state will float the bonds. If the bill becomes law, the company still needs to assemble a package that can attract bond buyers and meet Internal Revenue Service criteria for tax-exempt status.
An IRS spokeswoman said tax-exempt bonds generally can be issued to meet a public purpose such as saving or creating jobs to help the local economy.
The IRS considers whether the bonds benefit public or private interests, she said.
In the STI case, the benefit seems mostly private.
Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at: rperez@starbulletin.com.
