Business tax-break
extension favored

The mayor's plan aims
to stimulate construction
amid economic fears

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By Gordon Y.K. Pang
gpang@starbulletin.com

Business leaders are generally in favor of Mayor Jeremy Harris' plan to extend the deadline for businesses to apply for seven-year property tax breaks on new commercial construction.

Peter Schall, Hawaii senior vice president for Hilton Hotels, said the exemption was one of the factors that persuaded the chain to go ahead with its $95 million Kalia Tower that opened in late spring at the Hilton Hawaiian Village.

"Hawaii is very challenging because of the economic climate, so it's very important that the city and counties and state legislators look at tax incentives to move projects forward," Schall said.

The 1999 program set a June 30, 2003, deadline for completion of construction to be eligible for an exemption. A bill now before the City Council's Budget Committee would extend that deadline until 2005.

In the wake of the Sept. 11 attacks and fears of an economic downturn locally, Harris suggested last week that the program be extended to 2006.

City spokeswoman Carol Costa said the developers of five construction projects carrying $62.7 million of value are currently part of the tax exemption program.

The amount of tax revenues exempted by the city adds up to $577,000 this year, Costa said, but will pump tax revenues into city coffers in seven years that may otherwise not have been generated. At least three other projects, including the Kalia Tower, will be in line for the exemption this coming year, she said.

Eric Masutomi, director of planning for Outrigger Enterprises, is among those hoping the extension is granted.

The chain is about to begin a $300 million renovation for its Waikiki hotels, the first phase of which is expected to be done in 2004. "The real property tax exemption in and of itself is not a consideration regarding go or no-go, but obviously any impact on reducing costs does help," Masutomi said.

Nick Ordway, a professor of finance at the University of Hawaii, opposed tax exemptions on new construction two years ago -- but not now.

"In normal times, I would not be in favor of these kinds of subsidies for private developers, but in a situation where we need to do everything reasonable to stimulate our economy, it is worth considering," Ordway said.

Craig Watase, an executive with Mark Development and president-elect of the Building Industry Association, said the exemption is a good first step, but believes more needs to be done to stimulate construction.

A tax exemption represents only about 1 percent of a project's cost, Watase said. He suggested the city consider offering tax waivers on an entire building of a facility undergoing improvements, not just new construction.

Harris said he also wants to talk to Council members about expanding the program to include residential developments to stimulate home building.