Tax-credit proposals
face a wary Legislature

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By B.J. Reyes
Associated Press

Hawaii's legislative session started with an appeal from the Tax Review Commission for some accountability and a limit to overly generous tax credits intended to stimulate the economy.

The state's fiscal picture dimmed last month when the Council on Revenues lowered its forecast for growth in tax revenues this fiscal year to 4.3 percent from 6.1 percent, blaming it on the tax credits now depleting state income.

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But as lawmakers head into the final month of the 2003 session, a host of tax credits remain on the table, leaving lawmakers with the task of determining which ones the state's economy can support.

"This year is a particularly challenging year in terms of the fiscal situation that we face," House Finance Chairman Dwight Takamine (D, Hawi-Hilo) told his committee members last week. "In light of that, any tax credit will be looked at with much, much caution."

Some of the proposals that remain alive in the Legislature include:

>> Tax credits for people who purchase long-term care insurance policies.

>> An unspecified amount of tax credits for development of a world-class aquarium at Ko Olina Resort and Marina in West Oahu. A similar measure granting $75 million in tax breaks over 10 years was approved last year but vetoed by then-Gov. Ben Cayetano.

>> A measure to increase by up to 8 percent a tax credit that can be claimed for motion picture and television production.

>> A tax credit that could be applied for investment in a motor sports facility at Kalaeloa on Oahu.

Additionally, lawmakers have balked at a proposal from Gov. Linda Lingle to tighten up the state's high-technology tax credit known as Act 221. The law, which provides tax breaks for investment in high-technology businesses, has been criticized as being an economic boon for moviemakers, who have taken advantage of the law's broad wording to reap substantial benefits.

Takamine has attempted to address the issue by amending all tax credit proposals before his committee to include a caveat that any tax breaks could only be claimed if the economy is deemed healthy enough to support them.

Taxpayers would be allowed to claim the credits only if general fund tax collection revenues in two consecutive fiscal years is 7.5 percent higher than in each of the previous two fiscal years.

"It is a high trigger and therefore allows us a safeguard," Takamine said.

But Rep. Mark Jernigan (R, Keauhou-Honokohau) calls the inclusion of such language counterproductive.

"The economy has never improved 7 1/2 percent for two consecutive years, and if it did we wouldn't need tax credits," said Jernigan, a member of the House Finance Committee.

Though Takamine said he included the caveat as a way of keeping all measures alive for further negotiation in conference committee, Jernigan disagreed with that tactic.

"If they're not good tax credits, we shouldn't pass them, but to make all of them defective is the wrong approach, also," he said.

Others say that is what conference committee is for.

For example, the Legislature has kept alive two proposals to provide financial assistance for both the aquarium project at Ko Olina and a similar ocean science center project in Kakaako.

"Right now we have several measures on the table, and, of course, not all of them are compatible with each other," said House Economic Development Chairman Rep. Brian Schatz (D, Tantalus-Makiki).

Thursday is the deadline by which the House and Senate must complete work on each other's bills and return them. Conference committee hearings, in which the two houses work out differences in proposals, begin after the bills are exchanged.