[ OUR OPINION ]

Losses should curb state’s
penchant for tax credits

THE ISSUE A revived proposal to provide a resort development with $75 million in tax credits appears headed for legislative approval.

WHILE an abundance of tax credits is cutting deeply into state revenues, legislators are poised to clear another that would allow a resort development to claim as much as $75 million through 2009. The measure, which will help finance an expansion of the Ko Olina Resort and Marina, was vetoed last year by Governor Cayetano as a flawed proposal. With the state's budget crisis more severe this time around, the tax credit should be even less appealing.

However, as the legislative session moves toward adjournment this week, House and Senate conferees are moving forward with the investment tax credit. Advocates say the resort would provide Leeward Oahu residents with more job opportunities and that the tourism industry needs revitalization on an island where Waikiki is the only destination for visitors.

Hoping to mollify complaints that the credit amounts to taxpayers subsidizing private business -- one of Cayetano's objections -- the state will require that before taking advantage of tax benefits, the developers must provide "appropriate job training to residents of the leeward coast."

This vague condition, which will be applied through a separate memorandum, is an improvement over previous versions of the bill. Nonetheless, how the developer will comply may become problematic since it appears job training will be limited to those who live in the area. Further, there is no provision for the kind of training employees will receive -- whether it will be confined to low-wage positions or for higher-paying and managerial opportunities, which would be authentic gains for Hawaii's work force.

At one point, the measure was adjusted so that the credits would not go into effect until the state's general fund tax collections exceeded 7.5 percent in two successive fiscal years. This sensible approach to link it with the state's overall financial health properly recognized the effects current tax credits are having on the revenue picture. However, the latest version of the bill eliminates that prudence.

The notion behind tax credits has been to encourage new types of business investment because Hawaii's heavy dependence on tourism has left the state vulnerable to an industry notoriously fickle to factors beyond our control. To trade off another revenue source should be carefully weighed. In addition, lawmakers should consider whether Ko Olina would not be more appropriately developed in a market environment that reflects true supply and demand.

The Ko Olina tax credit likely will attract resort investors because it presents a low-risk opportunity. For taxpayers, the return is a little less certain.