[ OUR OPINION ]

Change needed to
plug tax credit drains

THE ISSUE April collections went down steeply, putting the state budget in a shortfall.

WHETHER the state's high-tech and other tax credit laws are the chief reason for the decrease in revenue collections remains debatable, but indications show an imbalance between their economic advantages and losses. Although the opportunity for immediate corrective measures lapsed with the end of the legislative session, the Lingle administration will have another chance next year and should gather evidence to buttress the governor's contention that the laws tip the state into the red.

In the meantime, Lingle should veto an extension of one of those laws and carefully weigh the full effects of a new one that she favors. The state cannot afford further erosion of revenue without definitive evidence of the value of tax credits.

What is clear is that revenue has declined enough to leave the state $100 million short of balancing the budget for the next fiscal year. The state Department of Taxation reports that overall collections in April dropped 27.3 percent or $87.5 million from the previous April. Corporate income tax revenue decreased 36.9 percent last month with the state paying more in refunds during the first 10 months of the current fiscal year than it received. At the same time, individual income tax ebbed to 56.3 percent from a year earlier.

Increases in revenue from general excise and use taxes indicate general economic health and job growth. These, some experts contend, are evidence that the tax credits may be working to create new businesses. However, others suggest that the increases in those areas also should be reflected in corporate revenue increases, and that tax credits are to blame for that failure.

The governor says open-ended tax credits, like those for high-tech business development and hotel and residential remodeling, do too much damage, and that's why she sought to close loopholes in Act 221, which the House rejected this year. House leaders argue that Lingle cannot single out the Act 221 high-tech tax credit without quantifying the loss of revenue and weighing it against the benefits.

Difficult as the task may be, the administration and lawmakers cannot roll the dice on such measures. It's not enough to approve a tax credit and hope for the best. Careful steering of credits to the right businesses and enterprises is needed to prevent abuse, and careful writing and monitoring of such laws are imperative.

The governor has two weighty tax credit bills on her desk, one to extend hotel construction and renovations that were issued after 9/11, and another $75 million credit for the Ko Olina resort that supporters hope will create jobs and stimulate the economy on Oahu's Leeward coast. In light of continuing revenue decreases, she should reject both until she has a clear picture of losses and gains.