Lingle OKs Act 221
tax credit extension,
criticizes lawmakers

Gov. Linda Lingle signed a bill yesterday that extends and tightens Hawaii's controversial high-technology tax credits for five years and establishes a state private investment fund to provide venture capital for cash-hungry local tech companies.

The extension of the credits, known as Act 221, has raised hopes for a wave of fresh funding for Hawaii technology companies now that uncertainty over the future of the credits has been resolved.

"That extension of (Act) 221 was really important. It removed a big question mark and will probably spur a lot of venture capital off the fence," said Bill Spencer, president of the Hawaii Venture Capital Association.

Act 221 was revised to tighten the criteria for qualifying for the credits after it emerged last year that some companies with flimsy technology premises may have abused the spirit of the act, costing the state millions in tax revenue. The tax credits were intended to help high-tech firms lure investment and create jobs.

But Lingle said the bill could cause Hawaii to lose still more technology companies because it delays the implementation of the state private investment fund by a year.

"Instead of just talking about creating quality, high-paying jobs, we need to take bold action," Lingle said. "The Legislature's delay in implementation may result in successful Hawaii companies moving to the mainland to obtain the financing they need."

The Democrat-controlled Legislature declined to appropriate funding for the fund's implementation, which means the Republican governor will have to go back to lawmakers during the next session to work out establishment of the fund.

Rep. Brian Schatz (D, Tantalus-Makiki) said the delay was necessary to allow the state to figure out the final shape of the fund.

"This is one of the most complicated policy issues I've ever seen and it's not something that anybody involved is prepared to rush through. We all need more time to do our due diligence," he said.

A study released last month by Enterprise Honolulu said Hawaii companies need about $233 million over the next five years.

With the investment fund, the state would borrow tens of millions of dollars, which would be placed with venture capital funds. Those funds would be invested to help kick-start promising start-up companies or help established firms expand.

"There are a number of models that work well and many that do not. We need to look at what is the right model, how it should be governed, and the criterion for investments," said Schatz.

With the Act 221 credits extended, large amounts of venture capital are believed to be poised to enter Hawaii, but Spencer said local firms might not begin to see some of that until the end of the year.

He said one remaining question mark is how the state Taxation Department's certification process will work. The revised legislation requires Act 221 claimants first to obtain certification from the state tax director that their claim is legitimate. To do so, they will have to supply the tax department with detailed information on their business.

The tax department has said it was working on certification guidelines.

Office of the Governor


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