Report: Tax credits helped create $1B in spending in isles

Ambiguity in the data leaves a member of a tax review panel unconvinced

A new report intended to measure the effectiveness of the state's high-technology tax credits says 287 companies that benefited from the credits spent more than $1 billion in Hawaii over the past four years.

But a member of the 2005-2007 Tax Review Commission says the new data isn't enough to evaluate whether the benefits of the credits are worth the tax revenue given up.

A total of 287 high-technology companies receiving investments spurred by the state's controversial tax credits spent more than $1 billion in Hawaii on salaries, capital improvements and other expenses, according to a new report.

Other highlights: » High-tech companies that reported operations solely in the performing arts sector received about 35 percent of the total investments, or $284.7 million. » Research & Development Credits claimed (2001-2004): $47 million. » Salaries paid totaled more than $500 million.

The Hawaii Tax Department report, intended to measure the effectiveness of the so-called Act 221 and other state tax credit programs, said qualified high-tech businesses received $821.6 million in investments from 2002 to 2006, while investment tax credits claimed totaled $195.6 million from 1999 to 2005.

The high-tech companies created 5,383 jobs, while the average 2006 salary paid was $67,020, the report said.

"(Qualified high-technology) companies are clearly contributing in a meaningful way to the local economy," said David Watumull, CEO of Cardax Pharmaceuticals, adding that the data allows the state to accurately assess the impact of these tax incentives.

The high-tech companies that are profitable will likely continue to create jobs and generate excise and income tax revenues, while buying products and services from other companies without the need for additional tax credits or costs to the state, he added.

However, Christopher Grandy, associate professor of public administration at the University of Hawaii at Manoa, said there is a fair amount of ambiguity in the report, which notes that some of the jobs created might include positions outside Hawaii.

Grandy, who was part of the 2005-2007 Tax Review Commission that looked at the issue, said the information is clearly better than what the commission had initially reviewed, but still doesn't address whether the benefits of the credits are worth the tax revenue given up.

There is still not enough data to prove whether the tax credit programs, intended to stimulate economic development and help diversify Hawaii's economy, have created jobs and investment that wouldn't have come to Hawaii otherwise, he said.

"I don't think there is sufficient information here to make a thorough assessment of the tax credits," he said. "Unfortunately, it's not really the information we might necessarily need to do a thorough analysis of whether the tax credits are on net good for Hawaii."

The tax department is issuing a new online version of the survey for 2008, which it hopes will give more precise information so the state can evaluate whether this kind of public policy is good, Grandy said.