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Zany Ideas for Tax Credit Use

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By Lowell L. Kalapa

With the session just around the corner, lawmakers are probably furiously at work trying to think up some kind of proposal to throw in the hopper that will solve the problems of the state.
Unfortunately, based on their recent track record, don’t expect lawmakers to come up with lots of new and creative ideas. There is no doubt that they will resort to the tried and true tax credits to stimulate the economy or encourage taxpayers to do this or that. But as we have all learned, these “gimmicks” do nothing more than shift the tax burden to “somebody else.” And usually that means you or I have to pick up the tab to keep government running.
As this column has noted many times before, if government would just get out of the way and let the market forces dictate where and when the economy will grow, that would be the best thing that lawmakers could do for the economic well-being of the state.
Take for example the recent reports that Hawaii is slowly running out of warehouse and industrial space. That prompted the legislature to call for a study of the situation, asking how landowners could be prompted or encouraged into developing more industrial space. Of course, one of the bright ideas forwarded was why not offer land owners tax credits to encourage them to make more land available for industrial and warehouse use.
Do lawmakers really think that a landowner who has to re-zone the property, seek permits and pay a slew of fees is going to jump at the opportunity of being able to get a tax credit when the cost of making the conversion outweighs the benefit of the tax credit? The point lawmakers seem to miss is that if the costs of undertaking such projects are greater than the benefits of the tax credit then no one is going to take the bait. For those businesses clamoring for tax credits or tax exemptions, they usually need the tax credit to make the numbers pencil out on a project that probably would not be successful and should not be undertaken in the first place.
More importantly, not only does the state forego the money that would other wise have accrued to the state, in the meantime other taxpayers have to pull the weight for those lost revenues. And the longer the tax burden remains high for all other taxpayers, the longer it will take for the state’s economy to get back on track. If the rest of the economy cannot recover because the burden remains high, then the economy, as a whole, continues to stumble.
In the case above where lawmakers want to encourage the development of more industrial and warehouse space, they just might want to take a look at how government itself is the obstacle to more industrial and warehousing facilities throughout the state. Not only does the application process for re-zoning or changes in land use cost money for consultants and attorneys, but it also costs time.
One developer recently bemoaned the fact that his development team had to do their “dog and pony” show nearly a dozen times to as many state and county agencies in order to get all the permits and sanctions to undertake their project. He wistfully wished that perhaps someday those agencies could get together in one room and all view the same presentation at the same time and ask all the questions that need to be asked at the same time. As it is now, some of the same questions are asked by those many different agencies.
Coordination of agencies needing to pass judgment on the same project would be one way to reduce time and costs incurred. Not only would it help developers of industrial and warehouse property, but the same could be said of developers of housing in our state.
While the cost of land or the cost of importing building materials is often blamed for the higher cost of construction and, therefore, housing in Hawaii, some of the blame needs to be placed on all the regulating governmental agencies who have a hand in adding to the cost.
A couple of weeks ago, we talked about the looming need for affordable housing throughout the state. Well, that affordable housing will continue to be out of reach if state and county governments cannot clean up and stream line their permitting system.
Taxes are only one of the many costs incurred when it comes to dealing with government. Let’s hope lawmakers begin dealing with some of the other costs imposed by government in Hawaii.

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