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Caught Feeding at the Trough

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By Lowell L. Kalapa

Each year there is a long line of people standing at the legislature hoping that lawmakers will dole out a bit of the state’s cash for their particular organization or program. And there is nothing wrong with that as lawmakers have to decide which of the many requests are deserving of state support as taxpayers can see how much and to whom those funds are given.
On the other hand, you can just hear the grunts and snorts as others feed at the trough through the back door called tax credits and incentives. While touted as incentives to get people to undertake certain activities, these tax credits are nothing more than de facto handouts of state funds. Where tax credits differ from appropriations is that no one knows who is receivingthese hand outs and how much is being received.
Lawmakers like to argue that many of these targeted business tax credits or incentives are designed to encourage new investment in Hawaii or attract capital from outside the state that will create new and more jobs for Hawaii’s citizens. At least one would think so upon a review of the credit for high technology investments under Act 221. But what about some of the other tax credits? Probably the most deceptive proposal this year is the enhanced tax credit for film and media production.
The current credit for motion picture and television film productions comes in the form of a 4% tax credit for all costs incurred in Hawaii for the making of a film or commercial and a 7.25% credit for any hotel room rentals made on behalf of the film producers or makers. Thus, the current credit appears to eliminate the taxes imposed on costs incurred by a film producer while filming in Hawaii.
The proposal before the legislature was initially submitted by the administration but has been taken up by various lawmakers as the answer to attracting film makers to Hawaii, or so some would have you believe. As drafted, the measure provides a credit equal to 15% of the costs incurred in the making of a motion picture, television film, commercial, sound track and the like if it is done on Oahu and a credit equal to 20% of the costs if done on the Neighbor Islands. The aggregate amount of the credit is limited to $10 million a year and allocated if claims exceed $10 million in any one year. The duration of the credit would be six years for a total aggregate credit of not more than $60 million.
No doubt that proposal sounds like a winner until one reads the bill very closely. There is nothing in the bill that says the claimant of the credit has to be from outside the state. Thus, companies or taxpayers who currently shoot commercials or make sound recordings would be eligible for the credit. And because there is a ceiling on the amount of credit that will be granted, it is more than likely that those in-state productions will chew up the $10 million annual allowance or at the very least dilute the share any out-of-state film production or sound recording enterprise might be able to claim of the total amount of the annual aggregate amount. Not only that, it would not be an incentive to the big Hollywood film producer because the producer would have no assurance of what the amount of the credit will be because the credit would be diluted by other claimants.
Sure there are requirements in the proposal to insure that local residents are hired, but then again, if it is an out-of-state producer that means taking the extra time to hire before being able to shoot the picture, an added cost of production that may just outweigh an unknown credit amount. Thus, it is more than likely that businesses already located here in Hawaii will be able to avail themselves of the credit rather than those multimillion dollar Hollywood productions.
So who are we trying to kid here? The advocates told committee members that Hawaii needs to adopt these more generous credits because places like Canada, New Mexico and Kansas offer these generous incentives. But even lawmakers admit that it is more than likely that these credits will go to already existing businesses in the state that fit the parameters of the proposal.
Wouldn’t it be wonderful if all other businesses in the state received this kind of subsidy? If you own a business here in Hawaii, would you like to have state government subsidize 15% or 20% of your operating costs? Is this really how we want out taxpayer dollars to be used? And what about those budding talents graduating from the University of Hawaii’s new film school? They will not be able to use these credits because their first films will be made on much too small a budget to qualify.
Snort, snort, grunt, can’t you just hear these businesses feeding at the trough?

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