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Diverting Tax Relief Resources

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By Lowell L. Kalapa

If garnering more than $100 million in tax credits under Act 221 is not enough to sate the high technology community, industry advocates are pursuing legislation that would establish a new venture capital fund. Should this legislative initiate move be approved, the likelihood that there will be any tax relief this year will be non-existent.

Lawmakers are moving a measure along that will establish a new special fund that is designed to stimulate economic development in the fields of advanced technology, life sciences and renewable energy in Hawaii.

Initial funding would come in the form of a $100 million appropriation from the state’s general fund during the upcoming fiscal year. That shot in the arm would be followed by annual infusions of one-half of one percent of general fund revenues for each of the ensuing four years. This could amount to another $100 million for the new special fund.

In addition to stimulating economic development in the specified fields of research and development, the innovations partnership fund is to provide seed capital investment for entrepreneurial ventures; provide business technical support for funded enterprises to achieve commercial success; and promote high-quality, high-income job opportunities for Hawaii’s residents.

Now the state’s largest landowner has jumped on the bandwagon along with the head of a large technology company to advocate for the fund, citing the need to seed a new industry for Hawaii’s economy. Of course, they fail to point out that they will directly benefit from the largesse of the fund. The landowner will be able to develop its lands adjacent to what they believe will be the technology hub of the state, the Kaka’ako waterfront and the new medical school.

HB 2181, HD-2 establishing the new fund moved out of the House with substantial support from the high technology community which sees the new fund as a source of capital to support the growth of the high-technology industry in the state. So it would seem that if one were to oppose the proposal, one would be branded as being against the creation of high paying jobs that would improve the lifestyle of future generations.

Advocates single out the Ben Franklin Technology Partnership established by the Pennsylvania Assembly back in 1982, citing a study that indicated that for every dollar invested, the state received nearly $23 in additional income and generated $400 million in additional tax revenue as a direct result of the program.

While these glowing reports sound like a real winner of an idea, the advocates seem to have missed the point that these are public tax dollars earned off some of the very poor in Hawaii. It wouldn’t be such a bad idea if Hawaii also ranked 29th or 30th in per capita tax burden like Pennsylvania. Or for that matter, it wouldn’t be so bad if Hawaii didn’t start imposing its income tax on the single parent family of three at $9,800, but instead set that threshold at $25,500 like Pennsylvania. That notoriety earned Hawaii the third lowest threshold before the state income tax is imposed while Pennsylvania ranked 36th out of the 42 states that have a personal income tax. That put Hawaii’s single parent family of three well below the federal poverty line of $15,577.

Some advocates argue that this proposal should not be pitted against tax relief for after all, it will create jobs and lift the poor out of poverty. Unfortunately, that kind of statement is oblivious to the fact that poor will never be able to qualify for these jobs without basic job training let alone a good education. And if the Pennsylvania experiment was so successful, why are there still ghettos of poverty in west Philadelphia?

But what should concern taxpayers and lawmakers even more is that the corporation overseeing the fund would be able to contract with public or private entities to undertake research or make grants to organizations conducting technology research without having to abide by the state’s procurement law. This is where contracts are put out to competitive bid and disclosures have to be made to see if there is a conflict of interest and tax clearances have to be provided before securing the contract. Apparently the advocates believe that they can be above the law when handling public funds or perhaps this is another way of taking care of their “friends.”

Finally, while the advocates can argue that they are producing for Hawaii’s future generations, one has to ask what the return on investment is for the taxpayer. If one invests in Microsoft, he receives shares in return, with this scheme, the taxpayer gets nothing but promises and no relief from the heavy tax burden.

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