[luau] Act 221

[Maddog]

"I think Act 221 is visionary for a State that depends on the good will
and generosity of complete strangers who decide to travel here and pay
inflated resort prices for a vacation.  There is no sustainability in
this.  What Act 221 needs is a visionary leader to implement it."

scott

Since you all asked I would be happy to explain this to you. I have been one
of the chief fighters of the proposed amendments and i will outline why in
the following statements.

First of all you have mentioned abuse. Abuse would describe illegal acts
which there have been none. The deals that were approved for tax credits
were approved by the tax department under careful scrutiny and are therefore
by definition legal and free from the tag of abuse.

There are some companies through crooked Lawyers and accountants that have
figured out how to take advantage of loopholes in the R&D credit which is
not limited to Qualified High Tech Businesses (QHTB's) but availaible to any
company that conducts more than 50% of it's stated business in R&D. I am
sure that you can see where this would pose problems. For the majority of
companies this is not the case and there is no reason to punish those
cmpanies for but a few bad apples. If the law was limited as it now is by
the recent TIR put out by the tax office, to QHTB's all of the percieved
abuses would disappear because a company would actually have to prove that
it is conducting R&D to get a comfort letter.

As far as movie deals being questionable under Act 221, I agree that the
legislature never should have included performing arts in the bill but the
language exists and therefore there are no questionable tax credits for
movies that come as they are simply exercising their legal right under the
law. And remember that each of these credits issued are done so by the tax
office under the law. So since the deals are unequivocably legal there can
be no abuse.

Now, on to the meat of this. Act 221 has been instrumental in creating new
employment in our state and we need look no further than Maui to see that.
If any of you had read my editorial in the Advertiser on April 16th you
would have seen me quote a recent study by the Maui Economic Development
Board that show 1,000 new jobs at an average annual salary of $60,000 have
been created as a direct result of Act 221 and $40 Million in taxable
revenues have been generated. There are not numbers available on Oahu
because the present Administration does not want you to see those numbers
because there arguments would be dashed if you did. In a preliminary,
unscientifc polling we found that there have been 500 new jobs at an average
salary of $70,000 have been created on Oahu this year alone and that there
have been well over $40 Million in revenues generated because of Act 221.
Enterprise Honolulu and HTTA predict 4,000 new jobs by 2006 and several
hundred Million in revenue by then.

But for some shady companies Act 221 is working exactly as intended and will
pay for itself many times over even with the companies that are taking
advantage of the loopholes. I personally know of a company that is moving
here from New York because of Act 221 and while they are bringing their 30
employess here there will no doubt be more jobs available as they will have
the capital through the tax credits to hire more programmers.

Act 221 was not designed to bring Intel or any other big company here it was
designed to encourage investors to pump venture capital into Hawaii and at
this point we have a venture fund looking to locate here. There are several
Biotech companies and software companies that are realistically looking to
loacate here because of Act 221 but are cautious due to the medeling by the
Republicans on the issue. Their arguments for major reform have been
baseless and are evidenced by their constant rhetoric about having to cut
education and other programs due to Act 221. Generally that is a last resort
argument used in liu of facts. The fact is there are many more reasons to
leave Act 221 alone than there are to change it. If it is changed now you
will scare away investors because if you mess with it now chances are you
will mess with it more in the future. Investors like stability and that does
not show stability.

It has come to a time when we need to bite the bullet and do what we set out
to do. We may loose money on the front end but it will be an enormous gain
in the long run. There is no reason to give up those long term gains for
short term pitfalls.

Maddog