STAND. COM. REP. NO.874

Honolulu, Hawaii

, 2003

RE: S.B. No. 358

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committees on Economic Development and Ways and Means, to which was referred S.B. No. 358 entitled:

"A BILL FOR AN ACT RELATING TO ECONOMIC DEVELOPMENT,"

beg leave to report as follows:

The purpose of this measure is to provide a tax incentive for businesses to create high paying jobs within enterprise zones.

Prior to the hearing on this measure, your Committees circulated a proposed version of this measure that would replace its contents with provisions that provide that investments made through the Hawaii technology investment program (HTIP) of the Hawaii Strategic Development Corporation (HSDC) qualify for the high technology business investment tax credit (Credit) pursuant to section 235-110.9, Hawaii Revised Statutes. The proposed draft also required that insurance companies invest through HTIP to qualify for the Credit.

The Department of Business, Economic Development, and Tourism, Hawaii Venture Capital Association, Hawaii Technology Trade Association, PacifiCap Group, LLC, and AIG Hawaii Insurance Company submitted testimony supporting the intent of the proposed draft but opposed the provisions relating to insurance companies. Comments on proposed draft of this measure were received from the Department of Taxation and Tax Foundation of Hawaii.

Your Committees find that this measure provides an added incentive for jobs creation in enterprise zones. However, upon further consideration, your Committees believe this measure should focus on utilizing tax credits to increase the availability of venture capital in Hawaii.

Venture capital funding is typically provided to companies, particularly high technology companies, with proven concepts. The additional infusion of capital allows companies to expand rapidly while providing investors substantial returns on their investments. Over the last decade, the Hawaii Strategic Development Corporation (HSDC) has provided funds to venture capital firms who have, in turn, invested in more than fifty companies in Hawaii — a direct result of which was an increase in economic diversity and development in Hawaii. The success of HSDC further evidences the need to support programs that create venture capital opportunities in the State.

Therefore, your Committees have amended this measure by replacing its contents with provisions that attract private sector resources to HSDC by designating HSDC a qualified high technology business when a professional investor invests in HSDC. As a result, the professional investor would be eligible to claim the high technology business investment tax credit under section 235-110.9, Hawaii Revised Statutes.

In light of shortfalls in general fund revenue, your Committees believe that this measure, as amended, will make available needed venture capital financing during these challenging economic times. Your Committees are aware that tax revenue losses in 2001 due to tax credit claims pursuant to 235-110.9, Hawaii Revised Statutes, included $3.3 million claimed by individual taxpayers, $224,083 claimed by corporations, $6.013 million claimed by insurance underwriters, and less than $2,500 claimed by estates and trusts. However, the high technology industry and other trade organizations are currently conducting a study of the number of jobs created from use of incentives established by Act 221, Session Laws of Hawaii 2001. Your Committees believe that the data will show that the tax revenue losses are far outweighed by the creation and expansion of high technology companies that are generating high paying jobs, diversifying Hawaii's economy, and producing innovative products and services due to the availability of additional venture capital.

To ensure further discussion on the merits and provisions of this measure, your Committees have delayed its effective date to July 1, 2050.

As affirmed by the records of votes of the members of your Committees on Economic Development and Ways and Means that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 358, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 358, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committees on Economic Development and Ways and Means,

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BRIAN T. TANIGUCHI, Chair

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CAROL FUKUNAGA, Chair