Last year the HI State Legislature in response to the economic crisis significantly cut back Act 221 which was responsible for $1.3 billion in private investment in start-up innovation companies in HI. As a result there has been a dramatic drop in investment. Now with SB2401 there is an attempt to defer honoring investments already made. This will cripple any future efforts to provide incentives to both private sector and even Federal government investing in HI most of which requires local matching. If you are reading this before the end of April 2010 you have an opportunity to express your opposition to your State senators.
It is very difficult to get financing for innovative projects including most of the kinds of businesses we need to be developing for sustainability. If they haven’t been done before successfully, the only way to get funding is through private investment or government funding. Government funding too frequently gets politicized and the bureaucracy scares away many innovators. Private investors usually require a much higher return on investment (i.e. the equivalent of 100% interest) for risky projects. What Act 221 provided in HI was a mitigation of a significant part of the risk - you might only lose 60% of your investment instead of 100% (after the net effect of the tax credits), plus it allowed those seeking funding to be less aggressive in their growth plans also lowering risk. Lack of these incentives will make it that much more difficult although not impossible to get financing.
From a citizen/taxpayer point of view, without economic growth (hopefully in smart areas) there will be steadily fewer revenues for community supported programs like public education, safety net programs, and basic government services–a continuing downward spiral. So we need to come up with ways to break the downward spiral. Investing in new sustainable industries is the best way to do this.
The most up to date discussion of this topic is at http://www.kmeb.org/insights02.htm It is a video discussion on the Island Insights program on PBS Hawaii featuring the two leaders of the Legislature’s finance committees along with venture capitalist Jeff Au, and taxpayers’ advocate Lowell Kalapa.
There is also a good video interview with Jeff Au and Jay Fidell at ThinkTech Hawaii:
Jeff Au on a status report of tech tax incentives from Jay Fidell on Vimeo.
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