Lingle's Legacy a Lasting Shame

Linda Lingle is killing Hawaii’s only economic stimulus effort that is actually working, Act 221. What’s troubling is that her actions in that regard are completely unjustifiable.

This coming session she is using the budget deficit as justification for this, but we all know this is not sincere. She has introduced two proposals that will essentially destroy the act and leave little choice for existing tech companies but to close down or leave the state. The fact is that she and her policy staff have been trying to kill Act 221 since she took office. She has breached her campaign promise to support the Act since day one. Does she think we have not noticed?

By using administrative tricks, and without any legal authority, she is doing everything she can to stop Act 221 in its tracks. That seems to be her style and her way of conducting business, but it certainly doesn’t make what she’s doing lawful or acceptable.

By imposing a “moratorium” on 221 and ignoring the evidence compiled by her own Tax Department, she has made it virtually impossible for renewable energy companies to obtain comfort rulings. These rulings give investors’ confidence that the tax credits their investments will earn will be accepted by the Department of Taxation.

For many other qualified high tech businesses that are seeking investment, she has instructed the Department of Taxation to arbitrarily limit the amount of funding they can raise, even when such a limit is not contemplated or allowed by the law.

The few comfort letter rulings that are now being issued are dictating how much investment dollars will be eligible for the tax credits. That this not authorized by the law and some would say is a violation of the law, which by its terms expressly allows an investor to invest up to two million dollars per company.

Most of the deal-flow these days involves renewable energy companies. But Lingle has required that the Department of Taxation stop issuing any comfort letters for such companies because she feels the amount of funding being sought is too high. The irony is that while she is choking these companies off from critical capital, she is regularly touting her renewable energy initiative and telling us how much she is doing for the renewable energy sector, as if she could have it both ways. She can’t.

If seems incredible that the governor would do this when point four of her own five point “economic action plan” is to “attract outside investment, especially in energy” (see http://hawaii.gov/gov/economy). Where does she think this outside investment will come from, when investors in other parts of the country are all investing in their own local energy deals? This is not policy, but head in the sand.

Investors from outside of Hawaii typically do not invest in a deal unless there is some local skin in the game. One of the most compelling aspects of 221 has been its ability to attract investment from outside of Hawaii by matching local tax advantaged investors with non-tax advantaged investors who are willing to swap the credits they earn for additional equity in the company.

The Department of Taxation has reported that from 1999-2006 the total investment tax credits claimed by local investors was $295.6 million dollars, compared to $1.2 billion raised by qualified high tech businesses and $1.4 billion invested back into the Hawaii economy during those years. This means that for every dollar invested by local investors, at least three dollars of non-tax advantaged investment have come into the state from outside investors or from those who do not need the tax credits.

This three to one ratio is great leverage, and a great stimulus for technology businesses in our state. While tourism and related sectors have been losing momentum, jobs and local spending power, the tech and renewable energy sector are the only ones that have grown and created new high paying jobs. How can she ignore these facts?

The governor says she wants to attract outside investment in energy, but then in the same breath, she says she wants to kill the only program with a successful track record of doing just that? Her Tax Department tells us that Act 221’s effectiveness has been clearly proven, but then she wants to stop the gathering economic momentum of the Act by capping investment and refusing to issue comfort letter rulings, all without legal authority or due process. This kind of anti-policy is ill-formed, self-defeating and unbelievably arrogant.

Many renewable energy and other qualified high tech businesses on the ground in Hawaii demonstrate the economic viability of our innovation economy (her phrase), while our traditional tourism economy is going down the drain. Lingle keeps looking outside of Hawaii for renewable energy investors and companies, even while she tells us that it is the “resiliency and innovation of our (own) people that will pull us through the current economic situation”. That is simply irrational, a great sound bite, but a completely inconsistent position.

The bottom line is that Act 221 is a proven, effective economic stimulus policy that should be strengthened and extended, and certainly not killed, in the open or in the back room. Doesn’t she know this? She and her economic advisors have their heads in a dark place that apparently blinds them to their own data and disables their ability to do critical thinking and honest policy.

To date, Lingle’s time in office has not resulted in any successful economic stimulus initiative. If she is interested in leaving even a modest legacy on her departure, she really needs to wake up and desist from this senseless policy of killing the only goose that is laying the golden eggs. If she continues on her present and destructive course, she will leave a legacy of only shame and embarrassment, one that will follow and haunt her in any run for subsequent office.