The tricky part about learning to ride a bike is knowing how and precisely when to take off those training wheels, but at some point they do have to come off.
Similar observations can be made about tax credits intended to nurture a budding business sector, including the solar power industry here. People can disagree about how to reshape the incentives, but nobody can rationally argue that such credits should be permanent.
Unfortunately, state leaders missed an opportunity to make a correction during the last legislative session, leaving the state short of tax funds for longer than necessary.
Last week’s report from the state Council on Revenues shows how much of a stake the public has in these tax policies. The council knocked the revenue growth forecast for next year down more than two percentage points, from the 7.5 percent figure predicted in March to its current 5.3 percent forecast. Because state lawmakers were basing their budgeting on the earlier projection, the state now finds itself $110 million short.
In that context, the revenue loss from the solar tax credits seems quite significant. An annual loss of about $70 million in tax revenues is attributable to the tax credits issued to homeowners and businesses that install solar photo- voltaic systems. That deficit will be felt acutely as the state administration figures out how to rebalance its ledger.
Kalbert Young, the state’s budget director, said the likely mechanism will be postponing new hires, withholding appropriations for some projects and delaying the restoration of funds for programs cut because of the recession. Even lacking the details at this point, that sounds pretty grim — and recouping at least some of the lost $70 million would have taken the edge off the pain.
House Bill 2417, which sought to curb the benefit, got to a conference committee but was hung up in a larger dispute over tax credits and never emerged.
Conferees said they had agreed on a formula for gradually decreasing credits for non-utility solar installations, phasing them out in 2018. The bill also sought to keep claimants from gaming the system by clarifying the limits on qualifying credits. Further, utility-scale projects would be credited taxes according to power produced rather than the cost of the installation, an incentive lasting for a 10-year term.
These fixes were sorely needed, and it’s frustrating that they didn’t get enacted. The lost tax revenues could have been better spent immediately, which underscores the need to take the revised draft and accelerate its passage in next year’s legislative session.
Critics of these credits charge that they simply transfer public funds to private residents and businesses, leaving those who can’t afford the installations paying increased rates for utility power. Even some in the industry agree that the incentives have become too generous and need scaling back.
Tax incentives do have their place in Hawaii governance. Mark Glick, the state’s energy coordinator, rightly observed that the public reaps a great benefit in building greater energy independence, and that all energy sources receive some form of government subsidy. "There is no such thing as a ‘level playing field’ devoid of public policy," he added.
But public policy has another goal: keeping state budgeting a fair and stable proposition for the long term. Weaning Hawaii’s fledgling solar industry off public supports should be part of the strategy.
