Lawmakers should kill a sweeter tax credit brewing for certain maritime tenants on the Honolulu waterfront.
The proposed expansion of the tax credit could cost the state upwards of $20 million in lost tax revenue and comes only a year after the original break was enacted, raising questions about whether proponents were forthright about what they really wanted when they lobbied successfully for passage last year.
The special credit to finance the relocation of businesses that will be displaced by construction of a new Kapalama Container Terminal at Honolulu Harbor was defensible then because it was quite limited in its application.
The proposed updates that proponents such as Pacific Shipyards International describe as "technical tweaking" of the original measure actually are substantive. They could significantly increase the size of the credit available and the type of expenses that would qualify for it, depending on how legislative negotiations proceed in Friday’s conference committee over House Bill 1167 and Senate Bill 676.
In such a tight budget year, and during a legislative session when several bills that would have lowered the tax burden on lower- and middle-income taxpayers have died, there should be no room to expand a special-interest tax break that is valuable enough as it is.
The state Department of Transportation describes development of the Kapalama Container Terminal project as the most critical component of its combined efforts with the Hawaii Harbors Users Group to modernize Hawaii’s commercial harbors.
It can be expensive for tenants to relocate, and without their cooperation the project could face protracted delays. So some incentive from the state was warranted, and plenty is provided under the current tax break passed in 2014, for businesses forced to move to Honolulu Harbor’s Piers 24 through 28.
That includes Pacific Shipyards, the state’s largest private ship repair company, which is moving from a 45,000-square-foot facility at Pier 41 to a state-owned site at Piers 24 and 25, empty piers that lack the necessary physical infrastructure to run the business.
Currently, the tax credit is rightly limited to financing improvements made to real-property infrastructure, such as buildings and fixtures. This break is justifiable because the state will own immovable physical infrastructure installed by tenants, who will operate under revocable leases issued by the state Department of Transportation.
But the proposed changes would expand the credit to include any capital asset used by the tenant, such as machinery, computers, trailers and tools — all of which would go with the business if it ever moves again. Many of these expenses already are subject to federal and state tax benefits such as deduction and depreciation. Approving this change would increase use of the credit to offset costs that taxpayers should not be subsidizing in the first place.
As the Tax Foundation of Hawaii stated in testimony, "This measure proposes to increase the utilization of credits that may be claimed for a credit that was enacted just last year, which, of course, makes one wonder whether proponents of the credit last year were completely forthright with lawmakers about the needs they were trying to address. In any event, this credit amounts to nothing more than a subsidy of state funds. As with any subsidy, this one needs to be paid for. Either government needs to shrink, or the cost of government must be borne by all other taxpayers who do not qualify for the subsidy."
Or, the best option of all, lawmakers must kill this sweetheart deal in conference committee.
