In an effort to encourage private-sector development in neighborhoods along the rail line, the Honolulu City Council in considering a measure that would give tax credits for up to three decades to businesses that invest substantially in facility improvements and create scores of new jobs.

Under Bill 45 there are two levels of incentives for eligible businesses. The first level offers a property tax rebate for up to 30 years, while the second limits the rebate to three years. Both levels allow an expedited process for building permits and waive county fees.

To qualify for the first level, businesses must invest a minimum of $100 million in improvements to facilities, create 100 new full-time jobs and increase the draw of property taxes from the surrounding area.

To qualify for the second level, businesses must create a minimum of 50 new full-time jobs. A second-level participant could also qualify for city, federal or state grants to offset a yet-to-be-determined percentage of construction costs if it partners with an “anchor institution,” which is defined as a nonprofit or government entity such as the University of Hawaii, and invests at least $10 million in facility improvements.

Council member Augie Tulba, who introduced the measure, along with Council member Carol Fukunaga, said the proposal would create job opportunities in Transit-Oriented Development areas.

“We’re building new homes around TOD, and hopefully, it will create good-paying jobs for local residents who can buy these homes,” he said. “I believe with the film studios coming in, it will bring in these kind of businesses, will create good-paying jobs so local kids — the kids that have been wanting to create film that now moved away — can come back.”

Bill 45 does not mention the film industry by name, but nearly all of the testimony submitted in support of the measure to date is from production companies or filmmakers. Fukunaga and Tulba also said they’re eyeing businesses in the cyber security and health care industries as potential participants.

Chris Lee, who heads the UH’s Academy for Creative Media System, said more studio space needs to be constructed on Oahu to support bigger productions. He pointed out that the site of the state’s Diamond Head stages serves as a premier spot for television production but that it has its limitations.

“It can only handle one show, and they can’t handle a movie,” Lee said. “When you talk about ‘Jumanji,’ you talk about a ‘Pirates of the Caribbean’ … they come here. They shoot exteriors. They shoot our beaches and jungles. And then even though they would rather stay here … they have to go to Atlanta for the stages, they have to go to London for the stages. We don’t have those stages. So we’re sort of artificially constraining our business.”

Fukunaga said there are potential projects that could be a good fit for Bill 45 partnering, such as a film studio on UH’s West Oahu campus.

“The production entity that is interested in developing a studio at that site is very interested in Hawaii because we have developed a pretty good reputation for having a very high-quality workforce,” Fukunaga said. “We have really received a lot of positive feedback that this type of workforce can support really expanding and extending.”

Fukunaga and Tulba both pointed to tax credits given to the film industry in New Jersey and Atlanta that attract production.

Fukunaga said that although businesses would get property tax rebates, the city would not lose out on revenue because properties in the surrounding area would increase in value as well.

“Within each of the areas that has invested heavily in large-scale production facilities, they have found that the type of additional activity that goes up right around that production facility more than offsets the particular city or municipality’s revenue losses when you pro­ject out over a 10-, 20- or 30-year period,” she said, citing a 2020 study conducted by CBRE Group, a commercial real estate services and investment firm.

However, targeted tax incentives have not been universally praised as a worthy form of investment for cities across the country. The Tax Foundation, a Washington, D.C.-based tax policy think tank, has cited three reasons why targeted tax incentives often fail.

According to the nonprofit, “First, states end up wasting a significant amount of revenue on jobs or economic development that would have occurred even without incentives. Secondly, firms that relocate to a state might bring jobs and economic activity, but if they crowd out other business or investment, the net economic gain will be reduced.”

The third reason: “Giving tax incentives in one area means that the revenue will have to be made up in another area,” such as “higher taxes or lower spending elsewhere, both of which would have an economic impact as well.”

Hawaii Appleseed Center for Law &Economic Justice Director Gavin Thornton expressed wariness about implementing Bill 45.

“The most important question for me is, Has anybody done any kind of economic analysis that suggests this is a good investment?” he said. “Because if not, they need to. These types of tax credits to attract businesses sound like a really good idea but often aren’t. National studies suggest that at least 75% of the time, the same jobs would have been located in the state or local economy anyway.”

Thornton also noted that there are already many tax incentives for businesses that would likely qualify for Bill 45 offers. Film production now receives an income tax credit equal to 20% of its costs incurred on Oahu from the state. There are also federal tax credits for people doing business in underserved areas called “opportunity zones,” some of which overlap with the city’s Transit-Oriented Development zones.

“We’ve spent billions of dollars on rail premised on the idea that this transportation infrastructure is going to catalyze housing and economic development, and we’ve already pumped tons of public money into that,” Thornton said.

“I think it calls for extra caution when we’re thinking about providing these additional tax breaks. That seems to me to be really risky when there are a lot safer bets,” such as allocating city tax revenue to build more affordable housing, thereby keeping local talent in Hawaii.

Mayor Rick Blangiardi has voiced his support for Bill 45, which will be heard at Wednesday’s Council meeting, which gets underway at 10 a.m.