SSTI Digest

Building on a successful legislative session in 2007, Gov. Lingle is requesting additional funds to supplement various ongoing TBED programs.   Seeking to continue a pilot program approved by lawmakers last year, Gov. Lingle is requesting  $2 million for a second year for the Hawaii Excellence through Science and Technology Academy Program and Robotics Programs within the Department of Business, Economic Development and Tourism (see the May 14, 2007 issue of the Digest).  

Hawaii's research and investment tax credits for high-tech companies have been a issue of debate for nearly a decade. In a survey conducted earlier this year, 45 percent of a sample of high-tech business owners said these credits played a "major influence" in their decision to grow and expand in Hawaii. Opponents, however, claim that the program's generous tax breaks overstep their bounds by extending incentives to movie and television companies.   A new report from the Hawaii Department of Taxation suggests that, despite these concerns, the two credits have been successful in generating greater technology investment. The department claims that participating businesses attracted more than $821 million in investment, paid out $506 million in salaries, and have been a major driver of technology business in Hawaii since the credits were introduced.  

Gov. Linda Lingle announced 18 appointments to the Hawaii Innovation Council, which will work with groups statewide to increase the economic impact of Hawaii's innovation resources. Co-chairmen include Mark Benioff, Ron Higgins and Jay Shidler.

While legislators did not agree to all of Gov. Linda Lingle’s Innovation Initiative – including a $100 million innovation fund - some of the governor’s original concepts emerged from several other bills at the close of the 2007 legislative session last week.   The legislature passed a number of measures to promote science, technology, engineering and math (STEM) education, a major priority in the governor’s innovation package. SB 885 establishes the Career and Technical Education program within the state Department of Education and provides $5 million over the biennium for several technical education initiatives. Among those are Gov. Lingle’s proposals for the Hawaii Excellence through Science and Technology (HiEST) Academy Pilot Program and a Fostering Inspiration and Relevance through Science and Technology (FIRST) Pre-Academy Program.  

With the opportunity presented by a $732 million budget surplus, Gov. Linda Lingle wants Hawai`i to shift its public investment philosophy away from land development and toward encouraging, nurturing and rewarding innovation, creativity, entrepreneurship and risk-taking. Most of Gov. Lingle's State of the State Address on Jan. 22 and her 56-page 2007 Initiatives booklet is dedicated to explaining how she wants the public sector to lead realignment of the state’s economy toward “one fueled by innovation and new ideas generated by our universities and a highly-trained workforce.”   Facing a legislature controlled by Democrats, the Republican governor’s plan embraces several proposals first advanced by legislative leadership last session, including a $100 million Hawai`i Innovation Fund. The privately managed technology-based equity fund would be capitalized from the State Employees Retirement System, under Gov. Lingle’s proposal.  Other proposals include:

Hawaii Gov. Linda Lingle has submitted her budget proposal to the state legislature for the fiscal biennium 2007-09, including significant increase in the amount allocated for certain state economic development entities. The High Technology Development Corporation (HTDC), a state agency that develops and supports Hawaii’s science and technology resources, would grow from average annual expenditures of $4.2 million in the 2005-07 biennium cycle to $9.8 million in the next cycle. Projects funded by HTDC include providing matching grants for Hawaii-based companies receiving SBIR funds, administering high-tech incubators across the state and the state’s MEP program, and managing a renewable energy development initiative.   The Hawaii Strategic Development Corporation (HSDC) also would see a marked change going from a $246,500 budget in fiscal year 2005-06 and $4.3 million in FY 2006-07, up to a proposed $9 million in FY07-08 and $6.9 million in FY08-09. The primary goal of the HSDC is to provide investment capital to Hawaii-based businesses, such as seed capital and venture capital.

A recent report from Hawaii’s Tax Review Commission recommends the state eliminate or drastically overhaul its five-year old tax credit for high-tech investors. According to the report, the current credit provides no clear advantage to the state and appears open to taxpayer abuse. The commission was particularly troubled by the lack of data provided by taxpayers who were approved for the credit and by the lack of transparency concerning the credit within the state’s Department of Taxation.   A review undertaken on behalf of the commission was unable to determine the effectiveness of the credit, due to insufficient data on its cost to the state and its impact on state high-tech industries. This lack of transparency led the commission to suggest the Hawaii credit may be a ‘black hole’ for tax revenues, and propose legislative changes that would restructure the credit as a program of grants administered by a state agency.  

Yuka Nagashima was named executive director of Hawaii's High Technology Development Corporation.

Efforts to capitalize Hawaii's $120 million State Private Investment Fund (SPIF) collapsed Friday as a joint conference committee of the state legislature could not reconcile differences between House and Senate versions of the measure. Passage of Senate Bill 1695 was one of Gov. Linda Lingle's top economic development priorities for this legislative session.

The SPIF, created by the Hawaii legislature last year but left unfunded, is intended to encourage venture capital investments in state-based tech businesses using the Oklahoma Capital Investment Fund model of state-backed guarantees on private investments. Established in 1993, the Oklahoma program has been widely replicated in recent years.

To encourage investment in high tech companies, the Hawaii Senate recently passed Senate Bill 1695, authorizing $120 million for the State Private Investment Fund (SPIF) and Senate Bill 1696 to allow fiduciaries to make equity investments.

Under the SPIF program, the state could use transferable tax credits in order to guarantee commercial bank loans to professional venture capital (VC) firms. These firms, in turn, would use the loans to invest in local high-tech companies.

SPIF was created by the Legislature in 2004, although no funds were directed to it at the time. The fund is designed to function as a financing tool to provide a consistent source of capital to meet the demands of Hawaii's high tech industries, according to the Senate Majority Caucus.

Robert Rosner, chief scientist for the Argonne National Laboratory, will be the lab's new director.

The first three installments of SSTI's annual look at how TBED will play in the 2005 legislative priorities of the governors can be found in the Digest archives on our website: http://www.ssti.org/Digest/digest.htm

Hawaii Gov. Linda Lingle, State-of-the-State Address, Jan. 24, 2005