Things have been pretty active around Act 221 over the past week or so, from a presentation in the capitol by 221 supporters prior to the opening, the early morning rally on opening day, at which hundreds of T-shirted pro-tech pro-221 supporters showed up, and the “pro-con” joint senate-house meeting last Wednesday. It’s been exciting to see all that energy.
The 221 supporters who have appeared are not Jay Pierpont Morgan, they’re enthusiastic young people with T-shirts that say extend221.org. They’re largely local, vital, articulate and promising. They’re from the software, biotech, energy and the performing arts sectors, and from the Hawaii Angels and investment community. It was great to see them out there together, actually. You don’t see them together very often - they’re usually too busy working. But now they’ve become a phenomenon.
Linda Lingle has been busy too. Her new strategy is to compare 221 to the low income housing tax credit, which is widely recognized as a failure, and to make 221 more like that. Although she wasn’t at the pro-con to make that argument, her chief policy advisor Linda Smith was there with her tax director Kurt Kawafuchi. The only person there to support them was Lowell Kalapa of the Hawaii Tax Foundation, who has been making knee-jerk attacks against 221 and other credits for years.
The 221 supporters say the 221-low-income-tax-credit comparison is a bad one, that the administration’s analysis is apples and oranges and inaccurate, and that the administration just wants to damage 221 to the point where it becomes ineffective too. And that argument seems to have legs. Lingle has been attacking 221 since right after the 2002 election. What makes this ironic is that she supported 221 unconditionally right before the election. See her promises in the tech debate on October 24, 2002, where she and Mazie Hirono both said that 221 should not be changed, at thinktechhawaii.com/video.aspx?video=techdebate.wmv.
221 supporters think Lingle completely abandoned them on this issue by attacking 221 for every year of her administration, in good times and bad over all these 6 years since then. They’re not impressed with her claim that 221 should now be repealed or rewritten this year because of the recession when in fact she’s been trying to undo it every year since she was elected, regardless of the economy or the budget. They say she’s just using the economy as a convenience to make the same attack she has been making all along, and that it is blatantly disingenuous.
The administration has said it wants to cut back on 221 for renewable energy research. This is remarkable given that the administration has been doing a regular talkfest about the benefits of renewable energy in its “clean energy” initiative, Linda Lingle’s latest attempt at legacy. One wonders how the administration expects Hawaii energy startups to get started without the capital they so critically need. The 221 supporters point out that the administration’s position on 221 is completely and inexplicably inconsistent with its simultaneous energy initiative.
The opening gambits of the session have been revealed. HVCA and HSTC have demonstrated that there is a huge number of people in and out of the tech community who want to see 221 left alone and for that matter extended for at east 5 years. More will probably come out on this in the weeks to come. The administration has revealed its strategy and at least for the moment committed itself to trying to cut the act back to be more like the low income housing tax credits. Actually, the people on the administration’s side do not seem very enthusiastic about their position – perhaps they recognize the inconsistencies. Note also that a number of Republican legislators openly disagree with Lingle on the 221 issue.
The 221 supporters, however, are very enthusiastic. They are also ticked off with the people in the administration who continue to bash 221 and who have turned their backs on local tech entrepreneurs, especially now in a deep recession when diversification is even more crucial. They do not understand the administration’s continuing enmity for tech and consider it motivated by dark political forces or just irrational, or both. They’ve given up on the administration, but clearly haven’t given up on 221.
Most of the legislators at the pro-con event seemed sympathetic with the outpouring of support for 221. The only one visibly unsympathetic was Isaac Choy of Manoa, who by his grimaces repeatedly demonstrated his distaste for their cause, as he has in the past. It seems remarkable that an accountant whose office is so near the Manoa Innovation Center and whose clients are or could be 221 entrepreneur and investors could be so rigidly negative on this issue. Some legislators had hard questions, e.g., Angus McKelvey (picture at left), Carol Fukunaga, Roz Baker and Sam Slom, to the point where the administration was deflecting, not answering, their questions.
Most of the legislators seemed to understand that 221 is more a stimulus than a tax package, that despite the Lingle attacks 221 does work to bring critical capital to local business, that it has been successful in developing Hawaii’s tech and performing arts sectors, and that the administration’s claims that 221’s costs exceeds its benefits are bogus and based on twisted figures. In fact, 221 has infused $1.4 billion into our economy at a cost of less than 1/3 of that. It’s also clear that if Lingle has her way with Act 221, investment in those sectors will dry up.
The stakes are high. There are various bills pending, ranging from the extension of the act to its repeal. They will come up for hearing before these house and senate committees over the next few weeks, and then the house and senate money committees, and the same arguments will be made. Some will survive those hearings and cross over. It’s anyone’s guess as to what happens in the horse trading that takes place in the conference committees at the end of the session. The one thing clear is that the tech, performing arts and investment community are watching very closely this year, and the process will be examined as never before.
Of course, there are people like Isaac Choy, who write 221 off as a “black hole” and do not address long-term issues affecting the economy of the state. They are negative without offering positive solutions to save us from backwater. But the friction over act 221 has lit a flame this year, as never before, among the tech industry, the young entrepreneurs and the local investors. We can only hope the legislators we elected will treat that flame as one to be nurtured as a symbol and mandate for diversification.
Over the years, 221 has been the subject of more negative headlines in the Advertiser than it deserves. The Advertiser’s headline story yesterday implied that there’s something nefarious about 221 companies that don’t file annual reports, even though not all 221 companies are required to do so. It also implied nefarious things about 221 companies that don’t have websites or use post office boxes. These implications are unjustified. All startups have challenges and not every startup succeeds. Because you have a comfort letter doesn’t mean you get an investment or tax credit. Misleading stories like this, repeated every few days year after year, build negative public opinion by way of confusion. They have a corrosive effect on public opinion and public policy. We can do better.
But everyone seems to agree, including the papers, that 221 is a complex high-stakes game, and that if we fail to incentivize and provide stimulus for our tech industry, the results will be disastrous. I’m watching, and I’ll write more about this going forward. But you should also watch.