February 9th, 2010

The recession is settling in, and the signs of it are becoming more deep seated and profound all the time. The Tax Office is trying really hard to increase revenues to the state to do what it can to ameliorate the budget crisis. But sometimes that’s downright destructive, and goes too far.

In recent years, 221 was used most often for energy projects - appreciated or not, it was a friend of Linda Lingle’s Clean Energy Policy. Now, the indigenous tax incentives of 221 are gone, leaving federal tax benefits to incentivize energy investment, but the Lingle Administration is attacking them too.

According to a memo circulated this week by accountant Alan Schlissel of KMH LLP, the State Tax Office is taxing the federal tax incentives. Although it doesn’t have the power to affect the federal benefits directly, it’s moving to make them smaller by imposing state tax on them.

More specifically:

• The Tax Office will now subject cash rebates of the federal renewable energy credit to the general excise tax of 4.5% or more if it is increased.

• The Tax Office could also subject the energy credit to state income tax. They have not yet said they will make it exempt. Hawaii’s maximum income tax is 11% for individuals and 6.4% for corporations.

• At present, the renewable energy credit is not available to insurance companies. Before, they made large investments in high tech companies and thus contributed to the growth of the industry. Absent an incentive to invest locally, they will invest on the mainland.

Schlissel concludes that these issues will have a significant impact on whether energy projects can be financed and built here, and points out that although Linda Lingle has set ambitious goals for fossil fuel reduction, these issues could have an effect on whether we can meet those goals.

While we can certainly sympathize with the administration’s desire to increase tax revenues in the face of the burgeoning budget crisis, taxing the federal energy incentives after killing 221 only adds insult to injury. Why does the administration still insist on cutting these critical incentives?

When the administration rolled out the Momentum Commission and the Innovation Economy, every talking head in government was sent on the campaign trail. But talk it only was, and six months later no one could find any indication that the administration had actually done anything.

The jury is still out on whether the administration’s Clean Energy Initiative will succeed, and the question of the day is what effect the administration’s inconsistent policies on energy will have on its remaining credibility, on the growth of the industry and on the reputation of the state.

We need policy that’s consistent. If you believe in energy, why not support it whenever and wherever possible. Why undermine it year after year by cutting off the supply of capital to local entrepreneurs. Doing that, if we have energy, we’ll have it from outside but not local interests.

When will we learn that large projects invariably require government support, that growing local companies is better for our economy than inviting companies from elsewhere, that local capital is preferable to capital from offshore, and that consistent and focused policy is better than the bunny trail policy we so often see in Hawaii.

Given the record of this administration, it looks like the Clean Energy Initiative could easily go the way of the Momentum Commission and the Innovation Economy. We can wait and hope that future administrations will know better, but that won’t help us repair the current inconsistency.

Sadly, we already know that in Hawaii, Aloha often means standing aside and letting things evolve at their own pace. That way we don’t have to get in anybody’s face, and it all works out the way it was supposed to - by a series of impressive sound bites, soon fading and quickly forgotten.

Forgetting those sound bites does us all a disservice – after all, he who can’t remember the past is doomed to repeat it. On the other hand, he who can remember the past really needs to do something about the future.

Posted in 1 | 1 Comment »


  1. zzzzzz:

    This is not a surprise.

    For years, the state has tried to encourage solar water heaters with a state tax credit. The problem? In most cases the credit is effectively subject to federal income tax, because most homeowners itemize deductions because of property tax and mortgage interest, and their state income tax deduction is reduced by the amount of the credit. So not only is the financial incentive to the homeowner reduced, but state money is effectively being sent to the IRS.

    If the state wants to raise taxes while still encouraging development and installation of clean, renewable energy technologies, all they need to do is raise the taxes on energy consumption.

    I'm not holding my breath. I don't think our legislators have the vision and courage to even discuss this possibility.