Monday, February 16, 2009
Sunday, February 15, 2009
The truth about Act 221 by Howard Dicus, KGMB9
http://kgmb9.com/howard/2009/02/15/the-truth-about-act-221/
The truth about Act 221
The more I read about Hawaii’s technology tax credits, the more astonished I am about the lack of understanding of them. Widespread ignorance of our tech economy makes it entirely possible we will, in our desperation to close the state deficit, screw up something that is very good for our state and its people.
It’s difficult because some of the people attacking the credits are good people who make intelligent, measured comments on other topics.
“Act 221″ is shorthand for several legislative acts that collectively provide for major tax credits in return for investing in cutting edge technologies here. Much of what is debated is actually another act, but let that pass. I think we all know we’re discussing the whole of our program for nurturing technology companies here.
The problem is that widespread coverage has been given to two things that seem to suggest that we’re not getting full benefit from the credit. The first is that moviemakers qualify for them but don’t seem to create jobs here. The second is that Hoku Scientific qualifies but it’s building its polysilicon plant in Idaho instead of here.
I’ll offer some comments on those two topics, but the main thrust of this post will be to tell you some more stories about companies that qualify for the credits which created high-paying jobs that generate tax revenue far beyond the cost of the credits.
Hawaii has solicited movie location shooting for years, making outright payments to moviemakers in some cases, sometimes through the tourism authority. Do we want movies or not? If we do, what is wrong with the money being paid through tax credits, whether it was the original intent or not? The answer, I’m guessing, ought to be that it depends on whether it costs more or less than outright payments by state agencies.
But don’t let anyone tell you moviemakers don’t create jobs here. They create thousands of jobs, but those people are hired as freelance contractors. They make good money and they pay taxes and they patronize businesses that pay taxes.
Hoku Scientific started in the business of making hydrogen fuel cell plants for the Navy, executed the contract and make good money doing it. But any number of huge defense contractors could have underbid them out of business, so Hoku shifted into solar energy. Realizing there was a global shortage of polysilicon, the key ingredient in most solar panels, it decided to manufacture it, financing a plant with advance payments by companies that need polysilicon and can save money by increasing global supply. Hoku went shopping for a tax credits and other conditions and permitted Pocatello, Idaho. This is an argument for tax credits, against it, but let that pass. A polysilicon plant creates pollution — I doubt environmental interests would have permitted one here.
Before moving on to the benefits of technology tax credits, I want to acknowledge what is arguably an abuse of them — some non-tech companies took tax credits while replacing their computer systems. Bank of Hawaii did. I don’t know if the upgrade created tech jobs. The law may not have been meant for that but the law allowed it. I don’t know to what extent this is still going on, but there are some companies that have established subsidiaries for their I.T. departments, then the subsidiaries seek credits.
Now. On to the benefits.
Hawaii has more potential to be a technology research and development center than critics of the credits admit. The former Adtech, maker of speedometers for the Internet (equipment to measure packet latency, for the savvy), was acquired by a global maker of such equipment which intended to move the Honolulu manufacturing lab to California and had to abandon the idea when no one would move.
Looking farther back into history, the ALOHA protocol on which all wireless packet networks run including the network your cell phone uses, was developed by Norm Abramson, a Californian who learned to surf in his forties and got involved in the early development of the Internet because he wanted a project that would allow him to work in Hawaii. He convinced the folks at the Defense Advanced Research Projects Agency that he should move to Hawaii to experiment with through-the-air packet transmissions between islands. He lived on Coconut Ave., surfed, experimented, and thought. He did here because he could do it anyway but here was where he wanted to be.
Unlike technology tax credits, one or more people wanting to live in Hawaii will not usually be enough to convince investors to site a project in Hawaii, but this helps to explain why it is wrong to believe that Hawaii cannot be a technology center whether are credits or not. It can be. It already is.
Hawaii Biotech, whose scientists work in a lab in Aiea, have developed a vaccine for West Nile Virus. Hoana Medical, an offshoot of Hawaii Biotech [correction: it's an Oceanit spinoff], invented a smart hospital bed — automatic vitals transmitted to the nursing station — that was successfully tested at Kaiser Moanalua Medical Center. Tissue Genesis, operating from a lab within walking distance of Ala Moana Center, is working on faster regeneration of tissue to help people heal faster from wounds.
STI and Oceanit are two different companies with local technology centers that have developed hyperspectral imaging — computer analysis of photos or live pictures by dividing the color spectrum into different bits and scrutinizing each one separately, while comparing to database images, to see more things than you can — and after initially doing it for the military they are miniaturizing it for medical applications.
Trex Corporation has a couple of divisions in Hawaii, one of which is developing better technologies for security checkpoints, while the other works on radio transmissions in unusual frequencies.
I have interviewed executives of these and other local tech companies, and they all say that when they have an opening for a scientist or a techie, all they need to do is network on the West Coast, asking Hawaii expats with the appropriate skills who wants to come home. They readily fill their openings with returning kama’aina.
“I need someone who can write C+++ code. Who wants to move back to Honolulu?”
In technology industries where job hopping is an expensive problem for employers, hiring returning expats ensures you’re getting people who know in advance they will like the community they’re moving to.
The technology tax credits attract investors. Hawaii attracts good people. The combination means high-paying jobs which, by the way, are more secure than most other jobs in a recession.
If you read criticisms of the tax credits carefully, you will notice after awhile that most of the negative stuff is guess work and prejudice. The weird thing is, there probably is some way to tighten up the credits. But scattershot attacks by people who never heard of the companies I’ve listed will muddy the waters and lead either to bad change or no change. The critics flatly assert the tax credits won’t help and they simply don’t know what they’re talking about.
The truth about Act 221
The more I read about Hawaii’s technology tax credits, the more astonished I am about the lack of understanding of them. Widespread ignorance of our tech economy makes it entirely possible we will, in our desperation to close the state deficit, screw up something that is very good for our state and its people.
It’s difficult because some of the people attacking the credits are good people who make intelligent, measured comments on other topics.
“Act 221″ is shorthand for several legislative acts that collectively provide for major tax credits in return for investing in cutting edge technologies here. Much of what is debated is actually another act, but let that pass. I think we all know we’re discussing the whole of our program for nurturing technology companies here.
The problem is that widespread coverage has been given to two things that seem to suggest that we’re not getting full benefit from the credit. The first is that moviemakers qualify for them but don’t seem to create jobs here. The second is that Hoku Scientific qualifies but it’s building its polysilicon plant in Idaho instead of here.
I’ll offer some comments on those two topics, but the main thrust of this post will be to tell you some more stories about companies that qualify for the credits which created high-paying jobs that generate tax revenue far beyond the cost of the credits.
Hawaii has solicited movie location shooting for years, making outright payments to moviemakers in some cases, sometimes through the tourism authority. Do we want movies or not? If we do, what is wrong with the money being paid through tax credits, whether it was the original intent or not? The answer, I’m guessing, ought to be that it depends on whether it costs more or less than outright payments by state agencies.
But don’t let anyone tell you moviemakers don’t create jobs here. They create thousands of jobs, but those people are hired as freelance contractors. They make good money and they pay taxes and they patronize businesses that pay taxes.
Hoku Scientific started in the business of making hydrogen fuel cell plants for the Navy, executed the contract and make good money doing it. But any number of huge defense contractors could have underbid them out of business, so Hoku shifted into solar energy. Realizing there was a global shortage of polysilicon, the key ingredient in most solar panels, it decided to manufacture it, financing a plant with advance payments by companies that need polysilicon and can save money by increasing global supply. Hoku went shopping for a tax credits and other conditions and permitted Pocatello, Idaho. This is an argument for tax credits, against it, but let that pass. A polysilicon plant creates pollution — I doubt environmental interests would have permitted one here.
Before moving on to the benefits of technology tax credits, I want to acknowledge what is arguably an abuse of them — some non-tech companies took tax credits while replacing their computer systems. Bank of Hawaii did. I don’t know if the upgrade created tech jobs. The law may not have been meant for that but the law allowed it. I don’t know to what extent this is still going on, but there are some companies that have established subsidiaries for their I.T. departments, then the subsidiaries seek credits.
Now. On to the benefits.
Hawaii has more potential to be a technology research and development center than critics of the credits admit. The former Adtech, maker of speedometers for the Internet (equipment to measure packet latency, for the savvy), was acquired by a global maker of such equipment which intended to move the Honolulu manufacturing lab to California and had to abandon the idea when no one would move.
Looking farther back into history, the ALOHA protocol on which all wireless packet networks run including the network your cell phone uses, was developed by Norm Abramson, a Californian who learned to surf in his forties and got involved in the early development of the Internet because he wanted a project that would allow him to work in Hawaii. He convinced the folks at the Defense Advanced Research Projects Agency that he should move to Hawaii to experiment with through-the-air packet transmissions between islands. He lived on Coconut Ave., surfed, experimented, and thought. He did here because he could do it anyway but here was where he wanted to be.
Unlike technology tax credits, one or more people wanting to live in Hawaii will not usually be enough to convince investors to site a project in Hawaii, but this helps to explain why it is wrong to believe that Hawaii cannot be a technology center whether are credits or not. It can be. It already is.
Hawaii Biotech, whose scientists work in a lab in Aiea, have developed a vaccine for West Nile Virus. Hoana Medical, an offshoot of Hawaii Biotech [correction: it's an Oceanit spinoff], invented a smart hospital bed — automatic vitals transmitted to the nursing station — that was successfully tested at Kaiser Moanalua Medical Center. Tissue Genesis, operating from a lab within walking distance of Ala Moana Center, is working on faster regeneration of tissue to help people heal faster from wounds.
STI and Oceanit are two different companies with local technology centers that have developed hyperspectral imaging — computer analysis of photos or live pictures by dividing the color spectrum into different bits and scrutinizing each one separately, while comparing to database images, to see more things than you can — and after initially doing it for the military they are miniaturizing it for medical applications.
Trex Corporation has a couple of divisions in Hawaii, one of which is developing better technologies for security checkpoints, while the other works on radio transmissions in unusual frequencies.
I have interviewed executives of these and other local tech companies, and they all say that when they have an opening for a scientist or a techie, all they need to do is network on the West Coast, asking Hawaii expats with the appropriate skills who wants to come home. They readily fill their openings with returning kama’aina.
“I need someone who can write C+++ code. Who wants to move back to Honolulu?”
In technology industries where job hopping is an expensive problem for employers, hiring returning expats ensures you’re getting people who know in advance they will like the community they’re moving to.
The technology tax credits attract investors. Hawaii attracts good people. The combination means high-paying jobs which, by the way, are more secure than most other jobs in a recession.
If you read criticisms of the tax credits carefully, you will notice after awhile that most of the negative stuff is guess work and prejudice. The weird thing is, there probably is some way to tighten up the credits. But scattershot attacks by people who never heard of the companies I’ve listed will muddy the waters and lead either to bad change or no change. The critics flatly assert the tax credits won’t help and they simply don’t know what they’re talking about.
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