STAND

STAND. COM. REP. NO. 1224

Honolulu, Hawaii

, 2005

RE: H.B. No. 1723

H.D. 2

S.D. 1

Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committees on Media, Arts, Science, and Technology and Business and Economic Development, to which was referred H.B. No. 1723, H.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO CAPITAL INVESTMENTS,"

beg leave to report as follows:

The purpose of this measure is to encourage the growth of high technology companies in Hawaii by increasing the amount of venture capital available through the use of the State Private Investment Fund (Fund).

Specifically, the measure increases the availability of venture capital in Hawaii by:

(1) Authorizing the issuance of tax credits in an unspecified amount to the Hawaii Strategic Development Corporation (Corporation);

(2) Allowing the tax credits transferred by the Corporation to taxpayers to be used to reduce taxes imposed by insurance regulation laws in addition to income taxes and taxes on financial institutions;

(3) Authorizing the Corporation to transfer the tax credits as needed, up to an aggregate total of $20,000,000 per fiscal year;

(4) Authorizing the Corporation to extend guarantees and incur debt; and

(5) Appropriating funds from the Capitol Formation Revolving Fund for the Corporation to carry out the purposes of the State Private Investment Fund.

The Hawaii Strategic Development Corporation, Hawaii Technology Trade Association, Hawaii Venture Capital Association, and Hawaii Biotech, Inc., testified in support of the measure. The Department of Business, Economic Development, and Tourism and the Hawaii Strategic Development Corporation supported the intent of this measure. The Tax Foundation of Hawaii provided comments.

Your Committees find that there is a critical shortage of seed and venture capital resources in Hawaii and that such a shortage is impairing the growth of commerce in the State. The availability of venture equity capital must be increased if Hawaii is to support its emerging high technology enterprises and allow them to expand, relocate to the State, and restructure. Your Committees believe that the issuance of tax credits under this measure will ameliorate this shortage.

Your Committees have amended the measure by:

(1) Inserting $120,000,000 as the tax credit ceiling;

(2) Adding provisions to the measure that amend sections of chapter 211G, Hawaii Revised Statutes, to properly authorize the use of the tax credits transferred by the Hawaii Strategic Development Corporation to taxpayers for the reduction of Insurance Code-imposed taxes;

(3) Adding a section that amends section 211G-15, Hawaii Revised Statutes, to require the Corporation to include information on the disbursement of funds and the issuance, transfer, and administration of tax credits issued by Corporation in its annual report;

(4) Adding a provision that requires the Corporation to establish and maintain a reasonable reserve as a condition of any extension of a financial guarantee; and

(5) Making technical nonsubstantive changes for the purposes of clarity, consistency, and style.

As affirmed by the records of votes of the members of your Committees on Media, Arts, Science, and Technology and Business and Economic Development that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 1723, H.D. 2, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 1723, H.D. 2, S.D. 1, and be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Media, Arts, Science, and Technology and Business and Economic Development,

____________________________ WILL ESPERO, Chair		____________________________ CAROL FUKUNAGA, Chair