Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Health, to which was referred S.B. No. 1278 entitled:

begs leave to report as follows:

The purpose of this measure is to provide a tax credit for improvements made to federally qualified health centers.

The Healthcare Association of Hawaii and Hawaii Primary Care Association submitted testimony in support of this measure. The Department of Taxation and the Tax Foundation of Hawaii submitted comments.

Your Committee finds that Hawaii's federally qualified health centers, which are all not-for-profit Hawaii corporations, are in various stages of developing and improving their health care facilities. Federally qualified health centers are "safety net" primary health service providers serving predominantly uninsured, poor, and indigent people of Hawaii regardless of their ability to pay. A new federally mandated medical prospective payment system that began in 2001 for federally qualified health centers has effectively eliminated a mechanism for these centers to recoup costs associated with future capital improvements, thus severely limiting their ability to serve the public. This measure will provide a mechanism to help defray federally qualified health center capital costs without putting undue strain on the State's budget.

Upon further consideration, your Committee has amended this measure by lowering the threshold for the credit to $150,000, and specifying that the amount of the qualified improvement tax credit shall be equal to:

Further, your Committee has amended this measure by deleting the proviso that each federally qualified health center's tax credit shall be limited to an amount totaling thirty-five percent of its total audited expenditures for its fiscal year ending 2005, or $300,000, whichever is greater.

As affirmed by the record of votes of the members of your Committee on Health that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1278, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1278, S.D. 1, and be referred to the Committee on Ways and Means.