Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Consumer Protection & Commerce, to which was referred S.B. No. 1695, S.D. 2, entitled:

begs leave to report as follows:

The purpose of this bill is to allow Hawaii's emerging new high technology firms and high-growth businesses to obtain the venture capital necessary to sustain and nurture their continued development and expansion in Hawaii, by authorizing the Hawaii Strategic Development Corporation (HSDC) to issue $120,000,000 in tax credits that are to be used to secure loans to be invested by a professional fund of funds manager in venture capital funds, for this purpose.

Testimony in support of this bill was provided by the Hawaii Strategic Development Corporation, Hawaii Technology Trade Association, Nanopoint, Oceanit, Hawaii Biotech, Inc., Hawaii Pacific Health, and Hawaii Venture Capital Association. The High Technology Development Corporation supported the intent of this bill. The Department of Business, Economic Development and Tourism supported the intent of the bill and suggested an amendment. The Tax Foundation of Hawaii commented.

Your Committee strongly supports the purpose of this bill, which is to provide businesses that have progressed past their start-up phase, with a second tier of venture capital that allows them to expand while remaining in Hawaii, diversifying the economy, and providing a stable, long-term source of additional jobs for Hawaii's citizens.

However, your Committee is concerned that the language of this bill does not appear to provide sufficient guidance to ensure that the bill's stated goals are the actual outcome of the legislation. Specific concerns raised during the hearing include that the bill lacks any language requiring that:

(1) Funds be invested in Hawaii companies;

There was also concern that this bill should, but does not improve on a similar Oklahoma venture capital program which was criticized as being an inefficient method of allocating capital, in part because of the fees and costs of utilizing a professional fund of funds manager.

Your Committee finds that Hawaii's taxpayers will ultimately be responsible for HSDC's loans and investments under this legislation, and that further discussion of the issues is necessary to determine whether the bill adequately protects taxpayers' interests. Accordingly, your Committee has amended this bill by:

As affirmed by the record of votes of the members of your Committee on Consumer Protection & Commerce that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1695, S.D. 2, as amended herein, and recommends that it be referred to the Committee on Finance in the form attached hereto as S.B. No. 1695, S.D. 2, H.D. 1.