STAND. COM. REP. NO. 383

Honolulu, Hawaii

RE:    S.B. No. 1248

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fifth State Legislature

Regular Session of 2009

State of Hawaii

Madam:

     Your Committees on Economic Development and Technology and Water, Land, Agriculture, and Hawaiian Affairs, to which was referred S.B. No. 1248 entitled:

"A BILL FOR AN ACT RELATING TO STATE ENTERPRISE ZONES,"

beg leave to report as follows:

     The purpose of this measure is to authorize agricultural producers and manufacturers to renew their eligibility in the enterprise zone program and allow receipts, sales, and employees of a business establishment that are located within the same county to count toward qualification in the enterprise zone program.  This measure also amends the definitions applicable to chapter 209E, Hawaii Revised Statutes.

     Testimony in support of this measure was submitted by the Department of Business, Economic Development, and Tourism, the City and County of Honolulu Department Economic Development, the Hawaii Crop Improvement Association, the Hawaiian Electric Company, Hilo Coffee Mill, Honolulu Wood Treating, Madden Corporation, Island Princess, Tradewinds Forest Products, and Oils of Aloha.  Comments on this measure were submitted by the Department of Taxation and the Department of Agriculture.  Written testimony presented to the Committees may be reviewed on the Legislature's website.

     Your Committees find that facilitating agricultural producers and manufacturers in qualifying for the enterprise zone program will enable that industry to grow in a tax efficient manner.  Renewing an existing license for an additional seven years will continue to attract investment and help to revitalize some of the distressed communities in Hawaii.

     Your Committees received a fiscal impact statement from the Department of Taxation that this measure, as introduced, would result in a revenue loss to the State of $300,000.  Their methodology is as follows:

     Qualified companies in the State's enterprise zone program received approximately $1,500,000 in tax credits in 2006.  It is assumed that the number of firms and business activities will remain the same, and this proposal would expand enterprise zone activities by twenty per cent ($1,500,000 x 20% = $300,000).

     Your Committees note that the Department of Taxation's revenue loss methodology is based on the assumption that the number of firms and business activities will remain the same.

     For example, the testimonies of the Department of Taxation, the Department of Business, Economic Development, and Tourism, and the Department of Agriculture fail to take into account any potential tax revenue gains that an extension of the enterprise zone credits might produce by helping long-established small businesses — who presently contribute their share of tax receipts to the State's economy — to expand.  During a time when the State's visitor, retail, hospitality, and activities sectors of the economy are suffering from declining visitor counts, your Committees believe we should grow Hawaii's economy by stimulating the numbers of jobs that Hawaii small businesses are able to create, rather than preventing that growth from occurring.

     As affirmed by the records of votes of the members of your Committees on Economic Development and Technology and Water, Land, Agriculture, and Hawaiian Affairs that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 1248 and recommend that it pass Second Reading and be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Economic Development and Technology and Water, Land, Agriculture, and Hawaiian Affairs,

____________________________ CLAYTON HEE, Chair

____________________________ CAROL FUKUNAGA, Chair