ALAMEDA, Calif. — Hawaii lawmakers closed out their session this week, but not before taking a series of controversial actions to balance a $10.2 billion budget that has been hammered by the recession.
Local investors are up in arms over one bill approved by lawmakers, which imposes a three-year moratorium on tax credits that had been promised to residents who had invested in local high-tech businesses.
The so-called Act 221 tax credits, enacted beginning in 1999, offered local residents, banks, and insurance companies credits against state income or business taxes in return for investments in local technology firms.
The tax-credit program had already been scaled back last year, as the state’s budget picture began to tighten. But this week’s legislation would terminate the program early, effective next month, and also prohibit taxpayers who have already made such investments from claiming their credits for the next three years.
“This amendment is necessary to generate more revenues to fund services essential to the public,” according to the House Finance Committee’s report on the bill. “It is intended to generate the revenues from persons who may be better able to afford to pay the additional taxes than low- or moderate-income persons.”
Hawaii has a top income tax bracket of 11%, after lawmakers approved tax increases in 2009 raising the previous top marginal rate from 8.25%.
Opponents said none of the $93 million in projected budget savings attributed to the change will materialize, because a court challenge is inevitable and is likely to succeed because the action violates state and federal constitutional protections for due process and contracts.
The critics said the damage to the state’s reputation would also be severe.
“This bill sends the clear message to everyone that Hawaii’s financial commitments will not be honored if we find ourselves in a fiscal crunch,” Sen. Carol Fukunaga, D-Honolulu, said during the floor debate Tuesday.
“One has to wonder, if Act 221 can be disavowed today, what program will the state of Hawaii renege on tomorrow?” Sen. Rosalyn Baker, D-Maui, asked during the floor debate.
The bill was adopted on a 14-to-11 vote, suggesting that lawmakers would not be able to overturn a veto.
The office of Republican Gov. Linda Lingle did not immediately say what she planned to do with the bill.
In other last-minute budget actions, lawmakers withdrew $67 million from the state’s Hurricane Relief Fund to raise money to fund a full K-12 school year in 2010-2011. They also drained about $46 million from 25 other special funds, according to the Associated Press.
The state’s tight budget situation has already led the Lingle administration to delay issuing any income tax refunds until after the start of the new fiscal year on July 1.
The state’s primary budget bill calls for $10.2 billion in spending in the coming fiscal year, including a $4.9 billion general fund, the AP reported. That budget bill cleared both houses of the Legislature with only one dissenting vote.