Hawai'i already has one of the most generous tax subsidies for technology. Now state officials are considering creating a potentially $200 million fund that would pump cash into Hawai'i renewable energy, life science and technology companies.

"Does Hawai'i want this kind of industry," asked Anton Krucky, president and chief executive of Honolulu-based Tissue Genesis. "If we do, it will take this kind of investment and maybe more in an environment that is highly competitive on a worldwide basis."

Krucky's company is developing tissue replacement products to improve survival rates for trauma injuries, cardiovascular diseases, cancer and metabolic diseases.

The Hawaii Innovations Fund would earmark $100 million in the first year of the program followed by an additional half-percent of general fund revenues annually for the following four years, or about $100 million more, which would make it one of the biggest state-backed investment funds in the country. The money would be used to provide grants and investment money to local companies. Creating such a program is a major priority for House Democrats, said House Majority Leader Marcus Oshiro, D-39th (Wahiawa).

"By having a large amount of capital for local entrepreneurs, it makes a bold statement that we're making the commitment," Oshiro said. "My understanding is it would be one of the biggest funds out there.

"It will put and keep Hawai'i at the forefront."

PREVIOUS SUPPORT

Hawai'i already has pumped more than $108 million into the technology industry during a three-year period via income tax credits generated under Act 221/215. The high-technology sector grew by nearly 10 percent between 2001 and 2004, which was nearly twice as fast as the job growth rate for the state.

However, it is unclear how much of that economic activity was a result of Hawai'i's tax credits, which are already among the most generous in the country. The identities of the companies benefiting from the credits are confidential and the state does not track the number of jobs created.

Even with the recent growth, Hawai'i's fledgling technology sector remained a minor part of the state's economy, representing fewer than 15,000 jobs, or just 2.5 percent of the state's workforce in 2004, according to figures compiled for The Advertiser by the Bureau of Labor Statistics.

Given the industry's small size, dedicating another $200 million in taxpayer money for technology is going overboard, said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. The proposed innovation fund would lock up money needed for more pressing needs or the money that could be used to provide tax relief for all taxpayers, he said.

"It's an awful lot of money," Kalapa said. "It's cash that's needed to pay utility bills at (the University of Hawai'i), to pay for welfare programs and to pay for school supplies. And how about tax relief?"

TWO PROPOSALS

The Hawaii Innovations Fund is one of two proposals aimed at increasing the level of investment capital available to local companies seeking to expand. The other proposal is the State Private Investment Fund or SPIF, which was created two years ago. However, that fund cannot invest money without additional legislative authorization.

SPIF is hailed by proponents as a low-cost way to boost the level of investment in Hawai'i for local businesses looking to grow. Under the complex program, the state borrows money that's placed with a fund manager in a venture capital fund, which then invests in businesses.

Pioneered by Oklahoma the SPIF-type investment model has since been adopted in Arkansas, Iowa, Ohio, Utah and Michigan.

States that have directly earmarked money for investment into venture capital funds or directly with businesses include, Alaska, Colorado and Michigan.

Both the SPIF and the Hawaii Innovations Fund would complement the existing state seed capital, or "angel" investment, incentives created under Act 221/215. SPIF and the innovations fund provide businesses with access to later-stage financing or expansion capital.

Ann Chung, vice president of the Hawaii Science & Technology Council, which represents technology and life sciences businesses, said she's optimistic the Legislature will create a new program this session that will boost investments in local companies.

"We're very pleased that this whole idea of providing added resources to fund the tech industry is still on the table," she said. "I think the most important thing for the tech industry is that we do something this year."

SUPPORT NOT UNIVERSAL

Supporters for the innovations fund include the Hawaii Science & Technology Council and some venture capitalists. However support isn't universal. Bill Richardson, a general partner of local venture capital firm HMS Hawai'i, said the state should consider other methods for boosting investment in local companies. That should include providing protections to local pension fund managers that choose to invest small portions of their funds in high-risk local businesses.

George Lipper, editor for the the National Association of Seed and Venture Funds' NetNews newsletter, agreed that it can be challenging for states to find the right expertise when they decide to invest in venture capital funds or directly with companies.

"It's a tough thing for government to do," he said. "The key is who manages (the money) it and can you hire a person you need within the framework of the state compensation levels, and can you run it independently without interference once you get there."