State economic development tax credits to the tune of $75 million — originally earmarked for an aquarium at Ko Olina — are still up for grabs at the Legislature.

Legislators are inclined to direct the credits to the Leeward Coast, but appear split on whether to provide the money for broad commercial investment or specific purposes such as affordable housing and educational facilities.

A bill providing a 100 percent credit for construction spending on the Leeward Coast, House Bill 1277 SD3, is likely to be modified in a committee of House and Senate members. It is unclear whether a broad or narrow application will prevail.

Under broad use, credits could cover anything from building a Starbucks in Wai'anae to condominiums at Ko Olina Resort & Marina to a shopping center in East Kapolei — all of which are planned construction projects.

Under more narrow use, credits would be limited to development of affordable housing and training facilities associated with the University of Hawai'i for tourism, media, film and music education on the Wai'anae Coast.

The original bill's general intent was to reuse a $75 million credit for building an aquarium and other facilities at Ko Olina after the resort's master developer in January agreed to forego the incentive because so much development has occurred without using the credit since its 2003 authorization.

The purpose of the Ko Olina credit approved by Gov. Linda Lingle was to stimulate economic development and job creation at the resort and surrounding area.

The Ko Olina credit has been controversial, and was vetoed in 2002 by then-Gov. Ben Cayetano on grounds that one interest group would mainly benefit from spending on projects defined too broadly.

Though the Ko Olina credit has been abandoned, it is still factored into the state budget and essentially represents a surplus that can be spent easily.

Also, state officials cite a continuing need to stimulate economic development along the Wai'anae Coast, where poverty levels have been above 20 percent for more than 40 years despite government programs intended to help address the situation.

The Tax Foundation of Hawai'i, however, has criticized tax credits as poor tax policy, and questions whether other state programs could better use $75 million.

"It should be questioned whether the proposed tax credits are necessary," the nonprofit group said in written testimony.

REJECTED PROPOSALS

Some lawmakers introduced bills this year to repeal the Ko Olina tax credit and not reuse it. But those measures died.

Another bill proposed using the credit to build a world-class aquarium in Kaka'ako. That measure also failed to advance.

A bill backed by Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), proposed using up to $50 million of the credits for affordable housing and up to $25 million for educational and training facilities operated together with visitor accommodations from Nanakuli to Makaha.

Hanabusa's bill did not survive, but aspects of it are now included in the only surviving bill for reusing the Ko Olina credits.

The surviving measure, House Bill 1277, was introduced by Lingle, who proposed that the Ko Olina credits be made available to any business making capital investments on the Wai'anae Coast, from Nanakuli to Ka'ena Point.

"The expansion of commercial construction tax credits to other areas of the Leeward Coast is an important step to help improve job creation opportunities for the greater Wai'anae area," Ted Liu, director of the state Department of Business, Economic Development and Tourism, said in written testimony on the bill's initial version.

However, the bill, after being heard by Senate committees, has been amended three times to narrow or broaden allowable uses of the credit.

In an initial Senate draft, the bill would have provided $50 million in credits for affordable housing and up to $25 million for tourism industry training facilities operated in conjunction with the University of Hawai'i.

Kurt Kawafuchi, director of the state Tax Department, suggested broadening allowable uses to include agriculture, aquaculture, digital media, technology or any job-related development.

'DIVERSIFIED APPROACH'

"The Leeward Coast would benefit far more from a diversified approach to revitalizing its economy, rather than the narrow approach taken in this legislation," he said in written testimony.

DBEDT also suggested a broader approach to stimulate general business development, as did Laura Thielen, director of the state Office of Planning.

"We are concerned that the bill may too narrowly limit business and enterprise investment in this region to educational and training related to visitor industry or hotel management training," Thielen said in written testimony.

Next, the bill was broadened by the Senate Economic Development and Tourism Committee to include any investment in retail, theater, film, multimedia studio, restaurant, hotel, condominium, or time-share facilities on the Leeward Coast.

BLURRED BOUNDARIES

In the amended bill, boundaries of the Leeward Coast purposely were left undefined with reference made to including Kapolei and 'Ewa.

Also added was a priority for using the tax credits for projects on Department of Hawaiian Home Lands, which include 67 acres recently leased to Florida-based DeBartolo Development LLC for construction of a regional shopping center in East Kapolei.

A third Senate committee, Ways and Means, criticized the bill as too broad, and without preference refocused application of credits to affordable housing ($50 million), tourism training ($12.5 million) and media, film and music education ($12.5 million) from Ko Olina to Ka'ena Point and on Hawaiian Home Lands in Kapolei and Kalaeloa.

To qualify for the credit, spending would have to take place between May 31, 2007, and June 1, 2012. Credits could be redeemed at no more than $7.5 million a year until exhausted.

MORE DEBATE

The bill now is on its way to be discussed by a committee of House and Senate appointees, who would need to agree on a version to be considered by the full Legislature and then, if passed, submitted to Gov. Lingle.

Sen. Gordon Trimble, R-12th (Waikiki, Ala Moana, Downtown), agrees that broad economic support for the Wai'anae Coast is needed. He also voted for the Ko Olina tax credit because it would have eventually conveyed the aquarium to the state.

But he generally opposes tax credits on grounds that they are not good economic policy, and thus voted against HB 1277 SD3.

"We have no idea what's going to happen in conference committee," he said of the bill.

Rep. Maile Shimabukuro, D-45th (Wai'anae, Makaha, Makua), supports the bill. "I think it's a very positive measure," she said. "I'm very happy to see the affordable housing emphasized in it. I think it's a good thing, and I hope it makes it through conference."

Reach Andrew Gomes at agomes@honoluluadvertiser.com.