Looking for a bridge between recession and recovery, Gov. Linda Lingle yesterday proposed several short-term tax incentives to encourage the private sector to hire workers and invest in construction projects to stimulate the economy.

In her final State of the State address before leaving office, the Republican governor called for an income tax credit for businesses that hire workers who have been unemployed, a tax credit for hotels and resorts that launch construction and renovation projects, and a general-excise tax credit on renewable energy projects and electric and plug-in hybrid vehicles.

Lingle also said she would use state welfare and federal stimulus money to help businesses offset the cost of providing new workers with health insurance, and use federal stimulus money to expand an existing program that gives companies reimbursement for up to one year for the wages and benefits of workers hired from welfare rolls.

Citing the lessons of the recession, Lingle proposed a constitutional amendment to require that 5 percent of general-fund money during surplus years be placed in the state's rainy day fund, which she would rebrand the fiscal stabilization fund.

The governor said a healthy stabilization fund could act as a shield against tax increases the next time the economy sours.

While the spirit behind her speech was optimistic, Lingle acknowledged that the state is facing difficult decisions to close a $1.2 billion budget deficit through June 2011. "We must do what it takes to create a future that does not financially burden our children and grandchildren simply because we weren't willing to make those difficult, sometimes gut-wrenching decisions when destiny called on us to do so," she said.

"Clinging to the programs, practices and government structure of the past will not work and cannot be sustained."

Lingle described her tax incentives as temporary and revenue neutral, offset by the job creation and economic activity the incentives may produce.

State Rep. Marcus Oshiro, D-39th (Wahiawā), the chairman of the House Finance Committee, said he will wait to see if the governor's proposals pencil out. "Show me the money," he told reporters afterward.

TAX CREDITS

Lingle's income tax credit for businesses would be equal to the wages withheld for new workers who are state residents and currently getting unemployment benefits. The credit would expire after December 2012.

Hotels and resorts could get 10 percent tax credits for construction and renovation projects of at least $10 million but no larger than $100 million.

The credit is capped at the first $500 million in construction in each of the next three years, or up to $50 million in tax credits annually.

Stanford Carr, who is involved with both construction and resort development ventures, said using tax credits to stimulate construction has been discussed by a task force initiated by the state Senate to find ways to help bolster the economy.

Such tax credits can result in significant economic benefits because "it incentivizes spending the money now," he said.

Carr said lawmakers should consider tax credits for not just hotel and resort projects, but all types of construction.

Rick Egged, executive director of the Waikīkī Improvement Association, said several projects that have been on the brink of development could be helped by the credits, including a recently announced major renovation to the Princess Kaiulani Hotel by Kyo-ya Hotels & Resorts.

"There are some other potential developments that were put on hold given the economy that something like this might be able to revive," Egged said.

Several key hotel and resort projects in Waikīkī in recent years benefitted from a similar tax credit several years ago, he said.

"It's been proven in the past that it can spur redevelopment," Egged said. "There was such a tax credit in place and it was very crucial to the beginning of the whole revitalization effort in Waikīkī."

David Carey, president and chief executive officer of Outrigger Enterprises Group, said at least two of the construction or renovation projects statewide that his company took part in over the past decade benefitted from the previous tax credit.

"It's made a difference," he said.

Carey said, however, that tax credits may not be enough to turn the tide for some of the projects now on hold.

"The larger issue is, even with a tax credit, whether there's adequate financing in place — for either new projects or renovation projects," Carey said.

ALTERNATIVE ENERGY

On alternative energy, Lingle would provide a general-excise tax exemption on renewable energy projects of at least two megawatts that go into service between January 2011 and January 2015.

The governor would also give a GET rebate on electric and plug-in hybrid vehicles and charging stations. She proposed a clean energy investment bond program so property owners could borrow money from the state for energy efficiency projects and repay the money through annual assessments on property tax bills.

Lingle also borrowed a proposal from majority Democrats to ban new fossil fuel power plants, which stalled at the end of last session.

"Property assisted bond financing will be a game changer for residents seeking to install solar or efficiency measures," Jeff Mikulina, executive director of the Blue Planet Foundation, said in a statement. "It will bring down the cost of living in Hawai'i while decreasing our reliance on imported oil and creating local jobs. It is a win-win-win."

SURPLUS FUND

Lingle's suggestion to divert surplus general-fund money to the rainy day fund in good budget years is almost identical to a proposal last session by state Rep. Karl Rhoads, D-28th (Pālama, Chinatown, Downtown).

The idea is to have a sizable enough reserve to help the state ride out economic downturns without resorting to draconian cuts to state programs or tax increases. But state House Speaker Calvin Say, D-20th (St. Louis Heights, Pālolo Valley, Wilhelmina Rise), said locking away the money would remove some of the flexibility lawmakers have over state spending.

Linda Smith, the governor's senior policy adviser, said the 5 percent of surplus money diverted to the new fiscal stabilization fund would be taken before a constitutionally required tax rebate up until the time the fund grows to 10 percent of the general-fund budget. Once the fund gets that large, the tax rebate would come first.

Lingle noted that in most years after a surplus, lawmakers have satisfied the constitutionally required tax relief provision with token $1 rebates to taxpayers.

Lingle chose not to use her final State of the State to recall her two four-year terms, and only made a few references to the milestone. She joked at the opening that it would her last speech: "And while that fact might be considered an applause line by some in the Legislature, I will miss you all when my time in office ends later this year."

The governor said she would cherish her time as governor of "a place that is so deeply traditional and yet thrillingly young."

In the warmest moment, state Senate President Colleen Hanabusa, D-21st (Nānākuli, Mākaha), a political rival, reminded the audience that Lingle is the state's first woman governor and has served as an example of what is possible for young women.

Hanabusa, the first woman to lead a chamber of the Legislature, said afterward that she did not want people to forget. "It means a lot to girls, and women, to have someone to identify with and I didn't want it to go unrecognized," she said.