Grants, tax credit benefit for-profit entities

Saddled with a lower state revenue forecast, state lawmakers said a polite "no" this session to tax relief for the poor and the elderly, tax credits for hotel construction or renovation, and tax breaks on manufacturing equipment.

For one private concern, though, the answer was "yes."

Pacific Marine, which owns Pacific Shipyards International, the state’s largest private ship repair company, and subsidiaries Navatek Ltd. and Navatek Boat Builders did remarkably well at the Legislature.

The only new tax credit approved during the session would go to investors who help maritime tenants being relocated because of the new Kapalama Container Terminal at Honolulu Harbor, an incentive that was initially written for — and would still largely benefit — Pacific Shipyards International, which is being forced to move to other piers.

Investors could claim a tax credit equal to 50 percent of a tenant’s capital infrastructure costs up to a maximum $2.5 million a year in costs through 2019. The state Department of Taxation estimates that the tax credit could cost the state $1.2 million a year per tenant.

In addition, Navatek Boat Builders was awarded a $556,775 grant to design a watercraft that could help the state Department of Land and Natural Resources patrol in rough seas.

Navatek Ltd. was given a $450,000 grant to survey high-risk areas for ocean recreation activity on the south shore of Oahu and assess whether regulations are adequate to protect public safety and minimize legal liability to the state. Lawmakers had awarded a $250,000 grant to Navatek Ltd. last year to conduct similar surveys to identify safety and liability issues from new trends in ocean sports.

The grants to the private, for-profit companies stand out on this year’s $10 million grant-in-aid list, since grants typically go to nonprofits and other community groups that fill gaps in the state’s social-services network.

Ann Chung, director of special projects for Pacific Marine, which is celebrating its 70th year in business this year, said the tax credit and the grants would benefit the public.

"We provide an excellent service that’s really critical to the Honolulu Harbor and to the state, but we’re being kicked out, along with a lot of other tenants," she said.

The state Department of Transportation’s $450 million Kapalama Container Terminal is a long-planned upgrade of the Kapalama military reservation at the harbor, federal land that shifted to the state in the 1990s. Dozens of businesses near the harbor are being relocated, but three tenants that need direct access to the waterfront — Pacific Shipyards International, Atlantis Submarines and the University of Hawaii Marine Center — had to find other piers.

Pacific Shipyards International and Atlantis Submarines are moving to piers that are predominantly vacant, according to the state’s draft environmental impact statement, and Pacific Shipyards International might displace Sause Bros. through the move.

"We have to rebuild the whole thing," Chung said.

The Department of Transportation told lawmakers in March that Pacific Shipyards International — which, despite years of operation, has a month-to-month permit than can be canceled by the state on 30 days written notice — had several years of advance notice about the redevelopment project.

But many lawmakers think a tax credit for infrastructure costs is reasonable, since Pacific Shipyards International has to basically start over in the new location. The improvements would help a shipyard with more than 200 workers and would be on state-owned piers, so the state could benefit.

"It’s not like they have someplace else to go. They have to be on a pier, and the state owns all the piers," said Sen. Michelle Kidani (D, Mililani-Waikele-Kunia), a sponsor of the tax credit bill. "So they are basically having to depend on the state being willing to give them space, and the space they’re giving them is unimproved."

The state Attorney General’s Office had cautioned lawmakers in February that House Bill 1702 might be an unconstitutional violation of equal protection since it appeared to apply to a single ship repair company.

But lawmakers removed the reference to ship repair by the final draft of the bill, so other maritime firms, like Atlantis Submarines, an adventure tour company, and Sause Bros., an ocean towing company, would also potentially qualify.

Rep. Marcus Oshiro (D, Wahiawa-Whitmore-Poamoho), however, said he believes the bill still mostly benefits Pacific Shipyards International. Lawmakers also approved a resolution that authorizes a lease for the shipyard that covers a portion of state submerged lands at the new piers that will likely be used for drydock operations and ship repair. Such leases require prior approval by the governor and prior authorization by the Legislature.

When combined with the grants to Navatek Ltd. and Navatek Boat Builders, Oshiro said, Pacific Marine fared well compared with other interests that wanted help from the Legislature.

"They did very well," he said. "They did exceedingly well."

Pacific Marine, led by Steven Loui, the chairman, was one of the many Honolulu companies that prospered over the years from the late U.S. Sen. Daniel Inouye’s success at steering federal money to the islands.

"In the past, Sen. Inouye helped Navatek with these kinds of issues," said House Majority Leader Scott Saiki (D, Downtown-Kakaako-McCully). "Now that he is unable to do so, the Legislature felt that there was a public purpose in providing this assistance."

This year, lawmakers received more than 230 grant applications totaling $147 million, but approved only 55 awards for $10 million. House Speaker Joseph Souki (D, Waihee-Waiehu-Wailuku), in his remarks Thursday on the closing day of session, highlighted the grants "for nonprofit organizations who reach out to the community with invaluable services."

Saiki said the grants to Navatek Ltd. and Navatek Boat Builders were justified. "In this case, we felt there was a public purpose because the service that they provide is of general benefit to the public," he said.