State legislators were warned in their past session that generous tax credits for installation of solar systems would reduce the state’s revenue far beyond what had been expected but took no action to adjust them. The warning bells now are loud and clear: The Legislature should revisit the issue in its coming session in response to a forecast that the state’s tax revenue would be crippled in its attempt at economic recovery.

The state Council on Revenues reported in May that the proposed 35 percent state income tax credit for homeowners and businesses that install photovoltaic systems would result in the loss of about $70 million in annual tax revenues, with the overall revenue growth forecast dropping from 7.5 percent two months earlier to 5.3 percent.

The state Department of Business, Economic Development and Tourism reported to the council Thursday that the annual cost in fiscal 2012 would rise to $173.8 million, with growth slipping to 4.9 percent, because of solar tax credits.

Gov. Neil Abercrombie and some legislators rightly had discussed curtailing the tax earlier this year, but the solar industry and environmentalists convinced lawmakers to maintain the incentive. They maintained that the income generated by the installation of solar systems would result in taxes from income arising from the increased activity.

They have a point. Leslie Cole-Brooks, executive director of the Hawaii Solar Energy Association, maintains that the solar industry accounted last year for 17 percent of Hawaii’s overall construction market. That activity results in tax revenues that more than double the initial investment of the tax credit, she asserts.

However, a reduction of the state tax credit would not cause the solar industry to grind to a halt. Many homeowners and companies would go forward with solar plans because of the generous 30 percent federal solar-installation tax credit, plus a less generous state credit as lawmakers should adopt.

Fred Pablo, the state tax director, is expected to issue temporary rules within a month that could restrict the solar tax credit beginning in January "to make sure there’s clarity and fairness to all taxpayers." Current law sets a maximum tax credit for solar installment, so Pablo can impose a lesser credit, if any.

Those temporary rules notwithstanding, though, it really falls on state legislators to make the needed changes and to clearly direct the solar credit policy.

In order to help stabilize the state budget process, the Legislature must revisit the issue, including a proposal to limit solar tax credits to one unit per property instead of credits for subsequent systems on the same property. Some prefer a gradual reduction of the tax credit for each system.

Rep. Marcus Oshiro, chairman of the House Finance Committee, points out that some legislative leaders argue that solar tax credits are "unsustainable, causing a huge revenue loss," while Sen. David Ige, chairman of the Senate Ways and Means Committee, regards it as a method of "actually creating jobs."

Years of solar tax credits have achieved what they were intended to do: provide a needed but temporary incentive for growth in the fledgling days of solar energy throughout the state. The industry and clean-energy consumers have indeed benefited from these credits, and should continue to do so in the near future, just not at the unsustainable current levels.