Tax credit granted to harbor firm divides lawmakers

A politically connected ship repair company has finally succeeded in a years-long lobbying campaign to get lawmakers to sweeten a special tax credit to subsidize the company’s relocation from state-owned waterfront land to make way for a new container terminal.

Lawmakers first approved a less generous version of the tax credit in 2014 for the tenants, including Pacific Shipyards International and its affiliated company Navatek Ltd., which must relocate from the former Kapalama Military Reservation.

This year lawmakers voted to expand that tax credit, prompting criticism from House members including state Rep. Marcus Oshiro, who maintains the measure may amount to unconstitutional special-interest legislation. The tax credit appears to be crafted to benefit “a very limited” number of individuals and businesses, he said.

The tax credit is “the epitome of excellent lobbying by their consultant,” Oshiro said. “I mean, let’s call a spade a spade. They were able to deliver for their client at the expense of the general public.”

The state Department of Taxation calculates that House Bill 591 would give tenants at the former Kapalama Military Reservation, including Pacific Shipyards, as much as $7.5 million in tax credits over three years to help them relocate their businesses. That bill is now pending before Gov. David Ige.

A spokeswoman said Saturday that Ige does not plan to veto the measure. He is still undecided on whether he will sign the bill or allow it to become law without his signature, she said.

Officers and employees of Pacific Shipbuilders and its family of affiliated companies have been very generous campaign contributors in recent years, donating more than $120,000 to an array of state lawmakers and two governors since 2009, according to state campaign spending records.

State Rep. Isaac Choy, another longtime critic of the tax credit, pointed out the Pacific Shipyards family of companies has also benefited from lawmakers’ generosity in other ways.

In addition to the tax bills approved by lawmakers this year and in 2014, the state Legislature awarded Navatek Ltd. and Navatek Boat Builders more than $1.25 million in grants in aid in fiscal years 2014 and 2015. Lawmakers normally award those grants to nonprofit organizations, but in this case the Legislature opted to make the awards to the for-profit Navatek businesses.

“Pretty good, huh?” said Choy. “I guess you pay to play.”

The $450 million Kapalama Container Terminal project is a critical piece of the state Department of Transportation’s overall Harbor Modernization Plan. It has been in the works for years, and former Gov. Neil Abercrombie in 2014 accepted the final environmental impact statement for the new terminal and the relocation of the current harbor tenants.

According to the environmental impact statement, the tenants that needed to relocate to make way for the new container terminal included Pacific Shipyards, Atlantis Submarines and the University of Hawaii Marine Center.

Pacific Shipyards and Navatek successfully lobbied lawmakers in 2014 for the original tax credit to help the tenants relocate, but it is now unclear if anyone other than Pacific Shipyards can benefit from the credit.

The bills creating and expanding the tax credit in 2014 and 2017 apply only to tenants that still operate or have equipment at the former Kapalama Military Reservation, and will be relocated by the state to Piers 24 through 28. That includes Pacific Shipyards, which, according to the Kapalama EIS, is slated to relocate to areas at Piers 24 through 26.

No one has claimed the tax credit yet, and the other tenants discussed in the EIS no longer qualify. A spokesman for UH said the Marine Center moved to Pier 35 last year and will not benefit from the credit. A spokesman for Atlantis said the expanded tax credit won’t benefit that company, either, because Atlantis moved to Pier 27 two years ago.

NAVATEK’S RESPONSE

Ann H. Chung, the registered lobbyist for Navatek Ltd., said in a written response to questions that Pacific Shipyards and Navatek are still at Pier 41 at the Kapalama site because the owners are still negotiating for a new lease with the state. She did not respond to an inquiry asking if anyone other than Pacific Shipyards or Navatek could benefit from the tax credit.

Oshiro told his colleagues in a floor speech earlier this year that he asked the state attorney general in 2014 if the tax credit might be unconstitutional because it appeared to be written in a way that would benefit only one entity, but the response he received was inconclusive.

Choy described the new bill as “special-interest legislation,” and said even the the original tax credit passed in 2014 was as “an enormous amount of a tax credit.”

The new measure lawmakers approved this year would double the value of the credit that can be claimed for expenses related to the move to a cap of $2.5 million per year. HB 591 would also increase the types of expenses that qualify for the credit to include structures, machinery, equipment and capital assets. The credit ends Dec. 31, 2019.

Chung said in a written statement that the bill expanding the tax credit “is sensible, fair, reasonable and in the public interest.”

The company has been at Pier 41 for 33 years and employs an average of 500 people, Chung said in her statement. It provides essential ship repair services that generate revenue for the state, and “we did not seek to move,” adding, “The state is forcing us out.”

“It is fair and appropriate to assist those being forcibly moved to unimproved piers with basic infrastructure costs like electrical and sewers,” Chung wrote. “We’ve already had major disruptions and negative impacts to current operations due to the pending move and have already spent $6.9 million to date on core infrastructure.”

Chung said the new container terminal that is displacing Pacific Shipyards is being developed “solely for the use of for-profit corporation Pasha Hawaii Group.”

She also noted that the state spent millions of dollars to renovate a new site for the UH Marine Center, which is part of state government.

“At its core, HB 591 increases tax and lease revenue for the state, grows commerce in the state, and increases and maintains critical maritime industry jobs,” Chung wrote. “This bill actually helps the state because displaced tenants will raise their own financing and improve state-owned lands on which no lease or rental revenues are currently being generated.”

The Tax Foundation of Hawaii testified this year that “this credit amounts to nothing more than a subsidy of state funds. As with any subsidy, this one needs to be paid for. Either government needs to shrink, or the cost of government must be borne by all other taxpayers who do not qualify for the subsidy.”

CAMPAIGN DONATIONS

Companies with links to Pacific Shipyards including Pacific Marine & Supply Co. Ltd. and Navatek have been very generous campaign donors, making contributions to many of the major decision-makers at the Legislature since 2009. They also contributed large sums to Abercrombie and made more modest contributions to Ige.

Lawmakers who asked not to be identified said a driving force behind passage of the tax credit bill this year was state Sen. Donovan Dela Cruz, who assumed the powerful post of Ways and Means Committee chairman at the end of the 2017 session.

Campaign spending records show Navatek purchased food and beverages for a Dela Cruz campaign fundraiser last year for $706, and executives or businesses with ties to Navatek and Pacific Shipyards have made another $7,500 in political contributions to Dela Cruz since 2013.

Dela Cruz declined in a written statement to discuss his role in connection to the new bill expanding the tax credit other than to say that the measure “wasn’t one of the bills on my priority list.” He also refused to discuss whether campaign donations had any bearing on his involvement in the issue.

House Finance Committee Chairwoman Sylvia Luke also received contributions from executives or companies with ties to Pacific Shipyards and Navatek, but Luke said she considers campaign contributions a separate issue from tax policy. State records show Luke received $5,400 from people or firms with ties to those companies.

“I’m not driven by whether people are going to provide contributions,” Luke said. “That just leads to bad policy. There are entities that contribute, but if it’s bad policy, I’m not going to support that, but in this situation it is a unique circumstance.”

Luke said Pacific Shipyards is being displaced by the new container terminal, and “that’s why we felt that because the state is causing them to move and put in new infrastructure, we thought we should at least put in some credits to help them carry that burden.”

The law was written to apply only to the tenants that are being displaced to limit the cost of the tax credit to the state, and lawmakers modified the latest bill at the request of state tax officials to address the concerns of the tax department, she said.

Navatek was also in the news two weeks ago when the company was identified as one of the few private firms that were awarded direct cash grants of taxpayer funds for fiscal years 2014 and 2015 through the grant-in-aid process controlled by the Legislature.

Lawmakers who asked that they not be identified said pressure to award those grants to the Navatek companies came from state Sen. Michelle Kidani, who has been another recipient of campaign contributions from executives and companies affiliated with Pacific Shipyards and Navatek.

State records show Kidani has received more than $7,000 from those companies and executives since 2013. Kidani did not respond last week to a request for comment on her role in the grant awards.

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