by Andrew Walden
Special Purpose Revenue Bonds—state-cosigned discount borrowing for political insiders—are always fun and games for grifting Hawaii legislators—the 2017 session is no different.
Top prize this year goes to SB1056—a scheme to convert the non-existent Honolulu and Waikiki sea water air conditioning schemes into a reborn version of the $2B Act 215-221 High-Tech Tax Credit scam.
SB1056 grants a "tax credit ... for the taxable year in which the investment was made and the following four years.... The amount of the income tax credit shall be twenty per cent of the investment made by the taxpayer in each seawater air conditioning system business up to a maximum amount of $ (Blank) per investment.... If the tax credit under this section exceeds the taxpayer's net income tax liability, the excess of the credit over liability shall be refunded to the taxpayer ….”
For more than a decade, Honolulu Seawater Air Conditioning, LLC, (HSWAC) now owned by Civil Beat billionaire Pierre Omidyar and Swedish company ‘Capital Cooling,’ has been pretending to prepare to build a Seawater Air Conditioning System for buildings in downtown Honolulu. HSWAC scored $48M of Special Purpose Revenue bond authorization in 2005. With the bonds unused after ten years, HSWAC in 2015 went back to the Legislature and obtained an extension.
In the 2013 legislative session, a scrum of political insiders tried and failed to get in on the action with $200M of Special Purpose Revenue Bonds for a Waikiki SWAC system. Their company, Kaiuli Energy, is still registered with DCCA BREG.
Testifying on SB1056 before the Senate Committees on Transportation and Energy and Economic Development, Tourism, and Technology, the State Department of Taxation February 3, 2017 explained:
“…there is no requirement that the seawater air conditioning business use the funds invested to build or operate the business here in Hawaii, or even that such use be connected to sea water air conditioning. Such limitless use may encourage use of the funds that are not consistent with the purpose of this measure. For example, the sea water air conditioning business can use the funds to pay management highly inflated salaries, purchase other business opportunities, build sea water air conditioning plants outside of the State, or for any other purpose else, since the monies have no limitations on its use. In addition, there is no sunset date for the credit, which may lead to large amounts of tax revenue lost. …”
“…the credit for investments found in Section 3 seems very similar to the High Technology Business Investment and Research Activities Tax Credit enacted by Act 221, Session Laws of Hawaii 2000. The Department expended considerable compliance resources to determine whether taxpayer claims for the credits were justified. This credit is likely to bring very similar compliance issues. Validation of tax credit claims requires review of extremely detailed and technical information, and disputes concerning the credit are not easily resolved. It is not uncommon, for example, that audits and the related appeals to span several years of extensive and costly litigation….”
SB1056 was introduced by Sen Brickwood Galuteria, always on the make for a quick buck, and supported by Senators Dela Cruz (formerly on the payroll of WCIT—whose owner, Rob Iopa, is a manager of Kaiuli), other cosponsors include Senators Espero, Gabbard, Harimoto, and Keith-Agaran. The bill was deferred after a committee hearing February 3, 2017.
Meanwhile, several bills provide new ‘Special Purpose Revenue Bonds’ for other private entities:
SB1288: “Authorizes the issuance of ($ blank number) special purpose revenue bonds to assist HPC Foods, Ltd., to fund multi-project capital improvement programs and the construction of facilities.”
SB1255 and HB1333 “Authorizes the issuance of ($50M) special purpose revenue bonds to provide financing to assist the Honokaa Land Company, LLC, with acquiring, developing, and renovating agricultural facilities and structures.” Honokaa Land Company, LLC is owned by GEMCO Pacific Energy, LLC which is owned by Joshua Gottlieb of Cleveland, OH. The Gottlieb Organization is a player in the captive insurance industry. According to Governor Ige, Hawaii is the 5th-largest US captive insurance domicile.
SB1104 and HB1355 “Authorizes the issuance of ($20M) special purpose revenue bonds to assist Maui All Natural Alternative, LLC with the development of a project to provide municipal sludge processing and renewable energy at the Wailuku-Kahului wastewater reclamation facility on Maui.” Maui All Natural Alternative, LLC is owned by Anaergia Services, LLC, which is owned by UTS Bioenergy Holdings, LLC a California company not registered in Hawaii. This is just a renamed and relocated version of the expensive waste-to-energy scheme Anaergia has been pushing for years in Lahiana.
HB1230 “Authorizes the issuance of ($13M) special purpose revenue bonds to assist MauiGrown Coffee, Inc. with the operation and expansion of its farm and mill.” According to DCCA BREG, MauiGrown Coffee, Inc. is owned by James Falconer. The bill was touted in the pages of Maui News Friday, Feb 3.
HB635 “Authorizes the issuance of ($6.4M) special purpose revenue bonds to the Board of Water Supply and the Hawaiian Electric Company, Inc. to upgrade Nuuanu Reservoir #4 to meet State Dam Safety Standards, as a component of the Nuuanu Hydroelectricity Project.” A related bill, HB633, “Clarifies that aboveground freshwater storage tanks are included in the definition of ‘appurtenant works’ in Part XII of Chapter 39A, Hawaii Revised Statutes.”
LINK: SPRB Bills
2015: "$250M Honolulu Seawater Air Conditioning project could start construction in 2016"
2016: Ige: Captive Insurance Shunts $1.26B to Local Bankers
2015: Hawaii Ranks 11th in World for Captive Insurance Domiciles
2015: Will Legislators Co-Sign $660M Loan for Evicted Racetrack Owner?
2013: Company With Ties to Abercrombie, DelaCruz Seeks $200M from Legislature