Economic Development for Hawai‘i:
Site Selection, Location Incentives and Economic Targets
Tony Clapes

In previous installments of this series, we considered why economic development is critically important to Hawai‘i's future.  In this installment, we'll look at three important aspects of economic development activity:  Site selection criteria, incentives for locating in Hawai‘i, and ‘targeted economic development’. 

Site Selection Criteria

Site considerations are often very important both for companies just beginning operations and for established companies interested in building new facilities.  States, counties and cities actively compete for opportunities to attract such companies.  In that competition, the kinds of factors considered important include:

* Highway accessibility                  
* Labor costs
* Availability of skilled labor
* Corporate tax rate
* State or local tax incentives/exemptions
* Construction and occupancy costs
* Environmental regulations
* Labor union considerations
* Energy availability and costs



Obviously, in our case, highway access is not relevant, as products shipped from our state are delivered in major part by air or ship.  Our relatively high labor costs, coupled with a dearth of skilled labor, are a liability in competition with other states.  Other criteria on the list can be argued to be neutral for Hawai‘i in comparison to other states, but in point of fact there is no “neutral” in the competition to host new or established companies, and we should strive to improve our attractiveness in all aspects in situations wherein we want to prevail in site selection contests.

Location Incentives

Hawai‘i learned about the lesson of location incentives when Hoku Scientific, one of Hawai‘i's most impressive technology start-ups, decided to site its $220 million polysilicon plant in Idaho, rather than in Hoku's home state.  The Honolulu Advertiser reported that “the state of Idaho offered $1.2 million in workforce training funds to the company and $200,000 to the city of Pocatello to offset public facility costs necessary to facilitate Hoku's plans, and committed to provide “competitively priced electricity.”    

While it may be that Hawai‘i cannot compete with other locations that have lower labor, power and land costs, our state has successfully used financial incentives to obtain and retain film and TV production projects, most notably the “LOST” TV series.  Despite the fact that such projects don’t create a permanent presence here, Hawai‘i's creative use of financial incentives for media industries – though criticized by some – shows that we can compete successfully against other parts of the country and the world in crafting location incentives.

Targeted Economic Development

When Hawai‘i uses taxpayer money to encourage companies to start up her or locate facilities here, it should be done to achieve a specific economic development purpose.  Such purposes include attracting economic activity (new or established business) that would not occur without the incentive; encouraging growth in specific business sectors, or in under-served areas of the State; raising average wage rates by procuring higher-wage jobs; and providing training opportunities not otherwise available in the State. 

In Hawai‘i's case, the path to a more robust economy lies in targeting its incentives to “innovation industries,” such as information and communication technologies, diversified agriculture, alternate energy, life sciences, astronomy and space sciences, defense dual-use, and film and digital production.  Companies in those industries that are already present in the State are contributing substantially to our economy.  Sensible economic development policy will assure that these companies – and others in innovation industries that can be attracted here – can grow and prosper. 

_________________


Tony Clapes is an international technology attorney and Hawai‘i resident since 1998.  He is the author of Blue Wave Millennium, a book about high-tech in Hawai‘i. Before entering private practice in 1996, he was Assistant General Counsel at IBM, where he managed a large group of in-house attorneys and outside firms. He has represented

high-technology companies on matters including antitrust, employee relations, Web-based businesses, intellectual property, commercial and securities law.