Monday, July 13, 2020
Hawai'i Free Press

Current Articles | Archives

Tuesday, January 07, 2014
Tax Credit Scammers Find a New Home in HSDC
By Andrew Walden @ 1:18 PM :: 4905 Views :: Tax Credits

by Andrew Walden

Hawaii's High-Tech tax credit scammers have found a new home in the Hawaii Strategic Development Corporation (HSDC) and a new target in the Employees’ Retirement System (ERS).   

State retirees should be afraid, be very afraid.  But first, a history lesson:

A July, 2012 State Audit shows the State gave away $1B in Act 221 Tax Credits without verification of eligibility. But this was a mere post-mortem for the decade-long Act 215/221 con game.  The end came in three years earlier with passage of SB 199 CD2 which, in the words of Rep Isaac Choy, made the tax credits “no longer attractive to people who only want to avoid taxes...”

At the time the response was sharp.  In a July 26, 2009 Honolulu Advertiser column, Act 221 propagandist Jay Fidell cried, “we are in an economic wilderness, unprepared…. It's nice to say the state should ‘replace’ 221, but think again. A resurrection of 221 will carry old baggage. A new tech incentive will be suspect…. Any ‘replacement’ will be worked over as it goes through the sausage machine….  You've taught us not to rely on government, but rather to invent solutions outside of government.”

How were tax credit scammers, whose entire existence consists of stealing from the General Fund, going to “invent solutions outside of government?”

Now, after four years in the wilderness, the answer is emerging.  They are taking shelter from the rest of the government by placing themselves in the HSDC. 

A December 12, 2013 news release from HSDC’s “HI Growth Initiative” touts “’Startup Paradise’ Launched at 4th Annual VC Summit.”

Pre-election money is flowing from the Abercrombie administration via two bills singed into law by Lt Gov Shan Tsutsui July 9, 2013:  

House Bill 858 appropriates funds to the Hawaii Strategic Development Corporation for the HI Growth Initiative.  The initiative is an investment program to develop an ecosystem to support high-growth entrepreneurial companies in the State.

Senate Bill 1349 reenacts the tax credit for qualified research activities for 6 years.

There have been several such initiatives in the post-221 era, each dribbling out a few tens of millions to people used to much more.  But gradually these have come together into a coherent system for the thieves market to rise like Phoenix from the ashes of 2009.

Resurrection planning began immediately.

In a September, 2009 talk to the mis-named Hawaii Venture Capital Association, newly appointed HSDC President Karl Fooks outlined the strategy: 

1. Angel investment tax credits: perhaps a continuation of Act 221; 16 other states have similar tax credits, averaging about 50% of invested amount, and capping total tax credits that can be taken.

2. State funds-of-funds to encourage and leverage private capital for venture funds: Utah has a model like the Act 215 SPIF; Pennsylvania's program uses loans from insurance companies guaranteed by state tax credits to directly invest in targeted venture funds; and Tennessee has launched its program to raise a fund by selling off state tax credits and placing investments with venture funds on a competitive bid basis.

3. Entrepreneurs in residence: drawing upon the expertise of successful tech entrepreneurs to guide venture funds and state and federal grant feeder agencies.

4. Equity/debt venture funds: there is interest in mezzanine financing through bridge loans convertible by a call on equity in the event of successful exits.

5. Local venture funds partnering or syndicating with Mainland funds for broader deal opportunities and heightened levels of domain expertise.

In a 2011 interview, Fooks took aim at ERS and Kamehameha Schools: 

“It’s too difficult for big institutional investors to go around investing directly in companies,” says Karl Fooks, president of the Hawaii Strategic Development Corp., a state fund of funds that invests in other VC firms. “They want to invest in a smart fund manager who then picks the right companies for their business focus.”

According to Dick, Kamehameha Schools is an investor in Startup Capital, which is one of the companies financing Adama Materials, and other Hawaii businesses. Similarly, the ERS is investing up to $25 million in VC funds that may include exposure to local portfolio companies through its Hawaii Targeted Investment Program (HiTIP).

“Our expectation is that approximately one-third of the total capital will have local exposure through venture-capital funds, some based in Hawaii and others based on the Mainland,” says Wesley Machida, ERS administrator.

How will scammers tap into the ERS portfolio?  The HSDC: State Small Business Credit Initiative webpage explains:

HSDC will focus on earlier stage investment funds that can create deal flow for the larger, established venture capital funds the Employee Retirement System’s (ERS) venture capital investment program has invested in. By complementing ERS’s investment program, HSDC hopes to catalyze a broader spectrum of investment capital for Hawaii’s innovation sector. Also, the earlier stage focus will allow investment managers to provide more intensive, hands-on mentoring to portfolio companies and prepare them to compete for their next round of funding….

The July, 2012 State Audit criticized DoTax oversight of Act221 tax credits, highlighting a DoTAX returns classifying officer’s response when asked why he does not have any written policies and procedures to guide him through the audit identification and selection process--“It’s all in [my] head.”

Taking a page from the same playbook, HSDC’s website describes the process for interested fund managers to apply for HSDC investment:

HSDC will not conduct a formal RFP process. Please contact HSDC with any investment proposals. The HSDC Board of Directors will review investment proposals and determine their fit with HSDC’s investment program and investment portfolio.

Hawaii State employees were promised a retirement pension.  If HSDC gets its way, politically connected corporate welfare queens will walk away laughing while retirees' portfolio gets saddled with spectacular Hi Tech Tax Credit disasters like Hoku’s failed Idaho polysilicon plant.

You have been warned.


HSDC HiTech Schemes:



TEXT "follow HawaiiFreePress" to 40404

Register to Vote


808 Silent Majority

808 State Update AM940


ACA Signups Hawaii



Alliance Defending Freedom

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii



Antonio Gramsci Reading List

A Place for Women in Waipio

Astronomy Hawaii

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust 

Build More Hawaiian Homes Working Group

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

CSIS Pacific Forum

DAR Hawaii

DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii


Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute

Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling



Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube


Hump Day Report

I Vote Hawaii

If Hawaii News

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes


Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii


National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Hawaiian

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii


OHA Lies

Opt Out Today

Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii


Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Save Dillingham Airfield

School Choice in Hawaii

SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Cope

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii