Report Title:

Business Assistance for Sustainable Economic Dev.; Appropriation

Description:

Appropriates $905,000 to fund various programs through the Small Business Development Center.

THE SENATE

S.B. NO.

2563

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO SMALL BUSINESS DEVELOPMENT.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the need in Hawai`i for sustainable economic development is well fulfilled by fostering the conditions under which small businesses thrive. This finding is based on the premises that:

(1) The wealth of a community is derived from its small businesses (ninety-seven per cent of all businesses in Hawai`i are small businesses and those small businesses create eighty-three per cent of all net new jobs);

(2) There is a definable and achievable set of conditions under which small businesses thrive;

(3) It is appropriate for the legislature to support the development of these conditions; and

(4) To support the development of these conditions will create sustainable economic development.

The conditions under which small businesses thrive are enhanced when the State supports greater management-force development, access to capital, access to information, and awareness of the concepts of continuous quality improvement.

Economic development, unlike economic stimulus, creates residual benefits resulting in higher productivity and sustained growth. In Hawai`i, only investments in human capital produce these residual benefits and lead to real, sustained growth. Consulting and training, which are primary ways to invest in human capital, can be directed towards skills training (workforce development) and conceptual training (management-force development), the latter being the quickest way to create sustainable economic development.

The small business development center is a statewide program beginning its fourteenth year of operation. It matches state dollars to federal dollars. As a partnership program between the University of Hawai`i at Hilo and the United States Small Business Administration, the small business development center program leverages the resources of both to enhance the delivery of its services to the small business community.

The legislature finds that the small business development center effectively promotes sustainable economic development and the conditions under which small businesses thrive. In a professional survey of small business owners conducted in 2002, 37.6 per cent of small business owners cited increased knowledge about business operations as a positive factor in their success. An independent economic impact study conducted in 2002 indicated that small business development center clients hired 32.6 per cent more employees than the average small business in Hawai`i, and their sales increased 40.2 per cent more than the average small business in Hawai`i. The small business development center in past years has provided over four thousand units of service to small businesses annually (one thousand consulting cases, one thousand eight hundred training event attendees, and one thousand two hundred research inquiries filled). This Act will enable the small business development center to expand its services to provide an additional three thousand units of service to small businesses.

The legislature further finds that the small business development center program provides a significant return on investment for the State. A second independent economic impact study also conducted in 2002 found that the annual economic impact of the program was $55,000,000 and that the program returned $6.73 in new taxes for every dollar invested by the State in the program. This Act will enable the small business development center to provide an additional $40,000,000 in economic impact.

The legislature finds as well that access to capital by small businesses will be improved if a small business investment company licensed by the United States Small Business Administration to issue leverage is created. No leveraged small business investment company exists in Hawai`i because the State's tax code, section 241-3, Hawaii Revised Statutes, imposes an annual franchise tax on all small business investment companies. The tax is a disincentive for venture capitalists who wish to establish leveraged small business investment companies. So long as these funds are taxed, potential venture investors logically will continue to look to nonventure funds or small business investment company funds outside of Hawai`i in order to invest their money, thus continuing to deprive small businesses in Hawai`i of investment capital.

The purpose of this Act is to promote sustainable economic development by appropriating funds to the University of Hawai`i on behalf of the small business development center and to revise the State's tax code.

SECTION 2. Section 241-3, Hawaii Revised Statutes, is amended to read as follows:

"241-3 Imposition of tax on other banks, building and loan associations, financial services loan companies, financial corporations, small business investment companies, trust companies, mortgage loan companies, financial holding companies, development companies, and subsidiaries. Every bank, other than a national banking association, every building and loan association, every financial services loan company, [financial corporation,] every small business investment company, other than a small business investment company licensed by the United States Small Business Administration to issue leverage, every financial corporation, trust company, mortgage loan company, financial holding company, development company, and subsidiary located or doing business in the State, shall annually pay a franchise tax measured as, and at the rate, provided in section 241-4."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $605,000, or so much thereof as may be necessary for fiscal year 2004-2005, to expand management-force development through consulting and training services at the small business development center as follows:

(1) $175,000 to reestablish the consulting and training center in Kailua-Kona in compliance with requirements of the United States Small Business Administration;

(2) $80,000 to reestablish a second consulting position at the downtown Honolulu Center on O`ahu;

(3) $175,000 to establish a consulting and training center in leeward O`ahu; and

(4) $175,000 to establish a consulting and training center in Windward O`ahu.

The sums appropriated shall be expended by the University of Hawai`i for the purposes of this Act.

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $125,000, or so much thereof as may be necessary for fiscal year 2004-2005, to re-establish one research position and add a second research position at the Hawai`i business research library in order to increase statewide small businesses' access to information. The sum appropriated shall be expended by the University of Hawai`i for the purposes of this Act.

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $175,000, or so much thereof as may be necessary for fiscal year 2004-2005, to establish a Hawai`i award of excellence center in order to promote sustainability by training businesses statewide in continuous quality improvement. The sum appropriated shall be expended by the University of Hawai`i for the purposes of this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2004.

INTRODUCED BY:

_____________________________