Hawaii officials are replaying the 2001 tax-credit giveaway with a landlord subsidy for speculative startups.
The Hawaii Technology Development Corporation is signing a lease worth more than $1 million at the Kapaa Industrial Park on Oahu to sublet manufacturing space to startups the corporation’s own board has questioned. Internal agency documents show members raised concerns about the state acting as a landlord and the risk of losing public funds. The approach echoes a 2001 program that offered 100% tax credits to investors in technology businesses; an audit after the program ended a decade later found the state had afforded nearly $1 billion in credits with little to show for it. Same intervention logic — state picks winners, state absorbs downside, success goes unmeasured until audit — different instrument, twenty-five years apart.
“Industrial policy” is the polite name for government programs that pick which industries to subsidize and which to leave alone; the harder name for when the picking produces no result is “gimmick.”
Here are the numbers.
A state report issued last fall found that inflation-adjusted tourism dollars in Hawaii peaked around 2000 and that the economy remained “highly dependent on a weakened tourism industry” through 2024. June 2026 visitor arrivals were down 9% from June 2019; international tourism was off roughly 50%. Only California has a higher median home price. Hawaii lost a greater share of its population last year than any state except Vermont. Young adults — roughly a fifth of the population — accounted for more than 40% of those leaving. More than half of Hawaii-born college graduates now live on the mainland.
The 2001 program is the receipt. Hawaii began offering 100% tax credits to investors in technology businesses that year — a dollar of state tax liability extinguished by a dollar of investment in a designated business. An audit after the program ended a decade later found the state had afforded nearly $1 billion in credits with little to show for it. The audit’s finding — “little to show for it” — is what should travel into any analysis of the current push. The audit measured whether Hawaii got an industry, not which subsidy vehicle delivered it. The mechanism-mismatch rebuttal — 2001 was credits to outside investors, 2026 is lease-sublet to in-state tenants — sounds persuasive until you remember what the audit actually measured.
HTDC’s head, Trung Lam, a mechanical engineer who returned to the islands after growing up in Honolulu, has met with venture capitalists, executives and lawmakers and focused the agency on ocean- and space-based industries that could take advantage of Hawaii’s geography. The agency intends to sublet industrial space to startups that might not commit to long-term leases on their own. The fiscal mechanics differ from the 2001 round — a direct outlay rather than a forgone tax — but the risk profile does not. Long-term sublease terms bind the state to fill vacant space; capital improvements on the facility commit public money to a single bet; the implicit promise to additional startups extends the wager indefinitely. The state is, in effect, becoming the landlord of last resort for an industry that has not committed to staying.
The population arithmetic is not in the state’s favor either. Keizo Gates, who runs Kamanu Composites — a Kapaa Industrial Park tenant — has the business in debt and is unsure it will survive the year. Miguel Nunes, the aerospace engineer recruited from Portugal to join the Hawaii Space Flight Laboratory, said nearly all the students in his program would likely move to the mainland unless things change, because the best jobs are at mainland-based companies such as SpaceX. Patrick Sullivan, chief executive of Oceanit, an industrial research firm in Honolulu, said the state should not try to predict which industries or businesses will succeed. Sullivan is right that picking winners is hard; he is wrong that nothing should be tried on any template. The complaint that government should not pick winners at all is not the same complaint as that the state should not pick winners this way again, after the prior round already lost. “If we don’t fix the problem, we’re going to face many more years of anemic growth and people voting with their feet,” Carl Bonham, executive director of the University of Hawaii’s economic-research division, told the Journal.
The state is choosing to spend on the speculative-industry bet instead of on what the data show. Aging Hawaii faces a shortage of nearly 60,000 homes by 2050, and the high cost of living is tied to low wages and weak job growth. Housing costs and wage stagnation — the documented drivers of outmigration — are not what the landlord scheme addresses. The state could fix the housing market and the wage floor; it is choosing to subsidize speculative startups whose persistence is unmeasured instead.
Trung Lam told the Journal that he wanted to focus the agency on ocean- and space-based industries that could take advantage of Hawaii’s geography. The 2001 program was also supposed to take advantage of Hawaii’s geography. The auditor general found that wager produced nothing of note. The taxpayers paid for one round of “what if” — the $1 billion it cost them to find out that the strategy of picking winners does not produce winners. The legislature authorized the first; the legislature will be asked to authorize the second. The auditor general will be the one who grades it.