Gov. Josh Green stopped senators from axing a tech agency board member; now small businesses must pay the price.

Business accelerators, small manufacturers and firms researching and developing new technologies are assessing a potentially rocky path over the next year after a bill to provide grant funds for economic development died following a fractious legislative session.

House Bill 999 would have provided $6 million to the Hawaii Technology Development Corp. for grants to help diversify Hawaii’s tourism-dependent economy by supporting small businesses. 

But Hawaii Senate Ways and Means Chairman Donovan Dela Cruz and several colleagues added a provision changing HTDC’s enabling statute in the final days of session. The change, which Dela Cruz and his fellow senators added with no explanation or opportunity for public debate or comment, disqualified the University of Hawaii’s vice president of innovation and research from serving on the tech agency board.

Gov. Josh Green subsequently vetoed the bill saying it was wrong to change a statute to target one person.

Sen. Donovan Dela Cruz has not explained why removing the University of Hawaii’s vice president for innovation and research from a technology agency board was a priority this past session.(David Croxford/Civil Beat/2023)

Now businesses that relied on the funding are looking ahead to a year without the support they once had. Sherry Menor-McNamara, president of the Chamber of Commerce Hawaii, said some sectors have particularly benefited from the small grants, some of which provide matching funds to businesses that competed successfully for federal money for technology innovation.

“It’s definitely helped the manufacturing industry,” Menor-McNamara said. “From a business lens, we need to determine how any growth in the industry might be limited.”

Menor-McNamara said the chamber will talk to policymakers to try to make sure the money is there next year.

Makana McClellan, a spokeswoman for Green, said HTDC has requested money from a discretionary fund but that the governor has not made a decision.

Meli James holds some of the ‘made in Hawaii’ goods featured at the retail shop called House of Mana Up inside the Royal Hawaiian Shopping Center.
Meli James, co-founder of ManaUp, says a state grant program is key for business accelerators that help grow Hawaii-based startups. Here, James held some of the made-in-Hawaii goods featured at the House of Mana Up retail shop inside the Royal Hawaiian Shopping Center. (Cory Lum/Civil Beat/2021)

Meli James is co-founder of ManaUp, a business accelerator that hosts a six-month program to help Hawaii-based companies scale up. She said a little bit of grant money can go a long way toward enabling accelerators help numerous small companies.

“It’s really important funding for all of us,” James said of the grants that disappeared with Green’s veto. “This is something that’s working.”

Another supporter and beneficiary over the years has been Makai Ocean Engineering, a 40-person firm based in Kailua that has developed technology to help firms lay undersea cable. Hermann Kugeler, Makai’s vice president of business development, said the company started with a small research grant from the Navy and got matching funds from the Hawaii Technology Development Corp.

Over multiple phases, Makai took the technology from an early idea to something the Navy would use and finally to a product adapted for the private sector. The technology is now the world’s leading commercial cable laying software, he said, generating over $35 million in commercial revenues plus numerous tech jobs over the last 20 years. Small matching grants from the state can be vital for companies trying to commercialize technology.

“There’s what they call ‘the Valley of Death’ with technology companies in general,” he said. Even $20,000 can make a difference for a company trying to get out of the valley, he said.

Now, it appears, the grant money for companies like Makai is gone until next year.

Funding Bill Had Broad Support

At the center of this is the Hawaii Technology Development Corp., a quasi-independent agency attached to the Department of Business, Economic Development and Tourism. The HTDC “aims to accelerate the growth of Hawaii’s technology industry by providing capital, building infrastructure and developing talent to foster innovation and diversify Hawaii’s economy.”

To that end, HB 999 in its final form called to appropriate three tranches of money to HTDC: $2 million “to accelerate economic diversification by supporting, enhancing, and encouraging new accelerator programs” like ManaUp; $2 million for the trade sector, “especially products manufactured in Hawaii” and $2 million for companies like Makai Ocean Engineering “to support companies conducting small business innovation research through matching grants.”

The measure had support of an array of businesses and accelerators, including Hyperspective Studios, Nalu Scientific, Hawaiian Chip Co., Blue Startups, Hawaii Fish Co., Aloha Tofu Factory Inc. and the Hawaii Venture Capital Association.

It seemed certain to pass.

The problem arose during the final days of the session, which ended May 4. The bill left the Senate and headed into a conference committee, where House and Senate conferees try to work out differences. The conference meetings lack the debate and testimony that are central to the normal legislative process. 

Although Dela Cruz wasn’t appointed as a Senate conferee, the legislative record shows he jumped on and off the committee at various times, switching places with his ally Sen. Michelle Kidani. All of this was unfolding amid a session that included disappointment for Dela Cruz, centered on HTDC.

The HTDC’s mission is focused on technology development, but Dela Cruz has been seeking to use the agency as the vehicle to build a massive campus for first responders in his district. The vision is to consolidate various public safety agencies from around Oahu onto a sprawling campus to be built on what’s now vacant agriculture land. A $100 million appropriation for HTDC to build infrastructure for the campus died in the House.

Sherry Menor-McNamara, president and chief executive of the Chamber of Commerce Hawaii, said the organization is focusing on restoring grant programs that disappeared because of Gov. Josh Green’s veto. “We’re advocating from a business perspective and not getting involved in the political aspect of it,” she said. (Nick Grube/Civil Beat/2023)

Those who have questioned whether the technology development corporation should be building a public safety campus include Vassilis Syrmos, UH’s vice president for research and innovation, who is also an HTDC board member.

At the end of the session Dela Cruz, Kidani and fellow Ways and Means Committee members Sens. Lynn DeCoite and Glenn Wakai made a dramatic change to HB 999. Suddenly, a provision disqualifying Syrmos from serving on the HTDC board appeared in what had always been a simple appropriations measure.

Rep. Daniel Holt, chairman of the House Economic Development Committee who was co-chair of the conference committee for the House, has said the Senate priority was getting rid of Syrmos, not funding economic development initiatives through the HTDC.

“In the conference committee I was told if I wanted the $6 million appropriation, I had to include that language” effectively firing Syrmos, Holt previously told Civil Beat. He did not return a call for comment for this article. 

Dela Cruz also did not respond to an interview request. Dela Cruz has not explained why removing Syrmos was a priority over supporting economic diversification. Likewise, Dela Cruz has not said why he did not simply introduce a bill to remove Syrmos rather than waiting until the end of session when there was no opportunity for public discussion.

Menor-McNamara said she hasn’t had the chance to talk to Dela Cruz or Green about what happened. But she said the Chamber of Commerce wants to focus on helping small businesses.

“We’re advocating from a business perspective and not getting involved in the political aspect of it,” she said.

She said Dela Cruz has supported economic development initiatives in the past. 

“He has passed bills to support economic diversification, and he has been a champion of certain industries, particularly the agriculture industry,” she said. 

But Menor-McNamara said she needs to talk to Dela Cruz before she can say whether his last-minute changes to HB 999 were consistent with his support of economic development.

“Without having that conversation with him, whether there’s an economic development reason behind it, it’s not fair for me to comment,” she said.

Hawaii’s Changing Economy” is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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