Over the years, sugar growers in Hawai’i have enjoyed an abundance of good will from politicians and public alike. The federal price supports for the domestic sugar industry might be the most well-known manifestation of this – although these benefits are not targeted at Hawai’i’s sugar crop alone.
Perhaps chief among the state-provided benefits is the reduced general excise tax rate. Instead of paying 4 percent on all income, as most other businesses are required to do, sugar and pineapple growers pay just one-half percent. In the case of Hamakua Sugar, its revenues from sales of raw sugar and molasses are reported to be in the neighborhood of $50 million a year. The difference between a 4 percent tax rate and a one-half percent tax rate on that amount of revenue comes to $1.75 million.
Then there is the federal appropriation of $1.3 million a year, to be shared between Hamakua Sugar and Hilo Coast Processing Company to offset costs of treating cane wash water. This amounts to benefits of approximately $650,000 a year for Hamakua Sugar.
In 1988, the state Legislature approved a low-interest loan of $10 million to Hamakua Sugar Company. At a time when prevailing interest rates on commercial loans were in the neighborhood of 12 percent, the 3 percent rate on this loan “is equivalent to a subsidy of $590,000 per year during the five-year term of the loan,” according to a study of the sugar industry prepared for the Department of Business and Economic Development by Decision Analysts Hawai’i, Inc. When compared to the 8 percent rate that the state pays on general obligation bonds, the loan “amounts to an off-the-book’s subsidy of $320,000 per year,” the DAHI report states.
Direct state support in the amount of about $2.5 million a year is provided to the Hawai’i Sugar Producers Association, to help with the costs of research. The benefit to Hamakua Sugar of this allocation, based on percentage of the sugar market it represents (roughly 20 percent statewide), could be calculated at $500,000 annually.
Cheap Land
Another form of state help to Hamakua (and, to be sure, other sugar growers) is provided in the rental of thousands of acres of state land for sugar cane cultivation. At present, Hamakua Sugar leases more than 6,000 acres from the state, with the company enjoying the use of several hundred more acres of state land on month-to-month revocable permits (some of which have endured for decades).
At the time Francis Morgan purchased Hamakua Sugar from Theo A. Davies Co., Ltd., many of the leases were set to expire in a few years. To help Morgan get the loans needed for the purchase, the Board of Land and Natural Resources extended the leases so that nearly all expire in the year 2008. Additionally; the Land Board allowed the leases to be encumbered by HSC’s creditors, such that in the event Hamakua Sugar goes into default on its leases, the leases are automatically turned over to the Western Farm Credit Bank rather than reverting to the state. The bank can then assign the lease to another party (through a sublease agreement) without the Land Board having any say in the matter.
(Rental income from these leases is calculated on the basis of two factors: a minimum rent, averaging about $10 per acre per year, is paid in quarterly or semi-annual installments, depending on the size of the tract leased. At the end of the calendar year, an additional rental is calculated, based on a percentage of Hamakua Sugar’s gross average proceeds per acre if it exceeds the minimum base rent. Usually this amount is paid before the end February in the following calendar year. In 1990, the average total rent per acre came to about $58. The payment of additional rent for 1991 had not been made by press time.)
The State as Pussycat
The Hamakua Sugar Company may be justified in believing that it need not worry about a shift in political winds bringing any diminishment to the tangible and extensive government benefits it enjoys. In 1989, for example, following congressional appropriation of $500,000 for the Environmental Protection Agency study, Senator Inouye wrote a lengthy letter to the EPA’s officer in charge, Martha Prothro. Inouye’s views on sugar – and on the state regulation of it – illustrate the type of support that exists for Hamakua Sugar, in particular, and the sugar industry, in general, among Hawai’i’s leading political figures:
“As I understand it,” Inouye wrote, “the primary focus … will be on whether the current or proposed discharges violate the state of Hawai’i’s water quality standards … This approach greatly concerns me.
“First, it seems to me that whether there is compliance with Hawai’i’s water quality standards is an issue which in the first instance should be decided by the state and not the EPA… [T]he state DOH has determined that the current discharges comply with the state water quality standards..
“In any event, I am confident that, if necessary to correct a technical violation, the state would change its regulations concerning those discharges… Absent some extraordinary finding, the state of Hawai’i is not likely to be the entity responsible for denying critically needed relief.”
Volume 2, Number 10 April 1992