A state House committee has scrapped a bill that would have ended Hawai'i's controversial high-technology tax credits in favor of placing restrictions on them while preserving some of the program's benefits.

The state House Committee on Economic Revitalization, Business and Military Affairs yesterday amended HB 1451, which would have ended the 100 percent credit available to investors in technology companies.

The bill now proposes capping the amount of credits for investments in each companies while creating a commission to screen out potential problem applicants for the credits. The program's sunset date was also extended by five years from its current end at Dec. 31, 2010.

"It's a major step in the right direction," said committee chairman Rep. Angus McKelvey, D-10th (Lahaina, Ka'anapali, Kapalua).

"It's a breakthrough in getting both sides to evolve this thing to continue to do the important things that Act 221 was intended to do."

The generous investment tax credits along with other technology credits have been among the targets for cutting as the Legislature and Gov. Linda Lingle's administration try to deal with a yawning budget shortfall. The high-technology tax credit program commonly is referred to as Act 221 and includes a separate 20 percent research tax credit that companies may seek.

The credits were created to jump-start the high-technology industry through some of the most generous tax breaks offered by a state. But the program has come under fire because some companies getting the investments didn't seem to fit the high-tech mold and because of its cost.

The incentives, which were created in 1999 and significantly expanded in 2001, provide a tax credit to Hawai'i residents investing in local technology companies. They were created with the goal of boosting Hawai'i's economy and moving it away from dependency on tourism.

The program cost an estimated $747 million through 2007, according to a recent study by the state, making it Hawai'i's most expensive tax credit. That year, the 177 companies that reported benefiting from tax-credit-generated investments created 2,245 jobs. There is no public record of the total number of jobs created since the start of the tax credit.

That's led critics to propose doing away with or severely limiting the credits.

But the committee decided to rework the bill to try to accommodate proponents and critics. More than three dozen technology industry people had testified against the original bill, saying cutting the investment tax credit would be a devastating blow and result in companies either going under or shedding employees.

Those who testified against bills that would extend the credits include the Hawaii Government Employees Association and social service programs who said the program was too costly.

McKelvey said the compromise bill includes measures that would cap the amount of investment tax credits available in each company to $10 million. He said four companies, including the TV show "Lost," were responsible for $160 million of the credits that went to investors.

At the same time, the bill attempts to address critics' concerns about the unlimited amount of credits available by placing a limit on the amount available under the program annually. He said this number will be determined after the state Council on Revenues has its next meeting and legislators have a firmer grasp on the size of the budget shortfall.

The bill allows the state to "plan a budget to ensure we can meet our social services obligations and still stimulate investment and job creation in Hawai'i during these hard times," McKelvey said.

He said the credits would be available on a first-come, first-serve basis until the ceiling is met. At the same time, the Act 221 Commission would be created with Department of Taxation, high-technology and venture capital members to screen out potential applicants who have tenuous ties to technology.

The bill now goes to the House Finance Committee for further consideration.