The state legislature has thrown Governor David Ige a scheme that jeopardizes funding for the Hawaii Tourism Authority.
What happens next will determine the fate of HTA. The agency enjoyed wide support when it was set up in 1998 to help the tourism industry weather a seven-year crisis after the Japanese bubble burst. But over the years, the agency and the work it does have become increasingly politicized.
Lawmakers passed House Bill 862, which removes the dedicated funding that HTA has had since its founding. If the governor signs HB 862, HTA’s fiscal year 2023 budget starts at zero, and the agency would have to justify to lawmakers why it should receive general funds. HTA would also lose its procurement exemption, a decision that would require state approval for all future contracts and purchases.
Ige met Wednesday in an executive session with the HTA board of directors for about four hours. The outcome of that discussion has not been made public, although Ige recently pledged his support for the agency.
“I’m disappointed with what happened with HTA. … The loss of dedicated funding is a big deal,” Ige told the Honolulu Star-Advertiser in an April 29 interview.
Ige said the legislation leaves HTA with one-year funding, making it difficult to manage multi-year efforts, like its destination management action plan program, which identifies hotspots where there are friction between residents and visitors and develops an action plan to resolve them.
“The visitor industry is the #1 industry in this state; it’s creating over 200,000 jobs and we’re not going to have an economic recovery until the visitor industry recovers,” Ige said.
Ige has until June 21 to publish his veto list. However, in this case, his hands might be tied.
Lawmakers left HTA funding out of HB 200, the state budget bill. If Ige vetoes HB 862, the federal funding lawmakers allocated to HTA for fiscal year 2022 disappears, with no special funds to replace it.
Lawmakers also used the bill to eliminate the counties’ $103 million share of transient lodging taxes, while giving each county the right to increase its island’s TAT by 3 percentage points.
HTA board member Fred Atkins said at the April 29 HTA board meeting that the creators of HTA set it up to be standalone from the Legislative Assembly “because they knew how brutal politics could be”.
Former HTA board member Ku’uipo Kumukahi, whose term ended in April, said she fears the current situation will reduce HTA to a pawn in a high-stakes game where nobody wins. If HTA loses its special fund status, Kumukahi said, “In my heart, it would be a very big task” for HTA to get enough future funds to survive.
Keith Vieira, director of KV & Associates, Hospitality Consulting, said that over the years the agency and the transient accommodation tax, which has been its source of funding from the start, have grown in influence, thus moving higher on the radar of the state legislature.
TAT started as a 5% tax to fund the Hawai’i Convention Center. Over time, it grew to 10.25% and in 2019 brought in over $600 million, which Vieira says was used to fund numerous agencies and projects, including rail.
“Deals were made and visitors paid primarily to fund tourism-related efforts,” Vieira said. “Now out of greed they are just trying to take everything from the general fund. It is simply wrong. It’s almost like flying.
Until the pandemic, HTA was part of Hawaii’s key industry backbone. Visitor arrivals reached a record 10.4 million in 2019, capping many years of record growth in arrivals.
Over the past several years, HTA has evolved from a sole focus on marketing and branding to a mission that places greater emphasis on natural resources, community and tourism growth through visitor spending rather than on arrivals. But those actions have still not been enough to appease lawmakers, who cut funding for HTA to $79 million from $82 million in 2018 and now want to cut it to $60 million.
Residents’ sentiment towards tourism has weakened throughout the pandemic, while hostility towards tourism has begun to rise as visitors have begun to return in greater numbers. The spread of illegal vacation rentals in neighborhoods — a trend HTA has fought in recent years — has only made the situation worse.
Frequent HTA leadership changes didn’t help either.
Former HTA Board Chairman Rick Fried, who chaired his last HTA Board meeting on April 29, worked with four HTA CEOs during his seven-year tenure, including George Szigeti, Interim President and CEO Marc Togashi, Chris Tatum and current President and CEO John De Fries.
In 2018, HTA’s board voted to oust President and CEO George Szigeti without cause following a critical state audit that said the agency suffered from “lax oversight. (and) deficient internal controls”.
Upon Szigeti’s departure, Fried said, “One of the main reasons we are doing this is the difficulty of the current political climate and the difficulty of maintaining our budget through the Senate.”
More recently, lawmakers have taken a critical look at HTA’s special funding and procurement exemptions. House Finance Chair Sylvia Luke (D, Punchbowl- Pauoa-Nuuanu) said during an HB 862 conference hearing, “We know that this year we have really worked on transparency and accountability, and we think it does that.
State Sen. Kurt Fevella (R, Ewa Beach-Iroquois Point) was the only dissenting vote when HB 862 walked out of the conference. The vast majority of state lawmakers also backed the measure in floor votes. If the Legislative Assembly returned to session, it would likely have the two-thirds vote needed to override the veto.
HTA hired De Fries last year to replace former Marriott executive Chris Tatum, who led the agency for less than two years.
De Fries, the first native Hawaiian to hold HTA’s top spot, said that in 2019, for every dollar HTA spent, the agency returned $20 to the state. Now, De Fries said, the agency’s primary focus is regenerative tourism, where the benefits of tourism outweigh the resources it consumes.
“The Governor, when meeting with myself and the Board, was very supportive and re-emphasized the importance of HTA leading the visitor industry at a critical time for support not just the revival of tourism, but the sustained revival of Hawaii’s tourism-led economy,” said De Fries. “At the same time, he expressed real concern about HB 862 and indicated that his team is still considering the options they have. It’s like trying to broadcast an explosive. It’s not easy.”
De Fries said that despite the fact that HB 862 came from gutting and replacement, more than 200 people testified against the measure. He said it was important for the visitor industry and the community to continue to strengthen HTA’s industry leadership and the work it does in communities across the state.
Mufi Hannemann, president and CEO of the Hawaii Lodging & Tourism Association, said if HTA loses funding or is disbanded over time, the state should identify a new agency or department to effectively manage tourism. in Hawaii.
But Keli’i Akina, president and CEO of the Grassroot Institute of Hawaii, said the state shouldn’t use scarce fiscal resources to fund tourism, which the hospitality industry could sustain on its own.
“Subsidizing the tourism industry is not fair to other industries in Hawaii or optimal for the economy as a whole. On the contrary, it has contributed to the ‘overtourism’ that so many people complain about and our lack of economic diversity,” Akina said. “All things considered, now may be the time for the state to save money while allowing Hawaii’s tourism industry to fend for itself.”
State Rep. Richard Onishi (D, South Hilo-Keaau-Honuapo), chairman of the House Labor and Tourism Committee, told the HTA Marketing Committee on April 28 that there are “many people in the public who call for the reduction of HTA, even calls for the elimination of the ETS and to impose the commercialization requirement on the private sector.
Onishi said the “unfortunate cuts” proposed by the Senate are “a bit deeper issue than you know what you are doing right now. It comes back to this question of what the ETS is supposed to do, and that’s a message that I think is not being communicated well to the Legislative Assembly and also to the public.
Star-Advertiser reporter Dan Nakaso contributed to this report.