Over the past two decades taxpayers have paid about $450 million toward the cost of the Hawai‘i Convention Center, but lawmakers were told last week the Hawaii Tourism Authority still owes almost as much for the center as when the state first started paying for it in 1995.
The convention center cost $350 million to build, and members of the House Finance and Senate Ways and Means committees were told Tuesday the Hawaii Tourism Authority still owes $317 million in principal and interest for the project.
In other words, the tourism authority still needs to fork over the equivalent of more than 90 percent of the original cost of the center.
The size of the remaining debt came as a surprise to some state lawmakers, including Sen. Brickwood Galuteria (D, Kakaako-McCully-Waikiki), who said in an interview he would have expected the convention center debt to be nearly paid off by now.
“Maybe we’re in the wrong business, because man, we’re on the wrong end of this one,” he said. “Somebody’s making out.”
Hawaii Tourism Authority officials said the debt has been restructured a number of times, and in the early years there were no payments against principal for a variety of reasons.
But some lawmakers were clearly unsatisfied with the explanations, and Galuteria said he wants to study the issue more closely.
“That’s a chunk of change,” he said. “We could use that money so effectively in other areas.”
House Finance Chairwoman Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu) agreed that the debt and the payment history deserve more scrutiny.
“The convention center discussion occurred over 20 years ago, maybe 25 years ago, and so right now for us to have just paid down the principal by a fraction … I think it’s definitely something that we need to take a closer look at,” she said.
HTA officials emphasized that the convention center benefits the entire state economy, and said the center had an overall economic impact last year that was worth hundreds of millions of dollars.
“When you talk about the convention center and the business of tourism, you’re going to have big numbers,” said HTA Chief Operating Officer Randy Baldemor in an interview. “This is an industry that is central to our community. It basically supports 170,000 or 180,000 jobs, and when you talk about the impact of convention centers itself, you’re talking about $350 million of economic impact into the state, so even that’s a big number.”
In addition to the debt payments, the annual operating budget for the convention center including sales, marketing, maintenance and other costs of about $10.5 million. The HTA contracts with Anschutz Entertainment Group to operate the convention center, and the center has traditionally had an operating loss of about $4 million per year.
HTA told lawmakers it expects to reduce that operating loss this fiscal year. The authority budgeted for a loss of about $2.6 million this year, and expects the actual losses will be less, said Marc Togashi, HTA’s vice president for finance. The HTA has set a goal for the facility to break even by 2018.
Baldemor told lawmakers the occupancy rate of the convention center is 30 to 40 percent, and HTA officials have been working with the convention center operator to increase the use of the facility.
He said the cost of the convention center “is the investment this community is making to have the strong tourism industry as we do now,” with four straight years of record growth.
The state Department of Budget and Finance has been paying off the bonds that were issued to finance the original cost of the convention center, and established a payment schedule to receive money from the Hawaii Tourism Authority to recoup those debt service costs, Togashi said.
Togashi said “there have been some changes along the way” in those payment arrangements.
The convention center was initially financed by general obligation bonds, and payments began in 1995. Togashi said the state made no principal payments for three of the first four years after taking on the debt, which he said is typical for that kind of debt.
The former convention center authority then restructured the debt in 1999 to extend the repayment period to 25 years from 20 years, which adds to the interest on the debt. Baldemor, who assumed his current HTA position last year, said he does not know why that restructuring was done.
The HTA did not make any payments on the debt in 2001 and 2002 “because there was a certain degree of uncertainty on who owed the debt, between us and the Department of Budget and Finance,” said Togashi.
During those two years the department made payments on the bonds that financed the convention center, and in 2011 state budget officials again restructured the HTA repayment schedule by tacking on an extra two years of payments to recoup that money, HTA officials said.
The HTA pays 6 percent interest on the debt, and Togashi told the House and Senate money committees that the current repayment schedule calls for the convention center to finally be paid off in 2027.
Ways and Means Chairwoman Jill Tokuda (D, Kailua-Kaneohe) questioned whether state lawmakers in past years were informed each time tourism officials or the Department of Budget and Finance extended the debt repayment schedule.
“Critical decisions like that, because it’s such a large amount, because it has an impact on the bottom line for the state and for the Legislature, that warrants the involvement of the legislative branch as well,” she said.