Hawaii Tourism Authority readies for defunding

The Hawaii Tourism Authority, the state agency responsible for leading tourism recovery across the isles, is in dire financial straits and has already started running “doomsday scenarios” in the event that it faces defunding.

Gov. David Ige issued an executive order earlier in the pandemic ceasing transient accommodations tax disbursements to HTA, which was established by the state Legislature in 1998 to serve as “the state’s lead agency supporting tourism.”

HTA in 2019 received $79 million in TAT funds and another $16.5 million for the Hawai‘i Convention Center. In fiscal year 2020 HTA received only the first four months of its TAT distribution and cut its fiscal budget in September to $48 million from $86 million and then down to $41 million in November.

HTA is surviving on carry-over funding from prior years and budget cuts. But the agency is rapidly burning through its reserves. Unless Ige restores some funding, HTA will be down to just $10 million by June 30, the end of fiscal year 2021.

“At $10 million with no added funding. I would be in a winding-down phase,” HTA president and CEO John De Fries told the Honolulu Star-Advertiser. “Myself and Keith Regan (HTA chief administrative officer) are looking at what amounts to being kind of doomsday scenarios. We haven’t presented it to the board yet, but I mean, with that kind of dramatic loss in funding, it would eventually render HTA limited in whatever it could do.”

De Fries said he’s asked Gov. David Ige for an appointment to discuss HTA’s funding plight and intends to ask for full restoration of the agency’s budget. De Fries said HTA believes it’s critical to accelerate promotion and marketing of Hawaii travel to capitalize on increased consumer confidence in the third quarter, which hopefully follows six months of vaccine distribution.

The state Senate Committee on Energy, Economic Development and Tourism, which is chaired by Sen. Glenn Wakai, also sent Ige a Jan. 4 letter, advocating for the immediate return of a TAT disbursement to HTA to replenish the agency’s special fund.

“As the COVID vaccine is distributed, every tourism destination on the planet will be competing for the same potential visitors. It is imperative that HTA assure them Hawaii is safe and open for business,” Wakai said in his letter to Ige. “Defunding them will mean employment for our neighbors will continue to evaporate. HTA is the fulcrum that will catapult Hawaii out of its financial misery. We hope you will reinstate full, or partial, TAT payments to HTA.”

Ige did not immediately respond to a query from the Star-Advertiser on when or even whether he planned to restore TAT funding to HTA.

Wakai said Ige sent a noncommittal letter acknowledging the EET Committee’s request.

In the letter, Ige said that the state would be “revisiting the TAT suspension as revenues improve.”

Ige told EET Committee members that he shared the view “that tourism is a critical component of our recovery and long-term economic well-being and that HTA plays an important role in facilitating this recovery.”

However, he said that he was “balancing (HTA’s) need with many other critical needs as we face a large and long-term revenue shortfall that must be addressed.”

De Fries said Ige was wise to cut TAT funding to the HTA in May but that the funds must now be restored to HTA.

“If we are required to finish a whole fiscal year at $10 million, the efforts wouldn’t be effective. It would result in severe cutbacks,” he said.

De Fries said that in fiscal year 2019 HTA helped bring $631 million in TAT collections to the state, and while TAT collections have dropped substantially with the pandemic-related downturn in tourism, there are still some funds that could be distributed.

State economist Eugene Tian said the Hawaii Council on Revenues last estimated TAT for fiscal year 2020 at $560.6 million and at just $198.4 million for fiscal year 2021.

A share of TAT funding is statutorily mandated in priority order for the Turtle Bay Conservation Fund, the Hawai‘i Convention Center, HTA and the counties. But De Fries pointed out that “HTA is the only entity receiving TAT funds that can contribute to growing it.”

While Wakai supports additional TAT distributions for HTA, he said that he intends to remain vigilant in monitoring the agency’s effectiveness and spending. Wakai added that HTA spending needs to be reduced. Given the state’s financial picture, Wakai said it’s unlikely that HTA should expect a prompt return to full funding.

“De Fries needs to be preparing for the doomsday/nuclear scenario now,” Wakai said. “Coming up with a plan for next month’s HTA Board meeting means two more months of contractor expenses.”

Sean Dee, executive vice president and chief marketing officer for Outrigger Hospitality Group, said HTA’s funding must be restored to operational levels. Dee pointed out that HTA’s TAT allocation was “already the lowest in years,” even prior to COVID-19.

The agency received $82 million for its tourism special fund from fiscal year 2014 to 2018, but the state Legislature reduced it to $79 million in fiscal year 2019. Dee said that’s less than 20% of the annual TAT funding, which is generated solely by Hawaii’s visitors.

Dee said HTA and its major-market contractors need to be funded now to drive recovery. He said they also play a role in educating potential travelers about the destination as well as supporting other critical initiatives such as Hawaiian cultural programming, sustainable tourism initiatives and vital research.

“While some believe that tourism will magically return to past levels, the reality is that there is a lot of competition for consumers’ travel dollars, especially with the numbers of travelers being so dramatically reduced globally,” Dee said.

Among the myriad of challenges to Hawaii’s tourism industry, he said the one most often heard is that customers lack the confidence to book due to the state and counties constantly changing rules and protocols.

Dee said, “We need strong collaborative leadership across the islands working together to open up the traveler market safely. Safe Travels (the state’s pre- arrival COVID testing program) has been an effective program, and it’s clear that the biggest health issue is community spread from returning residents, not COVID-negative visitors.”

Keli‘i Akina, president of the Grassroot Institute of Hawaii, said in an email, “There are many needs that deserve to benefit from our scarce tax resources more than tourism promotion, including paying off the state’s mounting debts, paying for essential services and helping Hawaii residents who have lost their jobs because of the lockdowns.”

While TAT comes from tourists, Akina said using it to subsidize tourism seems less ideal than using it to mitigate Hawaii’s current economic crisis. Even under more normal circumstances, he said, subsidizing tourism is questionable.

“In the future, we could instead use the TAT money that usually goes to the HTA to fix or maintain our infrastructure affected by tourists, such as our beaches and parks,” Akina said.

He said another option to consider would be to reduce or get rid of the TAT altogether, “which would make Hawaii more affordable as a visitor destination and be a great form of tourism promotion itself.”

“For now, however, let’s spend those TAT revenues where they can make the most difference: helping Hawaii cope with its economic devastation,” Akina said.