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Bill cuts off Hawaii Tourism Authority’s funding source

It’s game on.

The state Legislature has thrown Gov. David Ige a gambit that puts funding of the Hawaii Tourism Authority in jeopardy.

What happens next will determine HTA’s fate. The agency had broad support when it was created in 1998 to help the tourism industry overcome a seven-year slump after the Japan bubble burst. But over the years the agency and the work it does have become increasingly politicized.

Lawmakers passed House Bill 862, which takes away the dedicated funding 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 legislators why it should receive general funds. HTA also would lose its procurement exemption, a move that would require state approval for all future contracts and purchases.

Ige met in executive session Wednesday with the HTA board for about four hours. The outcome of that talk has not been made public, though Ige recently pledged support for the agency.

“I am disappointed at what happened with HTA. … Losing dedicated funding is a big issue,” Ige told the Honolulu Star-Advertiser during an interview April 29.

Ige said the legislation leaves HTA with one year’s funding, which makes it challenging to run multiyear efforts, like its Destination Management Action Plan program, which identifies hot spots where there is friction between residents and visitors and develops an action plan to resolve them.

“The visitor industry is the No. 1 industry in this state; it creates 200,000 jobs plus, and we are not going to have economic recovery until the visitor industry recovers,” Ige said.

Ige has until June 21 to release his intent-to-veto list. However, in this case his hands might be tied.

Legislators left HTA funding out of HB 200, the state’s finance bill. If Ige vetoes HB 862, the federal funding that lawmakers allocated to HTA for fiscal year 2022 disappears, without any special funds to replace it.

Lawmakers also used the bill to eliminate the counties’ $103 million share of transient accommodations taxes, while giving each county the right to raise their island’s TAT by 3 percentage points.

HTA board member Fred Atkins said at the April 29 HTA board meeting that HTA’s creators set it up to be autonomous from the Legislature “because they knew how brutal politics could be.”

Former HTA board member Ku‘uipo Kumukahi, whose term ended in April, said she fears that the current situation reduces 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 really big task” for HTA to get enough future funds to survive.

Keith Vieira, principal of KV & Associates, Hospitality Consulting, said that over the years, the agency and the transient accommodations tax, which has been its funding source from the beginning, have grown in influence, thereby moving higher on the state Legislature’s radar.

TAT started as a 5% tax to fund the Hawai‘i Convention Center. Over time it was increased to 10.25% and in 2019 brought in more than $600 million, which Vieira said has been used to fund many agencies and projects, including rail.

“Agreements were made, and visitors paid primarily to fund endeavors relative to tourism,” Vieira said. “Now, through greed, they are just trying to take it all into the general fund. This is just wrong. It’s almost like stealing.”

Until the pandemic, HTA was part of the backbone of Hawaii’s key industry. Visitor arrivals hit a record 10.4 million in 2019, closing out many years of record arrivals growth.

In recent years HTA has pivoted from a singular focus on marketing and branding to a mission that puts more emphasis on natural resources, the community and growing tourism through visitor spending rather than arrivals. But those actions still haven’t been enough to appease lawmakers, who cut HTA’s funding to $79 million from $82 million in 2018 and now want to reduce it to $60 million.

Resident sentiment toward tourism weakened throughout the pandemic, while hostility toward tourism has begun to increase as visitors have started coming back in greater numbers. The spread of illegal vacation rentals into neighborhoods —a trend HTA has fought in recent years — has only exacerbated the situation.

Frequent HTA leadership changes haven’t helped, either.

Former HTA board Chairman Rick Fried, who presided over his last HTA board meeting April 29, worked with four HTA CEOs during his seven-year tenure, including George Szigeti, interim President and CEO Marc Togashi, Chris Tatumand current President and CEO John De Fries.

The HTA board in 2018 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.”

At the time of Szigeti’s departure, Fried said, “One of the major reasons that we are doing this is the difficulty in the current political climate and the difficulty in keeping our budget through the Senate.”

More recently, legislators have cast a critical eye on HTA’s special funding and procurement exemptions. House Finance Chairwoman 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 believe this does that.”

State Sen. Kurt Fevella (R, Ewa Beach-Iroquois Point) was the only dissenting vote when HB 862 came out of conference. The vast majority of state lawmakers also supported the measure during floor votes. If the Legislature returned to session, it would likely have the two-thirds vote needed for a veto override.

HTA hired De Fries last year to replace former Marriott executive Chris Tatum, who ran the agency for less than two years.

De Fries, the first Native Hawaiian to serve in 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 main focus is regenerative tourism, where the benefits of tourism outweigh the resources that it consumes.

“The governor, when he met with myself and the board, was very supportive and reemphasized the importance of HTA leading the visitor industry at a critical time in sustaining not only the relaunch of tourism, but the sustained relaunch of Hawaii’s economy lead by tourism,” De Fries said. “At the same time, he expressed real concern about HB 862 and indicated that his team is still investigating what options they have. It’s like trying to diffuse an explosive. It’s not easy.”

De Fries said despite the fact that HB 862 originated through gut-and-replace, more than 200 people testified against the measure. He said it’s important that the visitor industry and the community continue to reinforce HTA’s industry leadership and the work that it is doing in communities throughout the state.

Mufi Hannemann, president and CEO of the Hawaii Lodging & Tourism Association, said if HTA lost its funding or was disbanded over time, the state would need to 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 be using scarce tax resources to fund tourism, which the hospitality industry could support on its own.

“Subsidizing the tourism industry is not fair to other industries in Hawaii nor optimal for the economy generally. If anything, it has contributed to the ‘overtourism’ we hear so many people complaining about, and to our lack of economic diversity,” Akina said. “All things considered, perhaps now is a perfect time for the state to save money while allowing Hawaii’s tourism industry to make it on its own.”

State Rep. Richard Onishi (D, South Hilo-Keaau-Honuapo), chairman of the House Labor and Tourism Committee, told HTA’s marketing committee April 28 that there are “numerous people in the public that are calling for the reduction of HTA, even calls for the elimination of HTA and putting the requirement for marketing on the private sector.”

Onishi said the “unfortunate cuts” proposed by the Senate are “somewhat of a little bit deeper issue than you know what you guys are currently doing. It goes back to this issue of what is HTA supposed to be doing, and that’s a message I think that is not well communicated to the Legislature and also to the public.”

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Star-Advertiser reporter Dan Nakaso contributed to this report.

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