In the wake of a scathing state audit of its spending practices, the Hawaii Tourism Authority (HTA) faces a roughly 44% cut to its budget by state legislators, a move the agency warns will harm marketing efforts and tourism in the heavily tourist-dependent state.
Despite Hawaii's record visitor numbers and tourism revenue in recent years, the audit, which was released in February, criticized the HTA for what it described as "lax oversight, deficient internal controls and, ultimately, less accountability."
Among lawmakers' issues with accountability is the HTA's alleged failure to follow a directive to reduce its administrative costs and end improper expense reimbursements.
Earlier this year, the Hawaii House of Representatives had prepared a bill to forgive some HTA debt related to the Hawaii Convention Center, essentially moving the liability from the agency to the state. But following the audit, the state Senate rewrote the House bill, slashing the agency's budget.
If passed, the bill would cut the HTA Tourism Special Fund, consisting of revenue from the state's Transient Accommodations Tax, from $82 million to $60.3 million. In fiscal year 2018, the accommodations tax on hotel and lodging revenue generated a record $546 million in revenue for the state.
In all, the cuts amount to about 44% of the agency's $108.5 million annual budget.
The full Senate passed the bill on April 10, but House members have expressed disagreement with some of the changes, including the drastic reduction in funding, and the differences are being reconciled in committee.
State Sen. Glenn Wakai, a Democrat, in a statement explaining the changes to the bill, said, "Allowing the HTA's budget to remain status quo only condones the undisciplined spending pointed out by the audit. This bill injects accountability into an agency that denies any shortcomings and continues to shirk its responsibility to the public."
In a statement released a day before the full Senate vote, HTA president and CEO George D. Szigeti said the agency's critics were overlooking the "devastating effects" the budget cuts would have on Hawaii's tourism industry, and he pointed to steps the agency was already taking to remedy the violations.
"Make no mistake, HTA will be forced to make significant cuts to its marketing programs that support Hawaii's No. 1 industry, and the people who will feel it the most are those whose jobs depend on tourism continuing to do well," Szigeti said. He added that the legislation "is counterproductive to what is best for tourism's future, and it puts Hawaii at a competitive disadvantage with other global destinations that have far greater resources to fund their marketing efforts."
In December, before the audit was released, the Hawaii State Ethics Commission handed down $12,000 in fines to HTA's top leaders, including Szigeti. All were accused of accepting -- and, on occasion, soliciting -- airline upgrades. Other evidence cited at the time suggested that HTA staff had manipulated hotel searches when traveling to make their expenses seem more prudent and economical than they were. For example, they would compare their ultimate hotel choices with luxury accommodations at hotels such as the Four Seasons and the Waldorf Astoria.
HTA COO Randy Baldemor, who was among those fined, resigned in January.
The HTA was established in 1998 to oversee and manage the state's tourism strategy, marketing and development. Two years later, it took over management of the Hawaii Convention Center.
Hawaii's annual budget totals about $14 billion. The HTA's $108.5 million budget helped draw a record 9.4 million visitors last year. (By comparison, Puerto Rico's total annual budget is $9.6 billion. The government-funded Puerto Rico Tourism Company received $99 million in 2017, a year when it attracted 3.5 million visitors.)
Hawaii is the second state in recent years to have its destination marketing organization run afoul of legislators. In 2016, the CEO of Visit Florida was forced to resign and lawmakers threatened massive budget cuts after it was revealed that the agency had paid the rapper Pitbull $1 million to help promote Florida tourism. Last May, the legislature cut Visit Florida's budget from the $100 million recommended by governor Rick Scott to $25 million.
Because tourism is such a vital cog in Hawaii's economy, the state has in the past given the HTA a level of semi-autonomy not enjoyed by other agencies. As a check on that autonomy, the state auditor reviews contracts of $15 million or more, including an HTA deal with AEG Management for operating and marketing the Hawaii Convention Center and an agreement with the Hawaii Visitors and Convention Bureau for marketing the state in the United States and Canada as a vacation destination.
The audit's authors wrote: "We found that HTA reimbursed millions of dollars to contractors without receipts and other required documentation; reimbursed costs, such as first-class airfare, luxury hotel accommodations and other extravagant expenses that were expressly prohibited by contract; and consistently failed to enforce contract terms that are intended to protect the state."
In addition, they said, "HTA has disregarded its own procurement policies and procedures, awarding sole-source contracts based on questionable justifications, paying contractors without existing contracts and voluntarily waiving ownership of intellectual property that the state paid to develop."
The audit also found that after a statutory limit on administrative costs was imposed, the HTA moved expenses to different accounts, failing to reduce costs.
The HTA is currently implementing the 21 recommendations for improvements included in the audit, Szigeti said.
"We are utilizing the state auditor's recommendations to become a better and stronger organization, which ultimately helps us to support the continued well-being of Hawaii's tourism industry," he said.
In a Senate statement on the bill, legislators emphasized marketing as the chief role of the HTA and argued that its reach has become too broad, with 40% of its current budget going to programs outside of promoting the islands to tourists, and "no in-house expertise to evaluate grant applications, nor a process for getting experts into their advisory groups."
Like the original House bill, the Senate version would still have the state assume the debt bond obligation on the convention center, and lawmakers are proposing redistributing some of the remaining HTA budget to other state agencies with a focus on economic development and tourism.
Commenting on a report that appeared on TravelWeekly.com, Wakai said, "Part of our reconstruction plan is to have the agency focused on marketing rather than collateral issues, such as funding cultural events, resource management and workforce development. No direct marketing dollars are being taken away.
"The team at HTA believes nothing is wrong and that strong tourism numbers justify their wasteful spending," he said.