Despite record visitor numbers and revenue, it has been a rocky few months for the Hawaii Tourism Authority.
A state audit of the agency released in February criticized the HTA for "lax
oversight, deficient internal controls and, ultimately, less accountability," including failure to follow a directive to reduce administrative costs and improper expense reimbursements.
Armed with the audit, state lawmakers are now moving to significantly reduce the HTA budget, a move that the agency says will harm marketing efforts and tourism.
Earlier this year, the Hawaii House of Representatives prepared a bill to forgive some HTA debt related to the Hawaii Convention Center, essentially moving it from the agency to the state's ledger. After the audit the Senate rewrote the bill, which originated in the House, slashing the tourism authority's budget.
If passed, the bill would cut the HTA Tourism Special Fund, derived from the Transient Accommodations Tax, from $82 million to $60.3 million, and would completely eliminate $26.5 million in annual funding for the Hawaii Convention Center. The cuts amount to a roughly 44% reduction in the agency's $108.5 million annual budget.
The bill, which was approved by the full Senate on April 10, will now be reconciled with the House after the revisions before the full legislature votes.
"Allowing the HTA's budget to remain status quo only condones the undisciplined spending pointed out by the audit," State Sen. Glenn Wakai said in a statement explaining the alterations to the legislation. "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 State Senate vote, HTA president and CEO George D. Szigeti said the agency's critics are overlooking the "devastating effects" the bill would have on Hawaii's tourism industry and pointed to steps taken to remedy the violations.
"Make no mistake, HTA will be forced to make significant cuts to its marketing programs that support Hawaii's number one industry, and the people who will feel it the most are those whose jobs depend on tourism continuing to do well," Szigeti said. "[The legislation] is counterproductive to what is best for tourism's future, and it puts Hawaii at a competitive disadvantage to other global destinations that have far greater resources to fund their marketing efforts."
The audit followed on the heels of the Hawaii State Ethics Commission handing out $12,000 in fines in December to some of the HTA's top leaders, including Szigeti, for accepting, and on occasion soliciting, airline upgrades. Other evidence was presented indicating HTA employees manipulated hotel searches when traveling, comparing their ultimate choices with luxury accommodations such as the Four Seasons and Waldorf Astoria in order to make their bookings appear more prudent and economical. HTA COO Randy Baldemor, one of those who was fined, resigned in January.
The Hawaii Tourism Authority was established in 1998 to oversee and manage the state's tourism strategy, marketing and development, and took over management of the Hawaii Convention Center in 2000. Hawaii's total annual budget is approximately $14 billion, and HTA's current annual budget of $108.5 million supported a record 9.4 million visitors in 2017. By comparison, in Puerto Rico, where the total annual budget is $9.6 billion, the government-funded Tourism Company received $99 million in 2017 and the island attracts 3.5 million visitors annually.
In fiscal year 2018, the Transient Accommodations Tax from hotels and lodging in Hawaii generated a record $546 million in revenue for the state. With tourism such a vital cog in the state's economy, the HTA is given semi-autonomy by the state not enjoyed by other agencies. As a check on that autonomy, the state auditor reviews contracts of $15 million or greater, 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 in United States and Canada.
"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," the audit report states.
"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, after a new statutory limit on administrative costs was imposed, the HTA moved expenses to different accounts while failing to truly 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 wellbeing 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 the budget going to programs outside of promoting the islands to tourists, with "no in-house expertise to evaluate grant applications, nor a process for getting experts into their Advisory Groups."
Under the current version of the bill, the state would still assume the debt bond obligation on the convention center, and lawmakers are proposing redistributing some of the funds from the HTA to other state agencies with a focus on economic development and tourism.