Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committees on Tourism and Intergovernmental Affairs and Economic Development and Technology, to which was recommitted S.B. No. 336, S.D. 1, entitled:

beg leave to report as follows:

The purposes of this measure are to:

Your Committees received testimony in opposition to this measure from the Hawaii Tourism Authority and four board members, Chamber of Commerce of Hawaii, Kauai Chamber of Commerce, Hawaii Hotel Association, Maui Hotel Association, Visitor Industry Coalition, Hawaii Attractions Association, Visitor Aloha Society, Visitor Aloha Society of Hawaii, Waikiki Improvement Association, Kapaa Business Association, Kona Historical Society, Annette's Adventures, Atlantis Adventures, Native Hawaiian Tourism & Hospitality Association, Pulama Ia Kona Heritage Preservation Council, Hawaii Ecotourism Association, Textron Systems Kauai, Retail Merchants of Hawaii, Ala Moana Hotel, Aston Kaanapali Shore, Diamond Resort, Hilton Hawaiian Village, Kahala Mandarin Oriental Hawaii, The Lodge at Koele, Outrigger Hotels & Resorts and the Ohana Hotel Group, Pahio Resorts, Inc., Princeville Resort, Resorts of the Island of Lanai, Yacht Harbor Towers, and Condominium Rentals Hawaii. Your Committee received comments on this measure from the Department of Business, Economic Development and Tourism, Department of Land and Natural Resources, Department of Taxation, Hawaii Resort Developers Conference, Hawaii's Thousand Friends, The Trust for Public Land, and Tax Foundation of Hawaii.

As reflected in the amount of testimony received, your Committees have heard many concerns raised about two aspects of this measure in particular – abolishing the Hawaii Tourism Authority (HTA), and raising the transient accommodations tax (TAT).

Your Committees find that the HTA has in many ways succeeded in meeting the intent of its founders – to focus State tourism funding on marketing Hawaii. Since the HTA was established in 1998, visitor arrivals are up significantly and the projections for the future indicate growth will continue.

Your Committees recognize these results and acknowledge that they were accomplished by a fledgling organization with limited personnel. Your Committees find, however, that after two years, the HTA remains in transition and appears unable to adequately explain its actions in a number of areas, including contracting, marketing, and accountability measures.

Your Committees are particularly concerned about the lack of accountability in spending public dollars. The fact that, for the most part, the TAT moneys come from those who live outside of Hawaii does not mean the Legislature should be any less vigilant in its oversight.

Your Committees also find a disturbing lack of communication among the members of the HTA board, as well as instances in which there is at least an appearance of a conflict of interest in board decisions. Both of these factors affect the ability of the organization to function in an efficient and accountable manner.

Your Committees note that the HTA law restricts administrative expenses to no more than three per cent of moneys in the tourism special fund, or approximately $1,800,000 currently. For an organization that is intended to contract the majority of its activities, this is a substantial amount of money, particularly when contracting or out-sourcing the major portion of the $61,000,000 budget was intended to avoid creation of a tourism bureaucracy.

Your Committees also find that given the funding and the current staffing levels, the HTA might be expected to provide more information on the impacts of Hawaii's tourism industry, such as the hotel capacity of the State, the concerns of state agencies whose activities and programs indirectly affect tourism, and the State's infrastructure under the projected visitor growth scenarios. This failure to address infrastructure problems, both current and future, is troubling given that it is one of the mandates of the HTA.

For these reasons, your Committees believe there must be a much stronger case made for the continuation of the HTA then has been presented.

Your Committees note that the proposal to raise the TAT was introduced as part of the Administration Package. It was included in this measure to continue the discussion of visitor impact on Hawaii's infrastructure, such as parks and other natural areas, and what share of the maintenance of these natural resources should be borne by visitors.

Your Committees find a difference of opinion on the impact of Hawaii's current taxes - the TAT and the TAT in combination with the general excise tax – in comparison to other visitor destinations. Issues of leisure vs. business travel, growth projections, and carrying capacity for current and increased arrivals are all matters that need further deliberation.

Your Committees have considered these issues and have amended this measure to delete the raise in the transient accommodations tax.

Your Committees find that this measure, while controversial, has generated much valuable discussion regarding the respective roles of the public and private sector in the spending of public moneys to support Hawaii's tourism industry. Your Committees believe that further discussion is warranted, including discussion on the proposal to raise the transient accommodations tax, and to restrict a portion of those revenues to support Hawaii's state parks. Your Committees have grave concerns that if such infrastructure issues as aging and inadequate park facilities are not resolved, visitor satisfaction will be seriously compromised.

As affirmed by the records of votes of the members of your Committees on Tourism and Intergovernmental Affairs and Economic Development and Technology that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 336, S.D. 1, as amended herein, and recommend that it be referred to the Committee on Ways and Means in the form attached hereto as S.B. No. 336, S.D. 2.