Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committees on Tourism and Judiciary and Hawaiian Affairs, to which was referred S.B. No. 2711 entitled:

beg leave to report as follows:

The purpose of this measure is to allow the Hawaii Tourism Authority (HTA) to employ its own attorneys.

This measure also:

Testimony in support of this measure was received from Hawaii Tourism Authority. Testimony in opposition was received from the Attorney General (AG) and Office of Information Practices (OIP). Comments were received from the Department of Business, Economic Development, and Tourism supporting the disclosure of contracts provision; the AG opposed the authorization to hire attorneys provision; and OIP opposed the disclosure of contracts provision.

The authorization for the HTA to hire its own attorneys, rather than utilizing the AG, is the same provision that was vetoed by the Governor last year in S.B. No. 38, CD1. The Statement of Objections in Gov. Msg. 686 stated that the bill is unnecessary because the Attorney General is capable of providing the services needed by the HTA either through regular or special deputy attorneys general. Your Committees respectfully disagree with the Governor. This same matter came up in hearings last year on S.B. No. 38 wherein the AG gave similar testimony as in this measure. The AG gave the same assurances of adequate and timely representation. However, it has come to the attention of the Chair of the Committee on Tourism that a certain contract of the HTA was in the process of negotiation last year when the HTA asked the AG on August 1, 2003, for outside counsel representation. The AG responded on December 2, 2003, which is a period of four months after the request. The AG, Mr. Mark Bennett, responded to your Committee's inquiry into this specific incident on February 18, 2004, by admitting that the length of time was abnormally long but he had no explanation for it without looking further into the matter.

The contracts of the HTA, particularly the large contracts with advertising vendors, are time sensitive. If negotiations stall because the HTA cannot be represented by an attorney to handle and advise on the negotiations, vendors are likely to decline to execute a contract with the HTA. The reason for time sensitivity in these contracts is that vendors need time to get a multitude of arrangements in place to execute the contract within the terms of the contract, such as renting office space and hiring employees in Hawaii. These complex contracts require sufficient lead time for the contractor to prepare.

The intent of your Committees is that the HTA hire its own attorneys only in specific instances where particular expertise in complex contract transactions (usually the large contracts) are negotiated. Representation by the AG on day-to-day matters of the HTA would continue, which is already the practice. However, the ability of the HTA to immediately contract directly with outside counsel would greatly expedite that process when that specialized legal expertise becomes necessary.

Thus, your Committees find that this measure is necessary. In addition, your Committees further find that the timely services provided by the AG with outside counsel are questionable in light of the Auditor's reports indicating a lack of adequate contract language, contract management, and "after the fact" contract execution.

Funding for outside attorneys is routinely budgeted by the HTA, so those funds will continue to come out of HTA funds rather than the general fund.

The appropriation contained in this measure, according to testimony of the HTA, is to reimburse the HTA due to a fiscal anomaly occurring when the HTA's budget required it to fund eighteen months of a Hawaii Visitors and Convention Bureau (HVCB) contract with only twelve months of funding. This arose because HTA's budget for fiscal year 1998-1999 did not include sufficient funds to pay for its contract with the HVCB for calendar year 1999. Thus, the HTA was required to use twelve months of funding from its budget to pay for eighteen months of marketing services. This required the HTA to utilize future budgets to make up for the funding shortfall, which in the 1998-1999 budget amounted to $27 million. The $8 million request under this measure is also included in the Administration's budget request.

Your Committees have amended this measure by deleting the provision relating to public records because this provision is contained in another measure moving through the Legislature this session, and by making technical, nonsubstantive amendments.

As affirmed by the records of votes of the members of your Committees on Tourism and Judiciary and Hawaiian Affairs that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2711, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2711, S.D. 1, and be referred to the Committee on Ways and Means.