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New article explores case for ending state subsidies to Hawaii tourism

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This article was originally emailed as a “Reader Alert” on April 18, 2021, to everyone on the institute’s email list. If you are not already on the list and would like to be, please email info@grassrootinstitute.org.
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Shifting public sentiment is making it more politically viable to end preferential treatment of Hawaii’s leading private sector industry

HONOLULU, April 18, 2021 >> A new article from the Grassroot Institute of Hawaii explores the question of whether it’s time for the state to end its subsidies to the tourism industry.

There is no question that Hawaii’s tourism industry provides many economic, social and cultural benefits, but using state funds to promote tourism has never been a good idea. And now, according to the article, we are seeing increased public disenchantment with the industry, making it increasingly viable politically to consider ending such subsidies.

Public sentiment has soured on tourism In conjunction with visitor arrivals surpassing a record 10 million in 2019, as shown in recent public surveys, the #defundHTA movement and recent “Take back our beach” protests.

Even before the collapse of Hawaii’s economy more than a year ago because of the COVID-19 lockdowns, there were complaints about “overtourism” and its effect on Hawaii’s economy, environment and social fabric.

According to institute research associate Melissa Newsham, the state and counties subsidize the visitor industry in many ways, both directly and indirectly.

“It is difficult to measure precisely the costs and benefits of every government function that has a nexus to tourism,” she writes, “But among the ways in which tourism is subsidized directly, the Hawaii Tourism Authority stands out.”

HTA, she writes, is the state’s primary tourism-promotion agency. It derives its funding from the state’s 10.25% transient accommodations tax, which is paid by tourists. In fiscal 2019, the TAT generated $600.3 million, of which $95.5 million went to HTA, both for its own activities and those of the Hawaii Convention Center, which it oversees.

Newsham writes that even before the Great Lockdown Crash of 2020, HTA was having image problems. A “scathing” audit of the agency in 2018 identified problems with oversight, internal controls and accountability, prompting the Legislature in 2018 to propose reducing the agency’s combined $108.5 million budget by as much as 44%. However, after heavy opposition from the HTA and the governor’s office, the HTA emerged with most of its budget intact.

Since the lockdowns, the agency hasn’t been receiving any of its usual TAT allocation, and is being forced to live off its dwindling reserves.

“HTA officials have been pleading for more funds,” Newsham writes, “but in the current economic climate, the governor’s office has been claiming there are more pressing needs for the TAT revenues than tourism promotion.”

Newsham quotes former state Sen. Gary Hooser, vice chair of the Democratic Party of Hawaii and a leader of the #defundHTA movement: “Why is the state of Hawaii spending money to promote an industry when the industry itself is fully equipped to promote itself?”

Another HTA critic has been state Sen. Glenn Wakai. He cited the agency allocating $250,000 “to explore the development of a virtual concept for the Center for Hawaiian Music and Dance,” which already has consumed $800,000 of state funds.

“We’ve already wasted a bunch of money for this museum. Now they want to spend $250,000 on a hula game. I don’t see how that’s going to bring more people to Hawaii,” he was quoted as saying in the Honolulu Star-Advertiser.

Newsham notes that the Legislature now is seriously considering stripping the agency of some of its current responsibilities and funding. The fiscal 2022-23 budget, she says, would cut the HTA’s funding to just over $48 million. A separate bill, now in conference committee, would reduce the scope of HTA’s duties, shifting its focus away from environmental and cultural activities to mainly marketing efforts.

Newsham writes that “the state’s desire to promote tourism is understandable given the vital role the industry plays in the island economy. But there are ways to promote tourism that do not involve government subsidies.”

For one, the private sector already spends a considerable amount of money on marketing Hawaii to the world. Private promotional spending for Maui alone is at least $43.5 million a year, according to one estimate.

Another way would be to eliminate or reduce the TAT, perhaps at least by the amount that goes to the HTA.

“Making Hawaii a more affordable vacation destination would be a form of tourism promotion itself,” Newsham says.

Beyond that, “getting the government out of tourism promotion … would signal that Hawaii officials really do care about fostering economic diversification. It should not be in the business of picking winners and losers, and in terms of protectionist theory, tourism in Hawaii is certainly no longer an ‘infant industry’ needing government support.”

Ultimately, Newsham writes, “if tourists want to visit Hawaii, to enjoy its natural beauty and aloha spirit, let them. If private businesses want to spend their own money to help entice them here, let them.

“The policy should be to keep the government at arm’s length and let Hawaii’s tourism industry develop and evolve according to its own dynamics.”

The article is titled “Time to get state out of tourism promotion?”

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