Tourism and the military are the two biggest income earners for the economy in the State of Hawaii. This makes tourism everyone’s business, regardless if employed or not employed in this sector.
The goal of the first native Hawaii head of the tourism board, Jon de Fries, is to make Hawaii a better place where tourists don’t party but have respect for a culture that has been history for most residing in the state.
It seems to be overlooked that tourism is an essential business in the Aloha State. Many tourists will not visit Waikiki for the cultural experience but for the restaurants, nightclubs, shopping, and beaches.
In today’s age, it’s a shorter flight from Los Angeles to most Caribbean islands compared to Hawaii. Hawaii is an expensive destination with less to offer and an older, less luxurious infrastructure, but it’s a US domestic destination.
Traveling from Japan to Thailand or even Bali is shorter. Both destinations most likely have more to offer for today’s visitors.
The convention center in Honolulu remains empty most of the time. Still, all announcements at Honolulu International Airport are now in Hawaiian, a language no one speaks as a first language anymore.
Jon de Fries, the Hawaii Tourism Authority, is living a dream to re-invent culture and establish high-end travel, but this is far from the reality.
Hotel operators remain quiet, and no one ever responds to media requests. The situation is more than strange.
Outspoken Frank Haas, who worked with HTA many years ago as its marketing VP is now President of Marketing Management, Inc.
Frank Haas and his Marketing Management Inc is a member of the Hawaii-based World Tourism Network.
With James Mak, a Professor Emeritus from UH-Mānoa Economics and a Research Fellow at the University of Hawaii, Frank recently summarized the reality of the State-run Hawaii Tourism Authority and its future.
Hawaii may want to go the way the City of Sedona, Arizona, goes. Separate from the City/State regarding promoting and managing tourism.
This was first published by the Economic Research Organization.
Option one for the future of HTA
Two bills (Senate Bill SB 1522 SD2 and House Bill HB1375 SD3) propose to repeal the HTA, although they differ in the entity that would replace it. At issue is finding the most effective governance system for managing Destination Hawaii.
SB 1522 SD2 would establish an Office of Tourism and Destination Management [OTDM] within DBEDT (for administrative purposes) if passed. It would be governed by a nine-member (unpaid) Board of Directors appointed by the governor.
The board membership would include a member from each of the four counties residing in the respective counties and a member representing the hospitality industry.
This member represents the airline industry; a member represents the retail industry, a member with a background in Hawaiian culture, and a member with a background in agriculture.
Presumably, the county representatives are not county government executives acting in their official capacities.
It would essentially do what HTA is doing, plus tourism research currently housed in DBEDT.
It would have an executive director appointed by the OTDM Board of Directors, responsible for its day-to-day operations.
Funding for OTDM would come from the general fund, which is around $50 million for fiscal year 2023-2024 and the same sum for 2024-2025.
This means there will be no dedicated stream of revenues, such as the transient accommodation tax, that OTDM can count on.
Instead, it would have to fight for its funding yearly at the legislature.
Option Two for the Future of HTA
In the House of Representatives, HB No. 1375 SD2, if passed, it would replace HTA with a destination management agency (DMA) that’s attached to DBEDT for administrative purposes only.
The agency would be headed by a commission, such as the Public Utilities Commission, consisting of 3 paid members appointed by the governor and not subject to Senate confirmation.
Members would serve terms of 4 years and a maximum of 2 terms,
Commissioners will appoint an executive director with knowledge, experience, and industry expertise.
He or she would oversee the office’s day-to-day operations and staff.
Thus, the current 12-member HTA unpaid citizen board will be replaced by a paid 3-person commission. All the powers and duties conferred on HTA by HRS Chapter 201B will be transferred to the commission.
Hawaii Tourism Authority History
HTA was established in 1998 during Governor Benjamin Cayetano’s second term in office in response to the state’s nearly decade-long economic stagnation. The dire situation, and resultant fiscal crisis, cried out for significant policy changes in the state.
An Economic Revitalization Task Force (ERTF) comprising 26 high-profile citizens assisted by five working groups was formed in late 1997 to look for bold solutions to bring the economy out of its slum.
The ERTF came up with several recommendations, including the establishment of HTA.
As the “main driver” of Hawaii’s economy, task force members felt that an independent tourism authority with substantial autonomy would bring tourism more visibility and attention than when it was just another responsibility assigned to DBEDT.
More urgently, destination tourism promotion needed more funding from a reliable source.
Act 156 created the Hawaii Tourism Authority attached to DBEDT for administrative purposes, with dedicated transient accommodation tax (TAT) funding.
HTA’s mandate went well beyond tourism marketing and promotion. HTA was also charged to “develop, coordinate, and implement state policies and directions for tourism and related activities taking into account the economic, social, and physical impacts of tourism on the State, Hawaii’s natural environment, and areas frequented by visitors.
Further, it was directed to “coordinate all agencies and advise the private sector in the development of tourism-related activities and resources.” And also to “establish a program to monitor, investigate, and respond to complaints about problems resulting directly or indirectly from the tourism industry and take appropriate actions as necessary.”
Thus, HTA was established as a destination management organization, not just a destination marketing organization.
As a quasi-government entity, HTA is governed by its Board of Directors, a policy-making body currently comprised of 12 members appointed by the governor for four years with a maximum of 2 terms.
Board members serve as volunteers and meet monthly to guide the agency’s work on behalf of the State of Hawai‘i. The Board hires a president and CEO, not a director, as in executive departments like DBEDT, to run the agency.
The CEO is supported by a staff numerically set by the legislature.
At least one board member is appointed to represent the four island counties. At least six board members must have knowledge, experience, and expertise in visitor industry management, marketing, promotion, transportation, retail, entertainment, or visitor attractions.
At least one board member shall have knowledge and expertise in Hawaiian cultural practices. No more than three members shall represent, be employed by, or be under contract to any industry sector represented on the board.
With no government members, HTA’s Board of Directors resembles a trade association.
The membership does not include an environmentalist. Ostensibly, it is very much a pro-tourism and pro-development group.
Despite its broad mandate, until recently, HTA has focused its efforts and resources primarily on marketing Hawaii as a tourist destination.
HTA acknowledges in its latest 2020-2025 Strategic Plan that it “…is the first strategic plan developed while HTA is re-balancing the attention from mainly marketing Hawaii to a greater emphasis on destination management.
In the years between the creation of HTA in 1998 and the 2020-2025 Strategic Plan, HTA has responded to community concerns about tourism only on an “informal basis.”
One might excuse HTA for focusing primarily on destination marketing when the economy was rut. However, times have changed. Since 1989 tourist numbers continued to trend upward while visitor spending adjusted for inflation lagged.
In 2019, the year before the onset of the coronavirus pandemic, Hawaii received over 10 million visitors in a year. This is 4 million more than in 1989. However, it resulted in less total inflation-adjusted visitor spending.
In other words, tourism’s negative impacts on the community have been rising, but its economic benefits have not.
As public sentiment toward tourism changed, pressure mounted on HTA to focus more on managing Destination Hawaii.
In 2018, as the legislature threatened drastic budget cuts for HTA, the HTA board fired its CEO without cause, stating that the unanimous move by the board was to “go in a new direction.”
The departing CEO opined in parting remarks that “the challenge for the next CEO will be how to balance the arrival numbers with managing the destination.”
A new president and CEO (Chris Tatum) was hired in November 2018. Under Tatum, a new strategic plan for 2020-2025 emphasizing destination management was crafted.
Still, Tatum retired abruptly less than two years after his appointment as president and CEO, leaving the strategic plan’s implementation to his successor, John De Fries.
As a native Hawaiian “steeped in Hawaiian culture,” De Fries, HTA produced a Destination Management Action Plan (DMAP) for each island to “rebuild, redefine and reset tourism’s direction” over three years.
The DMAPs lay out specific actions—consistent with the broad goals established in the 2020-2025 Strategic Plan—for HTA to undertake in collaboration with other tourism stakeholders.
HTA calls it a regenerative model of tourism.
To assist in implementing the DMAPs, HTA solicited requests for proposals (RFP) for a single contractor to manage U.S. marketing. The US is HTA’s largest marketing contract and destination management.
The marketing part of the RFP aimed to overhaul Hawaii’s brand to attract a different type of visitor from the U.S. mainland to Hawaii; the destination management part aimed to mitigate the negative spillover effects of tourism on the community.
The contract was first awarded on December 2, 21, to the Hawaii Visitors and Convention Bureau (HVCB). HVCB is DBEDT’s long-time marketing contractor.
The competing bidder, the Council on Native Hawaiian Advancement (CNHA) protested the award.
Director of DBEDT, Mike McCartney, acting as HTA’s head of procurement, rescinded the award to HCVB “in the best interest of the State of Hawaii.” McCartney himself was CEO of HTA before.
HTA then issued a second RFP, with new specifications and a revamped selection committee. The second round resulted in the selection of CNHA.
HVCB protested the award. Efforts at mediation between the two parties failed as questions were raised about the legality of an agreement to split the contract.
In his final hours as DBEDT director, McCartney rescinded the award to CNHA, explaining that it is “no longer in the best interest of the State and the people of Hawaii to enter into one single RFP.”
He preferred two separate RFPs, one for U.S. marketing and the other for destination management.
McCartney took responsibility for mishandling the procurement process. This meant that a third round of RFP would be required.
The sequence of events is nothing short of bizarre. At this point, it is appropriate to raise the question:
Who is running HTA?
Is it the HTA Board of Directors or the director of DBEDT? Despite the temporary setback, HTA is forging ahead with implementing the DMAPs to the best of its capacity.
SB 1522 SD2 proposes to “dissolve” the Hawaii Tourism Authority and create a new tourism agency because some state lawmakers claim that HTA has “failed to effectively execute its duties to manage the tourism marketing plan for the State. ”
The bill cites evidence of “mismanagement” by the HTA in the failed award of the 34 million dollar U.S. marketing contract. It demonstrates HTA’s “noncompliance with the Hawaii public procurement code.”
In 2021, the Legislature repealed HTA’s exemption from the Hawaii public procurement code.) (House Bill 1375 SD3 doesn’t give a reason for the proposed repeal of HTA.
It is hard to believe that one misstep in procurement, for which DBEDT director McCartney took full responsibility, could mean the abrupt end of HTA, which began with high expectations.
From the beginning, HTA has sometimes had a complicated relationship with the Legislature. More recently, frictions have become more intense.
HTA has also been audited several times by the State Auditor since 2002.
The latest audit was conducted in 2018. Each time the Auditor issued scathing criticisms of HTA for poor accountability and failure to demonstrate its effectiveness.16 The failed U.S. marketing contract provides lawmakers a convenient excuse to make a change in tourism governance
What would Replace HTA?
SB 1522 SD2 would establish an Office of Tourism and Destination Management [OTDM] within DBEDT (for administrative purposes) if passed.
It would be governed by a nine-member (unpaid) Board of Directors appointed by the governor. The board membership would include a member from each of the four counties who reside in the respective counties.
It would include a member who represents the hospitality industry, a member who represents the airline industry. This member represents the retail industry, a member with a background in Hawaiian culture, and a member with a background in agriculture.
It would essentially do what HTA is doing, plus tourism research currently housed in DBEDT.
SB 1552 SD2 would require OTDM to implement the Hawaii Tourism Authority’s Destination Management Action Plans. It would have an executive director appointed by the OTDM Board of Directors, responsible for its day-to-day operations.
OTDM funding would come from the $50 million general fund for fiscal year 2023-2024 and the same sum for 2024-2025.
This means there will be no dedicated stream of revenues, such as the Transient Accommodation Tax (TAT), that OTDM can count on. Instead, it would have to fight for its funding yearly at the legislature.
The funding link between HTA and the transient accommodate tax has already been severed.
In the House of Representatives, HB No. 1375 SD2, if passed, would replace HTA with a destination management agency (DMA) attached to DBEDT for administrative purposes only.
The agency would be headed by a commission of 3 paid members appointed by the governor and not subject to Senate confirmation.
Members would serve terms of 4 years, but not to exceed eight consecutive years.
Commissioners would appoint an executive director to oversee the office’s day-to-day operations and staff.
Thus, the current 12-member HTA unpaid citizen board will be replaced by a (paid) 3-person commission.
All the powers and duties conferred on HTA by HRS Chapter 201B will be transferred to the commission.
Will the replacement be more effective than HTA?
Honolulu Star-Advertiser editors opine that creating a new agency while tourism moves in a new direction is not a good idea.
The editors offer no recommendations on how HTA should be fixed. So what is not working at HTA that requires fixing so it can better carry out its mandate to manage Destination Hawaii?
In a white paper, Frank Haas wrote in 2019, it was argued that HTA faced chronic structural challenges” which have prevented it from fully taking on the role as the lead agency for destination management.
Hence, “achieving HTA’s mission was never realistic given the limitations of the governance model under which it has operated.”
The lack of effective management is the root cause of the growing resident dissatisfaction with tourism. On the surface, it appears that HTA has the authority to “coordinate all agencies and advise the private sector in the development of tourism-related activities and resources.”
In reality, HTA’s statutory authority lacks force. HRS 201B-13 states, “Any state or county agency may render services upon request of the authority.”
May is not shall. And even if other government agencies and stakeholders are willing to cooperate, where will the resources come from?
Significant improvements in tourism destination management will require a new management model to address the current structural deficiencies.
That Hawaii has not had, and still does not have, an effective governance system in tourism was publicly acknowledged in HTA’s FY2015 Annual Report to the Hawaii State Legislature:
“In 2015, the HTA developed a 5-year strategic plan to replace the previous 10-year plan adopted in 2004. The Hawai‘i Tourism Strategic Plan 2005-2015 was organized as an overall “state” plan for tourism that designated government agencies or various private-sector groups as the lead agencies responsible for some of the plan’s key initiatives.
In reality, the HTA did not have sufficient authority or resources to require others to help carry out that plan or to monitor and oversee what was being done by others constantly.
Therefore, the new Hawai‘i Tourism Authority Strategic Plan (HTASP) is an “HTA” plan only, though it recognizes the need to work with partners and stakeholders.”
Tourism is a complex sector involving many actors and stakeholders, both private and public.
An effective tourism governance system can pull together all the diverse stakeholders to achieve a common goal using the least amount of resources.
A United Nations World Tourism Organization (UNWTO) report defines tourism governance as “a practice of government that is measurable through forms of coordination, collaboration and/or cooperation that are efficient, transparent, and subject to accountability, that help to achieve goals of collective interest shared by networks of actors involved in the [tourism] sector, to develop solutions and opportunities through agreements based on the recognition of interdependencies and shared responsibilities.”
Maria de la Cruz Pulido-Fernandez and Juan Ignacio Pulido-Fernandez put it more succinctly by defining governance in tourism as “…the collective participation of all stakeholders in the tourist destination to achieve shared goals.
This involves dialogue and the involvement of all destination stakeholders, fostering negotiation, consensus, commitment, knowledge exchange, and agreement between all public and private stakeholders.”
Thus, Hawaii’s effective tourism governance system can provide horizontal coordination across state agencies.
Vertical coordination between state and county agencies and interaction with the industry, the community, and all other tourism stakeholders.
This suggests a need for a new model of tourism governance in Hawaii, which can manage tourism across jurisdictions, agencies, functions, and stakeholder groups.
A Super HTA
It can be a revamped HTA—a super-HTA—endowed with the authority to marshal the expertise and resources of other agencies in addressing tourism’s challenges.
Another suggestion is to look at the composition of the board. The Hawaii Tourism Authority board was designed to balance industry, community, Hawaiian culture, and other diverse representatives.
The reality has been that this diversity hasn’t always been represented on the HTA board. The long-term solution for sustainability will require buy-in and participation from a broad range of experts and stakeholders.
The current bills at the Legislature don’t adopt the two suggested changes. In each case, a new governing board commission moves into the building, replacing the old board moving out.
The same structural deficiencies remain.
Hence, there is no assurance that the proposed HTA replacement agencies will be able to manage Destination Hawaii any better than HTA.
Coordination problems will continue.
Instead of rushing into a decision that holds little promise of success, what is needed is a cool-headed look at how Hawaii can craft a new tourism governance system that will work.
Hawaii is not alone in trying to fix its destination governance system.
Other destinations are doing the same; some, especially in Europe, have a head start.
Hawaii can benefit from studying what other destinations are doing.
A bill (HB1381) at the Legislature proposes to do just that, but it didn’t get a hearing and, thus, died during the session.
Repealing HTA without an improved replacement is unwise.
Source: Economic Research Organization.
