HawaiiWritten by Dennis Hollier On 17 February 2011

HTA logoOne of the striking things about Governor Abercrombie’s state of the state (and Obama’s state of the union) address last month was just how Republican it sounded. Indeed, the grim realities of balancing the budget, after two years of shrinking state revenues, have made the man who was once one of the most liberal members of Congress propose spending cuts that would make Goldwater blush: cutting Medicare reimbursements, renegotiating employee health benefits, and cutting Medicaid benefits to the poor and the elderly.

Of course, Abercrombie really has no choice. These aren’t political decisions anymore – this is simple math. And if these spending cuts bring any taint of conservatism to the Governor, it will certainly be offset by the need to increase taxes too. That’s largely because so much of the budget goes to entitlements of one kind or another (see last month’s story on the Employee Retirement Program) that there’s simply not enough discretionary spending to cut. So, all of us can expect higher taxes and higher fees. And in the end, no one is going to be happy.

That’s probably as it should be.

Nevertheless, a couple of the Governor’s proposals made me do a double take. One, raising the transient accommodations tax (TAT) for timeshare owners, I’ll look at in detail in the April issue of the magazine. But the one that really caught my attention was his proposal to reduce funding to the Hawaii Tourism Authority. This seems like a cut that will really bleed.

Which isn’t to say HTA can’t be run better. That’s at least one Republican maxim that’s true: Government is inefficient. So government agencies – even those, like HTA, that are understaffed and underfunded – can always find ways to cut costs. Even HTA leadership acknowledges there may be more efficient ways of doing things. But that’s not what the Governor’s talking about.

What the Governor’s proposing is to take funds from HTA’s marketing budget – money they use to help Hawaii compete with other tourist destinations around the world – and use them instead to support cultural events, environmental protection and improve public facilities. That seems shortsighted.

Don’t get me wrong. Supporting Hawaii’s cultural events and promoting a better environment and improving public facilities are all worthy of more government spending. They’re important not only in that they allow Hawaii’s people to lead better, healthier lives, but because these are also issues that affect our visitor industry. People come here to experience our diverse cultures and see our beautiful beaches, mountains and seascapes. That’s why these types of investments have long been a part of HTA’s mission. And the state should probably invest more. God knows the facilities in our parks need the money.

In fact, HTA is already looking at doing some of this. David Uchiyama, vice president of brand management, points out that when the economy tanked two years ago, the agency reduced its funding of cultural programs so that it could dedicate more resources to marketing and jumpstart the state’s depressed tourism sector. It worked. Now, as visitor arrivals and hotel occupancy rebound, HTA is looking to gradually increase its investment in cultural programs again. That may be a good plan. With a finite budget, they obviously have to balance the need for marketing with the need to make sure we continue to fulfill visitor expectations. In any case, HTA is probably in the best position to make that decision.

Even so, taking money from marketing just seems like the wrong thing to do. When our sales team here at Hawaii Business sends out an email, they always include a quote from marketing guru David Oglivy: “Stopping your advertising to save money is like stopping your watch to save time.” It’s no different for the state. Cutting HTA’s marketing dollars will cost Hawaii money. Not just the hospitality industry either. It’s going to cost us tax revenues.

This isn’t a guess. HTA’s own numbers show that every dollar spent by the agency yields $166 million in visitor spending. That equates with $15 in tax revenue. That’s a hell of a return on investment. And during our economic morass over the last two and a half years, that ROI has gone steadily up. In private enterprise, a CEO would look at those numbers and say, “I want more of that.”

Maybe, after he’s had a chance to go over the numbers more closely, the Governor will say the same thing.

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