The Hawaii Tourism Authority has fallen short of making its full state reimbursement for the Hawai'i Convention Center for the past two years and may extend the facility's debt repayment schedule again — even though the agency still owes 79 percent of the center's original $350 million balance.
HTA has made $490 million in principal and interest payments, but still owes $277 million on the center, which was first funded in 1999, said state Department of Budget and Finance Director Wesley Machida.
Under the current debt repayment schedule that HTA agreed to honor in 2011, the agency must reimburse the state $26.4 million annually for principal and interest payments, which are currently at a 6 percent rate.
HTA receives $82 million in transient accommodations tax (TAT) collections from the state in funds earmarked for tourism promotion. In addition, HTA receives another $26.5 million in TAT annually from a convention center enterprise special fund.
That special fund, established in 2002, is intended to pay "all expenses arising from the use and operation" of the convention center and to reimburse the state for debt service payments on the general obligation bonds issued to build the facility.
HTA has paid the state only $20 million of its $26.4 million obligation for each of the past two fiscal years, Machida said.
State Sen. Glenn Wakai, D-Salt Lake-Kalihi, chairman of the Senate Committee on Economic Development, Tourism and Technology, said he's baffled by HTA's "apparent reluctance" to pay down a debt when the state's visitor industry is heading toward its sixth consecutive year of arrivals and spending growth.
"We appropriate a substantial amount of money to help pay off the convention center, yet they never discussed this," said Wakai, who was one of several state senators who excoriated the agency during legislative budget hearings early in the year. "I would think they would take their responsibilities more seriously."
Wakai said HTA is shorting the general fund by not adhering to its reimbursement schedule.
"They don't function as an isolated kingdom," he said. "We have important government services to provide. It's ridiculous that they are hoarding their money, not paying their debts, and putting us on the hook to pay more. They've really put the state in a ridiculous situation."
But the state's funding to HTA has fallen by $6.5 million annually since fiscal year 2016, said Marc Togashi, HTA vice president of finance.
"Complications relating to the state's purchase of the Turtle Bay conservation easement" have reduced HTA's statutory funding by $6.5 million annually, Togashi said. The reduction left HTA without "sufficient funds to pay the full $26.4 million obligation while also ensuring the Hawai'i Convention Center had adequate funds to operate," he said.
Machida said the state paid off the external debt obligation on the center in October, but HTA still owes the state an internal debt that must go back into the general fund. The state Department of Budget and Finance Department provided HTA with a proposal to restructure its loan in the second quarter of this year and has given the agency a June 30 deadline to settle its reimbursement issues, he said.
"This can't go on indefinitely. We need to work it out before the end of the fiscal year (June 30, 2018)," Machida said.
Togashi said HTA "wants to resolve this internal debt" and will work to meet the state budget department deadline. HTA expects to finalize a new agreement by "working with the Governor's Office, the state Department of Budget and Finance, and potentially the Legislature," he said.
Machida said restructuring the debt likely would add "another couple of years" to HTA's payment schedule, which was previously extended.
A loan restructuring in 2001 extended the repayment schedule to 2025, Machida said. HTA's 2011 loan restructuring was to make up for not paying anything from July 1, 2000, to June 30, 2002, when the agency said it didn't have sufficient appropriations, he said.
The 2011 restructuring added nearly $52.9 million in principal and interest to HTA's state liability, according to an HTA financial statement dated June 30, 2017.
"HTA didn't think they had to make payments on the 2001 and 2002 shortfalls, but apparently the attorney general's office said that they did. It wasn't agreed to until 2011," Machida said. "The new agreement extended the payments from 2025 to 2027."
Waikiki resident Louis Erteschik, executive director of Hawaii Disability Rights Center, agrees HTA's convention center financing "doesn't appear to reflect sound economics" and is "somewhat unfair" to other agencies seeking general fund appropriations.
"If they are reaping all this money from tourism, why aren't they paying the bills?" Erteschik said. "When I go to the Legislature and ask for money for my clients with disabilities, and they tell me, 'There's not enough money,' maybe there would have been if they had leaned on the HTA a little more."
