Tourism mess shows how effort to govern ourselves fails
By Robert Rees
The recent uproar over the mismanagement of Hawai'i's cash cow — tourism — was a near-perfect illustration of how we govern ourselves. At the end of the day, we wound up worse off so that a few might be better off.
The recent "State Auditor's Report on the HVCB" — leaked to the press and — I believe — sensationalized as well as the July hearings conducted by state Sen. Donna Kim, D-14th (Makiki, Pawa'a) and the Senate and House tourism committees resulted not in solving or even addressing real problems, but in making matters worse.
VERICELLA
At the center of the sound and fury was the Hawai'i Visitors and Convention Bureau, the private organization hired by the Hawai'i Tourism Authority to market the state as a tourist destination. On June 26, using a leaked draft of the unfinished HVCB audit, the Honolulu Star-Bulletin headlined, "Audit: HVCB's run amok."
On examination, the audit reveals no such thing, and wasn't even cause for alarm. Nevertheless, only a month later, the New York Times reported in its National Briefing section, "The president of the Hawai'i Visitors and Convention Bureau, Tony Vericella, has resigned weeks after a state audit that questioned the organization's accounting practices and use of state funds."
Between these bookends of reportage is the tangled web of self-seeking and back-stabbing that corrupts nearly all we do in Hawai'i. To understand what happened, we need to look at five major players: The HVCB, HTA, state auditor's Office, Sen. Kim plus the House and Senate committees on tourism, and the governor's office.
The Hawai'i Visitors and Conventions Bureau
From its start a century ago, the HVCB has been comprised of private visitor industry people dedicated to the proposition that their pursuit of wealth should be helped by taxpayer money. One hundred years of selfishness has generated a certain lack of credibility.
In its entire history, for example, the HVCB only once recommended — in 1993 — that it receive less money than the year before. (This was quickly rescinded so a well-connected local car-racing entrepreneur could be paid $250,000 quarterly for painting "Hawaiian Vacation" on the side of his dragster.)
The HVCB's misspending is legendary. In 1998, it paid Donald Trump $3.3 million to stage his atrocious Miss Universe Pageant in Honolulu, even though Miami had refused to pay Trump anything the year before. More recently, the HVCB paid $1.7 million for an illusory tie-in with the "Lilo & Stitch" Disney film.
This year, a state court summarily ordered the HVCB to fork over an additional $357,000 to the producers of "Baywatch Hawaii" after the HVCB tried to misrepresent the contract.
To camouflage its mismarketing, the HVCB uses two devices. The first is shameless public relations. Recently, for example, it announced that its 3rd Annual "May Day is Lei Day" had generated "$3.8 million worth of media exposure" and that its $231,000 promotional trip to Japan for Gov. Linda Lingle, KITV and others produced "impressions" worth $759,000.
Both of these assertions are misleading. Even worse, the HVCB knew this when it touted the data.
HVCB's second protective device is to maintain the fiction that it is using private money. This is a reference to the annual dues of $2.5 million paid by 3,600 businesses to belong to an organization that last year spent $48 million of taxpayer money on behalf of its members.
Until his resignation on July 21, the person most responsible for spending all this taxpayer money was Vericella, the well-paid president of HVCB. The hard-working son of an immigrant Italian father and first-generation Italian-American mother, Vericella worked his way through Purdue and then UCLA business school.
With experience at American Express and Budget Car Rental, the charismatic Vericella seemed perfect for the HVCB job when he was hired in 1997. Last year, his total annual compensation was $400,000.
Vericella's marketing instinct was questionable, especially after his stargazing Trump and Disney deals, but his ability to galvanize and motivate was never in doubt. I had the opportunity to watch Vericella in action during the HVCB's post-9-11 effort in New York City, and the results were impressive even to jaded New Yorkers.
Right off the bat, however, Vericella incurred the wrath of Senate Tourism Committee chairwoman Kim. One of his weaknesses is a need to speak endlessly in response to the simplest of questions. To Kim, this may have come across as a condescending intrusion.
Vericella and Kim had no history before Kim's election to the Senate in 2000, but things quickly fell apart. First, at HTA's request, Vericella testified to Kim in defense of the HTA's then-CEO, Bob Fishman, who was already on Kim's hit list because of his association with another Kim nemesis, Mayor Jeremy Harris.
Second, when Kim couldn't get her tourism bills passed, she blamed Vericella. Then, when Kim insisted that patriotism ought to be the theme of post-9-11 marketing, Vericella publicly thrashed her logic.
As it turned out, Kim's cascading animosity toward Vericella was to become a catalyst for untold damage to Hawai'i.
The Hawai'i Tourism Authority
Conceived by a coalition of private interests working as part of Gov. Ben Cayetano's Economic Revitalization Task Force of 1997, the HTA was designed to fill two roles: First, it is the conduit for the $60 million a year from a designated portion of the transient accommodations (hotel) tax that it transfers to the HVCB and other private interests. Second, the HTA shields the HVCB and others from government scrutiny by asserting that it supervises how the money is spent.
Some HTA and HVCB members will respond that the transient accommodations tax must be spent on behalf of hotels. In fact, it is just another way to tax visitors, and we can spend the money any way we want. Legally and morally, the HTA's revenue could go to education or to social safety nets.
The bottom line is that the HTA legislation of 1998 doubled the HVCB's budget while curtailing legislative scrutiny of its activities. The HTA's response, in its first and only strategic plan, was to thumb its nose at accomplishment and accountability. Instead, it set a goal of only 2.7 percent annual real growth in visitor expenditures.
As the plan itself acknowledged, "The modest rate of growth is lower than the growth experienced historically."
From the beginning, the HTA combined its low expectations with a propensity for waste. It allocated $120,000 for the importation of alien fish (trout) even while the state ran advertisements warning us not to introduce alien fish.
It gave $150,000 to the French Festival and $25,000 for Lana'i to offer hotel guests a Pacific Open Clay Shoot. It gave the Honolulu Police Department $525,000 to purchase new riot gear after CEO Fishman agreed to do so to persuade the Asian Development Bank to hold its controversial meeting at the struggling Hawai'i Convention Center.
In the process, the HTA abandoned any pretense of accountability. When the Sierra Club sought to prevent the HTA from spending money without environmental impact statements, the HTA stipulated in its defense that it lacked "knowledge or information" to measure the results of its own behavior. The agency even disclaimed its own press release touting its accomplishments by describing the release as "hearsay."
In a February 2000 report, the state auditor's office concluded what was obvious: "The management problems at the Hawai'i Tourism Authority are both troubling and alarming."
In response, the HTA, under chairman Mike McCartney, hired Rex Johnson as a CEO at a salary of $240,000 a year. Johnson is former director of the state's Department of Transportation. He was hired, said McCartney, because "Rex is good at consensus."
Under McCartney, the HTA also hired Frank Haas, whose ad agency once handled but lost the HVCB's advertising, as a $100,000-a-year marketing expert.
Brought in ostensibly to ensure accountability and measurability, Haas began work April 1, 2002, and three days later went before the Senate Tourism Committee to defend an earlier HTA shell game on the grounds that money is "an important ingredient of marketing."
The testimony was reminiscent of when Haas created taxpayer-paid HVCB advertising to ask for more taxpayer money.
With Johnson and Haas at his side, McCartney made the good will of Kim a priority. From the end of 2002 until today, Johnson and Haas have concentrated on reacting to relentless questioning from Kim.
With the HTA under control, Kim focused on Vericella and the HVCB. For example, when former Bank of Hawaii CEO Larry Johnson was nominated by Gov. Cayetano to serve on the HTA board, Kim — as chairwoman of the Senate Tourism Committee — questioned Johnson privately about his relationship with Vericella. She then tried to block his appointment. She called Cayetano, suggesting he withdraw Johnson's name lest the governor be "embarrassed." When the governor challenged Kim to hold a public hearing, she called Walter Dods at First Hawaiian Bank to ask him to intervene. An irritated Dods refused.
Kim's efforts fell apart when the governor e-mailed all the senators to tell them Kim's objections to Johnson were personal. In the end, she attracted only one additional vote against Johnson, that of Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai).
In the meantime, through the offices of Senate President Robert Bunda D-22nd (North Shore, Wahiawa), Kim arranged for the appointment of attorney Lorrie Stone to the HTA. Stone declined to be interviewed for this story, she said, because of a "gag order by Mike (McCartney) and Rex (Johnson)."
Stone, married to Ko Olina developer Jeff Stone, often represents developers and real estate interests. She got to know Kim well during the 14 years Kim served on the City Council's zoning committee.
Once on the HTA, Stone followed Kim's lead in writing into the HVCB contract a provision that forbids the agency from criticizing the HTA or the state. This was based on Kim's belief that the HVCB and Vericella had used HVCB funds to oppose her bills, an assertion later picked up and used by the state auditor's office.
The legislative auditor
In recent years, the Legislature has used requests for audits to the state auditor's office as substitutes for meaningful legislation. When paralyzed with fear, our solons literally shelve the problem by asking state Auditor Marion Higa to do an audit. Last year, there were about 27 reports, but if you ask, most legislators can't remember more than two or three.
In the process, the auditor's office has taken on some of the hubris associated with unchecked and unbalanced power. This year, for example, in the midst of the HVCB turmoil, Higa fought for, and got, a legislative override of a bill vetoed by Govs. Cayetano and Lingle.
The new statute, possibly an unconstitutional violation of separation of powers, puts Higa in charge of executive branch audits and requires the executive branch to pay for them.
It was during Higa's struggle for a legislative override of Lingle's veto that the draft of her HVCB audit was leaked — June 24 or 25, only a day or two after Lingle's notice of intent to veto the bill authorizing more power for Higa.
Whatever the source of the leak, it hurt the HVCB and its president, Vericella. As he wrote in the Advertiser, the leak "led to inflammatory accusations and sensational headlines ... before we had a chance to review it, let alone respond to it."
Higa's reaction to the leak has been remarkably sanguine. When asked if she would try to trace it through numbered copies, she responded, "I'm not going to waste my time tracking it down."
The audit itself, for all the trouble it caused, is primarily a collection of overstated misinterpretations that seem nearly crafted to sensationalize a dearth of findings that emerged during the exhaustive six-month dig by Higa.
Accruals in preparation for the coming year, salaries split with companies in Japan and employees opening their own businesses to service former employees are all common, legal occurrences in the world of commerce.
The audit's assertion that the HVCB spent $300,000 on legal services to work against the HTA is just plain wrong. Whatever the HVCB did was done with the encouragement of the HTA.
At the end of the day, all we are left with is a few hundred dollars in questionable expense account submissions by Vericella.
Sen. Donna Kim
It was against this film noir background that Kim seized upon Higa's audit and the newspaper reports as a platform from which to announce hearings by the Senate and House committees on tourism.
On July 11, the first day of the hearings, Kim revealed just how possessed she is when she tried to lead Higa into the absurd claim that what happened at HVCB was just like what happened at Enron. This elicited well-deserved giggles from the audience.
The 51-year-old Kim, who served in the House from 1983 to 1985 and on the Honolulu City Council from 1985 until 2000, has had an eventful career. Her greatest strength has been what her friends see as toughness, but what others call vindictiveness. However, Kim's urge to nail real and imagined adversaries has often led her astray.
For example, even before she met new University of Hawai'i President Evan Dobelle, Kim was one of his biggest critics. When they finally met, it turned out she resented his having attended a "visioning" conference at the invitation of her No. 1 nemesis, Honolulu Mayor Jeremy Harris.
A classic example of Kim's style is her last-minute amendment to an HTA funding bill at the end of the 2002 legislative session. The amendment required, in effect, that marketing of the Hawai'i Convention Center be moved from Vericella's HVCB to the managing operators of the center, SMG. Kim's ostensible rationale was that SMG already was doing 80 percent of the bookings at only 10 percent of the cost.
What she chose to ignore is that SMG was charged with booking only the easy-to-get, local conventions that account for a tiny percent of total revenue. She ignored SMG's pleas that HVCB continue to do the marketing, and the concerns of potential clients that SMG is not equipped to offer full-service entree to Hawai'i.
When then-interim director of HTA Rick Humphreys tried to put the brakes on the proposed change, Kim — sounding like an old Joan Crawford film — said, "His days are numbered. There's a new boy (Johnson) coming in."
The amendment, one that HVCB spent $5,000 trying to kill, was passed, and the governor had to sign it for purposes of funding. Since then, it has arguably cost the state millions of dollars in lost bookings.
The governor's office
Just before she left on a tourism-building trip to Japan, Gov. Lingle commented on the HVCB audit: "Any time you have public funds involved, the public needs to have confidence they are being used for their intended purpose."
Well, yes — absolutely. But what Lingle didn't tell us is that the HVCB and her office had agreed to pay $231,000 to send 44 people, including a news reporter and cameraman for KITV, to Japan. When the Advertiser revealed this arrangement July 8, some saw it as a reward for KITV's agreement to cover at no cost a June 25 Lingle speech on veto overrides.
On her return, Lingle responded to questions with a diversionary non sequitur. She maintained that our local news coverage isn't up to standard, and this "gives us a unique opportunity to see the bigger picture."
The governor's communications staff didn't do much better. When Kim questioned Lingle's director of communications, Lenny Klompus, about the trip, he couldn't resist tossing in patriotism: "The trip was very successful. ... It was important to the troops for the governor to visit."
Another disappointment of the Kim hearings was the governor's new cabinet-level "czar" of tourism, Marsha Wienert. Until July, Wienert had been executive director of the Maui Visitor's Bureau, a branch of the HVCB. She has let it slip that one of the best things to come out of Lingle's secret tourism summit of April was the goal to remove caps and conditions placed on tourism money.
Asked to comment on the HVCB's paying for KITV, Wienert pointed out she had done the same thing for KGMB-TV so it might go to New York to cover a float from Maui in the Macy's Thanksgiving Day Parade.
Bon voyage
As a result of these players' efforts, we are sinking to a new low. Consider the following:
• The transfer of convention center marketing from the HVCB to SMG may have cost us millions in lost bookings.
• The HVCB lost a strong leader when Vericella resigned, and the agency has been reduced to the status of just another supplier.
• The HTA, with its triumvirate of leaders (CEO Johnson, chairman McCartney and marketing consultant Frank Haas) is now in charge of initiating and coordinating the state's effort with entirely separate marketing entities scattered around the world.
• Gov. Lingle's office has indicated willingness to play at public relations rather than address an industry in crisis. She installed Wienert, who represents private interests more than taxpayers.
• For her part, Sen. Kim, whose office said she was too busy to be interviewed, has once again imposed her personal will on the legislative process.
And so it goes as we struggle to govern ourselves. It seems there is no personal or private interest too petty to take precedence over the public good.
Robert M. Rees is moderator of 'Olelo Television's "Counterpoint" and Hawai'i Public Radio's "Talk of the Islands" programs.
