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The Honolulu Advertiser
Posted on: Wednesday, April 19, 2006

'Iolani Palace in financial straits

By Gordon Y.K. Pang
Advertiser Staff Writer

Members of Gov. Linda Lingle's Cabinet toured 'Iolani Palace in 2004, as a $1.5 million renovation project neared completion.

ADVERTISER LIBRARY PHOTO | August 2004

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The longtime caretakers of 'Iolani Palace the most enduring reminder of the Hawaiian monarchy and a symbol for the Native Hawaiian movement are running into serious financial difficulties and are looking to the state, and even Abigail Kawananakoa, for help.

The Friends of 'Iolani Palace, established in 1966 by the late Lili'uokalani Kawananakoa Morris to help maintain the historic landmark, lost $165,197 from July through January, according to a financial statement submitted to the Legislature by the group.

The group is asking the Legislature for $604,000, about half of its operating budget, to augment revenues, which come solely from entry fees, gift shop sales, memberships and donations. The request for money from lawmakers is the group's first since 1998, when the state cut off money for operations.

The Friends is also seeking $900,000 in capital improvement money to replace old air-conditioning and security systems.

Friends' leaders yesterday walked the halls of the Legislature urging lawmakers to support their funding.

"The bottom line is that the palace is in need of financial relief from soaring costs," said a statement from Alice Guild, Friends president, that was distributed to elected officials.

The problems are the latest in a series of financial difficulties that have affected palace operations since 1995. That's when the newly installed Cayetano administration reduced the group's $500,000-plus annual subsidy over three years before entirely eliminating funding for operating expenses. Betty Lou Stroup, the Friends' treasurer during the mid-1990s, said the group was getting about 56 percent of its operating dollars from the state at the time.

The group also is seeking to renegotiate its lease with the Department of Land and Natural Resources. The Friends got a five-year renewal of its existing lease last summer.

"In the meantime, without a large endowment or state funding, I can foresee a day when the palace will simply be an untenable business," Guild's statement reads.

Complicating the picture is the resignation at the end of February of Deborah Dunn, who had been executive director of the Friends the past four years.

Both Dunn and Guild say the parting was amicable, and had nothing to do with financial difficulties at the palace. Dunn, in a written statement, said she resigned "to pursue other offers and interests."

Meanwhile, Abigail Kawananakoa, Morris' daughter and the one-time president of the Friends, confirmed to The Advertiser that she has given the organization $110,000 over the past two months to help pay its payroll and electricity bills.

Kawananakoa said that through the Abigail K. Kawananakoa Foundation, she gave $50,000 to the Friends on Feb. 17 to cover payroll and other expenses. On April 4, the foundation gave the Friends an additional $60,000 to cover delinquent electricity bills and other expenses, she said.

Descended from the family of King Kalakaua, who built the palace in 1882, Kawananakoa has a bittersweet relationship with the Friends group her mother started. The president of the Friends for more than 25 years, she resigned the post, as well as her position on the board, in 1998 in the wake of a furor that erupted after she sat on a royal throne while posing for Life magazine.

But the Campbell estate heiress has continued to maintain ties to the palace and the group, making several gifts of artifacts to the facility.

The Friends did not respond when asked to confirm whether Kawananakoa contributed the bulk of the gifts. Another contribution came from The First Hawaiian Bank Foundation, which gave $5,000 last month.

What has really put the Friends in dire straits over the past year is rising electrical costs tied to outdated air-conditioning and security systems, Guild said.

In about a year, she said, the electric bill has risen from about $13,000 a month to $20,000, she said. The Friends also is paying about $12,000 monthly in repair and labor costs associated with the air conditioning.

"We're probably looking at about $30,000 a month that is sort of eating us up, frankly," Guild told The Advertiser. "We're able to cover everything else. I mean, we can manage."

The Friends and its supporters are seeking funding from the state on two fronts.

A $900,000 capital improvements request for new air conditioning and security was being made through the Department of Land and Natural Resources, the state agency with which the Friends has its lease.

According to legislative budget staff, $250,000 was eyed for planning and $650,000 for construction.

With the Legislature winding down its session, the House version of the budget includes no capital improvements money for the palace, while the Senate budget provides $300,000.

Oswald Stender, a former president of the Friends and a longtime board member, said it makes sense for the state to foot the bill for at least the maintenance and operation of 'Iolani Palace, "the state's most precious historic building," just as it pays for such expenses for other state buildings it owns and manages.

"This is a historic treasure that the state owns and they don't contribute anything to it," he said.

Guild said the Friends has also been trying to capture additional dollars through fundraising. The Friends held two fundraisers last year, and has another scheduled for July.

Meanwhile, entry fees have gone up with the endorsement of the Board of Land and Natural Resources. General admission increased to $10 from $8 in 1998, to $15 in 1999 and $20 in 2000. Kama'aina pay $15.

The Friends has also raised money by bolstering its membership from 645 in 1998 to 1,162 this year, Guild said.

The Friends also has raised $1 million for a restoration project that transformed the building's basement into a series of galleries to draw more visitors.

Most recently, the group is in the midst of instituting audio-guided tours with the intent of expanding the number of hours the palace is open daily, Guild said. Under the $30,000 program that is expected to begin this summer, docent tours will continue in the morning, with audio-guided tours in several languages in the afternoon, she said.

The group's 990 IRS form, required of all nonprofit and tax- exempt organizations, showed a deficit of $297,122 in 2003, its latest filing.

When asked to explain what caused the large deficit, the Friends responded in a written statement: "This research is just beyond our staff's time restrictions at this point."

Other 990s filed show a profit of $8,278 in 2002, a profit of $46,656 in 2001, a deficit of $232,236 in 2000 and a profit of $181,733 in 1999.

Utility costs have gone from $130,997 in 1998 to $183,807 in 2005 and $249,570 so far this fiscal year, the Friends said.

At the same time, salaries, wages and benefits for employees have gone from about $651,409 to about $754,050 this year, the Friends said.

A profit and loss statement for the first seven months of the fiscal year that began July 1, 2005, that was submitted to lawmakers in January showed a $165,197.92 net loss. However, that amount has been reduced to $83,820.21, according to museum staff, based on "two major gifts that came in."

Friends' officials note that revenues rose from $829,334 in 1998 to $945,112 so far this year, not including $119,327 in gifts.

Just as the Friends leases 'Iolani Palace from the state, the nonprofit Daughters of Hawai'i leases both the Queen Emma Summer Palace in Nu'uanu and the Hulihe'e Palace in Kailua, Kona.

Like 'Iolani Palace, the state gives no operating money for either historic site but sometimes gives money for restoration and other capital improvements.

David Scott, the Daughters executive director, said the group gets by on admissions, fundraisers, rentals and "being very frugal."

Scott, however, said the two facilities he manages have not had to undergo the extensive renovations that 'Iolani has needed, and are not saddled by restrictions over what can be done there. A facility within the Queen Emma Summer Palace, for instance, can be rented, something not allowed at 'Iolani Palace.

That said, Scott believes it is appropriate to give dedicated state funding to the Friends.

Kawananakoa would like to see the state restore at least some funding.

"'Iolani Palace is an internationally recognized symbol of Hawai'i," she said in a statement. "When constructed, it demonstrated the sophistication of the Kingdom of Hawai'i to the world and has been at the center of much that has defined Hawaiian social, cultural and political life. I call upon the Legislature to provide the long-overdue financial support for this treasure."

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com.