The state Attorney General’s Office is reviewing whether the Hawai‘i Tourism Authority must pay $780,000 in interest for millions of dollars in late payments to a major contractor at the same time the agency is undergoing separate state probes to determine whether it committed procurement or ethics violations.
The issues were brought forward Tuesday afternoon during an HTA Budget, Finance, and Convention Center Standing Committee meeting, which was chaired by HTA board member David Arakawa.
James Kunane Tokioka, director of the state Department of Business, Economic Development and Tourism, told the Honolulu Star-Advertiser following the meeting that the Hawai‘i Visitors and Convention Bureau; the Council for Native Hawaiian Advancement’s Kilohana; and Finn Partners, doing business as Anthology Marketing Group Inc., asked him to intervene about two months ago because HTA was at least 90 days past due in paying invoices.
Tokioka said HVCB at one time was owed $11 million, and is now owed about $6 million and is pursuing $780,000 in interest for late payments. HVCB President and CEO Aaron Sala was not immediately available for comment.
Isaac Choy, HTA vice president of finance and interim chief administrative officer, told the committee that HTA has paid some of HVCB’s past invoices but is waiting for the Attorney General’s Office to determine whether it must pay the interest.
“It’s not contractually accounted for, therefore I do not believe that we have an obligation to pay interest,” Choy said. “However, there is a statute that calls for paying of interest for late payments.”
Arakawa said the HTA board must carefully consider its response to the demand for interest.
“In the real world, in most worlds, if we don’t pay them they could sue us, and they would probably win in court because there’s no excuse in court for that many days not paying somebody,” he said.
HTA board member James McCully questioned where HTA would get the money to pay the interest, and how that would affect programming.
“We don’t have a slush fund from the (Legislature), and we don’t have a profit margin to cut into, so where does that money come from?” McCully asked.
Arakawa expressed concern about HTA’s record of ongoing late payments.
“HVCB warned us over a year ago we were in arrears. At that time it was several million, and they warned us they would start charging interest,” he said. “At one point the (Kilohana) contract was 400 days in arrears. I think I speak for other members of the board: It’s unacceptable.”
Tokioka responded, “The sad part, chair, is that we had the money. It was sitting in our account.”
He said the debt was recently paid off for Kilohana, which was at one time owed $4 million. Tokioka added that the debt has mostly been cleared for Finn Partners, which was at one time owed about $25,000. Finn Partners was not immediately available for comment.
Tyler Gomes, Kilohana’s chief administrator, said, “They have corrected the supermajority of the error,” but added that “liquidity is important.”
“We are a nonprofit organization that serves a number of missions, so it’s not as simple as being able to pull from other pots,” he said. “We really are dependent on the HTA dollars. We don’t have the capacity to front that money on behalf of HTA.”
Procurement issues
Tokioka told the committee that another pending issue is a possible procurement violation in relation to a $1.6 million Los Angeles marketing activation executed by HVCB last fall as part of a Maui recovery plan.
He said he has met with State Procurement Office Administrator Bonnie Kahakui because a “verbal project was done without a contract,” and “there were not any bids.”
“In my opinion, if you don’t have a contract and you provide a service, it’s a procurement violation. But the question will be asked by the state procurement office; that’s still pending,” Tokioka said.
Tokioka said the $1.6 million is likely part of what HVCB is claiming is still owed, but “it’s hard to tell because we don’t have a contract.”
Deputy Attorney General John Cole, who advises the HTA board, told the committee that “it seems work was done without a contract amendment that should have been done, and since the contractor did the work, we are going to have to pay them.”
Cole advised that a retroactive contract is best “because say if they do bring us to court, there is a high likelihood that they would be able to collect that amount anyway.”
Freebie allegations
It was just April 7 that HTA board Chair Todd Apo told the HTA Administrative and Audit Standing Committee that he did not “see an abuse of discretion” regarding Hawai‘i Convention Center discounts received by two nonprofits affiliated with the previous HTA board chair, Mufi Hannemann, and recommended putting the matter “to bed.”
Apo did not immediately respond Tuesday to the Star-Advertiser.
The financial audit of HTA’s fiscal year 2024 by Accuity LLP, a firm contracted by the state auditor’s office, had earlier determined that there were procedural deficiencies that allowed for free food and rent for events at the convention center, but did not issue a finding of fraud.
The Hawai‘i Lodging and Tourism Association and Pacific Century Fellows were not originally billed by the convention center for events held in 2023 and 2024 that were reserved by HTA leadership on their space form, since food and beverage costs for events on those forms are later reconciled with HTA. However, HLTA and PCF were presented with a bill for nearly $14,000 prior to the March 27 HTA board meeting.
Arakawa is now bringing up an issue of sponsorships, and questioned during Tuesday’s committee meeting why HVCB, Kilohana and HLTA were named as premier sponsors for the fall HTA conference when they did not pay sponsorship fees.
Tokioka clarified after the meeting that HTA’s contracts with HVCB and Kilohana designate that they will be premier conference sponsors, but said that HLTA does not have a similar arrangement.
“Alaska/Hawaiian paid $5,000, but it’s $7,500 to be a premier sponsor,” he said. “I think Chair Arakawa is going to submit something to the (State Ethics Commission), and it will come back to the board.”
Hannemann, who is still on the HTA board, stepped down as board chair when the earlier convention center allegations surfaced, and was not immediately available for comment.
The State Ethics Commission told the Star-Advertiser on Tuesday that investigations are confidential and it cannot comment if an investigation has been opened.
Lawmakers watching
The HTA board also met Tuesday during a special meeting where it voted unanimously to support the appointment of Caroline Anderson as HTA interim president and CEO, and raised several other HTA staff leaders into greater leadership roles. The shuffle came after the abrupt March 21 resignation of Daniel Naho‘opi‘i, who had been in the role of interim HTA president and CEO for 18 months.
In addition to his finance duties, Choy was promoted to interim chief administrative officer. Jadie Goo, HTA senior brand manager, was named interim HTA chief brand officer. HTA Chief Stewardship Officer Kalani Ka‘ana‘ana was also given the role of interim public affairs officer.
Rep. Adrian Tam (D, Waikiki), chair of the House Committee on Tourism, said he was pleased to see HTA shoring up its interim leadership team. But he said HTA’s latest issues reinforce why he recently proposed amending Senate Bill 1571 so that the governor appoints the HTA president and CEO and the Senate confirm the choice. He also supported the part of the bill that downgrades the HTA board to an advisory board, which continues the trend of increasing DBEDT’s oversight of HTA.
The Senate disagrees with the House amendments for SB 1571, which is still in conference. However, Tam said that “it’s going to be really hard for it not to move forward. The public wants accountability when it comes to HTA, which also ultimately affects the industry, too.”
Sen. Lynn DeCoite (D, Hana-East and Upcountry Maui-Molokai-Lanai-Kahoolawe), chair of the Senate Committee on Energy, Economic Development and Tourism, said she needs to talk to Tokioka soon and that she is also wants to meet with Anderson and Apo.
“This is the reason why we’ve had challenges in the past of approving one budget for them last year,” DeCoite said. “They know what they are supposed to do, yet I constantly see these things.”
DeCoite said SB 1571 exists solely because lawmakers are questioning whether the public would be better served by an advisory HTA board.
“There are too many people (on the board) involved in the industry that are not addressing these types of issues that should be talked about and should be fixed so they can build the public trust,” she said. “Right now there is no public trust.”
