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How Can the State Help Revive Hawaii's Tourism Industry?
Hawaii's Economic Revitalization Task Force (ERTF) has made
several proposals for strengthening the competitive position of Hawaii's
tourism industry. Stagnant growth in visitor arrivals and spending
in the 1990s has prompted many to question whether tourism will
be a major part of Hawaii's future growth.
Consider the case of Miami Beach, another city heavily dependent
on tourism. Attracted by the many art deco style hotels in its
South Beach district, visitors swarmed to the Florida beach resort
in the 1950s and 1960s. A major construction boom contributed
to the city's prosperity, with enormous new resorts attracting
visitors to the Middle Beach district. Every Saturday night in
the early 1960s, the nation watched Jackie Gleason broadcast his
popular live television show from Miami Beach. The city's decline
was as swift as its rise. In the 1970s, it began to feel the
impact of new competition from less familiar resorts, including
Orlando; Honolulu; and Caribbean Islands. With the decline in
tourism came increased crime, drug use, and decaying hotel properties.
Miami Beach's future looked bleak in the early 1980s.
Yet by 1995, Miami Beach had totally reversed its fortunes, regaining
its status as one of the world's premier vacation destinations.
How did such a rapid transformation take place? The redevelopment
was sparked by two visionary citizens, Barbara Capitman and Leonard
Horowitz, who recognized that South Beach's revival would be fueled
by its special unique asset, its incredible art deco buildings.
They began a campaign to preserve, repaint, and remodel these
buildings. After winning National Register Designation of the
"art deco district" in South Beach, Horowitz began to
repaint hotel facades with the pastel shades that became associated
with the Miami Vice television series.
As visitors began to return in the late 1980s and hotel profits
revived, hoteliers in South Beach switched from repainting their
exteriors to remodeling their interiors. Ian Schrager, owner
of several prominent NYC hotels, and Chris Blackwell, founder
of Island Records, bought numerous Miami Beach hotels and remodeled
rooms and lobbies in eye-catching fashion that stuns new visitors.
A city improvement district facilitated the transformation of
beachfront Ocean Drive into a mile-long walkway of sidewalk cafes,
open-air restaurants, and small fashionable shops. Attracted
by the exciting atmosphere, celebrities, including Madonna, Sean
Penn, Mickey Rourke, and Gianni Versace, began to invest in the
area. The boom has continued through the 1990s.
Honolulu isn't Miami Beach. Just imitating its redevelopment
formula would surely be a recipe for disaster. But Honolulu could
learn a lot from South Beach's success. Citizens and government
acted together to protect and enhance South Beach's unique art
deco's assets. A city redevelopment project helped to create
the Ocean Drive stretch of sidewalk cafes, open-air restaurants,
and rollerblading pedestrians that today is world-famous. Could
a similar private-public partnership work in Honolulu?
In fact, one of the two major recommendations of the ERTF concerning
tourism is to form a partnership between the State of Hawaii and
the City and County of Honolulu to work together to improve visitor
infrastructure and activities in Waikiki. The ERTF recommended
that a State/City analysis group be appointed by the Governor
and Mayor to address these issues.
While the State/City partnership could be a good idea, it is notable
that Miami Beach revitalization was driven by a public/private
partnership. Early participation of Waikiki's residents and business
owners in a broader partnership could be highly productive in
generating new ideas, identifying objections to proposed projects
at an earlier stage, and ultimately generating broader political
support for the coalition's ideas.
Following Miami Beach's example, a major task of a State/City/Private
partnership should be to identify Waikiki's unique assets that
need to be preserved or enhanced and to develop realistic plans
to achieve these goals. George Kanaehele's catalog of unique
Hawaiian assets in Waikiki might be a good place to begin looking
for ideas.
Again following Miami Beach's example, the partnership could focus
on enhancing the use of a valuable unique asset in Waikiki that
is grossly underused: the wide sidewalks and commercial properties
along Kalakaua Avenue. A walk down Ocean Avenue in South Beach
is somewhat slow because of the large crowds filtering their way
through the cafes, restaurants, and shops. It's also a lot of
fun. By contrast, a walk down the wide sidewalks of Kalakaua
Avenue proceeds at a faster pace, allowing shoppers to move rapidly
from one upscale boutique to another. The walk isn't much fun.
A close look at Ocean Drive in South Beach and the design district
that facilitated the makeover of this one-mile long stretch should
be high in the partnership's priorities.
Business improvement districts in Waikiki could facilitate innovative
hotel remodeling (as in Miami Beach) as well as improvements in
public infrastructure and services. In a business improvement
district, property owners tax themselves and government(s) provide
matching funds, This was the major vehicle for the successful
redevelopment of Times Square in New York City.
The second ERTF proposal recommends increasing the Transient Accommodations
Tax (TAT) from 6 percent to 7 percent of hotel rentals and dedicating
3 percentage points of the 7 percentage point base to tourism
marketing. This would allow state funding for tourism promotion
to be increased from $25 million to $60 million.
Governments almost everywhere actively finance or directly engage
in tourism promotion. Forty-nine U.S. states (except Colorado)
have state government offices charged with promoting tourism.
Why should governments use tax dollars to benefit tourist businesses,
when in many cases, the owners of these businesses aren't even
locally owned?
Governments are actively involved in tourism promotion because
private businesses cannot organize effectively to pay for it themselves.
A tourist business will spend money to promote its own business,
but is reluctant to contribute money toward generic advertising
to promote Hawaii travel. It has an incentive to "free ride"
on someone else's contribution. It will get some of the new tourists'
business whether it contributes or not. This explains why less
than 7% of Hawaii's businesses voluntarily contributed to Hawaii
Visitors and Convention Bureau (HVCB) in 1988. The tourist industry
currently has annual sales of about $10 billion, but private contributions
to HVCB's annual operating budgets total only about $2 million.
With so many free riders, the result is that too little money
is spent on generic promotion of the State's most important product.
How do you get businesses that benefit from tourism to contribute
to generic advertising? The simplest way is to force those businesses
that benefit directly from tourism to pay for the promotion.
With many agricultural products, it is the industry rather than
the government that sets and collects taxes from producers. The
government facilitates this process by passing laws that require
all producers to pay the promotional tax. Few people would be
upset to learn that Hawaii papaya growers tax themselves to pay
for generic advertising.
The ERTF's recommendation to raise the hotel room tax and dedicate
a portion of the money to tourism promotion is an effective way
to force the tourist industry to pay for collective promotion.
While not all businesses that benefit from tourism pay the TAT,
a broader tax including sales by restaurants, tourist attractions,
and taxicabs, would impact too many local residents. The TAT
is also relatively easy to collect.
Overall, a dedicated funding source for generic tourism promotion
tied to tourist revenues represents an improvement over the present
system of annual lobbying. Raising and spending money on tourism
promotion may now be less politicized. Another benefit is that
it will provide a more predictable promotional budget that will
permit us to do a better job of long-term promotional planning.
Is $60 million a year too much or still too little to spend to
promote Hawaii? Industry advocates believe that such advertising
could be extremely effective. While a recent study by Longwood
International shows positive effects from advertising expenditures,
the study provides little information on how much more we should
spend. If a concerted advertising campaign is undertaken, it
is important for the State to monitor and evaluate the effectiveness
of the additional expenditures.
Under the ERTF's proposal, the counties' share of the TAT would
fall, and they would be hurt financially, at least in the short
run. If the money spent on promotion brings more tourists to
Hawaii, then in the long run the counties may end up with more
tax revenues (from a larger property tax base) than less. With
its broad array of tax revenue sources, the state should be able
to compensate the counties for the lost revenues in the short
run.