Hawaii’s love-hate relationship with tourism

by Keli'i Akina, Ph.D., Grassroot Institute, July 10, 2022

It’s not just Hawaii residents who are being priced out of paradise. Slowly but surely, tourists are also wondering whether they can still afford to visit here.

A survey by Anthology Research of almost 4,000 tourists during the 2022 first quarter found that visitors from the U.S. West who say they will return to Hawaii within the next five years declined by 4.1 percentage points since the same period a year ago, to 82.2%. The percentage of people from the U.S. East wanting to return anytime soon fell by even more, 6.6 percentage points, to 66.6%.

According to the study, conducted for the state Department of Business, Economic Development and Tourism, the No. 1 reason cited by those who said they are unlikely to return soon was price. Visitors from across the U.S. said Hawaii has become “too expensive.” A related complaint was that a trip to Hawaii has become a “poor value.”

Allison Schaefers reported in the Honolulu Star-Advertiser yesterday that, “Given Hawaii’s dependence on domestic visitors and repeat travelers, such a decrease in U.S. visitors returning to Hawaii in five years could negatively affect the state’s tourism performance.”

This is not to say the state should be using tax dollars to fund tourism marketing. Instead, I am saying we should cast off policies that are unnecessarily discouraging visitor arrivals. As we learned the hard way during the coronavirus lockdowns, any drop in tourism can have a ripple effect throughout every sector of our economy, including our state and county budgets and tax revenues. Like it or not, Hawaii depends on tourism.

Even our excessively big state and county budgets are made possible — some might say “enabled” — by visitor dollars. If tourism declines, the pressure to make up those lost dollars will fall directly on Hawaii taxpayers, accelerating the exodus that has already caused so many locals to leave for the mainland in search of lower living costs and greater opportunities.

Yet, policymakers continue to treat tourists as an endless source of revenue, apparently never imagining that raising the price of a trip to Hawaii could have a negative effect on tourism trends.

It’s not just Hawaii’s hotels and rental cars that are expensive. Tourists also pay among the highest visitor-related taxes in the nation, including the state’s 10.25% transient accommodations tax, the 3% TAT surcharge of the counties, the state’s 4% general excise tax, the 0.5% GET surcharge of the counties, plus other fees and taxes.

Jack Richards, president of Pleasant Holidays LLC, told Schaefers that compared to 2019, the cost of a vacation to Hawaii is now about a third more than in 2019.

“The prices to Hawaii aren’t sustainable,” Richards said. “[The tourist industry] could get it before because there was so much pent-up demand, and a certain segment of the population would not travel internationally.”

Now, with renewed competition from a reopened Europe and other destinations, Hawaii is not as competitive as it used to be.

I recognize that some people might view the prospect of fewer tourists as a good thing. Hawaii residents sometimes have a love/hate relationship with our largest industry. But we should not be blind to the fact that tourism is an integral part of our economy.

When the Legislature panicked during the COVID-19 crisis and grabbed all the state TAT revenues, and allowed for a county-level TAT to further hike visitor taxes, I warned that higher costs could depress tourism. The Grassroot Institute of Hawaii has issued similar warnings as the counties have tried to eliminate short-term vacation rentals, thereby shutting out another category of visitors.

Proposals like the $50 environmental-impact fee and continued efforts to shut down short-term vacation rentals will increase the price of a Hawaii vacation even more, making the state even less attractive to repeat visitors.

If Hawaii is going to fully recover from the economic effects of the lockdowns, we must focus on economic growth rather than new sources of tax revenue. That means giving Hawaii’s businesses — and our tourists — room to breathe.

We can do far more to shape the future of Hawaii tourism with a healthy economy than we can with one that is still limping, especially if we want our state to be affordable enough to both live in and visit.
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This commentary was Keli’i Akina’s weekly “President’s Corner” column for July 9, 2022. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.