LOS ANGELES -- Hawaii's issuance of bonds to finance a long-planned convention center in Waikiki has moved a step closer to reality following a 1% increase in the state's 5% hotel room tax.

The increase alone is expected to generate about $17 million this fiscal year, and will be dedicated to backing tax-exempt convention center bonds, said Eugene Imai, director of finance for the Hawaii department of budget and finance.

The remaining 5% portion of the room tax, also known as the transient accommodations tax, generates about $80 million a year, and is divided among the counties of Hawaii, Maui, Kauai, and the county-city of Honolulu. The Hawaii legislature approved the 5% tax eight years ago, and last year it agreed to the 1% increase, effective July 1 when the 1995 fiscal year began, to fund the convention center.

Revenues from the 1% tax "will be increasing year by year as we expect the number of tourists to increase" because of the extra attraction of the state-owned and -operated convention center, Imai said.

Despite Hawaii's fame as a tourist mecca, Imai said convention facilities are "very limited" and located "primarily in hotels."

The legislature authorized the 1% tax to back up to $350 million of bonds to finance the multilevel convention center, to be located next to the Ala Mai canal. Imai said the center will consist of 100,000 square feet of exhibit space and 90,000 square feet of meeting rooms.

Issuing bonds will probably be accomplished in several separate competitive sales, with the first issuance to take place as soon as the Hawaii Supreme Court validates the offering.

"We are hoping they will be able to give us a decision by December," Imai said. "They are fairly backlogged in terms of their case load."

The state high court' s validation order will determine whether the bond issue fails under a state debt limit ceiling for general obligation bonds.

The state constitution caps the dollar amount of GO bonds the state can issue by limiting debt service tO 17% of general fund revenues, Imai said.

While the state is far from reaching the ceiling, Imai said "we would never even want to get close to it."

"One never wants to eat up capacity," said T. Kam Wong, a partner with Hawkins, Delafield & Wood, Hawaii's bond counsel. "Those are very precious dollars, and they need to use that [cap] as wisely as they can."

The court is also being asked to verify that the 1% hotel room tax qualifies as a user's tax. That would mean hotels are a primary beneficiary of the functions and services to be furnished by the convention center.

The validation is necessary because an Indiana court in 1985 found that a hotel tax earmarked toward funding the Indianapolis Convention Center was inappropriate because there was not a "sufficient nexus" between the hotel and convention center, Imai said.

"We needed a court test case before we could render an unqualified opinion" on the financing because of the Indiana case and a similar one in Pittsburgh, said Wong of Hawkins Delafield.

The court ruling would clear the way for the Hawaii Convention Center Authority, a state agency, to issue the bonds.

"If they rule against us, then we will issue GO bonds" that fall under the debt ceiling, Imai said. "The convention center project is definitely going forward; there is no question about that."

The bonds will be sold via competitive bid because of a procurement law that took effect July I that makes "it very difficult" to negotiate bond transactions, Imai said. The law requires competitive bids on "everything from professional services to goods and services," he said.

Imai said it has not been decided whether to sell revenue bonds or reimbursable GO bonds for the project.

A reimbursable GO bond is like a GO bond "from the standpoint that the state's full faith and credit is behind the bond," Imai said. "The convention center authority would reimburse the state for the debt service that the state would pay to retire the bonds. The source of that reimbursement would be the 1% room tax," he said.

Imai was appointed to the finance director's position by Gov. John Waihee, whose term expires Dec. 5. Imai said he and several finance deputies "are affected by the changeover" and will leave office in December.

But, he said: "I don't suspect there will be any delay or even a slowdown in the convention center financing because the staff of the convention center authority is not impacted by the governor's departure. There is a great deal of continuity."

Wong said a Hawaii convention center has been in the discussion stages "for 14 or 15 years. Now that they've reached this stage, it is kind of exciting. I hope they get it done."

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