In its first-ever capital campaign, Shriners Hospitals for Children launched a $14 million fundraising effort yesterday to help pay for the construction of a $73 million state-of-the-art hospital and outpatient family residence in Punahou.

"This is a historic moment," said Ralph Semb, chairman of Shriners Hospitals board of trustees, whose headquarters is in Tampa, Fla. "For years, we've never had to ask for money."

The new hospital will replace the existing Shriners facility on Punahou Street, which was built in 1967. Shriners officials say private and corporate donors have already pledged $3.6 million for the new hospital. The organization will continue fundraising through construction, which will start in August and is expected to run through June 2010.

But the plea for money comes as Shriners is fielding criticism from some across the nation, who question how donations are spent. A recent New York Times analysis found some of the money raised in temples on the Mainland was spent on alcohol for parties and travel expenses for conferences — not the hospitals system, as many had thought.

Semb said the instances of money mishandling were isolated and have been addressed.

He also said donors to the Honolulu hospital can be sure their money will stay in Hawai'i and go only to the construction of the new facility.

While this is the first time in its history that Shriners has embarked on a capital campaign, it won't be the last.

Starting with the Honolulu facility, any construction or capital improvement project of more than $10 million that the organization undertakes will have to be at least partially paid for with public donations, he said. The new policy comes as Shriners is struggling to keep its hospitals maintained and modernized.

The organization has an $8 billion endowment, whose interest and revenues — along with donations from Shriners members and dues — pay for operations and care at 22 Shriners hospitals in the United States, Canada and Mexico. But the principal of the endowment is not allowed to be touched, and sometimes the interest is not enough, Semb said.

Shriners does not charge its patients for medical care, and also provides free transportation to many of the children it serves, along with their families. Though it does get donations for its hospitals through special events and on its Web site, the money covers just a fraction of operating expenses, Semb said.

The Shriners hospital in Honolulu sees about 550 children a year from across the state, the Pacific and Asia. Over its history in the Islands, some 25,000 kids have been helped with free medical care. One notable patient: U.S. Sen. Daniel K. Inouye, who fractured his arm as a child.

Inouye has pledged his support for the fundraising campaign, and appears in a series of public service announcements produced by the hospital.

Shriners officials said yesterday the hospital will remain open through construction. Operations will be performed in a trailer, similar to those used by the military on battlefields. At the hospital yesterday, several current and former patients gathered with Shriners officials from across the nation, who had come in for the capital campaign kickoff. Wearing their signature tall red fezzes, the Shriners mingled with children who were using crutches or wheelchairs.

Niko Baxa, a 16-year-old from the Philippines, sat on a bench in the courtyard of the hospital watching the mingling from a distance. Baxa was born with a condition that left his legs crooked; to straighten them, doctors inserted pins in his bones, and he has to wear a metal brace for months at a time.

But Baxa doesn't focus on the pain. "Maybe, if I never came here, I would not be able to walk in five years," said Baxa, who arrived at the hospital from the Philippines in August with his mother, and expects to stay for another two months.

Reach Mary Vorsino at mvorsino@honoluluadvertiser.com.