Legislature(2005 - 2006)CAPITOL 124


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* first hearing in first committee of referral
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Heard & Held
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Scheduled But Not Heard
Moved CSHB 49(CRA) Out of Committee
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         April 5, 2005                                                                                          
                           8:11 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Co-Chair                                                                                             
Representative Bill Thomas, Co-Chair                                                                                            
Representative Pete Kott                                                                                                        
Representative Gabrielle LeDoux                                                                                                 
Representative Mark Neuman                                                                                                      
Representative Sharon Cissna                                                                                                    
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 2                                                                                                                
"An Act relating to taxes regarding certain commercial passenger                                                                
vessels operating in the state; and providing for an effective                                                                  
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 49                                                                                                               
"An Act relating to municipal aid grants; and providing for an                                                                  
effective date."                                                                                                                
     - MOVED CSHB 49(CRA) OUT OF COMMITTEE                                                                                      
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB   2                                                                                                                  
SHORT TITLE: TAX ON COMMERCIAL VESSEL PASSENGERS                                                                                
SPONSOR(S): REPRESENTATIVE(S) GATTO                                                                                             
01/10/05       (H)       PREFILE RELEASED 12/30/04                                                                              
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       CRA, TRA, FIN                                                                                          
03/29/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/29/05       (H)       Heard & Held                                                                                           
03/29/05       (H)       MINUTE(CRA)                                                                                            
04/05/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
BILL: HB  49                                                                                                                  
SHORT TITLE: MUNICIPAL AID GRANTS                                                                                               
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG                                                                                          
01/10/05       (H)       PREFILE RELEASED 1/7/05                                                                                
01/10/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/10/05       (H)       CRA, FIN                                                                                               
03/03/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/03/05       (H)       Heard & Held                                                                                           
03/03/05       (H)       MINUTE(CRA)                                                                                            
04/05/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
WITNESS REGISTER                                                                                                              
JOHN PEARSON                                                                                                                    
Hyder Board of Trade, Inc.                                                                                                      
Hyder, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 2, with two                                                                     
CODY RICE, Staff                                                                                                                
to Representative Carl Gatto                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke on behalf of the sponsor of HB 2,                                                                    
Representative Gatto.                                                                                                           
MIKE WINDRED                                                                                                                    
Alaska Travel Adventures                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to HB 2.                                                                           
DON HABEGER, Regional Vice President                                                                                            
Government & Community Affairs                                                                                                  
Royal Caribbean Cruises                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Expressed concerns with HB 2.                                                                              
SUSAN BURKE, Attorney at Law                                                                                                    
Gross & Burke, PC                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Representing the North West Cruiseship                                                                     
Association, expressed legal concerns with HB 2.                                                                                
REPRESENTATIVE NORMAN ROKEBERG                                                                                                  
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke as the sponsor of HB 49.                                                                             
ACTION NARRATIVE                                                                                                              
CO-CHAIR  BILL THOMAS  called the  House  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  8:11:15  AM.                                                             
Representatives  Olson, Thomas,  Kott,  LeDoux,  and Neuman  were                                                               
present at  the call to  order.  Representatives Kott  and Cissna                                                               
arrived as the meeting was in progress.                                                                                         
HB   2-TAX ON COMMERCIAL VESSEL PASSENGERS                                                                                    
CO-CHAIR THOMAS announced that the  first order of business would                                                               
be HOUSE BILL NO. 2, "An  Act relating to taxes regarding certain                                                               
commercial  passenger   vessels  operating  in  the   state;  and                                                               
providing  for an  effective date."   [Before  the committee  was                                                               
CSHB 2, Version 24-LS0003\G, Kurtz, 2/17/05.]                                                                                   
8:12:10 AM                                                                                                                    
CO-CHAIR OLSON moved to adopt  CSHB 2, Version 24-LS003\L, Kurtz,                                                               
4/1/05,  as the  working  document.   There  being no  objection,                                                               
Version L was before the committee.                                                                                             
8:12:30 AM                                                                                                                    
JOHN PEARSON, Hyder Board of  Trade, Inc., informed the committee                                                               
that Hyder,  an unincorporated community of  about 130 residents,                                                               
is located  at the  Canadian border  at the  end of  the Portland                                                               
Canal.   Hyder has a  unique relationship with  British Columbia.                                                               
The community,  while isolated, is  directly linked to  the Lower                                                               
48  by a  paved  highway.   Tourism is  the  primary industry  of                                                               
Hyder.    In  fact,  the  U.S.  Forest  Service  recorded  56,000                                                               
independent visitors who  came to view the bears at  Hyder.  Last                                                               
year was also  the first year that Hyder was  actively engaged in                                                               
the  cruise tourism  industry.   Next year,  Hyder will  increase                                                               
port calls  by about  300 percent.   Mr. Pearson  related support                                                               
for  HB 2  with the  following  two modifications.   Mr.  Pearson                                                               
requested  an  exclusion of  the  Portland  Canal because  it  is                                                               
recognized as  an international waterway similar  to those waters                                                               
that  Alaska Marine  Highway vessels  travel  from Bellingham  to                                                               
8:15:10 AM                                                                                                                    
REPRESENTATIVE  NEUMAN  inquired  as   to  the  location  of  the                                                               
language in the legislation.                                                                                                    
CO-CHAIR OLSON specified that the  language [to which Mr. Pearson                                                               
is referring] is  "marine waters of the state",  which is located                                                               
on page 2, line 2 of Version L.                                                                                                 
8:16:44 AM                                                                                                                    
MR. PEARSON  informed the  committee that  the Portland  Canal is                                                               
flanked by British  Columbia on one side and Alaska  on the other                                                               
side.    Any  vessel  traveling between  Prince  Rupert,  British                                                               
Columbia, and  Stewart, British Columbia,  without ever  making a                                                               
port  call in  Alaska would  be required  to pass  through Alaska                                                               
waters, which is similar to  the situation when the Alaska Marine                                                               
Highway   operated  between   Hyder,  Alaska;   Stewart,  British                                                               
Columbia; and  Ketchikan, Alaska.   Therefore, the request  is to                                                               
only exclude Portland  Canal.  He pointed out that  only two U.S.                                                               
communities are  exempt from  the Jones Act:   Hyder,  Alaska and                                                               
Savannah,  Georgia.   Mr.  Pearson related  his  belief that  any                                                               
vessel making  landings at Stewart  would be considered  the same                                                               
as any other community in Alaska.                                                                                               
MR. PEARSON announced  that the Hyder Board of  Trade, Inc., also                                                               
seeks   the  inclusion   of   unincorporated  communities   while                                                               
requiring  documentation  that indicates  that  there  is a  port                                                               
call.    This  legislation,   he  related,  provides  unorganized                                                               
communities the ability  to do some economic  development, in the                                                               
area of  tourism, that hasn't done  before.  He noted  that for a                                                               
community  such  as  Hyder  to meet  the  federal  standards  and                                                               
mandates of homeland security is a major task.                                                                                  
8:20:17 AM                                                                                                                    
REPRESENTATIVE NEUMAN  asked if British Columbia  presently has a                                                               
head tax.                                                                                                                       
MR. PEARSON  replied no.   In further response  to Representative                                                               
Neuman,  Mr.  Pearson  clarified  that  he  isn't  requesting  an                                                               
exemption from taxation for Hyder.   However, Hyder would like to                                                               
share   in  the   proceeds.     Mr.  Pearson,   in  response   to                                                               
Representative  Neuman, specified  that Hyder  is an  unorganized                                                               
borough  and  wouldn't  receive  funds  under  this  legislation.                                                               
However, Hyder anticipates incorporating  in the next five years,                                                               
he related.                                                                                                                     
8:22:05 AM                                                                                                                    
CODY  RICE,  Staff to  Representative  Carl  Gatto, Alaska  State                                                               
Legislature,  confirmed that  he and  Mr. Pearson  spoke on  this                                                               
issue.    The  sponsor's  and   Legislative  Legal  and  Research                                                               
Services'  interpretation of  HB 2  is that  no matter  whether a                                                               
community is identified  as organized or not if  the community is                                                               
identified as a  port of call, that community  will be considered                                                               
one  of  the  five  ports  of   call  and  receive  funds.    The                                                               
legislation  only  refers  to  an   incorporated  city  within  a                                                               
borough, in  which case  the intention was  to split  the revenue                                                               
because of shared port and harbor  costs.  With regard to vessels                                                               
traveling between  Canadian ports without stopping  in an Alaskan                                                               
port,  under  MTSA  applying  this  tax would  be  illegal.    He                                                               
mentioned that the committee should  have an amendment that would                                                               
exempt  vessels that  don't stop  at an  Alaska port  of call  in                                                               
order to provide some clarity.                                                                                                  
8:24:26 AM                                                                                                                    
CO-CHAIR  THOMAS  related  his  understanding  that  the  smaller                                                               
vessels that  anchor outside the  port would be exempt  from this                                                               
proposed tax.  However, he said  he thought the idea was to [tax]                                                               
those who impact Alaska.                                                                                                        
MR.  RICE  said  whether  [such  vessels  are  exempt  from  this                                                               
proposed  law]  would depend  upon  the  Department of  Revenue's                                                               
interpretation of the law.   However, he suspected that anchoring                                                               
wouldn't  meet  MTSA standards  for  taxation  purposes and  that                                                               
passengers would actually have to be off-loaded.                                                                                
CO-CHAIR THOMAS  interjected that passengers are  off-loaded from                                                               
these vessels that are anchored [outside the port].                                                                             
MR.  RICE suggested  then  that  in such  a  situation, it  would                                                               
likely be considered a port of call.                                                                                            
8:26:06 AM                                                                                                                    
MIKE WINDRED,  Alaska Travel Adventures,  spoke in  opposition to                                                               
HB 2.   He characterized the proposal  in HB 2 as  a punitive tax                                                               
with limited  spending potential.  Furthermore,  the proposed tax                                                               
doesn't  tax the  intended  target, the  cruise  line, rather  it                                                               
taxes   the  visitor.     Mr.   Windred  recalled   the  previous                                                               
presentation on HB 2 from which  he understood one of the reasons                                                               
for  the tax  is  that cruise  lines  make a  lot  of money,  and                                                               
therefore the  state should  receive a portion  of it.   However,                                                               
that  doesn't seem  to be  the correct  avenue, he  opined.   Mr.                                                               
Windred pointed out that there has  been no risk sharing when the                                                               
cruise industry  has built a $600  million ship.  In  fact, there                                                               
have  been several  small cruise  lines, such  as World  Explorer                                                               
Cruises,  that  stopped coming  to  Alaska  after [the  terrorist                                                               
attacks of  September 11, 2001]  because it couldn't  make enough                                                               
money.  Mr.  Windred informed the committee that  the cruise ship                                                               
industry prefers  a broad-based tax  rather than a  targeted tax.                                                               
He highlighted that  the other taxes mentioned:   timber, mining,                                                               
and  oil taxes  are  industries that  actually extract  something                                                               
from the  state.  However, the  visitor industry is one  in which                                                               
the  visitors  leave  something,   money,  when  visiting.    The                                                               
aforementioned  money  is  left with  [the  state's]  businesses,                                                               
which then in turn spend money in the state.                                                                                    
MR.  WINDRED turned  to  the limited  spending  potential of  the                                                               
proposed tax  revenues, which are  directly tied to the  ship and                                                               
its cargo.   This tax won't allow money to  be deposited into the                                                               
general  fund to  be distributed  to outlying  communities, which                                                               
will be hurt the  most by this proposed tax.   This tax taxes the                                                               
visitor rather  than the industry, he  highlighted.  Furthermore,                                                               
visitors already pay a substantial  amount in port fees and dues.                                                               
For example,  a visitor  to Juneau  will pay  about $20  for ship                                                               
pilotage fees, $5  for Juneau's local head tax, $1.18  for a port                                                               
development fee,  $1 for a docking  fee, and a $.50  tonnage tax.                                                               
Therefore, before  a visitor has  even left the ship  he/she pays                                                               
about  $28.00.   In  Juneau  visitors also  pay  a  sales tax,  a                                                               
loading permit  fee, a  land use  fee, and an  airport fee.   The                                                               
aforementioned doesn't include the  expenses of goods a [tourism]                                                               
company  buys and  on which  it pays  sales tax,  not to  mention                                                               
corporate income taxes.   Therefore, he charged  that the visitor                                                               
is already paying a substantial fee.                                                                                            
MR. WINDRED posed  a scenario in which a family  of four taking a                                                               
$1,000  per person  cruise would  face $200  in taxes  under this                                                               
proposal.  He  informed the committee that surveys  have shown an                                                               
additional charge of $50 would  deter 17 percent of visitors from                                                               
coming  to   Alaska.    Moreover,   48  percent,   including  the                                                               
aforementioned  17  percent, say  the  decision  to visit  Alaska                                                               
would  be marginal  [with a  $50 tax].   Even  those who  come to                                                               
Alaska will decide what not to  do or spend when visiting Alaska.                                                               
He suggested that  those things cut first are  the expensive back                                                               
country/rural  area  tours, the  extended  tours,  and the  shore                                                               
excursions.   Mr.  Windred  said  he can  relate  this with  much                                                               
certainty  due to  the experiences  Alaska Travel  Adventures has                                                               
8:36:06 AM                                                                                                                    
REPRESENTATIVE  NEUMAN related  his  understanding that  although                                                               
the  cruise  ships make  a  substantial  profit, they  don't  pay                                                               
corporate taxes to the state.                                                                                                   
MR. WINDRED  agreed, but added  that some of the  subsidiaries of                                                               
the cruise ships  do [pay corporate taxes to the  state], such as                                                               
Gray Line of Alaska.                                                                                                            
REPRESENTATIVE NEUMAN  turned attention to Mr.  Windred's earlier                                                               
example of  a cruise  that costs $1,000  per person,  and pointed                                                               
out that the $200  tax for a family of four  would be in relation                                                               
to $4,000 for a cruise  for four.  Representative Neuman recalled                                                               
that Mr. Windred had said that a  sales tax is charged on all the                                                               
tours that Alaska Travel Adventures offers.                                                                                     
MR. WINDRED agreed.                                                                                                             
CO-CHAIR THOMAS  interjected that the  sales tax is at  the local                                                               
REPRESENTATIVE  NEUMAN   asked  if  [Alaska   Travel  Adventures]                                                               
transfers the local level sales tax  or does the company charge a                                                               
fee on top of that local level sales tax.                                                                                       
MR. WINDRED clarified that Alaska  Travel Adventures collects the                                                               
appropriate sales tax for that  local community and it's returned                                                               
to the community.                                                                                                               
REPRESENTATIVE NEUMAN characterized this  proposal as a user fee.                                                               
He related the burden that  the tourism industry creates on local                                                               
communities,   which  is   a  substantial   cost  to   the  local                                                               
communities.    He  noted his  disagreement  with  Mr.  Windred's                                                               
earlier  suggestion that  this  proposed tax  is  to support  the                                                               
general fund (GF).                                                                                                              
MR. WINDRED said  that he couldn't think of an  instance in which                                                               
the individual or  company using the [local]  services didn't pay                                                               
for  the  services directly.    For  instance, Bartlett  Regional                                                               
Hospital (BRH)  does fairly well  from the visitor industry.   He                                                               
suggested that BRH  provides services to locals  that it wouldn't                                                               
be able to otherwise due to  the [profit] made from the tourists.                                                               
Therefore, he  opined that most of  the services are paid  for by                                                               
the visitors to  the state.  "I would have  a hard time believing                                                               
... that  there are places  where there's  a large burden  on the                                                               
state, where those  people aren't paying for  those services," he                                                               
8:41:12 AM                                                                                                                    
REPRESENTATIVE  CISSNA  recalled  Mr. Windred's  earlier  comment                                                               
that   the   cruise  lines   bring   something   to  the   state.                                                               
Representative  Cissna pointed  out that  the cruise  lines bring                                                               
garbage and pollution.  After  talking with different communities                                                               
about their  local economy, she  has discovered that  the tourism                                                               
industry is  up.  However,  tourism isn't  necessarily beneficial                                                               
because it brings  in many summer workers and those  who build an                                                               
industry for  the summer are left  with no income in  the winter.                                                               
The  aforementioned people  will rely  on state  services in  the                                                               
winter  and thus  it's a  [burden] for  the state  and the  local                                                               
communities.   With regard to  medical services, she  pointed out                                                               
that  medical services  are already  stretched in  smaller areas.                                                               
Representative  Cissna concluded  by  opining  that the  proposal                                                               
embodied in HB 2 sounds like a  user tax because it pays for many                                                               
of the services that have built up for the cruise line industry.                                                                
MR. WINDRED agreed,  but said the issue with  this legislation is                                                               
in regard to how  to tie the money to the  [rural areas] when the                                                               
tax collected  has to be tied  to the cruise ship  and its cargo.                                                               
At some  point, the  money can't  be spent  in a  rural community                                                               
because it isn't  tied to the cruise ship.   However, a 2 percent                                                               
sales tax, even  if it were seasonal, could be  spent anywhere in                                                               
Alaska, including rural communities.                                                                                            
8:45:20 AM                                                                                                                    
REPRESENTATIVE  LEDOUX  surmised  that  if the  cruise  ship  tax                                                               
revenue goes  specifically to the directly  impacted communities,                                                               
then there  would be more  money in the  state treasury to  go to                                                               
the more remote communities.                                                                                                    
MR.  WINDRED opined,  "I  think  within the  area  that you'd  be                                                               
offsetting ...  the state  isn't spending a  lot right  now, that                                                               
most  of that  is already  either offset  through the  visitor or                                                               
there isn't a very high cost there, at this point."                                                                             
REPRESENTATIVE LEDOUX related her  understanding that Mr. Windred                                                               
had  just  testified that  there  are  significant costs  to  the                                                               
outlying  areas, but  those  areas wouldn't  be  impacted by  the                                                               
cruise ship tax.                                                                                                                
MR. WINDRED specified,  "The place you'd have to  offset to spend                                                               
... the general fund money elsewhere  would be within the core of                                                               
where  the ship  is traveling.   So,  that wouldn't  include that                                                               
rural community."                                                                                                               
REPRESENTATIVE  LEDOUX surmised  then that  the tax  revenue from                                                               
the  cruise ships  places more  money in  the state  treasury and                                                               
it's  spent on  the communities  directly impacted.   Once  those                                                               
communities are  addressed with the  [cruise ship  tax revenues],                                                               
more GF is left for other areas.                                                                                                
CO-CHAIR THOMAS explained  that the first five  ports receive the                                                               
revenue generated  from the tax,  and the remainder of  the money                                                               
is placed in the GF.  The  question then becomes how to get money                                                               
to  Point  Barrow  when  the cruise  ship  visitors  departed  in                                                               
Skagway and traveled by bus to  [Point Barrow].  The chances that                                                               
the money  left in  the GF  is dispersed to  rural areas  is more                                                               
8:48:23 AM                                                                                                                    
REPRESENTATIVE  LEDOUX recalled  Mr.  Windred's speculation  that                                                               
imposing  a head  tax would  have ramifications  for other  land-                                                               
based industries.   Therefore, she asked whether  Mr. Windred had                                                               
a study  illustrating that  people visiting  Juneau, with  its $5                                                               
head tax,  have reduced their  spending on land-based  [tours] by                                                               
$5 a person.                                                                                                                    
MR. WINDRED replied  no.  However, during the  same timeframe [as                                                               
the $5  tax was  imposed in Juneau]  several other  large factors                                                               
occurred, such as  [the terrorist attacks of  September 11, 2001]                                                               
and  the economic  decline.   Therefore,  such a  study would  be                                                               
difficult to perform.                                                                                                           
REPRESENTATIVE  LEDOUX asked  if  Mr. Windred  would  be able  to                                                               
prove  that everyone  spent  $5  less during  a  time when  there                                                               
aren't other factors to consider.                                                                                               
MR. WINDRED  opined that a $5  port tax wouldn't have  nearly the                                                               
impact as a $50  port tax.  However, $200 in tax  for a family of                                                               
four is  an impact on  where that family  spends its money.   Mr.                                                               
Windred  said he  would prefer  the  money be  spent with  [local                                                               
businesses] that can then spend  that money with the state, which                                                               
helps the  economy much more  than the proposed tax  revenue that                                                               
goes directly  to the GF.   In fact, a statewide  sales tax would                                                               
encourage travel throughout the state.                                                                                          
8:51:44 AM                                                                                                                    
REPRESENTATIVE SALMON asked if other  states charge a tax such as                                                               
that proposed in HB 2.                                                                                                          
MR.  WINDRED replied  not to  his knowledge,  although there  are                                                               
port fees in other states.   The State of Alaska already has port                                                               
fees for each community visited.   He indicated that there aren't                                                               
any  specific  head  taxes  to   enter  the  state  due  to  some                                                               
interstate commerce laws.                                                                                                       
REPRESENTATIVE SALMON asked if Alaska's  port fees are comparable                                                               
to those charged on the West Coast.                                                                                             
MR. WINDRED deferred to Mr. Habeger.                                                                                            
8:53:17 AM                                                                                                                    
REPRESENTATIVE CISSNA turned to  independent travelers to Alaska,                                                               
and asked  if there  have been  studies regarding  whether cruise                                                               
ship visitors take a separate  trip to outlying areas that aren't                                                               
part of the [cruise].                                                                                                           
MR. WINDRED confirmed  that there are some  studies regarding the                                                               
number of individuals  who, post cruise, take  trips [to outlying                                                               
areas].   He informed  the committee that  part of  Alaska Travel                                                               
Adventures is a  recreational vehicle (RV) business.   He further                                                               
informed  the  committee that  since  [the  terrorist attacks  of                                                               
September 11,  2001] people weren't  willing to spend money  on a                                                               
package [that included  a cruise and RV trip].   Mr. Windred said                                                               
there  is a  huge tie  in all  the visitors  that come  to Alaska                                                               
because  of  the  marketing  of  the state.    Cruise  lines,  he                                                               
related, spend well  over $70 million on  marketing Alaska, which                                                               
creates  an image  of Alaska.    Largest portion  of the  state's                                                               
match  [in  marketing] amounts  to  about  $10 million  spent  on                                                               
marketing in  Alaska in the travel  planner.  One of  the primary                                                               
focuses  of  the  travel  planner  is  independent  travel.    He                                                               
highlighted that  the cruise ship  industry is a huge  portion of                                                               
making the travel planner happen.                                                                                               
8:57:35 AM                                                                                                                    
MR.  WINDRED, in  response  to  Representative Cissna,  explained                                                               
that the travel booklet is put  out by the Alaska Travel Industry                                                               
Association, which is a private marketing group.                                                                                
REPRESENTATIVE   CISSNA  interjected   that  the   aforementioned                                                               
private  marketing group  receives  state assistance.   She  then                                                               
pointed out  that although Mr.  Windred has used the  RV business                                                               
as  an example  [of tourism  reaching outlying  areas], the  real                                                               
outlying areas aren't on the road system.                                                                                       
MR. WINDRED  agreed, but  pointed out  that the  booklet provides                                                               
names and advertisements for  direct bookings [to outlying/remote                                                               
8:59:17 AM                                                                                                                    
REPRESENTATIVE NEUMAN recalled that  the governor cut the tourism                                                               
marketing funds  quite a bit  last year.   He inquired as  to how                                                               
much the state pays [for marketing].                                                                                            
MR.  WINDRED estimated  that  the  state pays  a  little over  $4                                                               
million  to match  the funds  the [tourism  industry] puts  forth                                                               
[for  marketing].   The total  [funds for  marketing] amounts  to                                                               
almost $10 million.                                                                                                             
9:00:43 AM                                                                                                                    
CO-CHAIR THOMAS  pointed out that  page 24 of the  McDowell Group                                                               
report in the committee packet  may answer some of Representative                                                               
Cissna's  questions  regarding the  number  of  travelers to  the                                                               
Interior  and  what those  travelers  spend  there.   The  report                                                               
specifies that  $100 million was  spent [by passengers  and crew]                                                               
in Southcentral and $28 million in the Interior.                                                                                
9:01:11 AM                                                                                                                    
MR.  WINDRED  referred  to  the January  27,  2004,  letter  from                                                               
Michael Tibbles,  Legislative Director,  Office of  the Governor.                                                               
The aforementioned  letter specifies  that about $115  million in                                                               
state  spending  is  [potentially]  attributable  to  the  cruise                                                               
industry.  However,  the McDowell Group performed  a study [dated                                                               
April 22, 2004], which shows that  instead of the $155 million in                                                               
state  funds there  was only  about $900,000  most of  which came                                                               
through  the Division  of Sport  Fish and  the fish  and wildlife                                                               
protection [division].   He said that both  of the aforementioned                                                               
are  based  on a  percentage.    From  having run  sport  fishing                                                               
businesses,  Mr. Windred  related that  not many  extra personnel                                                               
are hired  for enforcement, which  seems to happen  "because it's                                                               
already  there."    In  a  situation in  which  the  cruise  ship                                                               
industry  disappeared and  the charter  boats no  longer existed,                                                               
the impact to  the Division of Sport Fish would  mainly be to its                                                               
revenue side rather than its  cost side.  Therefore, he indicated                                                               
his agreement with  the McDowell Group's estimate of  the cost to                                                               
the Division of Sport Fish of $600,000.                                                                                         
MR.  WINDRED  then directed  attention  to  the McDowell  Group's                                                               
packet  of information  entitled,  "The Economic  Impacts of  the                                                               
Cruise Industry in Alaska, 2003" dated October 2004.                                                                            
The committee took an at-ease from 9:04 a.m. to 9:21 a.m.                                                                       
9:22:03 AM                                                                                                                    
DON  HABEGER, Regional  Vice  President,  Government &  Community                                                               
Affairs,  Royal  Caribbean  Cruises (RCC),  first  addressed  the                                                               
uniqueness of  HB 2 by pointing  out that no other  state has any                                                               
kind of head  tax such as proposed  in HB 2.   Although one might                                                               
say  Hawaii has  a head  tax, there  are some  major differences.                                                               
One of  which is  that all of  Hawaii's harbors  are state-owned,                                                               
and  therefore  it's all  controlled  by  Hawaii's department  of                                                               
transportation.    He  explained  that Hawaii  does  have  a  per                                                               
passenger  wharfage fee  for the  use of  the dock,  which ranges                                                               
from  $.35-$5.00.   Hawaii does  have  other fees  such as  those                                                               
based on the length  of the vessel and the number  of lines.  Mr.                                                               
Habeger then  turned to  the challenges [HB  2 would  create for]                                                               
Alaska businesses.  He then  provided a handout entitled, "Alaska                                                               
Businesses  Will  Pay"  to the  committee.    The  aforementioned                                                               
document  includes a  pie chart,  which  addresses the  potential                                                               
economic impact of a $50 or  $100 head tax on consumers coming to                                                               
Alaska.  The  response was that there would be  a definite impact                                                               
on the  tourist's spending once he/she  arrives in Alaska.    Mr.                                                               
Habeger  opined that  as  "we  get" further  away  from the  core                                                               
economic  activity,  Alaska's  businesses   are  placed  in  more                                                               
jeopardy.   For  example, one  of  the ground  presidents of  RCC                                                               
visited  Nome.    While  that   individual  likes  Nome,  it  was                                                               
determined  that   [offering  tours]   in  Nome  would   be  more                                                               
challenging  if the  cost increased,  such as  would be  the case                                                               
with this proposed tax.                                                                                                         
MR.  HABEGER then  turned  to the  [cruise  ship] industry's  own                                                               
municipal revenue sharing.  The  earlier mentioned McDowell Group                                                               
report discusses the over $30  million that the industry pays for                                                               
its usage of docks, including  some private docks, bed taxes, and                                                               
airport fees.   Therefore, Mr.  Habeger said [RCC]  believes that                                                               
the cost  to the state  and municipalities  isn't as much  as the                                                               
industry  brings to  the state.    Mr. Habeger  then recalled  an                                                               
article regarding  a Florida lawsuit that  the sponsor referenced                                                               
during  his presentation.   He  informed the  committee that  the                                                               
aforementioned  lawsuit was  dismissed  without  prejudice.   The                                                               
lawsuit was a class action suit  that alleged that RCC was in the                                                               
practice  of  overcharging  customers  through  taxes  and  fees.                                                               
However,  investigation  showed  that,  in  fact,  RCC  is  under                                                               
charging and thus the case was dismissed.                                                                                       
9:30:28 AM                                                                                                                    
REPRESENTATIVE LEDOUX  related her understanding that  at the end                                                               
of a  cruise, the passengers  are given envelopes  suggesting how                                                               
much to tip employees on the  ship.  Therefore, she asked whether                                                               
the cruise ship industry is  worried that tips would detract from                                                               
the on shore [revenues].                                                                                                        
MR.  HABEGER  answered  that  it's  not an  area  that  has  been                                                               
considered.   He highlighted that  the cruise ship industry  is a                                                               
service  industry,  which often  includes  a  tip portion  of  an                                                               
employee's wage.   Although the  [cruise ship  industry] provides                                                               
suggested amounts,  it's left to  the discretion of  the consumer                                                               
of the service.                                                                                                                 
9:32:36 AM                                                                                                                    
SUSAN BURKE,  Attorney at  Law, Gross  & Burke,  PC, representing                                                               
the  North  West  Cruiseship  Association  (NWCA),  informed  the                                                               
committee  that HB  2 involves  three areas  of law:  the tonnage                                                               
clause of  the U.S.  Constitution; the  MTSA; and  the privileges                                                               
and immunities  clause of the  U.S. Constitution.   She explained                                                               
that  the   privileges  and  immunities  clause   specifies  that                                                               
residents  of one  state enjoy  the same  privileges of  immunity                                                               
when  they  travel  to  another state.    The  aforementioned  is                                                               
referred to as the right to  travel between and among the states.                                                               
Furthermore, the equal  protection clause of the  U.S. and Alaska                                                               
Constitutions specifies  that similarly situated people  can't be                                                               
treated  differently   without  a   valid  reason.     Ms.  Burke                                                               
highlighted the  language in the  federal statute  that restricts                                                               
the proceeds  of passenger fees  to only provide services  to the                                                               
vessel.  She said she  understood the concerns of Representatives                                                               
Neuman and Cissna regarding impacts  from tourism to communities,                                                               
but  she pointed  out  that  some of  those  impacts aren't  from                                                               
cruise ship tourists.                                                                                                           
MS. BURKE reiterated that, by  law, the proceeds [of the proposed                                                               
tax]  can only  be used  for services  to the  vessel.   However,                                                               
under the  Commerce Clause the  aforementioned have  been limited                                                               
to   marine  pilot   fees,  harbor   only  police,   harbor  fire                                                               
protection,  docking  facilities,  wharfing facilities,  and  the                                                               
like.  Under HB  2, $5 of the $50 fee  goes to the municipalities                                                               
in  which each  of  the first  five ports  of  call are  located.                                                               
Under  HB  2, 25  percent  [of  the $50  fee]  is  set aside  for                                                               
regional impacts  for Prince William Sound  and Southeast Alaska.                                                               
However, if  it's not  a port, she  didn't see  how, practically,                                                               
the entity  could provide a  service to the vessel  that enhances                                                               
safety and efficiency.   She said she couldn't  think of anything                                                               
on which the state, since it  doesn't own any of the docks, could                                                               
possibly spend  the money.   Therefore, she questioned  the point                                                               
of  this proposal.   Ms.  Burke  recalled Representative  Gatto's                                                               
remarks  at  a prior  hearing  in  which  he indicated  that  the                                                               
purpose  of the  head  tax is  to compensate  the  state for  its                                                               
contributions to the industry.   However, that's not a service to                                                               
vessel.   Therefore, she suggested  that a broad-based  sales tax                                                               
that everyone has  to pay is preferable to  the proposal embodied                                                               
in HB 2.   Although the revenue  going to the five  ports of call                                                               
comes  close  to meeting  the  requirements  of MTSA,  Juneau,  a                                                               
community that already charges $5  per head, already finds itself                                                               
in  a difficult  position finding  projects that  fall under  the                                                               
MTSA.   The  farther away  from the  port the  project that  uses                                                               
these funds, the less likely the head tax is legal, she opined.                                                                 
9:39:39 AM                                                                                                                    
MS. BURKE  turned to the  constitutional provision  regarding the                                                               
right to travel.  In an  old U.S. Supreme Court case, Crandall v.                                                             
Nevada, the  State of Nevada imposed  a $1 fee on  anyone leaving                                                             
the state  by stagecoach  or train.   The case  rose to  the U.S.                                                               
Supreme  Court, which  ruled that  such  a fee  can't be  imposed                                                               
because people have  to be able to travel  freely between states.                                                               
She  emphasized that  the U.S.  Constitution  doesn't allow  such                                                               
fees to be  charged to residents of sister  states.  Furthermore,                                                               
there  are difficulties  with regard  to  determining whether  an                                                               
individual   is  traveling   on  business   or  pleasure.     She                                                               
highlighted  that the  Commerce Clause  specifies that  one can't                                                               
discriminate  against  nonresidents   with  regard  to  commerce.                                                               
Therefore, Ms.  Burke characterized  [HB 2]  as having  a serious                                                               
constitutional  impediment even  if one  believes the  matter can                                                               
get past the tonnage clause and the federal statute issues.                                                                     
9:42:09 AM                                                                                                                    
MS. BURKE moved  on to the concept of user  fees, and stated that                                                               
there's no question that user  fees are constitutional.  However,                                                               
there  are limitations.   For  instance,  user fees  can only  be                                                               
charged to those who are actually  using the service for which he                                                               
or she is being charged.   The aforementioned isn't the case with                                                               
HB 2 because  an individual that doesn't get off  the cruise ship                                                               
is charged  the $50 tax, and  therefore the proposed tax  isn't a                                                               
user fee in that  sense.  "It's not a user fee  in the sense that                                                               
cruise ship passengers  are a peculiar source of  the impact that                                                               
may be  perceived by communities,"  she stated.   She highlighted                                                               
that  people  from  Anchorage  who might  travel  to  the  Mat-Su                                                               
Borough for  summer recreational  activities cause impacts.   Ms.                                                               
Burke   explained   that   a   legal   user   fee   has   to   be                                                               
nondiscriminatory  and  charged  to  residents  and  nonresidents                                                               
alike, which  this proposed tax  doesn't do.  In  conclusion, she                                                               
recalled Representative  Gatto's testimony  from a  prior meeting                                                               
in which he suggested that the  courts could work out whether the                                                               
legislation is constitutional or not.   However, Ms. Burke opined                                                               
that  the legislature  does have  an obligation  to be  concerned                                                               
about these constitutional issues.                                                                                              
9:45:04 AM                                                                                                                    
REPRESENTATIVE  NEUMAN asked  if there  is any  middle ground  on                                                               
this issue and the legal concerns raised by Ms. Burke.                                                                          
MS. BURKE  replied that for  a passenger  head tax the  answer is                                                               
no.   Again,  she suggested  that a  broad-based sales  tax might                                                               
work.   This  proposed  tax  won't work  because  of the  federal                                                               
statute specifying  that the proceeds  of this tax can't  be used                                                               
for anything other than a service  to the vessel and the right to                                                               
9:46:28 AM                                                                                                                    
REPRESENTATIVE  LEDOUX referred  to  the memo  from Mr.  Tibbles,                                                               
which  highlights  that  many  communities  charge  embarking  or                                                               
disembarking  taxes.    She  asked   if  those  taxes  have  been                                                               
challenged constitutionally  and if  so, she  inquired as  to the                                                               
outcome of such challenges.   If there has been no constitutional                                                               
challenge, she inquired as to why not.                                                                                          
MS.  BURKE clarified  that she  hasn't researched  each of  those                                                               
municipal  taxes.    However,  she   emphasized  that  those  are                                                               
municipal  taxes and  [those are  all charged  in municipalities]                                                               
with ports.   She  further clarified  that she  hasn't researched                                                               
whether  the amount  charged  is reasonable  in  relation to  the                                                               
amount  of  services  provided, although  she  assumed  that  the                                                               
municipalities  are providing  services to  vessels because  they                                                               
are ports.   Ms. Burke reminded the committee  that these vessels                                                               
pay  a head  tax in  Juneau and  substantial port  fees at  every                                                               
place they go in Alaska and  elsewhere.  Under the tonnage clause                                                               
those  are permissible.   In  further response  to Representative                                                               
LeDoux, Ms.  Burke confirmed that the  Interstate Commerce Clause                                                               
would apply to municipalities as well as to the state.                                                                          
9:48:04 AM                                                                                                                    
REPRESENTATIVE  KOTT inquired  as to  how the  related initiative                                                               
would dovetail with HB 2.                                                                                                       
MS. BURKE  said that  although she hasn't  had an  opportunity to                                                               
review Version L, Version G  is fairly similar to the initiative.                                                               
Ms. Burke said that she didn't  know what would happen if both HB                                                               
2 and the initiative were to pass.                                                                                              
CO-CHAIR THOMAS announced that HB 2 would be held over.                                                                         
9:49:37 AM                                                                                                                    
REPRESENTATIVE KOTT asked  if there is any data  showing how many                                                               
Alaskans actually participate in  the cruise ship industry versus                                                               
MR. HABEGER  answered that  he didn't  believe such  research has                                                               
been done.  Although there is  often review of market shares from                                                               
various regions,  he didn't believe  the data is refined  down to                                                               
states.   He  said  he  would have  to  check  into whether  such                                                               
information could be obtained.                                                                                                  
REPRESENTATIVE KOTT turned to the  transitional language in HB 2,                                                               
which makes  the legislation effective immediately.   He inquired                                                               
as to when  families planning a cruise do so  [in relation to the                                                               
time of the cruise].                                                                                                            
MR.  HABEGER highlighted  that  consumer  purchasing habits  have                                                               
changed since [the terrorist attacks  of September 11, 2001] such                                                               
that there  was a  shrinking of  time before  the decision-making                                                               
process.    However, that  timeframe  is  expanding again.    Mr.                                                               
Habeger estimated that  people plan a cruise about a  year to six                                                               
months in advance of the cruise.                                                                                                
REPRESENTATIVE KOTT  surmised that  if HB 2  takes effect  on its                                                               
effective  date, there  will be  a large  number of  visitors who                                                               
would've   probably   purchased   tickets  prior   to   November.                                                               
Therefore, the  cruise ship  industry would  be obligated  to pay                                                               
whatever tax is in place, although  it hadn't passed it on to the                                                               
consumer  who  purchased the  ticket  prior  to the  transitional                                                               
MR. HABEGER replied yes, adding  that the industry would be faced                                                               
with whether to seek the money  from the consumer as an add-on or                                                               
to pay for it from the cruise line's profit.                                                                                    
REPRESENTATIVE KOTT asked if it would  be legal to seek the funds                                                               
[for the newly implemented tax]  from a consumer that has already                                                               
purchased his or her ticket.                                                                                                    
MS. BURKE  said she wasn't sure  of the answer, but  she supposed                                                               
it has to do  with the incidence of the tax.   Normally, a tax is                                                               
imposed at  the moment the object  of the tax takes  place.  This                                                               
proposed  tax   is  more  like   an  arrival  tax,   she  opined.                                                               
Therefore,  in   terms  of   traditional  taxing   concepts,  the                                                               
passenger would be  obligated to pay it.  In  further response to                                                               
Representative  Kott, Ms.  Burke  specified that  it wouldn't  be                                                               
retroactive  if the  tax is  imposed on  the act  of arriving  in                                                               
REPRESENTATIVE KOTT  suggested that there is  some advertising by                                                               
the cruise  ship industry that  would specify a price,  but [upon                                                               
passage  of  HB  2]  the  consumer  would  be  asked  to  pay  an                                                               
additional tax.                                                                                                                 
MS. BURKE  pointed out  that this would  be the  state government                                                               
imposing the  tax and it would  be the law.   In further response                                                               
to  Representative  Kott, Ms.  Burke  said  that  it would  be  a                                                               
business decision  whether to refund an  individual's ticket [who                                                               
didn't want  to pay  the additional  tax].   She stated  that she                                                               
didn't  believe the  cruise line  would be  legally obligated  to                                                               
[refund tickets].                                                                                                               
10:00:04 AM                                                                                                                   
CO-CHAIR THOMAS  reminded the committee  that HB 2 would  be held                                                               
HB  49-MUNICIPAL AID GRANTS                                                                                                   
CO-CHAIR THOMAS announced that the  final order of business would                                                               
be HOUSE BILL  NO. 49, "An Act relating to  municipal aid grants;                                                               
and providing for an effective date."                                                                                           
10:00:27 AM                                                                                                                   
REPRESENTATIVE   NORMAN  ROKEBERG,   Alaska  State   Legislature,                                                               
sponsor, noted  that he  has reviewed  an amendment,  labeled 24-                                                               
LS0192\G.1,   Cook,    4/1/05,   from    Representative   Salmon.                                                               
Representative  Rokeberg   said  that   he  wants  to   move  the                                                               
legislation  so  that he  can  request  a  hearing in  the  House                                                               
Finance   Committee.     Representative   Rokeberg  related   his                                                               
understanding that  the aforementioned  amendment would  add some                                                               
$10,000  for  unincorporated   areas.    Representative  Rokeberg                                                               
recalled  that before  revenue  sharing was  not  funded at  all,                                                               
[unincorporated  communities]  were   granted  funding  that  had                                                               
decreased to  the $3,500 level.   He  left [whether to  adopt the                                                               
amendment]  to  the committee  to  decide,  but noted  that  he's                                                               
trying to manage the fiscal note rather than increase it.                                                                       
10:01:56 AM                                                                                                                   
REPRESENTATIVE  SALMON moved  that committee  adopt Amendment  1,                                                               
labeled 24-LS0192\G.1, Cook, 4/1/05, which read:                                                                                
     Page 1, line 1, following "grants":                                                                                      
          Insert    "for    municipalities    and    certain                                                                  
     unincorporated communities"                                                                                              
     Page 1, line 7, following "subsection.":                                                                                   
          Insert "Each fiscal year the department shall pay                                                                     
     a  municipal aid  grant of  $10,000 to  each community.                                                                    
     The department  with advice from the  Department of Law                                                                    
     shall determine  whether there is in  each community an                                                                    
     incorporated  nonprofit  entity  or  a  Native  village                                                                    
     council that will agree to  receive and spend the grant                                                                    
     for the  benefit of  the community.   If there  is more                                                                    
     than  one   qualified  entity   in  a   community,  the                                                                    
     department shall pay  the grant to the  entity that the                                                                    
     department finds  most qualified  to receive  and spend                                                                    
     the money.   The department may not pay the  grant to a                                                                    
     Native  village  council   unless  the  council  waives                                                                    
     immunity   from  suit   for  claims   arising  out   of                                                                    
     activities  of the  council related  to the  grant.   A                                                                    
     waiver  of immunity  from  suit  under this  subsection                                                                    
     must be  on a form  provided by the Department  of Law.                                                                    
     If there is no  qualified incorporated nonprofit entity                                                                    
     or  Native  village  council in  a  community  that  is                                                                    
     willing  to  receive  the grant,  the  grant  for  that                                                                    
     community  may not  be paid.   Neither  this subsection                                                                    
     nor any  action taken  under it enlarges  or diminishes                                                                    
     the governmental authority or  jurisdiction of a Native                                                                    
     village council."                                                                                                          
     Page 1, lines 10 - 11:                                                                                                     
          Delete "equal grants in the reduced amount to all                                                                     
          Insert "grants reduced by an equal percentage to                                                                      
     all municipalities and eligible communities"                                                                               
     Page 1, line 12, following "section,":                                                                                     
               "(1)  "community" means a place in the                                                                           
     unorganized borough that is not incorporated as a city                                                                     
       and in which 25 or more persons reside as a social                                                                       
REPRESENTATIVE KOTT objected for discussion purposes.                                                                           
10:02:10 AM                                                                                                                   
REPRESENTATIVE SALMON  explained that  Amendment 1  would provide                                                               
$10,000 to each municipality.  He  opined that it's unfair to the                                                               
unorganized  and   smaller  communities  that   wouldn't  receive                                                               
anything  under  HB  49.    He commented  that  the  $10,000  was                                                               
[randomly  selected], and  therefore  returning  to $3,500  would                                                               
even be acceptable.                                                                                                             
10:03:07 AM                                                                                                                   
REPRESENTATIVE SALMON  moved to amend  Amendment 1 such  that the                                                               
grant amount of $10,000 would be  changed to $3,500.  There being                                                               
no objection, the amendment to Amendment 1 was adopted.                                                                         
Therefore, Amendment 1, as amended, was before the committee.                                                                   
REPRESENTATIVE KOTT  maintained his objection to  Amendment 1, as                                                               
10:04:00 AM                                                                                                                   
REPRESENTATIVE  ROKEBERG, in  response to  Representative Neuman,                                                               
confirmed that  the legislature did  pass legislation  that added                                                               
some  $6 million  for fuel  assistance  to organized  communities                                                               
throughout the state.                                                                                                           
CO-CHAIR   THOMAS  noted   a  House   floor   amendment  to   the                                                               
aforementioned  legislation  that  would've  provided  $3,500  to                                                               
unorganized communities failed.                                                                                                 
10:04:57 AM                                                                                                                   
REPRESENTATIVE ROKEBERG  interjected that the  legislation wasn't                                                               
intended as  fuel assistance but  rather [to  provide assistance]                                                               
with no strings attached.                                                                                                       
10:05:26 AM                                                                                                                   
A  roll call  vote was  taken.   Representatives LeDoux,  Neuman,                                                               
Cissna,  Salmon, and  Thomas voted  in favor  of the  adoption of                                                               
Amendment 1,  as amended.   Representatives Kott and  Olson voted                                                               
against it.   Therefore, Amendment 1, as amended,  was adopted by                                                               
a vote of 5-2.                                                                                                                  
10:06:09 AM                                                                                                                   
REPRESENTATIVE NEUMAN moved  to report HB 49, as  amended, out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.    There  being no  objection,  CSHB  49(CRA)  was                                                               
reported from  the House Community and  Regional Affairs Standing                                                               
There being no  further business before the  committee, the House                                                               
Community  and Regional  Affairs Standing  Committee meeting  was                                                               
adjourned at 10:06:27 AM.                                                                                                     

Document Name Date/Time Subjects