Legislature(2017 - 2018)BARNES 124
02/27/2018 11:30 AM House ARCTIC POLICY, ECONOMIC DEV., & TOURISM
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| Audio | Topic |
|---|---|
| Start | |
| HB383 | |
| HJR33 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 383 | TELECONFERENCED | |
| *+ | HJR 33 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ARCTIC POLICY,
ECONOMIC DEVELOPMENT, AND TOURISM
February 27, 2018
11:32 a.m.
MEMBERS PRESENT
Representative John Lincoln, Chair
Representative Andy Josephson
Representative Chris Tuck
Representative Gary Knopp
Representative Mark Neuman
Representative David Talerico
MEMBERS ABSENT
Representative Bryce Edgmon
OTHER LEGISLATORS PRESENT
Representative Jonathan Kreiss-Tomkins
COMMITTEE CALENDAR
HOUSE BILL NO. 383
"An Act establishing the Travel Alaska Board; relating to a
tourism marketing assessment; and establishing a tourism
marketing fund."
- HEARD & HELD
HOUSE JOINT RESOLUTION NO. 33
Urging the Alaska delegation in Congress to pursue the
establishment of an Arctic naval station; supporting the
increase in defensive capabilities in the Arctic region; and
encouraging the development of critical Arctic infrastructure.
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 383
SHORT TITLE: TOURISM MARKETING:BOARD;ASSESSMENT;FUND
SPONSOR(s): REPRESENTATIVE(s) GRENN
02/21/18 (H) READ THE FIRST TIME - REFERRALS
02/21/18 (H) AET, FIN
02/27/18 (H) AET AT 11:30 AM BARNES 124
BILL: HJR 33
SHORT TITLE: DEVELOP ARCTIC INFRASTRUCTURE & DEFENSE
SPONSOR(s): REPRESENTATIVE(s) TUCK
02/09/18 (H) READ THE FIRST TIME - REFERRALS
02/09/18 (H) AET
02/27/18 (H) AET AT 11:30 AM BARNES 124
WITNESS REGISTER
REPRESENTATIVE JASON GRENN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor, presented HB 383.
BROOKE IVY, Staff
Representative Jason Grenn
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing of HB 383, answered
questions and presented an overview of the legislation on behalf
of Representative Grenn, prime sponsor.
JOHN LAMBETH, President
Civitas
Sacramento, California
POSITION STATEMENT: Testified during the hearing on HB 383.
SARAH LEONARD, President/CEO
Alaska Travel Industry Association (ATIA)
Anchorage, Alaska
POSITION STATEMENT: Provided information during the hearing on
HB 383.
COLEEN STEPHENS, Chair
Alaska Tourism Marketing Board (ATMB);
Co-Chair, Government Relations
Alaska Travel Industry Association (ATIA)
Valdez, Alaska
POSITION STATEMENT: Testified during the hearing on HB 383.
MICHAL LOWE, Intern
Representative Chris Tuck
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HJR 33 on behalf of
Representative Tuck, prime sponsor.
ACTION NARRATIVE
11:32:43 AM
CHAIR JOHN LINCOLN called the House Special Committee on Arctic
Policy, Economic Development, and Tourism meeting to order at
11:32 a.m. Representatives Lincoln, Josephson, Tuck, Knopp, and
Talerico were present at the call to order. Representative
Neuman arrived as the meeting was in progress.
HB 383-TOURISM MARKETING:BOARD;ASSESSMENT;FUND
11:33:58 AM
CHAIR LINCOLN announced that the first order of business would
be HOUSE BILL NO. 383, "An Act establishing the Travel Alaska
Board; relating to a tourism marketing assessment; and
establishing a tourism marketing fund."
11:34:40 AM
REPRESENTATIVE JASON GRENN, Alaska State Legislature, as prime
sponsor, presented HB 383. He paraphrased from the sponsor
statement, which read as follows [original punctuation
provided]:
House Bill 383, the Travel Alaska Act, is a
collaboration between the private tourism industry and
State of Alaska in support of statewide destination
marketing.
Based on a Tourism Improvement District (TID) model
found in over 160 jurisdictions across the United
States, House Bill 383 would establish a Travel Alaska
Board with the authority to manage a new funding
mechanism through which the industry may assess
themselves to generate revenue. HB 383 would authorize
the Department of Revenue to assist the Travel Alaska
Board with the assessment process, create an Alaska
tourism marketing fund, and manage the capitalization
and expenditures of the fund.
A bright spot for Alaska's economy, the tourism
industry is currently Alaska's second largest private
sector employer, and research suggests that every
dollar spent on tourism marketing results in $58 in
visitor spending, $21 in income for local residents,
and $2.84 in state and local taxes. Adequate funding
for effective tourism marketing is critical to the
continued health of the industry and keeping Alaska
competitive among other domestic or international
destinations.
Due to Alaska's recent fiscal challenges, state
funding in support of tourism marketing in Alaska has
declined significantly, from $16 million in FY14 to
just $1.5 million in FY17. The Alaska State
Legislature included intent language in the FY17
budget calling on the tourism industry to create a
self-sustaining program funded by tourism businesses,
similar to the Alaska Seafood Marketing Institute
structure. In anticipation of this shift, the Division
of Legislative Audit has recommended the Alaska
Tourism Marketing Board sunset on June 30, 2018.
Now more than ever, the State of Alaska needs an
innovative solution to address the lack of funding for
tourism marketing. HB 383 bridges the gap between
tourism businesses and the State of Alaska, offering
enabling legislation to strengthen the long-term
sustainability of one of Alaska's most important
industries.
I urge your support of House Bill 383.
11:36:48 AM
REPRESENTATIVE GRENN referred to a PowerPoint presentation in
the committee packet as he continued. He relayed that HB 383
serves as the tourism industry's response to the call by the
legislature in fiscal year 2017 (FY 17) to make the shift. He
said the funding structure that would be established under HB
383 is based on a tourism improvement district (TID) model,
which is currently found in 167 jurisdictions in the U.S. He
opined that this model is "an innovative path forward to
ensuring the long-term health of this vital industry." He
stated that the tourism industry, as the second-largest employer
in the state, is "a bright spot for Alaska's economy." The
industry brings in $2 billion in direct visitor spending
annually and represents a total economic impact of over $4
billion a year. He emphasized the research by the McDowell
Group, which suggests that every dollar spent on tourism
marketing in Alaska yields $58 in visitor spending, $21 in
income for residents, and $2.84 in state and local taxes.
REPRESENTATIVE GRENN explained that adequate funding for
effective tourism marketing is critical for two reasons: for
the health of the state's economy and to keep Alaska competitive
among other domestic and international travel destinations. He
said the proposed legislation "offers enabling legislation to
strengthen the long-term sustainability of one our most
effective industries, while bridging the gap between tourism
businesses and the state to address Alaska's marketing needs."
He advised that taking steps to ensure a thriving tourism
industry is key to helping Alaska end its recession. He
described tourism as "a renewable resource that can only be
developed through marketing." He concluded that "now is the
time to build momentum."
11:39:27 AM
REPRESENTATIVE KNOPP requested information regarding the makeup
of the existing tourism board and the rationale in sunsetting
that board to create another board.
11:39:47 AM
BROOKE IVY, Staff, Representative Jason Grenn, Alaska State
Legislature, presented an overview of HB 383 on behalf of
Representative Grenn, prime sponsor. She prefaced her remarks
by saying she may defer to the current chair of the Alaska
Tourism Marketing Board (ATMB), who was in the room. She
related that ATMB was established under Senate Bill 194 [passed
in the Twenty-Eighth Alaska State Legislature, 2013-2014],
comprises 21 members, and is housed under the Department of
Commerce, Community & Economic Development (DCCED). Eighteen of
the 21 members are industry members, and three members are
associated with the legislature and the administration.
Essentially, the board was tasked to work directly with DCCED to
enact the Alaska's tourism marketing program, and she
recollected that for a period of time, it was a state-managed
plan. On July 1, 2016, the plan was managed by the Alaska
Travel Industry Association (ATIA), and ATMB has been advising
that independent association and the management of that board.
She opined that the recommendation for the sunset of the board
was offered by the Division of Legislative Audit, based on the
intent language from FY 17, previously cited by Representative
Grenn, that the tourism industry should take a more upfront role
in the funding mechanism.
REPRESENTATIVE KNOPP questioned why the current board should not
be maintained. He explained that he is not particularly fond of
the idea of putting the board under the Department of Revenue
(DOR) rather than leaving it under DCCED, and he asked whether
that was a topic of conversation when crafting HB 383.
MS. IVY said she could speak to why the proposed legislation
would house the board under DOR. She said discussion did take
place about the board being under DCCED, but ultimately it came
down to streamlining the process. She said the board largely
participates in enacting an assessment that will involve DOR
rather heavily in terms of helping to collect information on
gross revenues of payers, determining the weighted votes of the
payers for the election process, collecting the funds, and
depositing those funds into a tourism marketing fund being
created under HB 383. The thought was that there would also be
determination of definitions of tourism segments and tourism
businesses, and - considering all those different components -
the choice was to have just one department involved, and it
would be DOR.
11:43:52 AM
CHAIR LINCOLN imparted that members of ATIA would be presenting
on HB 383, which would provide the opportunity for members to
ask questions of them.
MS. IVY reviewed key terms relevant to HB 383: ATIA is the
leading statewide non-profit membership trade association for
the Alaska tourism industry with 664 members, and since July 1,
2016, it has been managing the statewide tourism marketing
program through grants from the legislature. The ATMB was
created in October 2014 and is set to sunset on June 30, 2018.
The TID is a structure in which the industry pays an assessment
that is collected by government. Funding is then allocated for
tourism promotion. The tourism marketing efforts are governed by
and benefit those who are assessed, can be managed by an
existing industry association, such as ATIA, and payers can vote
to adjust or terminate an assessment. She clarified that the
key terms used in the bill language are not official definitions
but are terms used within the structure of the bill, as follows:
"tourism industry" represents the overall tourism industry;
"tourism segment" is a segment of the industry that provides
similar goods and services to travelers, such as hotels, guided
tours, and so forth; and "tourism business" means the individual
businesses that participate in one or more tourism segments.
MS. IVY walked through the main concepts of the bill,
underlining that it would establish the Travel Alaska Board
under DOR, with a range of 21-25 members serving a staggered
three-year term. The voting members would have to be
representatives of assessed businesses or payers, which is the
foundation of a TID, and be members of ATIA. The board, under
HB 383, would be established by an election; and ATIA would
serve to establish the board officially through an initial
election and with a vote on a proposed assessment. She
explained that for board members to be payers, the board must
know what the assessment being proposed is and who the payers
are in order to elect board members from the payers. She
reiterated that there would be an initial election, and rates
for the assessment for each segment could vary from zero to 2
percent in .25 percent increments; different segments of the
tourism industry would be permitted to be assessed at different
rates. She advised that industry payers would have weighted
votes, and DOR would help determine their vote weight, which
would be based on the amount they are projected to pay in the
next calendar year under the assessment. For an assessment to
pass, be changed, or be terminated, it would need approval of
business representing a total of at least 50 percent of the
weighted votes received.
11:49:50 AM
MS. IVY offered that subsequent to the initial election, if the
assessment passes, board member names would be forwarded to the
governor, at which point the governor may appoint from that
list. If the governor choses to reject all or a portion of the
list, it would revert to the transition board, ATIA, which would
forward additional names, thereby creating a loop process, which
has precedent in statute. Assessments could be levied, changed,
or terminated by the election process under the weighted vote
system; assessments would automatically terminate in six years
or sunset on the date on the initial voting ballot, whichever
comes first. The proposed legislation would create an Alaska
Tourism Marketing Fund for revenues to be collected. Ms. Ivy
offered that the first four sections of HB 383 address a Vehicle
Rental Tax Fund - an existing vehicle rental tax - which would
allow for those entities subject to the vehicle rental tax the
opportunity to notify the department that they would like their
vehicle rental tax revenues deposited into the Alaska Tourism
Marketing Fund established under HB 383.
11:51:44 AM
REPRESENTATIVE TUCK surmised that the existing vehicle rental
tax funding would not be increased for dues for this board, but
companies could opt to have their rental tax be deferred to this
board.
MS. IVY confirmed Representative Tuck was correct. She stated
that the intent is not to include vehicle rental companies in an
assessment of a proposal simply because they already pay a tax.
She cited AS 43.52.080(c), which read as follows:
(c) The legislature may appropriate the actual
balance of the vehicle rental tax account for tourism
development and marketing. This section is not
intended to create a dedicated fund.
MS. IVY explained that that was "the designated intent of those
funds." In response to follow-up questions, she said that under
HB 383, there would be no maximum on the vehicle rental tax;
[rental agencies] would have to be a member of another tourism
segment that was officially being assessed in order to qualify
as a voting member on the Travel Alaska Board. She added, "But
the bill does allow for non-voting members - an ex officio
member - so, it's possible they could be involved in that
capacity." She deferred to the travel industry representatives
for further clarification.
11:54:15 AM
REPRESENTATIVE NEUMAN directed attention to language on page 6,
beginning on line 20, which describes when an assessment "shall
be levied on the gross revenue of a tourism business that is
related to an assessed business segment". He noted that there
were various rates, and he asked how that would work.
MS. IVY answered that the intent is that the Travel Alaska
Board, in consultation with ATIA, would propose the assessment
and communicate with DOR, which would collect the gross revenue
information and help determine what the rates would be. Then
the Travel Alaska Board would vote "to pursue an election of the
payers."
11:56:17 AM
REPRESENTATIVE GRENN, in response to Representative Neuman,
clarified that the board would choose the fees and vote on the
rates.
11:56:51 AM
REPRESENTATIVE NEUMAN asked how the board would handle the
assessments with respective industries.
MS. IVY directed attention to a provision within Section 5, on
page 4, line 8, regarding AS 44.25.235. She said this language
would direct the board to adopt definitions for both the tourism
industry segment and tourism businesses. The board would
forward those definitions to DOR, at which point DOR would adopt
or reject those definitions. She said the board would then
propose rates for those different segments.
REPRESENTATIVE NEUMAN asked Ms. Ivy to confirm that the board
would set the rates and then the commissioner [of DOR] would
either approve or not approve those rates. He asked, "Do they
have the authority to do that?"
MS. IVY responded, "At this time, the commissioner of [DOR]
would have the authority to help determine ... whether or not to
adopt the definition in the tourism segments, ... but it would
be industry that would vote on the rates. And so, the
legislation here, if it passed, would dictate that the rates can
fall between zero and 2 percent. And yes, it would be
potentially different for the different segments of the fund."
REPRESENTATIVE NEUMAN asked if it was the intent of the chair to
move the bill today.
CHAIR LINCOLN answered no. He said the bill is a complicated
one with which he intended the committee take its time and "get
it right."
11:59:13 AM
CHAIR LINCOLN announced that he would begin invited testimony.
11:59:25 AM
JOHN LAMBETH, President, Civitas, stated that his company has
"worked on most of the tourism improvement districts across the
country." He said some people ask why there is a need for
destination marketing activities; they inquire why the industry
cannot "do this" on its own. He explained that there are two
primary compelling reasons why industries must "get together and
do this." He continued:
The first is that the primary motivator of a trip is
the experience of the destination - it's not a single
business - and so, it behooves all of the tourism
industry across the state of Alaska to join forces to
market Alaska. Second, the big issue is scale. Not
one business alone can market Alaska; it takes folks
all getting together.
MR. LAMBETH expressed his appreciation for the committee's
consideration of the proposal that ATIA has brought forward. He
said there has been a lot of debate and discussion within the
industry in response to the request of the industry to bring
back a solution for funding of the effort." He continued:
This is not a new concept. The evolution of dedicated
promotion funding actually goes back to the 1930s.
That's when the first agricultural marketing orders
were established. You may be familiar with these in
other contexts. Essentially it was industry getting
together, levying an assessment on the commodities and
using that money for marketing. In the 1960s, it was
expanded to the idea of downtown organizations, and
that led to the birth of the very first business
improvement district. There are about 2,000 of these
now across North America, and you have many of them in
Alaska, and essentially, they are assessing property
owners and providing clean and safe services.
... In the 1990s, that expanded into the tourism
industry. It really was an idea that was first
launched in California. In the first 10 years it got
off to a very slow start, but after that it has really
mushroomed. There are now 101 districts in
California. As Representative Grenn mentioned ...,
there are 167 of these districts across the U.S. in 14
states, and there are another 11 states that are
currently working on legislation or looking to pursue
these kinds of districts.
MR. LAMBETH emphasized that the embrace of the concept of
districts has been bi-partisan; most people realize that one in
nine jobs is dependent on this industry. He further emphasized
that the destinations that have adopted this concept have
experienced consistent, stable funding for tourism promotion
efforts; they don't have to go back to apply to the general fund
or compete with other state priorities that the legislature must
address. He concluded, "It really is a way for the industry to
take this into their own hands, to vote on it, and then to
manage that very important job of marketing tourism in Alaska."
12:03:45 PM
REPRESENTATIVE KNOPP offered his understanding that Mr. Lambeth
had said that 101 of the [167] districts are in California; the
rest are spread throughout the U.S.
MR. LAMBETH confirmed that is correct. He said the main reason
for that is timing, since the initial growth was in California.
He predicted that many more would be seen in other states in the
next several years. In response to a follow-up question, he
said some districts are statewide, but it is common to see
multi-jurisdictional districts that combine cities or counties.
He explained that where the districts are drawn really has to do
with the destination that is being promoted.
12:05:49 PM
REPRESENTATIVE TALERICO noted that under HB 383, part of the
funding is a tax credit or designation, and he questioned
whether that is a fairly common funding mechanism.
MR. LAMBETH replied that he has not seen a specific tax credit
or diversion of tax revenue like that before; however, he said
it seems to make sense as a reasonable alternative to assessing
that industry. He continued:
It is essentially the same effect as if you assessed
that industry and used that assessment money for
marketing and weren't taxing them. And so, we
certainly have seen trade-offs like that in other
places where certain industries have come in and been
assessed, where they had different tax rates .... In
fact, we saw that in California with vehicle rental
cars.
12:07:39 PM
SARAH LEONARD, President/CEO, Alaska Travel Industry Association
(ATIA), thanked the committee for hearing the bill and
Representative Grenn for his help in facilitating the
conversation. She characterized ATIA as "a chamber of commerce
for Alaska's tourism industry." She said ATIA is the contract
manager for the Alaska tourism marketing program and is
responsible for statewide marketing, planning, and program
development. She said ATIA is a bright spot in Alaska's
economy, largely because of past state investment in ATIA's
marketing program. She said there has been a long history in
supporting statewide tourism marketing. Unfortunately, between
2014 and 2017, that state funding has decreased, resulting in a
decrease in Alaska's investment in destination marketing of
approximately 90 percent. She said while most states' support
of destination marketing nationally has increased over the last
five years, Alaska is at the bottom in terms of state funding,
just before Delaware. She related that State of California
spent $119 million on tourism marketing in 2017. She continued:
When you look at total dollars spent in tourism
marketing nationally, Alaska accounted for only .3
percent of all national spending on state tourism
promotion in 2017. That's down from 2.5 percent in
2014. Those seem like small percentages - small
numbers - but what that means is our market share is
declining while the industry is growing nationally.
And while Alaska visitor numbers have been growing -
especially in the cruise sector ..., our independent
travel [sector] is stagnant. We're losing what we
could have been capturing with more competitive
marketing funding. ... That's translating to Alaska's
losing the competition to other states that are
actively pursuing the traveling public.
MS. LEONARD stated that Alaska is "a long-haul destination" that
requires advanced planning. She said, as Representative Grenn
mentioned, today's marketing efforts pay in future dividends
through economic impact and return on investment.
12:10:20 PM
MS. LEONARD said ATIA engaged with a research group called
Tourism Economics to conduct an independent analysis of the
state's competitiveness in terms of destination marketing
investments and Alaska's tourism sector performance. Tourism
Economics used existing data from national and local sources,
such as the McDowell Group, and reported that Alaska lost $189
million in visitor spending between 2012 and 2016, and $57
million in visitor spending in 2016 alone.
MS. LEONARD said the legislature instructed the tourism industry
to come up with a funding solution, and the industry "took that
challenge to heart." She said that mandate from the legislature
was a wake-up call for the industry. She continued:
We took that mandate from you and looked at it as an
opportunity to have some certainty around tourism
promotion dollars each year and have industry manage
the program ... [in] collaborations with the state.
MS. LEONARD said ATIA and industry leaders with ATMB, as well as
other stakeholders, considered several possible funding
mechanisms ranging from flat fees, a statewide bed tax, to a
state lottery. While considering the model, the parameters
were, and continue to be, that "any new funding solution that
industry would bring to the table should not be reliant on one
industry segment or funding source"; revenue should "focus
primarily on visitor activity, with the least impact on
Alaskans"; "an assessment can be passed on to the customer";
and, perhaps most important, "any successful plan would be a
package of this new revenue we were willing to bring to the
table, potentially assessing tourism-related businesses, but
that we also wanted a continued collaboration with the state
through the vehicle rental car tax." She said the state already
collects that tax, and ATIA thinks that is in part because of
"healthy marketing promotion." She explained that ATIA is
increasing visitation to Alaska, and those visitors are renting
vehicles, which results in more revenue into that fund. She
said as Ms. Ivy noted, intent language outlines that the
legislature may appropriate the balance of the vehicle rental
tax to tourism development and marketing.
12:12:56 PM
COLEEN STEPHENS, Chair, Alaska Tourism Marketing Board (ATMB);
Co-Chair, Government Relations, Alaska Travel Industry
Association (ATIA), related that she also runs a family-owned
business - Stan Stephens Cruises - so her perspective is both as
an industry member and as an individual passionate about the
survival of marketing in the industry.
MS. STEPHENS said since the idea of TID was broached in 2017,
she has worked with the industry and heard concerns about
equity, costs to business and how that cost could be passed on
to customers, performance evaluations, and metrics. [Some]
questions that have been addressed in phase two of TID are
regarding how much a business would be paying, which businesses
would be included, how a business could benefit from a TID, and
how the Travel Alaska Board would be selected and would
represent the payers. Ms. Stephens continued:
Moving forward, we're still continuing to meet with
industry. We have monthly Q&A sessions to make sure
they're up to date on where we are, and [we are]
working with you all. We're also working in one-on-
one meetings with many businesses, as well as we've
created a TID work group that exists as multiples of
our board members, as well as industry segment
members, whether they're members of ATIA or not. If
they are potential payers and want to participate in
the conversation, we have opened the doors for them to
do so.
MS. STEPHENS said that HB 383 is a complex piece of legislation
that may not be perfect. She said it is important to know that
a TID has two stages. Stage one is the enabling legislation, HB
383.
Stage two is the piece that falls on industry's
shoulders, which is to decide the sector definitions
to move towards the Department of Revenue to approve
and then take that suggested assessment to the
industry for both approval of the assessment level and
who will be paying, as well as the approval of the
board members, which would be representatives of the
payers. ... What we're asking is for you to give us
the tools to get to stage two, which is the enabling
legislation
MS. STEPHENS stated that as a small business owner and likely
payer of the TID, she is asking the legislature "to help us
create that tool to really sustain businesses in Alaska and
industry for Alaska into the future."
MS. STEPHENS, regarding the slide Representative Grenn had shown
depicting what one dollar of investment in marketing can mean to
Alaska, said she would like to convey what it would mean if
there was no marketing in Alaska. She stated, "We're at a very
crucial point in time to create that next generation of a
sustainable and predictable tourism marketing program." She
said large corporations and large businesses invest money
because they "have the resources to fill their assets." Not
having a marketing program will affect smaller businesses, she
said, and smaller communities that do not have sufficient
resources but depend on the state to entice people into
imagining Alaska as a travel destination. She concluded, "So,
we're looking forward ... [to] continuing this process and
working with you guys to help get that enabling legislation for
all of us to promote Alaska."
12:17:35 PM
REPRESENTATIVE TUCK, after asking Ms. Leonard to restate the
information she had given regarding the loss of $57 million,
said he knows that the tourism industry has been setting records
in Alaska, and he asked if that means that tourism industries
are also setting records elsewhere.
MS. LEONARD answered that it depends on the destination. She
said ATIA tracks information on visitors inbound to the U.S.,
which fluctuates depending on what is happening with the federal
administration. She said there have been record numbers, and
they have been driven by the cruise partners. Alaska continues
to be a popular cruise destination. She continued:
What we're focusing on ... is not only the volume of
visitors our cruise partners are bringing to Alaska,
... [but also] the market share that Alaska is losing
at a rate compared to our competitors domestically.
REPRESENTATIVE TUCK offered his understanding that Ms. Leonard
was saying that the market share for cruises in Alaska is rising
proportionally [higher than] other types of tourism in Alaska.
MS. LEONARD responded that cruise partners are bringing bigger
ships and increasing volumes of visitors to Alaska; ATIA is
beginning to see numbers stagnating in other segments of the
industry.
REPRESENTATIVE TUCK summarized that Ms. Leonard was saying that
"other than cruise lines, you've seen other sectors of the
tourism industry suffer."
MS. LEONARD confirmed that is an accurate statement.
REPRESENTATIVE TUCK asked if there are studies that show the
decrease of Alaska's market share over the last several years.
MS. LEONARD indicated that the numbers she had previously
shared, regarding the Alaska's having lost out on $189 million
and $57 million in visitor spending alone in one year [were from
a study]. She reiterated that this loss has resulted because
Alaska is not kept up with a market share competitive to what
other destinations are spending in destination marketing.
REPRESENTATIVE TUCK asked if that data shows a state-by-state
comparison.
MS. LEONARD said she could share the full report, which analyzes
"like destinations," such as other wilderness destinations
compared to Alaska, but it does not compare all 50 states in a
state-by-state comparison.
12:21:46 PM
REPRESENTATIVE NEUMAN asked what the current vehicle rental car
tax is and where it goes.
MS. LEONARD answered that the current vehicle rental car tax is
approximately $10 million and is expected to grow. She deferred
to Ms. Ivy to answer where the funds go.
12:22:14 PM
MS. IVY directed attention to the first page of a two-page
graph, which shows the vehicle rental tax that was first
collected in FY 06. She said at first some of the funds went to
the tourism marketing program, but they have also gone to
Department of Natural Resources (DNR) and Department of
Transportation and Public Facilities (DOT&PF), Alaska Marine
Highway System (AMHS), and a small capital grant from FY 07 for
the Chilkat Indian Village Cultural Center. She said the
sponsor's office reached out to DOT&PF and DNR to inquire where
those funds had gone in recent years. She offered her
understanding that the funds to DOT&PF were allocated for
maintenance and operation of highway and aviation runways, and
DNR spent their resources on personnel services for maintenance
and operations of parks in four different regions.
12:24:25 PM
REPRESENTATIVE NEUMAN expressed concern that there would be a
hole in funding of DNR and DOT&PF when the money is instead
given to ATIA. He offered his understanding that there were
bonds due for a parking garage in Anchorage, and some of the
vehicle rental tax was being used to pay off those bonds. He
asked if those bonds had been paid in full.
MS. IVY said she would have to do some research to find the
answer. Regarding current spending of vehicle tax revenues for
general government services, she said the sponsor does recognize
that [switching allocation of vehicle fund tax to ATIA] would
create "somewhat of a hole in the general fund." She deferred
to the industry to speak to why it is important for the vehicle
rental companies "to be included in this." She noted that on
page 16 of the Legislative Finance overview of the FY 19
governor's request, the vehicle rental tax was a designated fund
being used for non-designated purposes, therefore was flagged as
a misuse of funds. She said the previously mentioned intent
language of the FY 17 budget emphasized reduced reliance on
unrestricted general funds. She further noted that in AS
43.52.080, the rental tax statute, it is stated that "those
funds may be appropriated for tourism development and
marketing."
12:26:33 PM
REPRESENTATIVE NEUMAN said Alaska is a state of 730,000 people,
and that number can swell to 4-5 million in the summer. He said
he thinks the original intent of the vehicle rental tax was to
counteract the impact of that influx of people on the state's
infrastructure. He added that the legislature would have to
figure out whether "to swap those funds around."
12:27:15 PM
REPRESENTATIVE KNOPP asked whether taxicabs and Uber and Lyft
vehicles would be part of the vehicle rental tax someday.
MS. IVY responded that she would have to investigate that and
get back to Representative Knopp with an answer.
12:28:22 PM
CHAIR LINCOLN asked if the industry thinks [the tax] applies to
Uber.
MS. STEPHENS answered that as far as the assessment, she does
not know the specifics of the existing vehicle rental car tax;
however, she said industry has not specifically identified what
those segments would be. She said it is a continuing dialogue.
REPRESENTATIVE KNOPP said that for years he dealt with Kenai
Peninsula Tourism Marketing Council (KPTMC) and has address many
of the issues being discussed. He said he is glad to see this
being brought forward at the state level because trying to do
this at the municipal level can be difficult. He explained that
one city enacted a bed tax for a short period of time, and the
next city advertised that their prices were cheaper because they
had no bed tax. He said his decision regarding the support of
HB 383 would depend on the feedback he hears from industry
members.
MS. IVY relayed that she had found the answer to Representative
Knopp's previous question. She said AS 43.52.020 identifies the
rate of the tax levied as 10 percent of the total fees and cost
charged for the lease or rental of the passenger vehicle.
Further into that statute, she noted, is the definition of
passenger vehicle, which does not include a taxicab.
12:30:11 PM
REPRESENTATIVE TUCK asked if there has been any consideration of
allowing the cruise ship tax "to be deferred, as well, into this
board."
MS. LEONARD said that idea was explored but tabled due to
perceived challenges in "the federal commerce laws and
regulations that apply to those type of businesses that are
subject to interstate travel and the use of any revenue assessed
or taxed to those companies and the limitations around that
use." She added, "And it was honestly too big of a challenge
for our industry to take on those federal laws and regulations
at the time when we were proposing a pretty new idea for our
industry."
12:31:40 PM
REPRESENTATIVE TUCK asked if other tourism improvement districts
do seasonal assessments.
MS. STEPHENS answered that there is a variety of equations based
on the districts and their model for tourism. Some have
"seasonality," while some have exemptions for a variety of
reasons. She said Mr. Lambeth has counseled the bill sponsor to
look at the individual district and work with the businesses in
it to set up a successful stage two. She said HB 383 would be
the enabling legislation needed to get to the stage two
conversation to determine "who's in, who's out, and who's at
what level." She said, "That becomes that industry assessor pay
vote."
REPRESENTATIVE TUCK asked for confirmation that phase two would
"take the control away from us; you would be determining that."
MS. LEONARD stated that the identification of the business
segment - the level of assessment based on the range in the bill
that the legislature would approve - is proposed by industry but
would still need to be approved by DOR, and the appointees to
the board would have to go through the governor appointee
process. She said it is a collaboration driven by the needs of
industry.
12:33:42 PM
CHAIR LINCOLN asked how the distinction is made between "in-
state visitors to hotels and vehicle ... rentals and things like
that, versus tourists." He said, "A lot of this is a balancing
act of governance between the state government and industry and
keeping an eye out for everyday Alaskans." He said he does not
have a sense of what the volume is in terms of how many Alaskans
use hotels in Anchorage and rent vehicles for business. He
surmised that urban centers that enjoy business from rural areas
may have "a disproportionate amount of power or influence with
this."
MS. STEPHENS stated, "Our goal ... was to look at things that
least impact Alaska travelers." She said interstate travelers
currently pay local assessments or vehicle rental car tax. She
said, "This would be a very small percentage added on to that."
She stated, "Our guidance ... is to write an exemption for
Alaskans, create some equity challenges in legal interpretation,
but that would be something we'd have to look more into."
12:36:03 PM
REPRESENTATIVE NEUMAN asked how much money ATIA received from
the state last year and the year before.
MS. LEONARD answered that in FY 17, ATIA received $1.5 million
from the state, and this year it will implement a $3 million
state grant, in addition to what the industry pays to
participate in the program.
REPRESENTATIVE NEUMAN remarked that the legislature was [using
for comparison] what the state was giving the tourism industry
out of its limited amount of revenue. He said he thinks the
intent was that the tourism industry fund itself to the extent
possible. He observed that HB 383 would take $10 million from
vehicle rental tax currently being collected to help cover the
impact of millions of extra tourists coming to the state. He
continued:
ATIA, well it's a nice plan to just say, "Well, give
me $10 million of that and now we'll get $10 million
from the start when we were getting like one and a
half or two ...." I wish we could afford to try to
get you $10 million, but ... I don't think that the
state can, because ... [there] are a lot of needs in
the state right now, and I don't think that was the
original intent that we were asking the industry
about.
12:38:05 PM
MS. LEONARD responded that she thinks the industry would argue
that the vehicle rental car tax is part of the visitor industry
and the industry is contributing to that fund, and there is an
economic return from a healthy visitor industry. She said the
industry brings visitors to the state that utilize the resources
and infrastructure also utilized by Alaska residents, and the
economic return from a healthy visitor industry is shown in
healthy businesses, the ability to hire Alaskans, and the
ability to support locally that infrastructure need. She said
it is a priority of the industry to maintain a collaboration
with the state. She said, "We think that state should have some
skin in the game. ... It is an important and, we think,
reasonable investment, just like in other industries, to market
your industry and your businesses, so that you can continue to
provide those economic returns at the local and ... state
level."
REPRESENTATIVE NEUMAN said he does appreciate the tourism
industry but thinks about the state parks that cannot even
afford to take care of garbage. He continued:
I think that that was the intent to support the
industry through infrastructure, ... the
infrastructure that is the state's responsibility
through highways and roads and ferries and parks and
those types of programs.
REPRESENTATIVE NEUMAN said it is obvious that the tourism
industry does a lot for Alaska, but he knows there has been a
reduction of state money to other industries, for example, the
seafood industry. The state can afford only so much, he said.
12:40:12 PM
REPRESENTATIVE TUCK asked Ms. Leonard if she could not envision
the industry "doing this on their own" without government
assistance.
MS. LEONARD answered that the priority of the industry is that
it needs a partnership with the state at some level through the
vehicle rental car tax.
REPRESENTATIVE TUCK stated, "It's really difficult to see the
return on investment on this, and I think that's the reason why
we've put intent languages in; that's the reason why you see ...
some of the declines." He asked if the reason the industry is
coming to the legislature with HB 383 is because the industry
has tried but "can't get it together."
MS. LEONARD answered that part of the reason for the framework
and this proposed legislation is that "through government
collection there implies some fairness and equity among whatever
business sectors are potentially being assessed." She said the
state is already set up to have those fees collected. She
continued:
Through a private industry association, it would be
based on voluntary contributions and agreements. With
the state framework, and then collaboration, ... we
are asking government to help us, so that there is
some fairness and equity and transparency with the
state system.
12:41:55 PM
MS. STEPHENS added that the other piece that the assessment
model offers is predictability. She said it can be challenging
not knowing [the funding source], which is what happened this
past year when the budget cycle was implemented later.
12:42:53 PM
CHAIR LINCOLN summarized that the industry is asking the state
to delegate its taxing authority to the industry, such that the
industry can levy an assessment and "compel broad participation
in the assessment and the marketing." It is also asking for the
vehicle rental tax to be an automatic part of that funding. He
surmised that the need for state participation in HB 383 is
"multi-faceted."
MS. LEONARD opined that Chair Lincoln's summary captures the
partnership being asked of the legislature by the industry.
12:43:42 PM
REPRESENTATIVE KNOPP said the industry is asking the legislature
to allow the industry to "define the participants in this,"
which he said he thinks is "a slippery slope." He offered
examples:
So, the cruise line industry, because of the federal
legislation, may not allow you to go that path, but
what about the hotels and lodges? ... If, in fact ...
they are exempt, as well, as part of the organization,
then it puts an undue burden on all those other ones.
... And then I think about all the stores that are
selling retail gift items - part of the tourist
industry - we have a separate sales tax. ... I say
that, because that goes to my point of being
undefined. I'm pretty skeptical of that. If it was
brought to us with specifics, I'm much better at that
....
12:44:52 PM
MS. STEPHENS said she understands, and she thinks businesses in
Alaska "have some of that same hesitation." She continued:
What we're asking for is to be able to get to that
second stage of conversation. Preliminarily, we have
had conversations with hoteliers. We've had some
regions of Alaska discuss retail. We've ... looked at
tourism attractions. We've looked at all of those
options, and what we've learned is that in every
region in Alaska there's a complexity to that. ...
So, that's why you don't see those specifics in the
legislation; it's up to us as an industry, at stage
two, to find that correct equation to put forward a
successful vote. And the onus is on us to do that,
otherwise we ... don't have the additional funding for
the program. ... So, I think you will find the
passion from the industry to get to that level.
REPRESENTATIVE KNOPP said the problem is that the legislative
process has been taken out of "step two."
12:46:20 PM
REPRESENTATIVE TUCK said an often-heard remark is that
government is not the solution but is the problem. He said he
thinks in this situation, government is the solution. He
explained that although he knows that the industry has a problem
with the government imposing regulations and getting involved in
taxation, "this is a perfect example where government can be the
solution."
MS. LEONARD expressed appreciation for the comment made by
Representative Tuck, because she said the industry is sincere in
its effort to collaborate with the state.
MS. STEPHENS said currently there is just over $11 million
coming from the vehicle rental car tax, and the goal is to grow
that number, as well as other contributions to the state, which
are currently at approximately $110 million. She concluded,
"And as we continue to grow our industry with successful
marketing, we hope to be a positive influence on that growth, as
well."
[HB 383 was held over.]
HJR 33-DEVELOP ARCTIC INFRASTRUCTURE & DEFENSE
12:47:54 PM
CHAIR LINCOLN announced that the final order of business would
be HJR 33, Urging the Alaska delegation in Congress to pursue
the establishment of a U.S. Coast Guard port in the Arctic
region; supporting the increase in defensive capabilities in the
Arctic region; and encouraging the development of critical
Arctic infrastructure.
CHAIR LINCOLN stated his intent to bring before the committee a
committee substitute.
12:48:21 PM
REPRESENTATIVE TUCK moved to adopt the proposed committee
substitute (CS) for HJR 33, Version 30-LS1350\D, Radford,
2/14/18, as a working document.
CHAIR LINCOLN objected for purposes of discussion.
12:48:56 PM
The committee took an at-ease from 12:49 p.m. to 12:51 p.m.
12:51:04 PM
MICHAL LOWE, Intern, Representative Chris Tuck, Alaska State
Legislature, presented HJR 33 on behalf of Representative Tuck,
prime sponsor. He outlined the changes made in Version D: [On
page 1, line 1, "Arctic naval station"] was changed to ["U.S.
Coast Guard port in the Arctic region"]; and [on page 2, line
30, "naval station"] was changed to ["Coast Guard port capable
of supporting naval contingency operations"].
12:52:23 PM
CHAIR LINCOLN removed his objection to the motion to adopt
Version D. There being no further objection, Version D was
before the committee.
12:53:02 PM
REPRESENTATIVE TUCK expressed appreciation for the work Mr. Lowe
had done as his intern.
12:53:15 PM
MR. LOWE spoke to the importance of resolutions as talking
points to highlight what a state wants. He said bi-partisanship
and unanimity are important in showing "the intent of Alaska."
He began a PowerPoint presentation, and drew attention to slide
2, which covered the purpose and scope of the presentation and
offered the following bullet points:
• Introduce HJR 33 to AET Committee
• Cover evolving situation in the Arctic
• Provide primary sources and relevant information
to support claims
• Discuss benefits of port to the state
• Major challenges impeding implementation
MR. LOWE said the next few slides are overlays he acquired from
the Internet. He said receding polar sea ice has opened new sea
lanes for vessels, which reduces intercontinental routes by as
much as 5,000 miles. He said, "The basis for the U.S. Coast
Guard port stems from the opening of sea lanes in the Arctic."
He said one route that is important is shown in lime green on a
map on slide 3, and it is right above Russia.
12:57:39 PM
MR. LOWE directed attention to slide 4, which shows mineral and
economic potential of the Arctic. He said the U.S. conducted a
survey in 2008 which showed that 13 percent of the world's
undiscoverable oil and 30 percent of the world's natural gas
lies in the circumpolar Arctic. This potential is attracting
interest from other nations; Russia has the most land north of
the Arctic circle, and much of its economy lies in the Arctic.
He said Russia already gets approximately 20 percent of its
gross domestic product (GDP) from the Arctic. China is
involved, as well, and he said he would talk about that later.
MR. LOWE turned to slide 5, which shows an overlay of military
facilities in the Arctic, and he pointed out that the U.S. has
none. In contrast, Russia has about 20 [military] facilities
lining the northern sea route. He said it is clear that Russia
regards this sea route as "a very important route in the future"
and wants to ensure its presence there. Mr. Lowe opined that
[the U.S.] should have a presence there as well.
1:00:22 PM
MR. LOWE showed slide 6, which depicts China's involvement in
the Arctic. He said China has written its Arctic policy,
declares itself a "near-Arctic state," and seeks to build a
"polar silk road." He said China has built an ice breaker and
desires to "regulate and manage affairs of the Arctic." China
has joined forces with Russia, he said. Further, China recently
filed for permanent observer status in the Arctic Council, which
it was granted. Mr. Lowe stated that China sees the potential
of the Arctic.
MR. LOWE directed attention to slide 7, which addresses the
National Defense Strategy [of the U.S.], which replaces
terrorism with nation-state strategic competition as a primary
concern. He said reading this document is important in
understanding the shift happening in the nation's military
strategy and the need for facilities and investment in
infrastructure to shift, as well.
MR. LOWE, showing slide 8, stated that federal investment is
good for Alaska's economy, and a U.S. Coast Guard base would add
to that and provide not only initial stimulus but would boost
the economy over time. He mentioned Joint Base Elmendorf-
Richardson (JBER) is one of the reasons Anchorage is the
population hub of Alaska; the military requires a diverse work
force; and the base is an economy within itself. Directing
attention to slide 9, Mr. Lowe talked about the mission of the
Department of Military & Veterans' Affairs (DMVA). He talked
about The Adjutant Generals (TAG) vision for DMVA. He
indicated a [Venn diagram] on the slide, which shows "Viable
Arctic Strategy," "Engagement with Alaska Communities," and
"Emergency Management Capacity," with "Rural Engagement"
connecting them all. He said the U.S. Coast Guard does search
and rescue, and the station closest [to the Arctic] is in
Kodiak, Alaska. He said with an increase of oil tankers and
cruise ships through the Arctic sea lane, if one were to get
stranded, it may be Canada that would have to help, because a
U.S. Coast Guard vessel would not be able to get there in time.
In other words, he said, U.S. capabilities in the Arctic are
lacking.
1:05:23 PM
MR. LOWE turned to slide 10, and he stated that the primary
challenge is get the U.S., as a whole, to embrace its role as an
Arctic nation. Alaska is the reason the U.S. is an Arctic
nation, but the rest of the country does not have that fact in
its consciousness or realize the importance of protecting the
nation's interest in the region and providing emergency response
capabilities to the region. He said there are extended time
horizons for construction in the region because of the extreme
weather. He said the U.S. is behind in its investment in the
Arctic, and he opined that the nation should invest soon. He
said there are so many threats that face the nation that it can
be difficult to bring attention to the Arctic, but Mr. Lowe
stated, "I still think we should try."
MR. LOWE showed slide 11, which recapped the PowerPoint and the
following ideas that had been covered: the evolving tensions
and rising opportunities in the Arctic; primary documents from
federal agencies; and benefits to the state economy as well as
to the state military missions.
1:07:32 PM
REPRESENTATIVE KNOPP offered his understanding that the U.S.
Coast Guard had, for the last few years, maintained a seasonal
station in Nome, Alaska.
MR. LOWE confirmed that that station has been seasonal. He
explained that HJR 33 proposes a permanent deep-water port in
Nome, with infrastructure development.
1:08:27 PM
CHAIR LINCOLN asked Mr. Lowe if he has an opinion regarding an
ideal location for an [Arctic] port in Alaska.
MR. LOWE answered he does not. He said Nome has graphite
development; he mentioned the Chinese and a natural gas pipeline
and streaming the natural gas there instead of to Nikiski,
Alaska; and development of a U.S. Coast Guard base there. He
added that he was not advocating the idea, but it was one he had
heard that would give a deep-water port in Nome multiple
functions.
1:09:36 PM
REPRESENTATIVE TUCK, as prime sponsor of HJR 33, commented that
the United States would not be an Artic nation without Alaska.
He said that even though the federal government owns
approximately 60 percent of Alaska and gives Alaska a lot of
federal money, he thinks the federal government overlooks the
economic potential of the Arctic, as well as overlooking
national security needs. He noted that there had been a
presentation to the House Special Committee on Military and
Veterans' Affairs by a retired U.S. Coast Guard member regarding
the history of the Coast Guard. He opined that it makes sense
to have a base "up here." He said the guard had revenue cutters
that were small, two-sail ships that collected revenue from
merchant ships. Eventually that became the U.S. Coast Guard
that exists today in Alaska. He said the guard has brought
reindeer to people starving on islands; it has brought building
supplies and built infrastructure. He said it makes sense to
have a U.S. Coast Guard base [in Nome] so that "we can police
our waters."
1:11:40 PM
REPRESENTATIVE NEUMAN talked about the tremendous amount of work
that was put into the Alaska Arctic Policy Commission and his
work on this issue, and he emphasized that there is a strategic
plan laid out within the commission regarding development of
infrastructure, including telecommunications, what resources are
available, and how they can be marketed and developed. He
encouraged the committee to look at the findings of the
commission. He concluded, "There is a plan for this set out."
1:12:38 PM
CHAIR LINCOLN announced that HJR 33 was held over.
1:12:58 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee On Arctic Policy, Economic Development, and
Tourism meeting was adjourned at 1:13 p.m.