Legislature(2007 - 2008)BARNES 124

04/17/2007 08:00 AM House COMMUNITY & REGIONAL AFFAIRS


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08:05:30 AM Start
08:05:55 AM HB222
09:12:09 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 222 PASSENGER VESSEL TAX CREDIT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         April 17, 2007                                                                                         
                           8:05 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Anna Fairclough, Co-Chair                                                                                        
Representative Gabrielle LeDoux, Co-Chair                                                                                       
Representative Nancy Dahlstrom                                                                                                  
Representative Mark Neuman                                                                                                      
Representative Sharon Cissna                                                                                                    
Representative Woodie Salmon                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Kurt Olson                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 222                                                                                                              
"An  Act  providing a  credit  for  a  municipal tax  imposed  on                                                               
certain  passengers  traveling  on commercial  passenger  vessels                                                               
that  provide  overnight  accommodations; and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 222                                                                                                                  
SHORT TITLE: PASSENGER VESSEL TAX CREDIT                                                                                        
SPONSOR(s): REPRESENTATIVE(s) RAMRAS                                                                                            
                                                                                                                                
03/26/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/26/07       (H)       CRA, FIN                                                                                               
04/03/07       (H)       CRA AT 8:00 AM BARNES 124                                                                              
04/03/07       (H)       Heard & Held                                                                                           
04/03/07       (H)       MINUTE(CRA)                                                                                            
04/17/07       (H)       CRA AT 8:00 AM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE JAY RAMRAS                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke as the sponsor of HB 222.                                                                            
                                                                                                                                
JOHANNA BALES, Excise Audit Manager                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     During  hearing  of   HB  222,  answered                                                               
questions.                                                                                                                      
                                                                                                                                
BRUCE BOTELHO, Mayor                                                                                                            
City and Borough of Juneau                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Testified in  support of CSHB  222, Version                                                               
E.                                                                                                                              
                                                                                                                                
BOB WEINSTEIN, Mayor                                                                                                            
City of Ketchikan                                                                                                               
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT:   Testified in  support of CSHB  222, Version                                                               
E.                                                                                                                              
                                                                                                                                
GERSHON COHEN                                                                                                                   
Haines, Alaska                                                                                                                  
POSITION STATEMENT:  Speaking as  a co-sponsor of the 2006 ballot                                                               
measure  on  cruise  ship taxation,  regulation  and  disclosure,                                                               
testified in opposition to HB 222.                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
                                                                                                                                
CO-CHAIR ANNA FAIRCLOUGH called  the House Community and Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  8:05:30  AM.                                                             
Representatives  Fairclough,  LeDoux,  Neuman,  and  Cissna  were                                                               
present  at the  call to  order.   Representatives Dahlstrom  and                                                               
Salmon arrived as the meeting was in progress.                                                                                  
                                                                                                                                
HB 222-PASSENGER VESSEL TAX CREDIT                                                                                            
                                                                                                                                
8:05:55 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FAIRCLOUGH announced  that the  only order  of business                                                               
would be  HOUSE BILL NO.  222, "An Act  providing a credit  for a                                                               
municipal  tax   imposed  on  certain  passengers   traveling  on                                                               
commercial    passenger    vessels   that    provide    overnight                                                               
accommodations; and  providing for an effective  date."  Co-Chair                                                               
Fairclough  further  announced  that  upon  the  request  of  the                                                               
sponsor,  the  public testimony  on  HB  222 will  be  re-opened.                                                               
[Before  the   committee  was  CSHB  222,   Version  25-LS0782\E,                                                               
Bullock, 3/28/07, which was adopted April 3, 2007.]                                                                             
                                                                                                                                
8:05:59 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JAY RAMRAS,  Alaska  State Legislature,  sponsor,                                                               
explained  that  he  has  asked  that  Mayor  Botelho,  a  former                                                               
attorney general for the State  of Alaska, make a presentation on                                                               
this matter.  He expressed  concern with regard to the obligation                                                               
legislators have  to pursue a  responsible course of action.   He                                                               
inquired as  to the  fiduciary obligation  of this  committee and                                                               
the legislature  when contemplating the  legal use of  the cruise                                                               
ship head  tax.  Standing in  the way of those  tax dollars going                                                               
to the  general fund are  the Tonnage Clause and  Commerce Clause                                                               
of the  U.S. Constitution.   Therefore, HB  222 offers  a viable,                                                               
appropriate, and  constitutionally legal way to  spend the cruise                                                               
ship  tax collected  so that  the  state isn't  entered into  any                                                               
protracted   litigation   with    the   cruise   ship   industry.                                                               
Representative Ramras  opined that if  the funds from  the cruise                                                               
ship  tax are  placed  in the  general fund  to  be used  "willy-                                                               
nilly", it will invite a  rough and difficult approach.  However,                                                               
if these  funds are used  in an appropriate manner,  as specified                                                               
in the Tonnage Clause and  the Marine Security Transportation Act                                                               
of  2002,   then  [the  legislature/state]  can   be  responsible                                                               
stewards  of the  will of  the  people and  allocate those  funds                                                               
responsibly.   Moreover,  the result  could  be some  magnificent                                                               
port   communities   with   some   extraordinary   infrastructure                                                               
projects.                                                                                                                       
                                                                                                                                
8:10:37 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX  recalled that the  sponsor has said that  one of                                                               
the purposes of HB 222 is  to avoid litigation between the cruise                                                               
ship  industry and  the  state.   She asked  if  anyone from  the                                                               
cruise ship industry is present who  can guarantee that if HB 222                                                               
passes, there won't be any litigation.                                                                                          
                                                                                                                                
REPRESENTATIVE RAMRAS replied  no.  He then  related his conflict                                                               
of   interest  with   his  personal   business,  which   involves                                                               
[tourism].   He further related that  he has written a  letter to                                                               
the  Select   Committee  on  Legislative  Ethics   requesting  an                                                               
advisory opinion that his behavior  meets the ethical standard it                                                               
should.  Representative Ramras said  that he hasn't spoken to the                                                               
cruise  ship  industry regarding  testifying  on  this, which  he                                                               
didn't believe to  be germane to the issue [embodied  in HB 222].                                                               
As  a lay  person, Representative  Ramras said  he has  concluded                                                               
that  the  state is  outside  of  its boundaries  to  contemplate                                                               
placing  these funds  in  the  general fund  to  be  used as  the                                                               
legislature sees fit.  Therefore,  he reiterated his concern that                                                               
such action  would invite  a class action  lawsuit.   He reminded                                                               
the committee that the cruise  ship industry is merely collecting                                                               
the tax  on behalf of  the passengers,  whose rights would  be in                                                               
violation.   He  likened the  situation to  the bed  tax and  the                                                               
liquor  tax that  he  collects for  the  local governing  bodies.                                                               
Therefore, the  legislature has  an obligation  to use  the funds                                                               
appropriately.   Representative  Ramras opined,  "No, I  have not                                                               
considered it  my obligation to  ask the cruise ship  industry to                                                               
come forward with some kind of  quid pro quo promise on that, but                                                               
I think that if we behave  legally and responsibly then we're not                                                               
going to  see the industry  file a suit against  us.  But,  if we                                                               
trample over the  U.S. Constitution and myriad  of legal opinions                                                               
that I've seen  going back to the year 2000,  then we will invite                                                               
trouble."                                                                                                                       
                                                                                                                                
8:15:28 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX asked  if the sponsor was aware  that when asked,                                                               
legislative counsel [to the committee]  said he wouldn't hazard a                                                               
guess as to  who would prevail in litigation  [over this matter].                                                               
Therefore, she opined that [who  would prevail] doesn't seem to a                                                               
certainty.                                                                                                                      
                                                                                                                                
8:16:05 AM                                                                                                                    
                                                                                                                                
CO-CHAIR FAIRCLOUGH then re-opened public testimony.                                                                            
                                                                                                                                
8:16:20 AM                                                                                                                    
                                                                                                                                
JOHANNA BALES, Excise Audit Manager,  Tax Division, Department of                                                               
Revenue, pointed out that under  HB 222, the cruise ship industry                                                               
would  still have  to collect  the  $46 passenger  fee and  would                                                               
receive a  credit of up $10  per person per community  visited if                                                               
that community  has its  own marine  passenger fee  or tax.   The                                                               
credit doesn't go  directly to the communities but  rather to the                                                               
individual that  paid the state  the commercial  passenger vessel                                                               
tax.  She  also pointed out that cruise ships  have visited about                                                               
18 communities  and each  community would have  to enact  its own                                                               
marine passenger fee  in order to get the credit  back.  Included                                                               
in those  18 communities are  places such as Hoonah  and Skagway,                                                               
which would need to enact and  administer their own tax.  The way                                                               
that  the  tax  currently  works, the  smaller  communities  like                                                               
Hoonah  and Skagway  could receive  a  $5 per  passenger fee  and                                                               
basically have  the state  administer the tax.   She  opined that                                                               
the aforementioned was really the  intent of the initiative.  Ms.                                                               
Bales then  pointed out that the  passage of HB 222  passes could                                                               
result in the  cruise ship industry potentially  having to report                                                               
to  19  separate  jurisdictions,  including  the  state  and  all                                                               
communities  with  a marine  passenger  fee.   Furthermore,  it's                                                               
possible that  some of the  smaller communities  wouldn't receive                                                               
any funds at all, if the  community found that it wasn't feasible                                                               
for it to enforce and administer its own tax.                                                                                   
                                                                                                                                
8:20:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CISSNA  related  her understanding  that  HB  222                                                               
doesn't allow the state to administer the local tax.                                                                            
                                                                                                                                
MS. BALES  confirmed that all  jurisdictions would have  to enact                                                               
and administer their own separate tax [under HB 222].                                                                           
                                                                                                                                
8:20:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  opined that HB  222 [in its  current form]                                                               
isn't going to work.   He then asked if the  system would work if                                                               
one or two of the impacted communities didn't enact its own tax.                                                                
                                                                                                                                
MS. BALES  clarified that  those communities  that don't  enact a                                                               
tax  wouldn't  receive  anything  or it  would  be  significantly                                                               
reduced versus  what those communities would  have received under                                                               
the initiative.   In further  response to  Representative Neuman,                                                               
Ms. Bales  said that she couldn't  offer any way in  which to fix                                                               
[the legislation] within the existing language.                                                                                 
                                                                                                                                
8:21:48 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  LEDOUX  posed a  hypothetical  situation  in which  two                                                               
communities have  a $10  head tax,  which would  result in  a $20                                                               
credit.   After taking out the  funds for the ocean  rangers, $26                                                               
would be  left.   She asked if  those other  impacted communities                                                               
that didn't  enact a  head tax  would be able  to receive  the $5                                                               
specified  in  the  initiative.    Co-Chair  LeDoux  related  her                                                               
understanding  that  HB  222  isn't  abolishing  the  initiative,                                                               
although it's changing it in an unacceptable way.                                                                               
                                                                                                                                
MS. BALES replied  yes, explaining that under  the current scheme                                                               
in which  Juneau and  Ketchikan are the  only communities  with a                                                               
head  tax there  would still  be  enough revenue  to provide  the                                                               
first five ports  of call.  However,  the way in which  HB 222 is                                                               
written there  is a potential  for the  credit to fall  below $26                                                               
as other communities increase or enact other taxes.                                                                             
                                                                                                                                
8:24:25 AM                                                                                                                    
                                                                                                                                
BRUCE BOTELHO, Mayor, City and Borough of Juneau, paraphrased                                                                   
from the following written remarks [original punctuation                                                                        
provided]:                                                                                                                      
                                                                                                                                
               I testify today on behalf of the assembly of                                                                     
     the City and Borough of  Juneau in support of Committee                                                                    
     Substitute for  House Bill 222, legislation  that would                                                                    
     provide a  credit for certain municipal  passenger fees                                                                    
     against the statewide  excise passenger tax established                                                                    
     by 2006 Primary Election Ballot Measure No. 2.                                                                             
               I support the purpose that the sponsors                                                                          
     sought  to  achieve  in promoting  the  passenger  tax:                                                                    
     having   users   contribute   to   the   infrastructure                                                                    
     necessary to  serve them in  communities they  visit by                                                                    
     cruise  ship.   However,  I  believe  that there  is  a                                                                    
     fundamental  flaw  in  the initiative  that  frustrates                                                                    
     this  purpose and  that  the  Committee Substitute  for                                                                    
     House Bill 222  corrects that flaw.   That  flaw is the                                                                    
     creation  of a  vast  pool  of money  that  can not  be                                                                    
     expended constitutionally.    Let me explain.                                                                              
               Let me begin by addressing how Measure No. 2                                                                     
     is designed to work.                                                                                                       
               First, it imposes a $46 tax on each                                                                              
     passenger  traveling in  Alaska on  a large  commercial                                                                    
     passenger  vessel.     The proceeds  from  the tax  are                                                                    
     placed in a special account  within the general fund of                                                                    
     the state.   Each of the  first five ports of  call for                                                                    
     each  vessel's  voyage  within Alaska  is  entitled  to                                                                    
     receive $5 per passenger per port visit.                                                                                   
               Second,  the initiative also establishes a                                                                       
     "regional  cruise ship  impact fund"  consisting of  25                                                                    
     percent of  the total proceeds from  the passenger tax.                                                                    
     Regional cruise  ship impact funds may  be appropriated                                                                    
     for  distribution to  local governments  within regions                                                                    
     of the  state "impacted by cruise  ship related tourism                                                                    
     activities but  not entitled to receive  funds based on                                                                    
     port of call visitation."                                                                                                  
               Finally,  the remainder of the funds may be                                                                      
     appropriated   for   "state-owned   port   and   harbor                                                                    
     facilities" or certain other services.                                                                                     
               There are specific restrictions on these                                                                         
     taxes.                                                                                                                     
        · If a municipal port elects to receive its $5 per                                                                      
          passenger share of the state's passenger tax, it                                                                      
          may not impose its own local passenger tax.                                                                           
        · Conversely, a municipality that imposes its own                                                                       
          local passenger tax may not access either the $5                                                                      
         per passenger share nor regional impact funds.                                                                         
        · Expenditure of the monies is limited to "provide                                                                      
          services  and infrastructure  directly related  to                                                                    
          passenger  vessel  or   watercraft  visits  or  to                                                                    
          enhance  the safety  and efficiency  of interstate                                                                    
          and   foreign  commerce   related  to   vessel  or                                                                    
          watercraft activities."                                                                                               
                                                                                                                                
                    This is the statutory scheme in place.                                                                      
     How does this  relate to the "fundamental  flaw" in it?                                                                    
     What's wrong with the scheme?   The problems are of two                                                                    
     kinds:  constitutional and practical.                                                                                      
                                                                                                                                
                    What are the constitutional problems?                                                                       
     Federal law limits the kinds  of taxes or fees that may                                                                    
     be imposed on  vessels in interstate commerce.   Let me                                                                    
     mention the laws I believe most directly apply:                                                                            
     The Tonnage  Clause of  the United  States Constitution                                                                    
     (art.  I,  sec. 10)  prohibits  any  taxes or  fees  on                                                                    
     vessels  except  those  directly  related  to  services                                                                    
     provided to those vessels.                                                                                                 
                                                                                                                                
8:29:57 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX asked if the cruise ship industry lobbied for                                                                   
the tax specified in the earlier mentioned U.S. statute.                                                                        
                                                                                                                                
MAYOR   BOTELHO  replied   yes,  adding   that  legislation   was                                                               
introduced  at  the  request  of the  cruise  ship  industry  and                                                               
successfully  marshaled by  U.S.  Representative Don  Young.   He                                                               
then   continued   paraphrasing   from  the   following   written                                                               
testimony:                                                                                                                      
                                                                                                                                
     33  USC  Section 5  prohibits  authorizes  the levy  of                                                                    
     "reasonable  fees  charged  on  a  fair  and  equitable                                                                    
     basis"  that  (A) are used solely to pay  the cost of a                                                                    
     service  to  the vessel;  (B)  enhance  the safety  and                                                                    
     efficiency of interstate and  foreign commerce; and (C)                                                                    
     do not  impose more than  a small burden  on interstate                                                                    
     or foreign commerce.                                                                                                       
                                                                                                                                
               The sponsors of the initiative were aware of                                                                     
     these  restrictions and  have  tried to  meet the  high                                                                    
     burden  set  by federal  law.    That's why  the  funds                                                                    
     generated  by  this  tax  must be  used  "in  a  manner                                                                    
     calculated to  improve port  and harbor  facilities and                                                                    
     other  services  to  properly  provide  for  vessel  or                                                                    
     watercraft  visits  and  to   enhance  the  safety  and                                                                    
     efficiency of interstate and foreign commerce."                                                                            
               Yet this language is of little import when                                                                       
     applied to  the regional  impact fund.   That's because                                                                    
     that fund  is available  only to  those ports  that are                                                                    
     not today "ports  of call", that is ports  that are not                                                                    
     visited  by cruise  ships at  all.    So,  applying the                                                                    
     federal statute,  what conceivable  service to a vessel                                                                    
     should be  recovered and  on what  basis?    Similarly,                                                                    
     what  state-owned  port,  harbor  facilities  or  other                                                                    
     service is  being directly  rendered that  would permit                                                                    
     these  funds to  be  expended?     I  suggest that  few                                                                    
     expenditures could meet the federal test.                                                                                  
                                                                                                                                
8:32:30 AM                                                                                                                    
                                                                                                                                
MAYOR BOTELHO continued:                                                                                                        
                                                                                                                                
               What are the practical problems?                                                                                 
               First, there is little incentive for major                                                                       
     ports  of  call to  take  part  in the  state  program,                                                                    
     rather than  maintain or establish their  own passenger                                                                    
     fees.   Why is this?                                                                                                       
               (1)  Municipalities are able to set higher                                                                       
     or  lower  fees  to  meet  local  infrastructure  needs                                                                    
     without reliance  on the state  program.   Thus, Juneau                                                                    
     currently  imposes two  separate fees  computed on  the                                                                    
     number of  a vessel's passengers  per port visit.   The                                                                    
     two fees now total  $8.00.  Ketchikan currently imposes                                                                    
     a $7.00 per passenger fee.                                                                                                 
               (2)  Municipal ports electing to receive the                                                                     
     $5 per passenger  tax would be required to  come to the                                                                    
     legislature  each year  and seek  an appropriation  for                                                                    
     that purpose.  It  leaves municipalities dependent upon                                                                    
     the legislative  process and having port  monies traded                                                                    
     for other  capital projects.  In  addition, reliance on                                                                    
     annual   appropriations  to   bond   for  projects   is                                                                    
     difficult  because  local   government  would  have  no                                                                    
     direct authority  to impose  and receive  taxes related                                                                    
     to the port to repay the bonded indebtedness.                                                                              
                                                                                                                                
                                                                                                                                
8:35:08 AM                                                                                                                    
                                                                                                                                
MAYOR BOTELHO continued:                                                                                                        
                                                                                                                                
     Let  me apply  all  of  this to  the  initiative.   For                                                                    
     purposes  of this  exercise, I  am assuming  a year  in                                                                    
     which  1  million  passengers  arrive  by  cruise  ship                                                                    
     (slightly  more than  are actually  projected for  this                                                                    
     season):                                                                                                                   
               $46,000,000 total amount to be remitted to                                                                     
     the State                                                                                                                  
                    The cruise ship industry estimates that                                                                     
     the average  cruise ship vessel  calls on 3.5  ports in                                                                    
     Alaska.   I've  rounded  up  to four  ports.   The  two                                                                    
     largest  ports of  call, Juneau  and  Ketchikan do  not                                                                    
     participate.    I  have also  assumed  that  a  million                                                                    
     passengers visited each of the  next two ports of call.                                                                    
     That allows me  to subtract - $10,000,000  as the total                                                                  
     amount remitted to municipalities.                                                                                         
               That leaves a total of $36,000,000.  Another                                                                   
     25% is  to be  allocated to  the regional  impact fund.                                                                    
     Again, it  is doubtful  whether much,  if any,  of that                                                                    
     amount  can   be  expended,  but  that   amount  totals                                                                    
     $11,500,000.  That leaves a  total of $24,500,000 to be                                                                
     expended  on state  harbors, ports  and services  to be                                                                  
     used solely  in direct service to  cruise ship vessels.                                                                  
     I submit  that you cannot  spend it.  In  the meantime,                                                                    
     of the $46,000,000 theoretically  set aside for support                                                                  
     of local governments servicing  cruise ship vessels, at                                                                    
     most $10,000,000 reaches them.                                                                                           
               Thus we are left with a municipal port                                                                           
     revenue  sharing   program  that   will  not   work  as                                                                    
     intended:  as a way  to assist port communities to cope                                                                    
     with cruise ship visits.                                                                                                   
               Fortunately, this problem can be fixed.                                                                          
     Proposed  Committee Substitute  for House  Bill 222  is                                                                    
     one such way.   The CS would  allow municipal passenger                                                                    
     taxes  or fees  to be  taken  as a  credit against  the                                                                    
     State's  $46 tax,  up to  a maximum  credit of  $10 per                                                                    
     passenger, per community.                                                                                                  
               Let there be no question.  Under this bill,                                                                      
     the allowance  of a tax  credit will reduce  the amount                                                                    
     of proceeds  going into the  State general fund.    And                                                                    
     the cruise  industry will end up  remitting fewer total                                                                    
     dollars to  government entities, local and  state, as a                                                                    
     result.                                                                                                                    
               But creating a credit is likely to achieve a                                                                     
     couple  of  other results  that  I  believe are  highly                                                                    
     desirable:                                                                                                                 
        · Port cities that do not currently have a fee                                                                          
          structure will  be encouraged to enact  one and to                                                                    
          develop  port  projects  that  serve  cruise  ship                                                                    
          passengers  in  the  manner most  compatible  with                                                                    
          their  respective  communities,  without  fear  of                                                                    
          adverse political consequences;                                                                                       
        · In so doing, general fund revenues are taken off                                                                      
          of the table-instead, the revenues go directly to                                                                     
          communities-competition within the legislature                                                                        
          for allocations is reduced.                                                                                           
                                                                                                                                
                                                                                                                                
               To summarize:  allowing the tax credit                                                                           
     clearly benefits  the port communities for  the reasons                                                                    
     I've outlined.   At the  same time, it will  reduce the                                                                    
     total amount of passenger  tax proceeds received by the                                                                    
     State.    This  reduction, however,  should  not  raise                                                                    
     major  policy objections  because of  the severe  legal                                                                    
     restrictions on  the ways that  these tax  proceeds may                                                                    
     be spent.                                                                                                                  
                                                                                                                                
8:39:23 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN  inquired  as  to what  fees,  taxes,  low                                                               
interest loans,  and other grants  are available to port  of call                                                               
communities.                                                                                                                    
                                                                                                                                
MAYOR BOTELHO related that Juneau  imposes the passenger head tax                                                               
the  funds from  which are  used  for a  variety of  port-related                                                               
projects, most of which are capital  projects.  Juneau also has a                                                               
specifically approved  program that allocates a  portion of those                                                               
funds for general  government costs to [those  services] that are                                                               
impacted by  visitors, such as  ambulance service.  The  City and                                                               
Borough  of Juneau  also imposes  fees, moorage  fees, that  deal                                                               
with direct  operations and maintenance  of the  dock facilities.                                                               
He noted that  in Juneau all passengers are subject  to the local                                                               
sales tax.                                                                                                                      
                                                                                                                                
REPRESENTATIVE NEUMAN  opined that  there are other  low interest                                                               
grants available  for improvements,  such as  from the  fish tax.                                                               
He  then opined  that the  Mat-Su Borough  is impacted  by cruise                                                               
ship visitors.   Therefore, he questioned how  it's decided which                                                               
communities are impacted.                                                                                                       
                                                                                                                                
MAYOR BOTELHO acknowledged that  every community with visitors is                                                               
impacted.     The  issue   is  whether   the  impact   meets  the                                                               
constitutional  screen as  to the  nexus  of the  impact and  how                                                               
close  it is  to  the vessel  in  port.   He  suggested that  the                                                               
earlier mentioned  federal clauses  pose obstacles  that restrict                                                               
the  target  solely to  those  communities  directly serving  the                                                               
vessels.   The farther away  from the dockside, the  more tenuous                                                               
the nexus.   With regard to potential lawsuits, the  real test is                                                               
with  regard to  the degree  with which  the government  tries to                                                               
comply  with the  law of  the land,  including the  constitution.                                                               
Mayor Botelho  noted that the  Juneau Airport has sought  the use                                                               
of passenger fees at the airport  since many of the [cruise ship]                                                               
passengers make  use of the  airport.  However,  the relationship                                                               
[as determined by local officials] is too tenuous, he related.                                                                  
                                                                                                                                
8:45:53 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  LEDOUX,  assuming  the   initiative  as  written  poses                                                               
insurmountable    constitutional    issues,    asked    if    the                                                               
aforementioned could  be remedied by  simply shifting all  of the                                                               
money  received through  the initiative  process to  the directly                                                               
impacted port communities rather than pass HB 222.                                                                              
                                                                                                                                
MAYOR  BOTELHO replied  yes,  adding  that the  next  test is  to                                                               
ensure that  the port communities use  the funds in a  way that's                                                               
consistent with the  federal law.  However,  Mayor Botelho opined                                                               
that it isn't  as desirable because [the funds  received from the                                                               
passenger fee]  would be  subject to  annual appropriation.   The                                                               
advantage  of Version  E is  that  the funds  [collected for  the                                                               
passenger  fee]  aren't placed  in  the  general fund  and  local                                                               
communities can determine how much  the passenger fee will be and                                                               
how to use those funds without relying on the legislature.                                                                      
                                                                                                                                
CO-CHAIR LEDOUX surmised that if  a local community doesn't enact                                                               
the credit  and the [passenger  fee] funds are simply  shifted to                                                               
the directly impacted communities,  local communities could still                                                               
enact their  own taxes.   For  example, nothing  prohibits Juneau                                                               
from opting-out of  the state program and  enacting or continuing                                                               
its own  taxes.  She  recalled Mayor Botelho mentioning  that the                                                               
passage of HB  222 would eliminate the fear  of adverse political                                                               
consequences when  a community  enacts its own  head taxes.   She                                                               
then  requested  that  Mayor  Botelho   elaborate  on  this  fear                                                               
communities have for enacting their own head tax.                                                                               
                                                                                                                                
MAYOR BOTELHO related that Juneau  and Ketchikan and a few others                                                               
are essential ports of call for  the cruise ship industry.  These                                                               
essential ports of  call are somewhat immune  from pressures from                                                               
the cruise  ship industry  and locals who  rely on  the industry.                                                               
Mayor Botelho recalled  his experience as the mayor  of Juneau in                                                               
the late  1980s when Juneau first  considered a tax to  which the                                                               
industry  responded by  threatening  that  cruise ships  wouldn't                                                               
visit  Juneau.   In  fact, such  was the  case  in another  small                                                               
Southeast community.   He opined that this credit  proposal is of                                                               
little  consequence because  the overall  amount remitted  to the                                                               
state by the  cruise ship industry remains the same  and thus the                                                               
pressure on  local policy makers  is reduced, if  not eliminated.                                                               
The aforementioned is why, he  said, that local communities would                                                               
opt for  their own  port fee  to which  the cruise  ship industry                                                               
wouldn't object.                                                                                                                
                                                                                                                                
8:52:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   CISSNA  related   her  understanding   from  the                                                               
Department of Revenue  testimony that there is a  problem with HB
222 as  written in that  it requires all communities,  beyond the                                                               
first  five ports  of call,  to  enact and  administer their  own                                                               
taxation.                                                                                                                       
                                                                                                                                
MAYOR  BOTELHO reiterated  that the  limitation is  regarding the                                                               
nexus of  the funds being used  solely for the use  of service to                                                               
the  vessel.   The  aforementioned  is a  high  burden  and as  a                                                               
consequence doesn't permit much,  if any, expenditures from those                                                               
impact  funds.    Recalling  testimony  from  the  Department  of                                                               
Revenue,  Mayor  Botelho  pointed  out  that  average  individual                                                               
vessels   calls  on   3.5  communities.      Under  the   current                                                               
legislation, only  the first five  ports of call have  any "call"                                                               
on  the funds  received from  the passenger  fee.   Mayor Botelho                                                               
again highlighted that there is  already a limitation with regard                                                               
to who can access funds by virtue  of being ports of call as well                                                               
as  a constitutional  and statutory  restriction  on where  those                                                               
funds can be spent.                                                                                                             
                                                                                                                                
8:56:13 AM                                                                                                                    
                                                                                                                                
BOB WEINSTEIN,  Mayor, City of Ketchikan,  informed the committee                                                               
that  Ketchikan owns  and  operates  substantial port  facilities                                                               
that provide  direct services to  cruise ships.   Mayor Weinstein                                                               
noted his agreement with Mayor  Botelho's position as well as his                                                               
legal  analysis,   which  coincides   with  the   legal  opinions                                                               
conducted  on  behalf of  the  City  of Ketchikan  regarding  the                                                               
appropriate use of port fees.   He then recalled that a number of                                                               
years  ago  the City  of  Ketchikan  initiated a  long-term  port                                                               
facility  program development  plan.   In fact,  last summer  the                                                               
voters in  the City of  Ketchikan approved a $38  million revenue                                                               
bond   to   pay  for   the   port-related   improvements.     The                                                               
aforementioned   debt  service   is   being   paid  through   the                                                               
implementation  of  a  $7  passenger.     He  then  informed  the                                                               
committee that from conversations  with the bond bank's financial                                                               
advisor  and executive  director  he  ascertained that  financing                                                               
revenue bonds  for a large project  is more likely to  occur when                                                               
there is  a recurring  guaranteed source  of revenue  rather than                                                               
appropriated funds  that are subject  to approval each year.   As                                                               
mentioned earlier, the  current $5 per port limit for  up to five                                                               
ports will  only direct  $18 of  the $50  fee to  the communities                                                               
impacted  by the  cruise  ships.   The  aforementioned occurs  if                                                               
Ketchikan and Juneau receive their $5.   However, if 2 of the 3.5                                                               
communities cruise ships visit on  average were taken off, a very                                                               
small  amount of  the total  collected would  go to  the first  5                                                               
ports.   Again,  the state  is in  a situation  in which  it will                                                               
collect a substantial amount of  money and the federal government                                                               
has determined how  it can be spent.   This legislation maintains                                                               
the $50 passenger fee and those  funds would be used for projects                                                               
consistent  with  federal  law.     In  fact,  HB  222  [provides                                                               
structure such that]  it would be more likely that  there will be                                                               
port  improvements,  he  opined.   In  closing,  Mayor  Weinstein                                                               
related the City of Ketchikan's support for HB 222.                                                                             
                                                                                                                                
9:01:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NEUMAN   highlighted  the   following   proposed                                                               
language from the initiative:                                                                                                   
                                                                                                                                
     Sec.   43.52.060.  Local   levies.  Any   municipality,                                                                  
     whether  home  rule  or   general  law,  that  receives                                                                    
     passenger  ship fee  funds under  this chapter  may not                                                                    
     impose  an   additional  form  of  tax   on  travel  on                                                                    
     commercial  passenger  vessels  engaged  in  activities                                                                    
     involving  overnight accommodations  for passengers  in                                                                    
     state  marine waters.   Any  form of  tax on  travel on                                                                    
     commercial  passenger  vessels  engaged  in  activities                                                                    
     involving  overnight accommodations  for passengers  in                                                                    
     state marine waters enacted  by a municipality, whether                                                                    
     home rule or  general law, prior to  the effective date                                                                    
     of  this  legislation  shall   expire  one  year  after                                                                    
     enactment of  this law if  that municipality  elects to                                                                    
     receive funds under this chapter.                                                                                          
                                                                                                                                
REPRESENTATIVE  NEUMAN opined  that  the aforementioned  language                                                               
seems to  say that if  a municipality decides to  participate and                                                               
take the funds, then it can't  impose or receive any other taxes.                                                               
He asked if  that ties the hands of the  community with regard to                                                               
determining its needs.                                                                                                          
                                                                                                                                
MAYOR WEINSTEIN  opined that the  aforementioned section  [of the                                                               
initiative] is  part of the  problem that HB  222 would fix.   He                                                               
reminded the  committee that the  City of Ketchikan has  a nearly                                                               
$40  billion  project  that's under  construction  and  is  being                                                               
financed by  revenue bonds to which  the city has pledged  $7 per                                                               
marine passenger fee in order to  pay the debt service.  The City                                                               
of Ketchikan  intends to maintain this  $7 fee and, in  fact, the                                                               
bond covenants require that the City of Ketchikan keep it.                                                                      
                                                                                                                                
9:03:06 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX questioned  then why the City  of Ketchikan cares                                                               
about this tax since it can continue to levy the $7 tax.                                                                        
                                                                                                                                
MAYOR WEINSTEIN  said that  the City  of Ketchikan  cares because                                                               
it's one  of the major  ports and  it's impacted by  the vessels,                                                               
passengers, and crews.   Mayor Weinstein opined  that the section                                                               
of the  initiative referenced by Representative  Neuman is unfair                                                               
because  it penalizes  communities such  as Ketchikan  and Juneau                                                               
that try to  develop port infrastructure while  not allowing them                                                               
access  to a  fee collected  by  the state  from the  passengers,                                                               
vessels, and  crews that visit  their communities.   Furthermore,                                                               
Ketchikan has  additional projects  that it wishes  to construct.                                                               
Mayor  Weinstein further  opined that  it will  be difficult  for                                                               
Ketchikan to simply raise its local  fee to pay for projects when                                                               
the  state  is  already  collecting substantial  funds  that  the                                                               
federal law requires to be spent in ports of call.                                                                              
                                                                                                                                
CO-CHAIR  LEDOUX asked  whether an  increase in  Ketchikan's head                                                               
tax to  $10 would  cause the  cruise ships  to retaliate  and not                                                               
stop in Ketchikan.                                                                                                              
                                                                                                                                
MAYOR WEINSTEIN mentioned that Ketchikan  has a good relationship                                                               
with the  cruise ship industry.   Were Ketchikan to  increase its                                                               
passenger fee,  it would be  for specific projects  that directly                                                               
serve  cruise ship  passengers and  crew.   Mayor Weinstein  said                                                               
that the state is collecting money  in excess of what the framers                                                               
of the  initiative intended.   Clearly, the initiative  does need                                                               
amendment in order that the fees  collected are spent in a manner                                                               
that's  consistent with  federal law,  which isn't  currently the                                                               
case.                                                                                                                           
                                                                                                                                
9:07:03 AM                                                                                                                    
                                                                                                                                
GERSHON  COHEN,  speaking as  a  co-sponsor  of the  2006  ballot                                                               
measure  on  cruise  ship taxation,  regulation  and  disclosure,                                                               
commented  that he  was  puzzled that  Juneau  and Ketchikan  are                                                               
interested in  amending the rule  given that they have  said they                                                               
aren't going to  opt-in to the program.  He  pointed out that the                                                               
initiative was specifically drafted  so that communities couldn't                                                               
double  dip.   Furthermore, smaller  communities contemplating  a                                                               
cruise  ship   passenger  head  tax  face   tremendous  political                                                               
pressure from the  cruise ship industry.  He  recalled that Mayor                                                               
Botelho remarked  that the nexus  between the amount  of services                                                               
provided to  the vessel isn't black  and white.  Although  no one                                                               
knows how  it will  all play  out, he expected  that a  number of                                                               
communities will be able to  clearly collect and spend the funds.                                                               
He  noted   that  other  communities  and   countries  have  been                                                               
collecting [passenger] fees and  spending those without problems.                                                               
Mr.  Cohen   expressed  concern  that  if   Juneau  or  Ketchikan                                                               
increased their  fees, their fees  will come  out of the  cap and                                                               
thus  the  amount  available  to   everyone  else  will  decrease                                                               
significantly.  Furthermore, the amount  going to the state could                                                               
go away.  In conclusion, he  informed the committee that there is                                                               
a  class action  lawsuit regarding  cruise ships  collecting port                                                               
fees and  keeping them  because the  cruise ships  were receiving                                                               
rebates from the ports.  He  emphasized the need not to establish                                                               
a similar situation  in Alaska.  Mr. Cohen  concluded by relating                                                               
his opposition to HB 222.                                                                                                       
                                                                                                                                
9:11:52 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FAIRCLOUGH,  upon determining  no  one  else wished  to                                                               
testify, closed the public hearing.                                                                                             
                                                                                                                                
9:12:04 AM                                                                                                                    
                                                                                                                                
CO-CHAIR FAIRCLOUGH announced that HB 222 would be held over.                                                                   
                                                                                                                                
9:12:08 AM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Community  and Regional  Affairs Standing  Committee meeting  was                                                               
adjourned at 9:12:09 AM.                                                                                                      
                                                                                                                                

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