Legislature(2007 - 2008)BARNES 124
04/03/2007 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB212 | |
| HB222 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 212 | TELECONFERENCED | |
| *+ | HB 222 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
April 3, 2007
8:05 a.m.
MEMBERS PRESENT
Representative Anna Fairclough, Co-Chair
Representative Gabrielle LeDoux, Co-Chair
Representative Nancy Dahlstrom
Representative Mark Neuman
Representative Kurt Olson
Representative Sharon Cissna
Representative Woodie Salmon
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 212
"An Act authorizing the transfer of land from the Alaska
Railroad Corporation to Eklutna, Inc.; and providing for an
effective date."
- MOVED HB 212 OUT OF COMMITTEE
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 212
SHORT TITLE: LAND TRANSFERS ALASKA RR & EKLUTNA
SPONSOR(s): REPRESENTATIVE(s) STOLTZE
03/21/07 (H) READ THE FIRST TIME - REFERRALS
03/21/07 (H) CRA, FIN
04/03/07 (H) CRA AT 8:00 AM BARNES 124
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
WITNESS REGISTER
BEN MULLIGAN, Staff
to Representative Bill Stoltze
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 212 on behalf of the sponsor,
Representative Stoltze.
CURTIS MCQUEEN, Corporate Affairs
Eklutna, Inc.;
Native Village of Eklutna
(No address provided)
POSITION STATEMENT: Testified on HB 212.
PAT GAMBLE, President & CEO
Alaska Railroad Corporation
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Requested the committee's approval of the
land transfer embodied in HB 212.
JIM ARNESEN, Corporate Land & Regulatory Manager
Eklutna, Inc.
(No address provided)
POSITION STATEMENT: During hearing of HB 212, requested that
the property be returned as soon as possible and be left in as
original condition as possible.
REPRESENTATIVE JAY RAMRAS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 222.
DON BULLOCK, Attorney
Legislative Legal and Research Services
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 222, answered
questions.
TIM BOURCY, Mayor
City of Skagway
Skagway, Alaska
POSITION STATEMENT: Testified in support of the concept of HB
222 and the cap it imposes.
GERSON COHEN
(No address provided)
POSITION STATEMENT: During hearing of HB 222, spoke as one of
the sponsors of the cruise ship tax initiative.
MARVIN YODER
Seward, Alaska
POSITION STATEMENT: Testified on HB 222.
ALLEN SOREN, City Manager
City of Skagway
Skagway, Alaska
POSITION STATEMENT: Testified that the cap on individual
credits at each port included in HB 222 is important to the City
of Skagway.
BOB WEINSTEIN, Mayor
City of Ketchikan
Ketchikan, Alaska
POSITION STATEMENT: Testified in support of HB 222.
CHIP THOMA
Juneau, Alaska
POSITION STATEMENT: Testifying as a cruise initiative law
supporter, urged the committee to reject HB 222.
ACTION NARRATIVE
CO-CHAIR ANNA FAIRCLOUGH called the House Community and Regional
Affairs Standing Committee meeting to order at 8:05:35 AM.
Representatives Fairclough, LeDoux, Dahlstrom, Neuman, Olson,
and Cissna were present at the call to order. Representative
Salmon arrived as the meeting was in progress.
HB 212-LAND TRANSFERS ALASKA RR & EKLUTNA
8:06:25 AM
CO-CHAIR FAIRCLOUGH announced that the first order of business
would be HOUSE BILL NO. 212, "An Act authorizing the transfer of
land from the Alaska Railroad Corporation to Eklutna, Inc.; and
providing for an effective date."
8:06:43 AM
BEN MULLIGAN, Staff to Representative Bill Stoltze, Alaska State
Legislature, explained that HB 212 is land conveyance
legislation in which land from the Alaska Railroad Corporation
(ARRC) would be conveyed to Eklutna, Inc. In order for a land
transfer to happen, ARRC has to request and obtain approval of
the legislature to transfer the land known as the Eklutna
Quarry, which is 48 acres [north of] Eagle River. Prior to the
introduction of HB 212, ARRC, Eklutna, Inc., and the Native
Village of Eklutna all worked out the logistics of what would
occur with this parcel and signed a memorandum of understanding
(MOU) to that effect. Everyone is [in agreement] with the deal
and thus coming before the legislature is a formality. What has
already been blasted in the quarry will be taken out and then
the parcel will be conveyed to Eklutna.
8:09:12 AM
CURTIS MCQUEEN, Corporate Affairs, Eklutna, Inc.; Native Village
of Eklutna (NVE), thanked the committee for hearing this matter,
which has been lingering for 30 years. Mr. McQueen related that
Eklutna, Inc. has worked closely with NVE, which is the tribal
side of the organization. Over 30 years ago, Eklutna was
promised this land and quarry through the Alaska Native Claims
Settlement Act (ANCSA). Although ARRC, Eklutna, Inc., and NVE
don't have the best history in regard to finding resolution, Mr.
Gamble has been very proactive in attempting to resolve this
matter. Over the last two years, an agreement was reached after
working closely with ARRC.
8:11:00 AM
PAT GAMBLE, President & CEO, Alaska Railroad Corporation (ARRC),
Department of Commerce, Community, & Economic Development, noted
his agreement with Mr. McQueen in that ARRC hasn't had a great
history with Eklutna as the 48 acres resulted in ARRC being
taken to supreme court three times. However, there is rich
potential with regard to the future of Eklutna. Mr. Gamble
explained that after spending a day in NVE talking with the
elders, he came to understand the deeper meaning of the quarry
in relation to the culture. The aforementioned resulted a
cultural approach to the solution. He echoed earlier remarks
that the Railroad Transfer Act specifies that ARRC must obtain
approval from the legislature to transfer land, which is why HB
212 is before the committee today. Mr. Gamble highlighted [the
importance] of the relationship ARRC has established with
Eklutna through this process as there is promising development
for Eklutna and ARRC. The geographic area [of Eklutna] holds a
considerable future and ARRC is already discussing the
possibilities of development through the area. Mr. Gamble
characterized this transfer as a "no-brainer" because the
intention is to pull up rocks and finds on the ground, cleanup
the property, possibly adjust the face of the quarry, and pull
up the track. All of the aforementioned will be performed per
the MOU. In conclusion, Mr. Gamble requested the committee's
approval of the land transfer embodied in HB 212.
8:14:56 AM
CO-CHAIR LEDOUX noted her appreciation for Mr. Gamble visiting
NVE to actually see the situation.
MR. GAMBLE said the visit made all the difference in resolving
the matter. He commented that this land transfer doesn't hurt
ARRC, which he characterized as a good value for the state and
the right thing to do.
8:16:25 AM
REPRESENTATIVE NEUMAN asked if any other reclamation is
necessary to the area beyond taking out the rock that was
blasted.
MR. GAMBLE replied no.
8:17:24 AM
CO-CHAIR FAIRCLOUGH asked if explosives will be able to be used
to remove the materials off the property with 24-hour notice to
the village.
MR. GAMBLE replied yes, noting that's specified in the MOU.
CO-CHAIR FAIRCLOUGH related her understanding that a conditional
use permit will be required. The conditional use permit from
planning and zoning that happened on December 4, 2006, specifies
that ARRC shall seek jurisdiction from the U.S. Army Corps of
Engineers (COE) and shall seek clean water authorization, as
necessary, from COE and the Environmental Protection Agency
(EPA). The document further specifies that ARRC will sod and
hydro seed the site in order to maintain runoff and air quality.
The aforementioned is located on page 2 of the document and is
different than the MOU. She inquired as to which is the abiding
document.
MR. GAMBLE informed the committee that ARRC has already received
the conditional use permit to pick up the rock. He said that he
isn't familiar with the document to which Co-Chair Fairclough is
referring and thus would need to obtain that information.
CO-CHAIR FAIRCLOUGH said that she merely wanted the record to
reflect how the site will be left and whether NVE and Eklutna,
Inc. are happy with planning and zoning's expectations for ARRC
to leave the site with some vegetation. She related her belief
that NVE and Eklutna, Inc. may want to return the area to its
natural habitat.
8:19:44 AM
CO-CHAIR FAIRCLOUGH then turned to the disparity between the
value of the materials coming off the site. She pointed out
that the sponsor statement specifies that the value of the
materials is approximately $2 million while a letter dated
January 22, 2007, specifies that the value is $1 million.
MR. GAMBLE specified that the correct value is $2 million. He
explained that the $1 million was the first review of the
property and the material on the ground. Given the market value
of those materials at the time, the estimate was $1 million.
However, once the actual tonnage and specific materials were
determined, the estimate rose to $2 million.
8:21:12 AM
JIM ARNESEN, Corporate Land & Regulatory Manager, Eklutna, Inc.,
informed the committee that Eklutna is interested in stopping
the destruction. The area is barren rock and the residents
don't want to sod and seed the area because there are no plans
for the land at this point. He related that Eklutna, Inc. and
NVE basically want the property to be returned as soon as
possible and to be left in as original condition as possible.
Mr. Arnesen then related that at one time Eklutna Reserve had
390,000 acres that was reduced to its current 1,200 acres around
the village. Even within that 1,200 acres, other entities were
allowed to come in and take various parcels from Eklutna.
However, once ANCSA passed, Eklutna reclaimed some of its land.
The parcel addressed in HB 212 was addressed in ANCSA, mentioned
in the Alaska National Interest Lands Conservation Act (ANILCA)
and the 3(e) agreements. Because the federal government was
using the property at the time, it wasn't available for
selection. However, the [federal] legislation included an
allowance for a future transfer, which is what is occurring with
HB 212.
8:23:47 AM
REPRESENTATIVE NEUMAN inquired as to what will happen with the
rail spur.
MR. ARNESEN related his understanding that after ARRC removes
the materials on the ground, the rail spur will be removed.
8:24:14 AM
CO-CHAIR FAIRCLOUGH, upon determining no one else wished to
testify, closed public testimony.
CO-CHAIR FAIRCLOUGH, relating her perspective as a resident of
the area, said that NVE and Eklutna, Inc. have been outstanding
community partners. In fact, Eklutna has leased the land on
which Chugiak High School sits for $1. She then applauded ARRC
for taking a different direction, and noted that it benefits
Alaska because it provides access to material that has been in
dispute for many years. That material would reduce construction
costs for future ARRC and highway projects.
8:26:41 AM
CO-CHAIR LEDOUX moved to report HB 212 out of committee with
individual recommendations and the accompanying fiscal notes.
REPRESENTATIVE SALMON objected.
A roll call vote was taken. Representatives Olson, Cissna,
Salmon, Neuman, LeDoux, and Fairclough voted in favor of
reporting HB 212 from committee. Therefore, HB 212 was reported
out of the House Community and Regional Affairs Standing
Committee by a vote of 6-0.
The committee took an at-ease from 8:28 a.m. to 8:30 a.m.
HB 222-PASSENGER VESSEL TAX CREDIT
8:29:37 AM
CO-CHAIR FAIRCLOUGH announced that the final 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."
8:29:53 AM
CO-CHAIR LEDOUX moved to adopt CSHB 222, Version 25-LS0782\E,
Bullock, 3/28/07, as the working document. There being no
objection, Version E was before the committee.
8:30:13 AM
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, sponsor of
HB 222, began by pointing out the changes embodied in Version E.
On page 1, line 7, the amount that can be collected was capped
at $10 per port community in order to avoid any predatory
communities seeking to take the entire amount. On page 1, line
12, after "tax", the word "fee" was inserted. He explained that
HB 222 addresses the cruise ship head tax, which is largely
borne by those visiting Alaska. Representative Ramras related
that he isn't a great fan of litigation. Furthermore, he opined
that there has been compounded growth in the cruise ship and
hospitality industry. He mentioned that he spoke with Joyce
Anderson, Select Committee on Legislative Ethics, regarding the
nature of a close economic association, which [doesn't seem to
be of concern] since he, as a member of the hospitality industry
and a citizen legislator, doesn't benefit exclusively [from HB
222]. The concern is that if litigation ensues between the
cruise ship industry and the state over the disposition of the
cruise ship head tax, there will be a lessening of the
aforementioned compounded growth. He indicated that he didn't
believe a lack of growth would ever be recovered in the ensuing
years. Therefore, he expressed interest in addressing that with
legislation that constructively addresses the cruise ship head
tax in a manner that lessens the likelihood of litigation
between the state and the cruise ship industry.
8:34:31 AM
CO-CHAIR LEDOUX inquired as to how HB 222 will guarantee there
won't be any litigation as there are a number of issues the
cruise ship industry has related to the initiative.
REPRESENTATIVE RAMRAS opined, "I think time will tell."
However, it remains valuable to have a constructive dialogue
about this issue. Representative Ramras related his
understanding that at this point information is being gathered
on the matter. The issue, he explained, is regarding whether
the compounded growth rate will be lost over the year when an
industry experiences a stalled growth rate. Representative
Ramras then turned to the breakdown of the $50 cruise ship head
tax. Of the $50 head tax, $4 is set aside for the ocean ranger
program. Of the remaining $46 of the head tax, one-quarter is
placed in the regional impact fund that would presumably go to
communities across the state. He questioned the legality of the
aforementioned. He also questioned what could be done with the
remaining $35 of the head tax. Although the Department of
Revenue (DOR) in its fiscal note, has indicated it can do what
it will with [the $35]. Representative Ramras noted his
disagreement.
8:38:32 AM
REPRESENTATIVE RAMRAS drew the committee's attention to the
numerous legal opinions included in the committee packet, which
illustrate that under the U.S. Constitution and federal law
revenues from the cruise ship initiative head taxes can only be
used to pay the costs of a service to the vessel or watercraft.
Therefore, he surmised that $46 of the head tax can only be
spent at the ports of call at which the vessels stop. The head
tax can be broken into the following three pieces: $4 for the
ocean ranger program; $11 for the regional impact fund; and $35
meant to be used for port facilities. Representative Ramras
pointed out that in addition to the state head tax, there are
local head taxes. If the community of Juneau collected $5 per
cruise ship passenger, that money can only be used incrementally
as the community doesn't have a mechanism to bond large
projects. Therefore, HB 222 has the local communities surrender
their local head tax as a credit against the state head tax.
Through the bonding agency within DOR, [local communities] could
bond huge projects into the state. The aforementioned could
result in the enhancement of port communities.
8:40:56 AM
CO-CHAIR LEDOUX said that she didn't see anything in Version E
that discusses bonding.
REPRESENTATIVE RAMRAS referred to page 1, lines 10-14, and
characterized it as the enabling language allowing local port
communities to apply to the state for credit and enable a
bonding mechanism in order to do large projects.
CO-CHAIR LEDOUX reiterated that she doesn't see the connection.
8:42:54 AM
REPRESENTATIVE NEUMAN asked if communities can opt-out.
REPRESENTATIVE RAMRAS explained that a community could choose to
do or not to do [a project]. However, once a project is
designed by the local governing body and it sought assistance
from the state, it would have an obligation to pledge the fees.
He likened the aforementioned to how the fishing license fees
are pledged for the next 20 years to service the $78 million
bond. He mentioned that the mayors of Juneau and Ketchikan are
excited about the prospect of significant investment into the
port facilities in those communities.
REPRESENTATIVE NEUMAN highlighted that many communities are
impacted by tourism. In fact, over 4 million tourists come
through his area annually and impact everything from roads to
emergency services. He asked if HB 222 specifies that only the
first five communities will receive the money or will it be
spread throughout the state. He pointed out that generally
monies coming into the state are placed in the general fund from
where it's distributed. He requested more clarification with
regard to dedicated funds.
REPRESENTATIVE RAMRAS opined that he doesn't believe it's legal
under federal law, to which state law must conform, to utilize
funds from a passenger head tax for uses other than servicing
port communities and locations where vessels come in to port.
He pointed out 33 U.S.C. Section 5, which "prohibits taxes or
fees on vessels operating in navigable waters or their
passengers, except in narrowly tailored circumstances that
enhance the safety and efficiency of interstate commerce." The
passenger tax imposed by the initiative doesn't come close to
satisfying the test for a proper fee under that federal law.
Representative Ramras then directed attention to the January 26,
2007, memorandum from Don Bullock, Legislative Counsel,
Legislative Legal and Research Services Division, and
highlighted the following sentences:
... the use of money from the tax in an area in which
the vessel carrying taxable passengers does not
operate may be disallowed under 33 U.S.C. 5(b) unless
the money is used "solely to pay the cost of a service
to the vessel or water craft."
State-imposed taxes related to the operation of
vessels or other water craft are generally prohibited
under 33 U.S.C. 5(b)with limited exceptions.
REPRESENTATIVE RAMRAS related that the exceptions are listed in
33 U.S.C. 5(b)(2)(A)-(C), as follows:
(A) are used solely to pay the cost of a service to
the vessel or water craft;
(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;
REPRESENTATIVE RAMRAS pointed out that by using the term "and"
between (B) and (C) the statutory meaning is conjunctive and
thus all three premises must apply for the exception to apply.
He opined that motor coaches and railway coming north to Denali
National Park and Preserve and up to Fairbanks don't qualify.
Mr. Bullock's opinion concludes by stating:
There is a possibility that a court may not consider
the state's "tax" at a rate of "$46 a passenger per
voyage" a "fee" when interpreting 33 U.S.C. 5(b)(1)
and (2), in which case an exception under those
paragraphs would not apply.
REPRESENTATIVE RAMRAS then related his belief that using the $46
in head tax to go to communities without vessel traffic violates
the Tonnage Clause of the U.S. Constitution, which the Supreme
Court has interpreted "to prohibit any taxes or fees on vessels
in interstate commerce except those directly related to services
provided to those vessels."
8:49:10 AM
CO-CHAIR LEDOUX related her understanding that currently if
Ketchikan has a $10 head tax, then the tax would total $60.
This legislation would allow the cruise ships to pay $40 to the
state and $10 to Ketchikan.
REPRESENTATIVE RAMRAS clarified that $4 of the $50 head tax is
an environmental fee. He explained that a community that
currently collects a local head tax is able to use it to effect
very small projects annually because port enhancement is a
significant investment by communities. If communities had the
ability to bond for large projects, they could actually add
jobs. The local community doesn't have the ability to take an
annual locally collected head tax and apply it to a large
bonding capacity. Therefore, if a community collects its local
head tax and credits it against the state head tax, then that
community could bond for a large project. Without such, he
questioned the state's plan for money that must be dedicated to
locations where vessels dock and provide for port facility
enhancement.
CO-CHAIR LEDOUX questioned why this couldn't be accomplished
with municipal bonds. She opined that HB 222 tinkers with the
initiative such that it almost voids it.
REPRESENTATIVE RAMRAS stated that it's not his intention to
negate the will of the people. However, he reiterated the need
to [accomplish the initiative] in a manner that's legal under
federal law and constructive for the communities impacted by
port ships. He stressed that if litigation ensues between the
state and the cruise ship industry, the workforce as well as
communities facing inhibited growth of the cruise ship industry
will suffer.
8:53:53 AM
REPRESENTATIVE RAMRAS concluded his testimony by pointing out
that the use of the head tax funds must fit under federal law
specifications. This legislation addresses how the passenger
excise tax can be spread as a tax credit amongst municipalities
that are ports of call to the cruise ship industry.
Furthermore, HB 222 allows a municipality that's a port of call
to have a guaranteed income source, which bond buyers would view
as stable. Moreover, HB 222 would ensure that a municipality
that's one of the first five ports of call for the vessel would
be entitled to a credit against the tax equal to the lesser of
$10 or the actual amount of the passenger tax paid to each
municipality. The formula is effective because the average
number of ports at which each vessel stops is 3.5. The
provisions of HB 222, he said, establish a predictable and
stable form of funding that makes financing of significant port
improvement projects a reality. Therefore, HB 222 will ensure a
healthy cruise industry and reduce the chances of litigation.
For the aforementioned reasons, Representative Ramras urged the
committee's support for HB 222.
8:58:13 AM
CO-CHAIR LEDOUX inquired as to whether the municipalities can
bond themselves.
8:58:22 AM
DON BULLOCK, Attorney, Legislative Legal and Research Services,
Legislative Affairs Agency, began by noting that he doesn't have
particular expertise in bonding, although he acknowledged that
municipalities have the option to bond directly and to utilize
the services of the Municipal Bond Bank Authority. He commented
that any bonding issue raises the question of how secure is the
source of funds that will repay the bonds.
8:58:58 AM
CO-CHAIR FAIRCLOUGH requested that Mr. Bullock provide a brief
framework as to why his opinion dated January 26, 2007, doesn't
meet federal law. Co-Chair Fairclough announced that the
committee would proceed to public testimony while Mr. Bullock
reviewed the opinion.
9:00:29 AM
TIM BOURCY, Mayor, City of Skagway, reminded the committee that
Skagway is and has been for many years a major port of call.
Furthermore, Skagway has had a positive working relationship
with the cruise industry over the years. In fact, he recalled
that the City of Skagway didn't support the passage of the head
tax. Mayor Bourcy emphasized that it's important to understand
that the intent of [HB 222] was to put money back into the ports
and the impacted areas, which Skagway supports. Mayor Bourcy
then related support for the concept of HB 222 and the cap it
imposes because it's important that all ports impacted can
benefit from the legislation. With regard to municipal bonding,
Mayor Bourcy related that the City of Skagway doesn't charge a
port fee and wouldn't have the resources to bond for large
projects. He likened HB 222 to the raw fish tax.
9:03:25 AM
CO-CHAIR LEDOUX opined that the City of Skagway could enact a
tax to be used as the guarantee for bonding.
MAYOR BOURCY replied yes, adding that the City of Skagway may
consider that if HB 222 moves forward.
9:03:58 AM
REPRESENTATIVE NEUMAN inquired as to other types of revenue
available to communities such as Skagway.
MAYOR BOURCY specified that the City of Skagway doesn't receive
fish tax money and its sales tax is the city's revenue source.
9:04:52 AM
GERSON COHEN, spoke as one of the sponsors of the cruise ship
tax initiative that was passed in August 2006. Mr. Cohen
provided the following testimony:
Every independent expert working in the cruise
industry field interviewed during and after last
year's election campaign was of the opinion that a
head tax in Alaska wouldn't deter the arrival of
cruise passengers to Alaska or change their spending
habitats. The amount of the tax is so small compared
to their other expenditures for the trip that it's
simply of no consequence. In fact, in the last five
years, the industry has steadily raised its own prices
by much more than the head tax in addition to
increasing fuel surcharges and the demand for Alaska
cruises remains rock solid. Alaska represents a large
percentage of the worldwide cruise market and the
industry has no intention of foregoing that revenue.
For that matter, the cruise lines could pay the fee
themselves and not burden the passengers if they truly
felt it could dampen their enthusiasm for coming to
Alaska. The cruise lines are making billions of
dollars a year in profits and can certainly afford it.
So, I don't understand the sponsor's statement about
the cruise law either hurting the industry or
inspiring them to sue the state. We purposely drafted
the head tax portion of the new cruise law with an
opt-in approach. Those municipalities that want to
receive funding under the new state law must give up
the opportunity to charge their own head tax. As you
know, very few communities have had the political
clout to independently charge a head tax. When
Whittier instituted a $1.50 tax, the industry moved to
Seward. When Whittier dropped their tax to woo the
ships back eight years later, half of the ships
announced that they were leaving Seward overnight.
When Haines instituted a $4 tour tax, the industry
refused to allow Haines tour operators to raise their
prices by 4 percent, which meant that the local
operators had to pay the tax out of their own pocket.
This is, of course, not the borough's intent and
Haines rescinded the tax that was intended to pay for
tourism infrastructure impacts on the community. If
the municipalities that now charge taxes, Juneau and
Ketchikan, keep their own taxes which total
approximately $12, the loser under HB 222 is the State
of Alaska. Let's assume the Department of Revenue
adopts regulations resembling the suggestions made in
the new law for disbursement of head tax funds. Since
no cruise ship visits more than five ports in Alaska
on any given cruise, the rebate identified in House
Bill 222 will come out of the portion of the tax
intended for the state and will also lower the portion
of the potential pool of funds that we suggested be
set aside for the communities impacted by the industry
who do not receive direct visits.
On the other hand, let's look at who might benefit
from House Bill 222. Let's assume the cruise lines
continue to have the passengers pay the tax, the
credit identified is supposed to go back to the
passengers. How will we know the cruise lines have
not simply pocketed nearly 25 percent of the head
taxes charged. One of the major cruise lines was
recently caught charging passengers for a tax in the
Caribbean that was being rebated by the port. It
would seem likely that this will be an administrative
nightmare for the state if we intend to verify that
the money is, in fact, going back to passengers and
would probably require significant staffing increases
at the Department of Revenue. Even then, given the
financial secrecy under which this industry has
operated for so long - thanks to registering their
ships in third world countries - who knows what
records we would even be allowed to see. So, in
summary, I honestly cannot understand why this bill
has been drafted and sponsored because it doesn't put
Alaska first; it can only reduce the revenue to Alaska
approved by the voters and has the potential of giving
a significant portion of the new tax to the industry
that didn't pay it in the first place. I would
respectfully urge you to not move this bill out of
committee.
9:08:56 AM
CO-CHAIR LEDOUX inquired as to whether Mr. Cohen knows of any
legal opinions suggesting that the state's head tax through the
initiative is constitutionally valid.
MR. COHEN noted that he's not an attorney and thus can't provide
a legal opinion on the matter. However, he pointed out that 33
U.S.C. 5(b)(2)(A) says, "are used solely to pay the cost of a
service to the vessel or water craft". The key definition is
what is considered a service to the vessel. He interpreted that
to mean that it didn't only apply to ports of call. When the
initiative was first brought to the Office of the Lieutenant
Governor for certification it was reviewed for a period of over
five months by the state attorney general. If there was
reasonable [finding] that the initiative was going to be found
inconsistent with state or federal law, the initiative wouldn't
have been certified, he opined.
9:11:03 AM
MR. BULLOCK said that two issues are brought up by 33 U.S.C.
5(b). The first issue is the federal supremacy clause. He
explained that certain regulations by the federal government are
in place of or superior to state provisions on the same
provision. Mr. Bullock reviewed 33 U.S.C. 5(b)(2)(A)-(C) and
pointed out that one must first determine whether there is a
small burden on interstate or foreign commerce. If the
aforementioned test is passed, then it has to be used for the
two specific purposes listed in 33 U.S.C. 5(b)(2)(A)-(B). He
noted that safety and efficiency could have a broader impact
than just the vessel itself. If no funds were appropriated for
these purposes it would be contrary to 33 U.S.C. 5(b). At the
same time the federal Supremacy Clause may apply, the issue of a
dedicated fund is in question due to the prohibition against
such in the Alaska State Constitution in Article IX, Section 7,
as follows:
SECTION 7. Dedicated Funds.The proceeds of any state
tax or license shall not be dedicated to any special
purpose, except as provided in section 15 of this
article or when required by the federal government for
state participation in federal programs. This
provision shall not prohibit the continuance of any
dedication for special purposes existing upon the date
of ratification of this section by the people of
Alaska.
MR. BULLOCK explained that first one is looking at the cruise
ship tax within the allowable purposes under 33 U.S.C. 5(b). If
the money can't be used for any other purpose other than what's
required by the federal law, the question is whether the head
tax meets the specification of a federal program for which the
tax is required. If the tax meets the aforementioned
requirement, then the tax may avoid the issue of a dedicated
fund under the Alaska State Constitution. Mr. Bullock said that
he didn't know the answer to that and although the courts may
face that matter at some point, the risk is present.
9:14:26 AM
CO-CHAIR LEDOUX inquired as to the probability that HB 222 would
be constitutional.
MR. BULLOCK pointed out that part of the issue is raised only
when the money is applied for a purpose allowed in the federal
statute. With regard to the state constitutional issue, Mr.
Bullock said that he didn't know whether there is a federal
program requiring state participation that would make the cruise
ship tax allowable under the prohibition against dedicated
funds.
CO-CHAIR LEDOUX related her understanding that the legislature
passes statutes with funding mechanisms, but specify in statute
that it's not a dedicated fund.
MR. BULLOCK highlighted that along with the language that
specifies that [the tax] isn't a dedicated fund is the language
"may be appropriated for", which takes [the tax] out of the
dedicated issue. There's a preference for an appropriation, but
it's not binding and thus the money could be used for anything
else.
9:16:31 AM
REPRESENTATIVE NEUMAN asked if any state law specifies that the
funds collected from the head tax have to be used in the first
five ports in which the vessel enters.
MR. BULLOCK pointed out that the initiative specifies that the
first five ports visited by a ship that's taxed can receive $5
per passenger per port. There is general language that allows
for the money received from the tax to be appropriated in areas
of the state where impacted. The federal statute applies in
regard to whether the uses for which the money is appropriated
fit within the requirements.
9:18:20 AM
MARVIN YODER directed attention to AS 43.52.230 regarding the
disposition of receipts, which specifies that $2.50 will be
distributed to the city and $2.50 to the borough. Since the
borough doesn't have any port powers or place for cruise ships
to dock, it's doubtful that [Seward] would be able to use those
funds. Still, Seward's amount would be reduced without the
passage of HB 222. He highlighted that the language in AS
43.52.230 specifies "subject to appropriation", which restricts
an entity's ability to bond since it's not a secure source.
Therefore, if Seward enacted its own tax, it would have a
guaranteed source for bond repayment. He mentioned that Seward
is interested in larger projects. Mr. Yoder related that HB 222
provides another look at imposing a tax locally that would be a
credit against the $50 passenger fee.
9:21:02 AM
CO-CHAIR LEDOUX questioned what prohibits Seward from passing a
head tax even if HB 222 doesn't become law.
MR. YODER replied nothing. If the City of Seward imposed its
own head tax/fee without HB 222, it would be in addition to the
$50 head tax imposed by the state. In further response to Co-
Chair LeDoux, Mr. Yoder confirmed that Seward probably wouldn't
be harmed by the aforementioned. However, it appears that the
existing head tax has the ability to repair the port and put
money into the port facilities. He noted that the City of
Seward has been reluctant to add anything that would be over and
above the other ports because it doesn't want to face reductions
in cruise ship passengers.
9:22:50 AM
CO-CHAIR LEDOUX surmised then that the fear of cruise ship
retaliation keeps the City of Seward from initiating a head tax
without the passage of HB 222.
MR. YODER answered that Co-Chair LeDoux's characterization seems
correct. He said that he feels very comfortable working within
the $50 umbrella.
9:23:36 AM
CO-CHAIR FAIRCLOUGH highlighted that the committee packet
includes a letter from the City of Seward relating its support
of the intent of HB 222.
9:23:54 AM
ALLEN SOREN, City Manager, City of Skagway, echoed earlier
testimony that the cap on individual credits at each port is
important to the City of Skagway.
9:24:30 AM
BOB WEINSTEIN, Mayor, City of Ketchikan, reviewed his elected
service in Ketchikan, which has coincided with the growth of the
cruise ship industry in Ketchikan. He opined that Ketchikan has
a good working relationship with the cruise ship industry.
About six years ago the City of Ketchikan initiated a long-term
port facility development plan to make improvements to existing
facilities in order to accommodate the largest ships that are
likely to come to Alaska. As part of that effort, the city
received legal advice regarding federal statutory and
constitutional restrictions that apply to the use of marine
passenger fees. He reminded the committee of Section 445 of the
Maritime Transportation Security Act of 2002, which requires
there to be a connection between the fee and the service to the
vessel, passengers, and/or crew. He related his understanding
that the aforementioned was at least partially attributable to
an Alaska municipality considering a viewing tax such that
[passengers] of a ship passing by a community from which the
ship received no services would be charged a fee. The legal
advisors to Ketchikan have said that Congress has inserted
itself through that act regarding what fees can be charged and
for what purpose.
MAYOR WEINSTEIN related that Ketchikan owns and operates
substantial port facilities that provide services to cruise
ships as well as to their passengers and crews. These
facilities have become increasingly congested as the cruise
industry has grown. The City of Ketchikan has implemented phase
1 of its plan to expand port facilities and improve some of the
upland facilities in order to better provide for the safety of
tourists while alleviating the dangerous pedestrian and
vehicular crowd that currently occurs when vessels are in port.
Last summer, voters in the City of Ketchikan approved, by a 70
percent margin, a $38 million revenue bond to pay for the port
and the related improvements in phase 1. The debt service is
being repaid through the implementation of a marine passenger
fee approved by the city council. The fee for 2007 will be $7
per passenger. The City of Ketchikan obtained financing from
the Alaska Bond Bank. He said he didn't believe the Alaska Bond
Bank's approval would've been forthcoming if the city had to
rely on the legislature for annual appropriations rather than a
reasonably guaranteed revenue stream. The aforementioned was
confirmed in discussions with the Alaska Bond Bank's financial
advisor yesterday who said that a pledge of ongoing revenues
from something such as a marine passenger fee assessed by a port
is superior to a pledge subject to annual appropriation.
MAYOR WEINSTEIN related that the current $5 limit per port,
which he characterized as arbitrary, for up to five ports, will
direct an average of only $18 of the $50 collected for the
communities impacted by the cruise ships. The aforementioned is
based on the fact that cruise ships visit an average of 3.5
ports per cruise rather than 5 ports per cruise. Mayor
Weinstein opined that the aforementioned isn't enough money to
meet the needs of directly impacted communities. Furthermore,
in the present formula none of the state fee goes to the
municipalities that operate the ports of Ketchikan and Juneau
since both communities have port fees that are equal or greater
than $5. Therefore, the amount referenced earlier is further
reduced and places them at competitive disadvantage because the
local fee is on top of the state's $50 fee, which results in
visitors to Ketchikan and Juneau paying more than visitors in
other communities. In conclusion, Mayor Weinstein related his
support of HB 222, which he viewed as consistent with the
initiative, federal requirements, and requirements of lenders
willing to fund port projects.
9:32:38 AM
CHIP THOMA began by noting that he is a supporter of the cruise
ship initiative and worked on it, although he isn't paid by
anyone involved in the initiative nor does he work in the
tourism industry or against it. Mr. Thoma then paraphrased from
the following written remarks [original punctuation provided]:
HB 222 would have a negative impact on the finances of
the State of Alaska. Importantly, the bill would not
help municipalities cope with hosting the 1 million
cruise passengers coming to Alaska each year in a
compressed, 5 month season, May through September.
The proposed 'credit' that a cruise passenger would
receive under HB 222 will never benefit that actual
passenger. In reality, this is a tax rebate program
that returns new state revenues directly to the cruise
companies in Miami. For that reason alone, I oppose
HB 222.
Also, HB 222 is not good public policy. It will again
encourage competition between port towns to curry
industry favor on ship taxes, rather than making
sound, community-based decisions on long-term
improvements to waterfronts. Local waterfront
activities are the heart and soul of each town, and
those uses and improvements should be made without
undue cruise influence over summer taxes. The
initiative ends the practice of comparing and
selecting communities based on the local tax climate.
Instead, the cruise initiative is an opt-in, revenue-
sharing program of choice for local municipalities.
In the years ahead, there could be smaller cruise
ports in the state that will benefit, such as Cordova,
Valdez and Kodiak, because the cruise demand and
market are certainly there. Other cruise ports that
also benefit from the initiative are those that now
have private cruise docks, such as Skagway and
Whittier.
In these latter two ports, dock owners charge ships a
private passenger fee for using their property. The
new state fees would allow cruise ports without local
head taxes to make extensive improvements to their
adjacent city docks and harbor lands used by cruise
passengers when they visit. This is a plus for all
cruise ports.
As the initiative was written, each community has the
choice when to opt-in or opt-out. They can choose to
have the state collect and distribute the cruise
taxes, or charge and bond for municipal cruise docks
and improvements with local passenger fees, such as
Ketchikan and Juneau do.
Juneau is the best example of a port community that
has defined the uses and parameters of the cruise
passenger fee, as those relate to the 2002 Maritime
Security Act. That federal law says that reasonable
passenger fees can be spent on cruise docks and
adjacent access areas for the safe and efficient
movement of passengers and cargo. I refer you to the
opinions issued by Juneau Borough attorney Corso in
2003 and by Juneau Borough attorney Hartle in 2005
(attached) [included in the committee packet].
To paraphrase Abraham Lincoln, you can't fool all the
people all of the time. 81,000 Alaskans voted
correctly on the cruise initiative. The knew what
they were voting for:
· Clean cruise ships, verified clean by Ocean
Rangers;
· Fair state taxes spent on cruise infrastructure;
· Consumer protection for cruise passengers; and a
· Level playing field for Alaska businesses that
want summer cruise customers.
The cruise lines in Alaska are a multi-billion dollar
industry that overwhelms coastal towns throughout
Alaska each summer. It is time that the state had a
fair tax regime that provides new funds for the huge
cruise infrastructure costs needed in the years ahead.
MR. THOMA related that Juneau envisions spending $40 million
just for security reasons as two large finger docks from the
main dock must be constructed in order to block any access to
cruise ships. Juneau plans to bond for that with its local head
tax, but other communities should have the funds available from
the initiative to pay for the projects out-of-pocket through the
appropriation process.
In my estimation, the simplest and most courageous
action by an Alaska Governor was taken by Jay Hammond,
defining the ground rules for doing business in
Alaska:
· Industry pays its own way, without subsidy;
· Industry does not pollute; and,
· All industries pay a fair share in state taxes.
That's why it is deeply offensive that a multi-billion
dollar industry that is loosely regulated and poorly
controlled sends delegations of folks from Miami to
Alaska to repeal state law, as just enacted by state
voters. The ink was not even dry on the initiative
results before an all-out repeal effort has transpired
on every section of the 2006 initiative. Please
reject HB 222 as a repeal of the cruise initiative.
Thank you.
MR. THOMA highlighted that the August 2006 voter pamphlet has
extensive discussion of the taxes on pages 12-14 and also
contains statements in opposition to and support of the
initiative. He offered to provide the voter pamphlet to the
committee.
9:37:36 AM
MR. THOMA then informed the committee that there won't be a
compounded growth rate in cruise ship tourism because towns are
at maximum capacity. Therefore, the 15 percent growth rate
experienced in the past has shrunk to 10 to 5 percent; still
35,000-50,000 more people come to Alaska each year. He noted
that Juneau and Ketchikan bond for large projects as they have
to ability to do so.
9:38:55 AM
REPRESENTATIVE NEUMAN asked if Mr. Thoma believes that the
81,000 voters who voted on the initiative thought all the funds
collected from the $50 fee should only go to ports of call or to
the general fund to be spread evenly amongst all communities
MR. THOMA said that the aforementioned was rarely discussed in
the campaign literature by either those opposing or supporting
the initiative. However, he recalled that there was some
discussion on talk radio in Anchorage regarding that some funds
could be available for the Alaska Railroad Corporation because
of the use of the railroad to haul cruise ship passengers. He
related his understanding that Talkeetna could possibly use the
funds because there is a demonstrable use of that area by cruise
ship passengers. In further response to Representative Neuman,
Mr. Thoma opined that the initiative was clear that the funds
collected could only be used for ports of call and for the
cruise ship infrastructure.
9:40:43 AM
MR. THOMA, in response to Representative Neuman, clarified that
he doesn't support HB 222.
9:40:55 AM
CO-CHAIR FAIRCLOUGH, upon determining no one else wished to
testify, closed public testimony.
9:41:23 AM
REPRESENTATIVE NEUMAN commented that he isn't comfortable with
HB 222 at this point.
REPRESENTATIVE CISSNA noted her agreement.
CO-CHAIR LEDOUX said that she is very uncomfortable with HB 222.
REPRESENTATIVE SALMON stated his agreement with Co-Chair LeDoux.
[HB 222 was held over.]
9:41:50 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:41:51 AM.
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