Legislature(2003 - 2004)
01/27/2004 10:07 AM House EDT
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC
DEVELOPMENT, INTERNATIONAL TRADE AND TOURISM
January 27, 2004
10:07 a.m.
MEMBERS PRESENT
Representative Cheryll Heinze, Chair
Representative Lesil McGuire, Vice Chair
Representative Pete Kott
Representative Nancy Dahlstrom
Representative Vic Kohring (via teleconference)
Representative Sharon Cissna
Representative Harry Crawford
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Nick Stepovich
COMMITTEE CALENDAR
HOUSE BILL NO. 207
"An Act relating to taxes regarding certain commercial passenger
vessels operating in the state; and providing for an effective
date."
- HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 207
SHORT TITLE: TAX ON COMMERCIAL VESSEL PASSENGERS
SPONSOR(S): REPRESENTATIVE(S): GATTO
03/24/03 (H) READ THE FIRST TIME - REFERRALS
03/24/03 (H) EDT, TRA, FIN
01/27/04 (H) EDT AT 10:00 AM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE CARL GATTO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as sponsor of HB 207.
CODY RICE, Staff
to Representative Carl Gatto
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained changes in HB 207.
DAN DICKINSON, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 207, explained the
figures represented in the tables included in the sponsor
statement.
SUSAN BURKE, Attorney
Gross & Burke, PC
Juneau, Alaska
POSITION STATEMENT: Representing the North West Cruise Ship
Association, testified on the constitutional issues that cover
the types of taxes involved with HB 207.
TOM DOW, Vice President
Public Affairs
Carnival Corporation;
Princess Cruises
Seattle, Washington
POSITION STATEMENT: Testified on the legal and economic issues
that would arise if the legislature passed HB 207.
DON HABEGER, Director of Industry Relations
Royal Caribbean International;
Celebrity Cruises
Juneau, Alaska
POSITION STATEMENT: During hearing on HB 207, spoke to the
ramifications of "port pulling" and illustrated how the cruise
industry works with communities to create destinations.
JOHN SHIVELY, Vice President
Government and Community Relations
Holland America Line
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 207, commented on the
state of the cruise ship industry and addressed the taxation of
the cruise industry.
CHRIS ANDERSON, Co-Owner and Managing Partner
Orso Ristorante and Glacier Brewhouse
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to the tax proposed
in HB 207.
JOHNE BINKLEY, President
Alaska Riverways, Inc.
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition of HB 207.
LAWRENCE BLOOD, Executive Director
Greater Sitka Chamber of Commerce
Sitka, Alaska
POSITION STATEMENT: During hearing on HB 207, spoke in
opposition to any targeted taxes towards the cruise industry.
CHRIS VON IMHOF, Vice-President and Managing Director
Alyeska Resort
Girdwood, Alaska
POSITION STATEMENT: During hearing on HB 207, testified that
the cruise ship industry creates a major economic benefit for
all of Alaska with the investments that the industry makes
within the state.
ALAN LEMASTER, President
Gakona Junction Village Inc.
Gakona, Alaska
POSITION STATEMENT: During hearing on HB 207, said his business
depends on the cruise industry and voiced concern that a
targeted tax would limit the amount of business in Gakona.
RON PECK, President and Chief Operating Officer
Alaska Travel Industry Association (ATIA)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 207, testified against
specific and targeted taxes because the ATIA believes they are
burdensome to the tourism industry.
PATTI MACKEY, Executive Director
Ketchikan Visitors Bureau
Ketchikan, Alaska
POSITION STATEMENT: Speaking against HB 207, shared concern the
about potential impacts on individual communities and their
abilities to negotiate with the cruise lines.
BONNIE QUILL, Executive Director
Mat-Su Convention and Visitors Bureau
Palmer, Alaska
POSITION STATEMENT: During the hearing on HB 207, testified
that she wasn't opposed to taxing visitors to the state, but is
opposed to targeted taxes applied to visitors.
ACTION NARRATIVE
TAPE 04-1, SIDE A
Number 0001
CHAIR CHERYLL HEINZE called the House Special Committee on
Economic Development, International Trade and Tourism meeting to
order at 10:07 a.m. Representatives Heinze, Kott, Dahlstrom,
Cissna, and Crawford were present at the call to order.
Representatives McGuire and Kohring (via teleconference) arrived
as the meeting was in progress. Representative Stepovich was
also present.
HB 207-TAX ON COMMERCIAL VESSEL PASSENGERS
Number 0058
CHAIR HEINZE announced that the only order of business would be
HOUSE BILL NO. 207, "An Act relating to taxes regarding certain
commercial passenger vessels operating in the state; and
providing for an effective date." She also stated that the
intention was not to move the bill from committee today.
Number 0125
REPRESENTATIVE KOTT moved to adopt the proposed committee
substitute (CS), Version 23-LS0850\I, Kurtz, 1/21/04, as a work
draft. There being no objection, Version I was before the
committee.
Number 0149
REPRESENTATIVE CARL GATTO, Alaska State Legislature, sponsor,
explained that HB 207 is a reasonable, realistic, and legal way
for the state to obtain money from the cruise ship industry for
services rendered and received. He pointed out that it is
common practice to focus taxes on specific industries, and that
this bill was an attempt to recover the costs that the cruise
ships impose on the state.
REPRESENTATIVE KOTT asked Representative Gatto to point out the
differences in [Version I] and give an explanation for the
changes.
REPRESENTATIVE GATTO deferred to Mr. Rice.
Number 0411
CODY RICE, Staff to Representative Carl Gatto, Alaska State
Legislature, explained that the changes in Version I dealt with
moving the effective date of the bill and some number changes
that occurred because of a rental-car tax passed during the last
session of the previous legislature.
REPRESENTATIVE KOHRING offered his opinion that the tax proposed
by HB 207 wasn't the thing to do to boost the productivity of
the economy. He said he is worried that taxing the cruise ships
will discourage them from coming to the state.
Number 0717
REPRESENTATIVE KOTT asked if there was any consideration given
to establishing a tax based on the number of ports visited, to
the price of the ticket, or the number of days in the cruise.
REPRESENTATIVE GATTO explained that a typical cruise ship
passage to Alaska lasts seven days, with visits to four ports.
He noted that if the cruise was going to the Caribbean or to
Mexico, often there is a fee paid for each port visited. Rather
than doing that in Alaska and causing competition between
different ports, he wants to impose a single tax on all cruise
ships, let the cruise industry decide the best destinations, and
use the money generated from this tax to support those
communities that host cruise ships. He went on to explain that
there is a limit on the number of times a person can be taxed
within a 30-day period. He also has some ideas on other ways to
make the passengers of the cruise ships happy, like giving them
a family rate.
REPRESENTATIVE MCGUIRE asked Representative Gatto if there was
any wording in the bill that set the maximum tax per family.
REPRESENTATIVE GATTO answered that it wasn't in the bill, but is
something he is open to. He wants to use the input that he
gathers to make this bill as beneficial to the state as
possible.
Number 0990
REPRESENTATIVE MCGUIRE asked for clarification on the idea that
the state would collect this tax, but then disburse it to those
ports that the cruise ships visits. She didn't see any wording
in the bill for that to happen, and was curious as to how that
could happen, since the government cannot have dedicated
revenues. She wanted to know if this was a case of municipal
revenue sharing.
REPRESENTATIVE GATTO noted that it was complicated, but he would
like to put intent language into the bill so those ports that
can host a cruise ship would get a large portion of this money
to enhance the cruise ship experience. He would like to spread
this money out to each place that can host cruise ships because,
he stated, the cruise ships like to change their destinations.
He would like for these destinations to have the funding to
increase advertising and to enhance the customer's experience.
REPRESENTATIVE MCGUIRE asked why the state was a better
collector of these revenues than the local government that would
ultimately use these revenues.
REPRESENTATIVE GATTO explained the practice of "port pulling,"
and he doesn't want a situation where separate communities
compete for the cruise ships by lowering their tax, or giving
more resources, ultimately offering to impose no tax and
dedicating a lot of resources in order to lure the cruise ships.
He remarked that the state has some interest since the state
does incur some expenses because of the cruise ships, and this
bill would allow the state to recover some of those expenses.
Number 1205
REPRESENTATIVE KOHRING offered that this legislation has no
positive impact on the cruise ship industry. He stated that it
is his goal to help improve the economy and therefore encourage
more cruise ships to visit Alaska. He feels that taxing the
industry is a major philosophical issue that he doesn't agree
with. He understands that the bill has good intentions and that
Representative Gatto has his heart in the right place, but he
feels concern that passing this bill will deter cruise ships
from coming to Alaska. He also suggested that the committee
send this issue to subcommittee to further discuss the topic.
REPRESENTATIVE GATTO stated that he does not favor the bill's
going to a subcommittee. He went on to explain that the use of
the word "tax" is incorrect when referring to this bill; this is
more of a user fee. He referred to a document from the Office
of the Governor dated January 27, 2004. He read a statement
from a page of that document labeled "State Costs Incurred
Supporting the Visitor Industry in Alaska," which states in part
[original punctuation provided]:
In Brief, DOL's [Department of Law's] conclusion is
that is entirely possible to construct a defensible
tax which falls on cruise ship accommodations as long
as it is used to recoup, through taxes, related
governmental expenses. Table 19 sets forth one such
preliminary estimate of government expense for the
current fiscal year. As can be seen, public money
spent far exceeds what will be recouped in tax.
Because of the enormous amount of spending by state
visitors with Alaskan merchants and service providers,
it is entirely appropriate that the state government
subsidizes the visitor industry. This is especially
true in areas where the expenditures can benefit
everyone, visitor and non-visitor alike. However, it
is also entirely appropriate, and legal, for the state
to recoup some of those expenses through its taxing
power.
Number 1410
REPRESENTATIVE GATTO cited from a spreadsheet in the earlier
mentioned document that the expenses potentially attributable to
the cruise industry equal $115,861,000. He said if that is the
case, that number is more than the revenue from this tax by
almost two to one, if the tax was $100. He continued that
cruise ships cost the state a certain amount of money, and
although the state appreciates the business, the state is
looking to recoup some of that money. This fee doesn't try to
get all of the money back, partly because the cruise ships
provide many jobs and generate income for people. This fee is
to get some of that money back to use on other things, namely,
education and facilities.
REPRESENTATIVE MCGUIRE asked a question about what "incentive"
refers to in the "Cruise Ship Fees-Other Countries" table in the
document obtained from Governor Murkowski's office.
REPRESENTATIVE GATTO answered that he didn't know.
Number 1561
DAN DICKINSON, Director, Department of Revenue, Tax Division,
informed the committee that incentives, as used in the "Cruise
Ship Fees-Other Countries" table, are volume incentives designed
to lower the head tax for cruise ships based on the number of
tourists brought to the specific locations.
CHAIR HEINZE explained that this issue was a little difficult to
discuss, since the committee had just received the documents and
would probably have to come back to the issue at a later time.
REPRESENTATIVE KOTT noted that the information seemed
speculative and hard to track.
CHAIR HEINZE asked Mr. Dickinson to address weather the tables
dealt with user fees and if he could further explain them.
MR. DICKINSON explained that the numbers on the table are based
on estimates for state agencies that are effected by tourists
and how much spending those agencies attribute to the cruise
ship industry. He noted that there were some state departments
that were effected by the cruise ship industry, but there wasn't
sufficient data to make an estimate.
CHAIR HEINZE asked if these numbers reflected the user fees that
are already in place.
MR. DICKINSON wasn't sure, but said he would check on that for
the committee.
Number 1730
SUSAN BURKE, Attorney, Gross & Burke, PC, Representing North
West Cruise Ship Association, testified on the constitutional
issues that cover the types of taxes that are involved with HB
207. She said the two issues she would be focusing on are the
tonnage clause and the right of interstate travel from the
privileges and immunities clause in the U.S. constitution. She
said state or local governments aren't allowed to impose taxes
on vessels based on the capacity of the vessel or the number of
passengers that vessel has. She offered that state and local
governments can impose user fees. She said cruise ships are
already paying harbor dues and other fees in every port they
enter in Alaska. Ms. Burke stated that there are limitations on
these fees. She said based on the right of interstate travel,
the U.S. Supreme Court says the state or local government cannot
impose "head taxes" for the purpose of generating general
revenue to use on whatever it sees fit. The user fees that have
been upheld in the Supreme Court have been relatively small fees
that defray the costs of the services or facilities that those
passengers actually use.
MS. BURKE cited an example of airports where the U.S. Supreme
Court has upheld a small fee per passenger to help maintain the
building. She noted that the fee wasn't used to help pave the
roads that inevitably those passengers will drive on to get to
the airport. She said there has to be a direct linkage between
the total amount of revenues generated and the costs that can be
reasonably attributed to those particular passengers.
MS. BURKE noted that Congress passed a law in the fall of 2002
that sets the restrictions on the kinds of taxes that state and
local governments can impose on vessels, vessel crews, or vessel
passengers. The law follows closely what the courts have upheld
relating to vessel taxes, head taxes, and passenger taxes. She
believes that this law applies to vessels passing through the
waters as well as to vessels that dock at a particular location.
Number 2042
CHAIR HEINZE asked Ms. Burke who ultimately decides if this bill
is legal or not.
MS. BURKE said she felt it made no sense to adopt legislation
that would be vulnerable to a successful legal attack. She
acknowledged that the committee was sworn to uphold the
constitution, and that she felt it was irresponsible for the
legislature to pass a law that would ultimately prove to be
illegal.
REPRESENTATIVE MCGUIRE asked if Ms. Burke was aware of any other
states that had prohibitions on dedicated funds.
MS. BURKE answered that she didn't know what states had that
prohibition, but could find out for the committee. She added
that municipalities in Alaska were not restricted to dedicating
funds.
Number 2180
REPRESENTATIVE CISSNA asked Representative Gatto if he had a
statement from Legislative Legal and Research Services regarding
the [constitutionality] of this piece of legislation.
REPRESENTATIVE GATTO said he has had discussion with Legislative
Legal and Research Services, but didn't (indisc.).
REPRESENTATIVE CISSNA said she felt it was appropriate for the
committee to see a letter from Legislative Legal and Research
Services.
Number 2254
MS. BURKE said she has a letter from Kathryn Kurtz in
Legislative Legal and Research Services addressed to Senator
Cowdery on March 19, 2003; she paraphrased a portion of this
letter stating that caution should certainly be in order in
imposing any fee or tax exclusively on vessels unless the
proceeds are used to provide services to the vessel. Ms. Burke
concluded that her opinions aren't controversial if attorneys
seem to be agreeing with them.
Number 2317
TOM DOW, Vice President of Public Affairs, Carnival Corporation;
Princess Cruises, said he agrees with Ms. Burke's testimony that
there are insurmountable legal problems with the approach of
taxing nonresidents to pay for government services. He agreed
that the cruise lines should, and do, pay for facilities and
services.
TAPE 04-01, SIDE B
MR. DOW shared that he thought there was a significant economic
issue involved with the tax proposed by HB 207. He stated that
his research indicates that the tax would be a serious threat to
Interior Alaska, pointing out that a number of people who take a
cruise to Alaska participate in some of the add-on programs that
allow them to visit one or more locations in the Interior.
Carnival Corporation believes that if the state imposes a $100
tax, the number of people who choose this add-on feature will
decrease and it will have a dramatic negative impact on the
economy.
Number 2304
REPRESENTATIVE KOTT expressed concern about the impact on
Interior Alaska. He asked if there was any raw data to support
the claim that there would be a negative impact based on an
example from another state or country.
MR. DOW noted that in the sponsor's packet, the North West
Cruise Ship Association surveyed 1,200 people who had indicated
by writing to the state that they planned on making a trip to
Alaska. The survey showed that up to half of these people would
change their plans, as far as taking one or more of the add-on
excursions, based on the type of tax that is proposed by HB 207.
He stated that it doesn't take very much to drive people in one
direction or another. He added that sometimes political or
economic circumstances can have a dramatic impact on travel.
MR. DOW shared his opinion that the success that the cruise ship
industry has had in Alaska has come from offering a more
inviting product [than in other cruises], with no more cost.
Mr. Dow stated that this has happened because of the investments
that the cruise ship industry has made, as well as the
investments that their partners have made throughout the state
by offering better and more exciting things for the customers to
do, all the while holding their prices down. He shared that the
idea is to offer more without charging more, and this
legislation is doing the exact opposite. He said that, in
essence, [the tax will result in] offering the same product, but
charging more money.
Number 2202
CHAIR HEINZE asked if the cruise lines paid corporate taxes on
the hotels that they use in the Interior.
MR. DOW answered that both Princess Cruises and Holland America
Line ("Holland America") pay corporate income taxes on their
Alaska business operations, rail cars, motor coach operations,
lodges, and hotels throughout the state.
Number 2193
REPRESENTATIVE KOTT inquired if the questionnaire that the North
West Cruise Ship Association used for the previously mentioned
survey would be available for the committee to see, stating that
sometimes questionnaires are written to illicit a certain
response.
MR. DOW stated that he could get that questionnaire. He went on
to add that Carnival Corporation has real-time research on this
issue every day. He said that Carnival Corporation has travel
agents and reservation agents throughout its three companies
that are on the phones with customers every day. He pointed out
that the reservation volume has increased if the company dropped
the price by as little as $5, and he feels that if the company
raised the price by $100, it would have a dramatic negative
effect.
Number 2197
DON HABEGER, Director of Industry Relations, Royal Caribbean
International; Celebrity Cruises, spoke in agreement with Mr.
Dow and stated that he wanted to address the specific issue of
"port pulling" rather than reiterate the comments by Mr. Dow.
He disagreed with the previous point that one, or both, of the
communities were harmed by "port pulling." He made the point
that this wasn't the case in the project in Hoonah. He stated
that although it was true that Holland America is choosing to go
to a different destination in 2004 [Hoonah], and that there is a
community in Southeast Alaska that is going to lose some of the
cruise ship traffic [Sitka]. He expressed that it is not true
that the community that Holland America is leaving is
irreparably harmed and that Hoonah is undercutting the other
community's business.
MR. HABEGER stressed that Holland America is spending a
substantial amount of money to create a destination with the
community of Hoonah, and that money is far in excess of what
Sitka will be losing. Holland America feels that Hoonah is
benefiting greatly from this project.
Number 2052
JOHN SHIVELY, Vice President of Government and Community
Relations, Holland America Line, commented on the state of the
cruise ship industry as it exists today. He indicated that 10
or 15 years ago, basically the cruise industry destinations were
the Caribbean in the winter and Alaska in the summer, so Alaska
didn't have a lot of competition in the summer. This is no
longer the case. He cited many different ports in the Caribbean
that are open year-round, and also noted that the East Coast is
now offering an Eastern Canada run that directly competes with
Alaska cruises. He said that Mexican cruises compete with
Holland America, and that Norwegian Cruise Lines is putting
three or four year-round ships in Hawaii. He provided that
although the Alaskan cruise business has grown over the years,
it has lost world market share because of competition.
MR. SHIVELY referred to the testimony offered by Representative
Gatto earlier in the committee meeting, citing the tables that
were included in the document obtained from the Office of the
Governor dated January 27, 2004. He pointed out that in that
report it shows the current fees that the cruise ship industry
already pays in Alaska's ports.
MR. SHIVELY also indicated that Representative Gatto suggested
that one of the advantages of this legislation is that it would
allow the state to collect this money and that the local
governments wouldn't have to. He explained that there is
nothing in the legislation to prevent the local governments from
collecting the fees and taxes that are already in place, stating
that because of this legislation the cruise ship industry would
be taxed twice. He addressed the information presented in the
document referring to expenses potentially attributable to the
cruise industry, cited the table pointing out examples of what
he thought were inaccuracies, and asked the committee not to
rely on this document.
Number 1892
REPRESENTATIVE KOTT noted that since [the terrorist attacks of
September 11, 2001] there has been a significant impact on
tourism around the country. He asked what the industry's status
is today relating to volume of passengers and ticket prices,
compared with where they were prior to those attacks.
MR. DOW shared that Alaska was probably hurt less than other
places because it was a domestic destination, it was a long
lead-time item, and the attacks happened at the end of the
tourist season. He surmised that if the attacks would have
happened in July, it would have probably had a much greater
impact. He noted that it impacted some of the vessels because
[Carnival Corporation] couldn't fly passengers in or out. He
added that the greater impact dealt with pricing. He shared
that most commercial vessels, with a few exceptions, will fill
their ships at some price. That is why he feels the extra $100
will have a negative impact on the business. He added that the
tourist industry is recovering from the terrorist attacks of
September 11, 2001, but it is not where it was prior to those
attacks. He reiterated that Alaska has had fewer problems
because it is a domestic destination, but there have been more
costs for the cruise lines to provide security and other
measures.
Number 1796
CHAIR HEINZE asked for specific reasons Alaska has lost its
percentage of the world market cruise business.
MR. SHIVELY attributed the lost share to Alaska's being more
expensive than other markets, namely, the Caribbean. He
continued that the industry has expanded its capacity worldwide,
so cruise lines have had to look for other venues that were not
needed a few years ago.
CHAIR HEINZE sought clarification on the total amount of money
spent by the cruise industry on marketing Alaska, and how much
it helps Alaska Travel Industry Association (ATIA) with its
marketing of Alaska.
MR. HABEGER estimated that, collectively, the cruise lines spend
$70 million a year on marketing Alaska, and contribute an extra
$2 million a year to ATIA.
MR. DOW added that that figure was about half of the private-
sector contributions.
Number 1722
CHAIR HEINZE inquired if the money contributed to ATIA was
required.
MR. HABEGER responded that they are not required to contribute
the $2 million, that each cruise line has joined the ATIA
voluntarily, and that the different cruise lines donate the
money because the industry feels that Alaska is an important
destination.
CHAIR HEINZE asked if the money donated to ATIA was used
specifically for the cruise industry.
MR. HABEGER answered that the money is given to ATIA, and
through ATIA's marketing committee the money is disbursed to
many businesses throughout the state. He added that the money
typically goes to the "Alaska travel planner," and that he
believes that this year the ATIA is buying some television
advertising time to market Alaska as a destination.
Number 1693
MR. SHIVELY added that most of the marketing in the Alaska
travel planner was directed towards independent travel, not the
cruise lines. He stated that the cruise industry supports the
Alaska travel planner for the good of the cause, noting that
many of the business partners rely heavily on the Alaska travel
planner, and that the cruise lines think that supporting the
Alaska travel planner provides a good benefit to the overall
business in the state.
REPRESENTATIVE KOTT asked for total amount the cruise lines pay
in fees at the different ports at this time.
MR. SHIVELY estimated that the industry pays between $15 million
and $20 million a season in fees for usage of Alaskan ports.
Number 1608
MR. DOW estimated that the cruise lines spend about $200,000 a
week in Alaska on docking and facility fees, making the amount
per passenger in the $20 to $25 range. He noted that based on
the number of ports the cruise visits, and whether they are
private or public docks, the total amount per passenger would
vary. He said that he could provide a more comprehensive
listing if the committee desired.
REPRESENTATIVE KOTT inquired about the length of cruises in
Alaska.
MR. DOW responded that the majority of the cruises are seven
days, accounting for about 85 to 90 percent of the traffic. He
continued that there are cruises as long as fourteen days, but
more likely ten or eleven days. He added that there are a few
two-to three-day "sampler" cruises that the industry has at the
beginning or end of a season.
Number 1544
REPRESENTATIVE KOTT asked if there were many passengers that
took a roundtrip cruise from Seattle to Seward.
MR. DOW acknowledged that it was possible for passengers to take
that trip, but stated that very few do. He explained that there
are Vancouver [British Columbia] and Seattle "Inside Passage
roundtrips" that usually take seven days; some of those cruises
last three or four days, with the passengers getting off the
vessel and going up to the Yukon Territory and into the Interior
of Alaska.
Number 1511
REPRESENTATIVE CRAWFORD asked about the length, in weeks, of the
tourist season.
MR. DOW responded that the tourist season lasts 18 to 20 weeks,
with the bulk of the business in the 120-day period between the
middle of May and the middle of September.
REPRESENTATIVE CRAWFORD, noting the pitfalls in the approach
taken by this particular bill, asked if there was a better
approach the cruise lines could offer.
MR. SHIVELY answered, as an Alaskan, that if there were an
income tax or a sales tax, the cruise industry would contribute
substantially. He said the cruise industry would contribute
because it has 16,000 to 18,000 employees, and those employees
would contribute if there were an income tax. He continued that
if there were a sales tax, the employees, as well as the
passengers of the vessels, would contribute to that tax. He
noted the sales tax figures in Ketchikan and Juneau and compared
the money collected in the fall and winter to the money
collected in the spring and summer to emphasize his point about
the impact the cruise ships have in this area.
Number 1434
REPRESENTATIVE CRAWFORD asked for more suggestions.
MR. SHIVELY shared that the cruise industry is unlike other
businesses because it is not exporting anything from Alaska and
reselling it; it is importing spenders. He suggested taxing the
spending so the burden falls evenly on everyone, not just the
tourists or cruise passengers.
CHAIR HEINZE asked for confirmation that the airlines bring in a
little over 400,000 people annually, and that the cruise lines
bring in a little over 800,000 people annually who spend $1,240
on average.
MR. DOW confirmed those estimates, citing the state travel
association, stating he believed that those were reasonable
estimates based on the average cruise passenger who spends a
little more than seven days in Alaska and that those passengers
typically save money before they arrive in Alaska and spend it
when they get to Alaska.
REPRESENTATIVE KOTT shared his idea on allowing casino gaming
within the state waters.
Number 1304
CHRIS ANDERSON, Co-Owner, Managing Partner, Orso Ristorante and
Glacier Brewhouse, testified that he is not in favor of the tax
proposed in HB 207. He said his business relies on the money
spent by the tourists, and in his experience, the discounted
traveler spends less money. He supports any legislation that
would encourage more tourism in Anchorage, but said it was ill-
advised to add more costs to travel during this time of economic
recovery.
Number 1210
JOHNE BINKLEY, President, Alaska Riverways, Inc., testified in
opposition to HB 207 for two basic reasons. He said it will
have a negative effect on his family's business, noting that the
business is highly dependent on cruise ship passengers that
continue their vacation into the Interior of Alaska. He
continued that since [the terrorist attacks of September 11,
2001], the competition has tightened up for visitors coming to
Alaska and that the customers have become much more price
conscious. Based on that, Mr. Binkley has seen a substantial
decline in the number of cruise ship passengers who come to the
Interior. He continued that in an effort to cope with that
decline, the only way he can cut costs is to hire fewer
employees, since the fuel costs, insurance costs, and
maintenance costs have gone up. He stated that Alaska
Riverways, Inc., has also raised its marketing budget to entice
customers to its business.
MR. BINKLEY said he also opposes this legislation because unlike
the other major industries - namely, the oil and timber
industries, which have only a few major producer - the tourism
industry is ubiquitous. Mr. Binkley feels that any solution
should be broad based in nature, instead of trying to target one
segment of the industry to bear the burden.
Number 1061
CHAIR HEINZE inquired as to the amount of passengers from the
cruise ships that Mr. Binkley feels are customers of his
business.
MR. BINKLEY estimated that tens of thousands of people from the
cruise ships come to Fairbanks and patronize his two
attractions.
Number 1013
LAWRENCE BLOOD, Executive Director, Greater Sitka Chamber of
Commerce, spoke in opposition to any targeted taxes towards the
cruise industry. Referring to the sponsor statement for HB 207
Mr. Blood noted that there were inconsistencies in the
formulation of the actual costs incurred by the State of Alaska
attributed to the cruise ship industry. He cited that the
cruise ships are estimated to bring in 807,000 passengers into
Alaska [next tourist season], amounting to $80.7 million in
taxes directed toward the cruise industry. Referring to the
statement regarding sales taxes, income taxes, and user fees, he
said approximately one-third of the local sales tax in Sitka
were paid by the cruise ship passengers visiting there.
MR. BLOOD continued, stating that for more than 30 years cruise
ships have been carrying passengers from around the world to
Alaska. He added that the cruise industry has become a growing
part of the Alaskan economy. He focused on the partnerships
that the cruise industry has made with both public and private
sectors. He noted the Crescent Harbor dock and construction of
the downtown public restrooms in Sitka, financially supported by
the cruise industry, that are used year-round by the citizens in
the community. He added that the cruise lines now pay between
$65 and $80 per passenger in fees and taxes for state and local
governments, port maintenance, emergency services, and
infrastructure.
MR. BLOOD disclosed that each year, cruise passengers make over
$12 million in direct purchases from local Sitka businesses,
bringing in over $720,000 in sales taxes paid to the city of
Sitka. Mr. Blood also pointed out that the cruise industry
contributes over $100,000 to local Sitka nonprofit
organizations. Providing all of this information, Mr. Blood
said he wonders what the cruise industry is not paying to
Alaska, referring again to the sponsor statement. He opined
that this bill is a case where the government is taxing and
blaming someone else for its fiscal problems.
Number 0801
MR. BLOOD referred again to the sponsor statement and the
passage dealing with [the government's] right to charge
industries that reap the benefits of doing business in Alaska.
He emphasized the services that the cruise industries provide to
the State of Alaska and to the local communities. He questioned
what other industries bring people from around the world just to
spend money in the state. Mr. Blood stated that the cruise
industry supports [Sitka's] local government, jobs, and local
economy. He implied that the cruise industry does more for
Sitka than the state does, especially since revenues have been
cut.
MR. BLOOD warned that this could be a damaging piece of
legislation, citing the North West Cruise Ship Association's
survey, and asked if this legislation would do more damage than
good. He added that Sitka realizes the potential damage that
legislation like HB 207 can bring, and therefore has always
opposed a head tax targeted towards the cruise industry. Mr.
Blood commented that after [the terrorist attacks of September
11, 2001] Alaska benefited from the cruise lines' moving their
ships to safer waters in Alaska, and he feels they could just as
easily go back.
MR. BLOOD ended his testimony by bringing up that he feels that
HB 207 will allow the State of Alaska to unfairly compete with
private industry by providing a $100 incentive for people to use
the Alaska Marine Highway System, since the tax proposed will
not apply to vessels operated by the State of Alaska.
Number 0640
REPRESENTATIVE MCGUIRE said she agreed with most of what Mr.
Blood said, adding that she thinks that HB 207 would violate the
commerce clause if the state exemption were kept in the bill.
She expressed that the one comment that she took exception to
was Mr. Blood's statement regarding cutting the municipal
revenue sharing in Sitka. She pointed out that the state has
done a lot with the trooper academy, the schools funded by the
government, and other things in Sitka.
MR. BLOOD retracted his comment, referring to the point that
Sitka's government is in a financial bind.
Number 0517
CHRIS VON IMHOF, Vice-President and Managing Director, Alyeska
Resort, testified, reiterating the previous points that the
cruise ship industry creates a major economic benefit for all of
Alaska with the investments that the industry makes within the
state. He added that he feels the cruise industry contributes
the majority of funding for the marketing of Alaska as a
destination, as well as contributing to the ATIA. Mr. von Imhof
stated that Alyeska Resort receives a large percentage of its
business from the cruise industry, and the resort is concerned
with the competitive market. Alyeska Resort has already seen
some decrease in numbers of customers, and fears that with
increased pricing, the resort will lose more business.
MR. VON IMHOF said that the resort was in opposition to a
targeted tax, but would support a property tax, a sales tax, or
maybe an income tax. He also suggested that if need be, the
government could tap into the permanent fund to pay for
essential government services. He used an example of a cruise
line avoiding ports in Bermuda, because of the high fees with
docking there, as a warning against a targeted tax like the one
proposed by HB 207.
Number 0313
ALAN LEMASTER, President, Gakona Junction Village Inc., stated
that his business is extremely dependent on the cruise industry
for its revenue and voiced his concern that a targeted tax would
limit the amount of business in Gakona. Mr. LeMaster cited a
falloff in business in the previous years because of the
discounted rates offered by the cruise lines, and is wary of
more of a falloff because the increase in price from a tax like
the one proposed in HB 207 would lower the number of people who
take advantage of the add-on services like the one his business
provides.
Number 0109
RON PECK, President and Chief Operating Officer, Alaska Travel
Industry Association (ATIA), testified against specific and
targeted taxes because the ATIA believes they are burdensome to
the tourism industry.
TAPE 04-02, SIDE A
Number 0001
MR. PECK confirmed the earlier testimony from the cruise
industry that the ATIA receives $2 million in voluntary
contributions from the cruise industry for the ATIA's marketing
efforts. Mr. Peck added that the cruise industry spends an
additional $200,000 to $300,000 on specific programs within the
ATIA. He validated that the new television advertisements have
no mention of cruises because the ATIA is trying to promote the
independent business sector.
Number 0094
CHAIR HEINZE asked for confirmation that the number of tourists
attributable to the cruise ships was roughly 800,000 passengers.
MR. PECK answered that 775,000 people took a cruise in Alaska
during 2003; that number is up about 36,000 people from the
previous year, meaning that the growth was all based in the
cruise sector because independent travel was down in 2003.
CHAIR HEINZE inquired as to how much money from the cruise
passengers would go back into the general fund.
MR. PECK, citing state reports, said that the contribution is
estimated between $800 and $1,260 per person. He went on to
include the estimated amount of money contributed to
municipalities by the cruise industry at $125 million, based on
a study by Eric McDowell in 1996.
CHAIR HEINZE asked Mr. Peck to provide that information to the
committee.
MR. PECK agreed.
Number 0306
PATTI MACKEY, Executive Director, Ketchikan Visitors Bureau,
speaking against HB 207, shared her concern about the potential
impact that this legislation would have on individual
communities and their abilities to negotiate with the cruise
lines. Ms. Mackey described the mutually beneficial
relationship the city of Ketchikan has had with the cruise
industry. She stated that because of the city's ability to
negotiate with the cruise lines, Ketchikan has constructed two
dock extensions as well as obtained funding for improvements to
one of the local harbors within the last decade. She also noted
that recently, after negotiations with the cruise lines,
Ketchikan implemented a passenger service fee that the city just
started to collect January 1, 2004.
MS. MACKEY stated that the money collected by this fee will
allow the city of Ketchikan to expand and rework existing port
facilities, enabling more ships to dock during the time they are
in port in Ketchikan. Ms. Mackey added that each community
serving and being served by the cruise lines has, up to this
point, had the freedom to work with the cruise lines to meet its
needs. Ms. Mackey pointed out that, from an economic
standpoint, the city of Ketchikan has become more dependent on
the cruise industry because it has lost ground in its
traditional fishing and timber industry markets; she said that
the cruise industry currently represents the only growth
industry in Ketchikan.
Number 0525
BONNIE QUILL, Executive Director, Mat-Su Convention and
Visitor's Bureau, testified that she was not opposed to taxing
visitors, but she is opposed to targeted taxes applied to
visitors, such as statewide bed taxes, rental car taxes, and
cruise ship head taxes. She stated, "Our industry has come
forward with a plan that includes all sectors of the visitor
industry, broad-based plan that represents all visitors who
travel to Alaska." She asked the committee to review and
support the industry initiative.
MS. QUILL commented on the impact that cruise ship passengers
have on the Mat-Su Valley. She described how the money spent by
cruise ship passengers affects the economy in the Mat-Su Valley,
citing that the money spent by these passengers on services
tours trickles down to support a wide range of other businesses
such as laundry, accounting, and day care. She added that
cruise ship passengers also contribute to local taxes through
sales taxes and bed taxes, stating that cruise ship passengers
account for between one-third and one-half of the total bed
taxes collected in the Matanuska-Susitna Borough.
MS. QUILL explained that most of the funding for the Mat-Su
Convention and Visitors Bureau comes from the borough-wide bed
tax, which the cruise ship passengers account for nearly half
of. She pointed out that the bed tax dollars are used towards
marketing all segments of tourism in the Mat-Su Valley, adding
that the Mat-Su Valley is a place where tourism is growing and
is embraced by its residents. Ms. Quill expressed her concern
about the negative effects of HB 207.
Number 0655
MR. DICKINSON clarified some of the questions raised from his
earlier testimony by explaining how the fees potentially
attributable to cruise industry did not take into account fees
that were already in place, since those fees affected the
general fund. He summarized that the figures on the table
reflected the total cost for the services provided.
Number 0707
REPRESENTATIVE GATTO responded to all the testimony and
expressed that he felt beaten up. He acknowledged that the
cruise ship industry's purpose was to make money, stating that
it was laudable and "when they make money, we all do better."
He also pointed out that Mr. Dow had stated that the ships
always sail full, and added that the cruise lines are building
more ships. He emphasized that because of these reasons, the
number of passengers to Alaska will increase, bringing more
business to the state wherever the cruise ships stop. He argued
the rationale that the cruise lines will stop coming to Alaska
if the fees are raised. Representative Gatto cited the North
West Cruise Ship Association's survey, stating it was an old
survey that was put together by the McDowell group in
Washington, D.C., that used vague language; he commented that it
was possible to solicit any type of response desired by going to
the right company.
REPRESENTATIVE GATTO contradicted the North West Cruise
Association's report by citing an unofficial survey that he'd
conducted himself, asking passengers off the cruise ships if
their plans would have changed if there were an additional $100
charge to their trip. He stated that out of all the people that
he questioned, only one had responded that he or she may
reconsider. Representative Gatto stated that [this legislation]
will not hurt any local businesses as long as the cruise lines
continue to bring in customers, which he believes will continue
to happen. He backed that comment up with a statement regarding
the amount of money the cruise industry makes off of coming to
Alaska, focusing on the shops that the ships have on board the
vessels, as well as the businesses that the industry owns and
operates within Alaska.
Number 1026
REPRESENTATIVE GATTO continued on to explain his interpretation
of the "kickback" that the cruise industry receives from local
businesses for them to be on the "approved list." He referred
to Juneau airplane operators that he'd interviewed and their
comments stating that they barely make a living after paying the
pilots, fuel costs, airplane maintenance, insurance, and
"kickbacks" that they give to the cruise industry. He
reiterated that the cruise lines make so much money that they
would never stop coming to Alaska.
REPRESENTATIVE GATTO explained that the only problem with the
proposed legislation lies with the legality of it. He said that
it is not up to the cruise industry or for [the legislators] to
determine the legality, but for the courts to determine. He
referred to the earlier testimony by Ms. Burke by stating that
it was not irresponsible for the legislature to adopt this bill
because he has researched the legality of the bill and would not
waste his time or effort if he felt that this bill was illegal.
He cited his data that the cruise industry costs the state $135
million, and that the state stands to gain from this tax $70
million, if the fee remains $100, and pointed out that the
cruise industry pays no corporate income tax. He stated that
because of the commerce clause and the maritime clauses, the
cruise industry feels that it can defeat this proposed tax by
referring to legislation that appears to prohibit it. He
commented on the cruise industry's stance against this bill and
that it is relying on businesses to help support its stance by
the businesses' stating that their livelihood depends on the
cruise ships. Representative Gatto agreed that the businesses
were dependent on the cruise ships, but stated that the
customers will not go away. He commented that the combination
of separate issues relating to taxes, business losses, and
legality is "muddying the water."
Number 1238
REPRESENTATIVE GATTO added that the cruise industry does not pay
corporate income taxes, while other competing industries do. He
stated that the tax in HB 207 is no more of a focused tax than
the ones levied by the state on the oil, timber, fishing, and
mining industries. He brought up the issue of a broad-based
tax, stating that most constituents do not want that sort of tax
imposed. Representative Gatto communicated that Alaska is a
resource-based economy, stating that the tourism industry
doesn't exactly fit the definition of a resource but that the
way the state handles it is similar. Representative Gatto
stated that he believes it is only fair for the cruise ship
industry to pay the proposed tax, or "user fee" if that is the
preferred wording, based on its profit margin and its use of
Alaska's resources.
REPRESENTATIVE GATTO closing by commenting that the cruise
industry makes a lot of money by being in Alaska, and it is fair
for [the state government] to expect reasonable compensation for
the cruise lines' access to Alaska. He feels that HB 207 has
enormous merit and asked for strong consideration from the
committee.
Number 1425
REPRESENTATIVE MCGUIRE addressed the validity of Representative
Gatto's statements, saying she believed that he was concerned
about the fiscal gap in Alaska and he was trying to create a
solution to that problem. She believes that this bill is not an
attempt for retribution and that Representative Gatto truly does
support the cruise industry. Representative McGuire stated that
she had three legal concerns, noting the frustration that can be
attributed to legal barriers, starting with the tonnage clause.
Number 1458
REPRESENTATIVE MCGUIRE elaborated on the history of the tonnage
clause, stating that the government didn't want to have barriers
to the free travel of ships to different ports. She stated that
the tonnage clause isn't just an arbitrary thing, but an actual
legal thing that has to be dealt with when talking about user
fees. She also encouraged Representative Gatto to start using
the term "user fees" over "head tax". She pointed out two
points for Representative Gatto to think about, referring to the
tonnage clause specifically.
REPRESENTATIVE McGUIRE asked Representative Gatto to show a
direct correlation between the fee assessed to the cruise lines
or passengers and the costs attributed to medical, fire, and
police services necessary to serve the passengers. She
continued that creation of facilities and the maintenance of
those facilities can be related to the fee. She questioned the
fee of $100 that is included in HB 207, stating that there was
nothing in the sponsor's statement or bill packet that shows a
direct connection with that amount and the actual costs that are
incurred by the ports. She cited the governor's office report
where it showed costs of a few dollars per person, stating her
opinion that the proposed $100 fee probably wouldn't survive a
legal challenge.
Number 1608
REPRESENTATIVE MCGUIRE inquired about the relationship between
the legal interaction of the State of Alaska's constitutional
prohibition on dedicated funds and the tonnage clause's
requirement that any user fee goes directly toward those
services and facilities used by the vessel or passenger. She
suggested that the information could probably be prepared by the
Legislative Legal and Research Services.
REPRESENTATIVE MCGUIRE presented her third question, which she
thought would have to be completely taken out of the bill,
referring to state vessels and state ferries' being exempt from
this fee. She cited a Supreme Court test that specifically
addresses commerce clause challenges and how a tax can be upheld
under the commerce clause. She stated that the fourth part of
the Supreme Court test is very specific in reference to not
providing a direct commercial advantage to local businesses.
Representative McGuire referred to Representative Kott's recent
rental car tax, stating that it was undoubtedly a targeted tax.
She said that there are two things that make that tax quite
different from this one. She elaborated on the lack of a
tonnage clause that applies to a rental car, and the fact that
the tax applied to every rental car agency, regardless of
whether it had local or outside ownership. She related these
points to the tax in HB 207, stating that by not taxing state-
owned vessels, the bill is creating an unfair business
advantage.
Number 1712
REPRESENTATIVE MCGUIRE shared that she has been working with a
group in Pacific NorthWest Economic Region (PNWER) that would
create a ferry pass that would allow passengers to travel
between Washington State, British Columbia, and Alaska ferries
to increase foot passengers within the ferry system to generate
more money.
Number 1750
REPRESENTATIVE CISSNA expressed that her background was not in
the legal services but rather mental health and publications, so
she is addressing this issue from that point of view. She
commented that based on the cost that was required to make the
North West Cruise Association's survey, namely, the quality of
the paper and the expense of printing the four-color pamphlet,
she is considering the fact that there are legal concerns and
that the industry has the potential to tie up this legislation
in court for a very long time. Representative Cissna continued
that the state has to devise fair ways to address the current
fiscal problem, and that the bill would have to clear up its
legal issues if it was to be successful.
Number 1849
REPRESENTATIVE GATTO said he knew of the previously mentioned
impediments, the tonnage and commerce clauses, as well as the
Maritime [Transportation] Security Act of 2002, and would not go
forward without being able to address these impediments. He
continued that it isn't good public policy to back off of a bill
because the opposition has a lot of money, stating that if that
were the case, whom could the state ever take a stand against.
REPRESENTATIVE CISSNA pointed out that she has a letter from
Legislative Legal and Research Services stating that there is a
potential legal problem with this type of tax.
CHAIR HEINZE cautioned Representative Gatto in his use of the
term "kickback."
REPRESENTATIVE GATTO responded that that was the term used by
the people who had to pay these fees.
CHAIR HEINZE questioned whether it was people in the tourist
industry using that term.
REPRESENTATIVE GATTO expressed that the people he talked to were
"hardship cases" and used that term when referring to the cruise
industry. He went on to say that those people talked about
other issues that he felt would take up too much time at this
point. He suggested that if the committee would rather he use
the word "commission," he would, but that isn't the term that
was used when he was talking with people within the industry.
Number 1960
REPRESENTATIVE KOTT offered that in a separate committee they
used the term "return on investment" when dealing with the type
of fees that are being referred to as a "kickback." He went on
to voice similar concerns that Representative McGuire had,
stating that the last thing [the legislature] wants is to end up
in court spending money on [the legislature's] behalf, or for
the Senate to come back to show a legal document stating that
the bill was "on thin ice."
REPRESENTATIVE KOTT presented some numbers relating to a sales
tax, speculating on the amount of revenue that would be
generated by enacting that type of tax. Representative Kott
stated that he thought it was great that Representative Gatto
spent the time to conduct his own survey, noting that it showed
that it was a genuine issue that Representative Gatto had some
serious interest in. However, Representative Kott commented
that someone will say one thing to a person's face, but then
change that opinion when it comes time to vote.
Number 2042
REPRESENTATIVE KOTT shared that he had requested a copy of the
questions used in the North West Cruise Association's poll
because he understood that those types of surveys can be skewed
by the manner in which the questions are asked.
REPRESENTATIVE KOTT expressed concern about the impact that this
tax would have on small businesses within the state, saying he
felt there was some genuine concern from those businesses that
if this tax was imposed, fewer people would take the add-on
excursions, especially in the Interior.
Number 2125
REPRESENTATIVE GATTO pointed out that "Channel 2" did a dockside
poll, which he felt better represented the facts.
REPRESENTATIVE KOTT said it was another person-to-person poll,
and those sometimes are misleading.
CHAIR HEINZE asked Representative Kott if he'd be willing to
chair a subcommittee.
REPRESENTATIVE KOTT said he'd be willing to chair a subcommittee
and to work with the sponsor and the industry on the issues to
try to resolve some of the legal aspects of the bill. He asked
Chair Heinze to assign Representative McGuire to the
subcommittee, if she desired, to help with the legal issues. He
noted that the bill didn't get a House Judiciary Standing
Committee referral.
Number 2174
CHAIR HEINZE asked Representatives Dahlstrom and McGuire to
participate.
REPRESENTATIVES DAHLSTROM and MCGUIRE both agreed.
REPRESENTATIVE KOTT asked Chair Heinze to appoint one of the
minority Representatives to the committee; he recommended
Representative Crawford.
REPRESENTATIVE CRAWFORD agreed.
REPRESENTATIVE DAHLSTROM said she'd be happy to defer to
Representative Crawford.
CHAIR HEINZE announced the subcommittee for HB 207:
Representative Kott, chair; Representative Crawford; and
Representative McGuire. [HB 207 was held over.]
ADJOURNMENT
Number 2199
There being no further business before the committee, the House
Special Committee on Economic Development, International Trade
and Tourism meeting was adjourned at 12:29 p.m.
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