Legislature(2009 - 2010)HOUSE FINANCE 519

04/05/2010 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 422 PASSENGER TAX; TOURISM TAX CREDIT TELECONFERENCED
Heard & Held
+ HB 167 TAX CREDIT FOR STATE TOURISM PROGRAM TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 5, 2010                                                                                            
                         2:10 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
2:10:18 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 2:10 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Co-Chair                                                                                            
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Vice-Chair                                                                                      
Representative Allan Austerman                                                                                                  
Representative Mike Doogan                                                                                                      
Representative Anna Fairclough                                                                                                  
Representative Neal Foster                                                                                                      
Representative Les Gara                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Woodie Salmon                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None.                                                                                                                           
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Curtis   Thayer,   Deputy    Commissioner,   Department   of                                                                    
Community, Commerce and  Economic Development; Dan Sullivan,                                                                    
Attorney General,  Department of Law; Chris  Poag, Assistant                                                                    
Attorney General, Department of  Law; Chip Thoma, President,                                                                    
Responsible  Cruising in  Alaska; Joe  Gelhif, Juneau;  John                                                                    
Binkley,   President,   Alaska  Cruise   Association;   Mike                                                                    
Stedman,  Owner,  Wings  Airways; John  McConnachie,  Owner,                                                                    
Cycle Alaska;  Brett Carlson, Cook, Coldfoot  and Deadhorse;                                                                    
Eleanor Davenport, Director,  White Pass Railroad; Genevieve                                                                    
Wojtusik,   Staff,  Representative   Millet;  Representative                                                                    
Charisse Millet; Johanna  Bales, Deputy Director, Department                                                                    
of Revenue;  Sandra Loomas, Business Manager,  Talkeetna Air                                                                    
Taxi; Roark Brown, Owner, Homer Ocean Charters.                                                                                 
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Tom  Hall,   Klondike  Gold   Dredge,  Skagway;   Jill  Cox,                                                                    
Temptations,  Skagway;  Governor   Bill  Sheffield;  Richard                                                                    
Beneville, Nome  Chamber of Commerce, Nome  Visitor's Center                                                                    
and Nome  Discovery Tours; Walter  Porter, City  and Borough                                                                    
of  Yakutat;  Paul  Landis, Chief  Operating  Officer,  CIRI                                                                    
Alaska   Tourism;   Frank    Flavin,   Flavin   Photography,                                                                    
Anchorage; John  White, Owner, Healy and  Denali Businesses;                                                                    
Judy  White,   Bookkeeper,  Denali  Business;   Lois  Wirtz,                                                                    
Anchorage;  Lee Kenaston,  Tour  Business Owner,  Fairbanks;                                                                    
Alan LeMaster,  ATIA, Copper Valley; Scott  Reisland, Denali                                                                    
Grizzly Bear,  Fairbanks; Mary  Richards, All  Season's Inn,                                                                    
Fairbanks; Tim Cerny, Alaska  Act Committee, Fairbanks; Kory                                                                    
Eberhardt, A  Taste of Alaska Lodge,  Fairbanks; Erika Weld,                                                                    
Arctic  Outfitters,   Fairbanks;  Matt   Atkinson,  Northern                                                                    
Alaska  Tour  Company,  Fairbanks;  Kathy  Hedges,  Northern                                                                    
Alaska  Tour  Company,   Fairbanks;  Deb  Hickok,  Fairbanks                                                                    
Convention  &  Visitors  Bureau;  Janet  Buckingham,  Alaska                                                                    
Travel  Industry Association,  Kodiak; Bob  Stanford, Kodiak                                                                    
Island Convention  & Visitors Bureau and  Island Air; Blaine                                                                    
Ashcraft,  Ketchikan  Chamber  of Commerce;  Pattie  Mackey,                                                                    
Ketchikan  Visitor Bureau;  Rick Erickson,  Employee, Survey                                                                    
Point  Holdings, Alaska  Alliance for  Cruise Travel  (ACT),                                                                    
Ketchikan; Len  Laurence, ACT, Ketchikan;  Colleen Stephens,                                                                    
Stan Stephens Charters, Valdez;  Fred Reeder, Alaska Premier                                                                    
Charters;   Jamey  Cagle,   Vice-President,  Allen   Marine;                                                                    
Jillian  Simpson, Alaska  Travel  Industry Association;  Tom                                                                    
Hall, Klondike Gold Dredge  Brewery; Tammy Griffin, Director                                                                    
of  Operations,   Alaska  Hotel  and   Lodging  Association;                                                                    
Shannon   Hamrick,  Executive   Director,  Kenai   Peninsula                                                                    
Tourism Marketing Council.                                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 167         TAX CREDIT FOR STATE TOURISM PROGRAM                                                                             
                                                                                                                                
               CS HB 167 (L&G) was HEARD and HELD in                                                                            
               Committee for further consideration.                                                                             
                                                                                                                                
HB 422         PASSENGER TAX; TOURISM TAX CREDIT                                                                                
                                                                                                                                
               CS HB 422 (FIN) was HEARD and HELD in                                                                            
               Committee for further consideration.                                                                             
                                                                                                                                
2:10:24 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 422                                                                                                            
                                                                                                                                
     "An  Act relating  to a  corporation income  tax credit                                                                    
     for  contributions  to  a qualified  trade  association                                                                    
     awarded  a  contract  by the  Department  of  Commerce,                                                                    
     Community,  and Economic  Development for  planning and                                                                    
     executing  a  destination  tourism  marketing  campaign                                                                    
     made by a  person that derives income from  the sale of                                                                    
     goods or  services to visitors  to the  state; relating                                                                    
     to   the  excise   tax  on   passengers  traveling   on                                                                    
     commercial   passenger   vessels  providing   overnight                                                                    
     accommodations  in  the   state's  marine  waters;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
Co-Chair  Hawker  MOVED  to   CSHB  422()26-GH2210\R,  as  a                                                                    
working document.                                                                                                               
                                                                                                                                
There being no OBJECTION it was so ordered.                                                                                     
                                                                                                                                
2:12:30 PM                                                                                                                    
                                                                                                                                
CURTIS THAYER, DEPUTY  COMMISSIONER, DEPARTMENT OF COMMERCE,                                                                    
COMMUNITY,  AND  ECONOMIC  DEVELOPMENT, testified  that  the                                                                    
administration  was  in  support   of  the  legislation.  He                                                                    
underscored  the urgency  that the  legislature should  take                                                                    
action on the  bill during the 2010 session.  He stated that                                                                    
the governor  proposed legislation  that included  the exact                                                                    
provisions included  in the bill  also included  a marketing                                                                    
component. The administration  believed that tourism numbers                                                                    
would  increase  in the  state  by  reducing the  commercial                                                                    
passenger   vessel  excise   tax  and   increasing  Alaska's                                                                    
visibility through  an Alaska  tourism marketing  program. A                                                                    
study recently  published by the department  highlighted the                                                                    
economic  impact tourism  had on  the state.  Direct visitor                                                                    
spending was  $2.1 billion per year,  generating 27 thousand                                                                    
jobs.  When   accounting  for  indirect   impacts,  Alaska's                                                                    
visitor industry represented $3.4  billion in total spending                                                                    
in  Alaska, and  peak employment  of over  40 thousand.  The                                                                    
state  was  currently  facing a  decline  in  the  industry.                                                                    
Travel in Alaska was down by  7 percent in 2009, and visitor                                                                    
spending decreased by $270,000,000  compared to 2008. It was                                                                    
expected  that 140,000  fewer cruise  ship passengers  would                                                                    
travel to the  state in 2010. Alaska was expected  to gain 2                                                                    
ships  in  2011,  but  was  also  losing  2  ships,  further                                                                    
prolonging  economic  challenges.  A recent  McDowell  Group                                                                    
report demonstrated  the far  reaching statewide  effects of                                                                    
dwindling visitor  traffic. The  estimated job loss  for the                                                                    
next two  years was  approximately 5000.  The lost  jobs run                                                                    
the  gamut;  fishing guides  on  the  Kenai Peninsula,  tour                                                                    
companies    in   Ketchikan    and   Sitka,    lodging   and                                                                    
transportation  services   in  Fairbanks,   restaurants  and                                                                    
lodging in  Anchorage. Additionally, hundreds  of businesses                                                                    
throughout Alaska  that provided  goods and services  to the                                                                    
industry;   commercial    fishermen,   seafood   processors,                                                                    
mechanics,   fuel  providers,   and  numerous   professional                                                                    
services, would see a decline  in revenue. The industry as a                                                                    
whole contributed  $200,000,000 in direct payments  to state                                                                    
and local  governments through various user  fees. He stated                                                                    
that two-thirds of  the visitors in 2009,  arrived by cruise                                                                    
ship.  The   administration  and   DEC  met   with  industry                                                                    
representatives,  community  leaders,   and  small  business                                                                    
owners across the state to  develop a comprehensive strategy                                                                    
to  make Alaska  more attractive  to industry  and travelers                                                                    
alike.  Lessing  the  head  tax   and  growing  the  tourism                                                                    
marketing program  would be beneficial to  the industry. The                                                                    
cruise ship  industry had signaled  the willingness  to drop                                                                    
the lawsuit against  the state if the tax was  reduced by 25                                                                    
percent. However,  the state was  faced with a 2  year delay                                                                    
before cruise  ship volumes were  expected to  increase. The                                                                    
cruise line  industry had indicated that  they would refrain                                                                    
from  making  final decisions  on  the  2012 schedule  until                                                                    
action  was  taken  by the  legislature.  He  stressed  that                                                                    
Alaska should  be made a  more affordable destination  and a                                                                    
message should be sent that the state welcomed travelers.                                                                       
                                                                                                                                
2:18:31 PM                                                                                                                    
                                                                                                                                
DAN   SULLIVAN,  ATTORNEY   GENERAL,   DEPARTMENT  OF   LAW,                                                                    
explained that  the department had been  defending the state                                                                    
against the  lawsuit filed by the  Alaska Cruise Association                                                                    
(ACA),  and   would  continue  to   zealously  do   so.  The                                                                    
department  was also  in the  role of  legal advisor  to the                                                                    
governor. The department  was working to ensure  that if the                                                                    
legislation  was enacted  the lawsuit  would be  dropped. An                                                                    
agreement was being drafted between  the state, the ACA, and                                                                    
individual  cruise  ship lines,  to  make  certain the  case                                                                    
would  be   dismissed.  House  Bill  422   served  two  main                                                                    
purposes;   increasing  tourism   in  the   state,  and   to                                                                    
indirectly  resolve the  pending litigation.  The litigation                                                                    
was filed in fall of 2009,  regarding whether or not the tax                                                                    
could be imposed,  and if so, at what  rate. The legislature                                                                    
retained the  authority to set  tax rate and  throughout the                                                                    
litigation the cruise ship industry  had not been present in                                                                    
tax rate discussions. He reiterated  that if the legislation                                                                    
were enacted,  the lawsuit would  be dropped.  He emphasized                                                                    
the importance  of the periodic review  process written into                                                                    
Section 6  of the  bill. The process  would allow  state and                                                                    
local  communities  to  collaborate  in  monitoring  visitor                                                                    
trends,  and identify  projected service  and infrastructure                                                                    
needs, to  safely and efficiently accommodate  passengers in                                                                    
Alaska. This  would provide  the legislature  the background                                                                    
on which  to base  a future tax  increase or  reduction. The                                                                    
department believed  that keeping the tax  rate commensurate                                                                    
with the  cost of  hosting passengers  would help  the state                                                                    
avoid  litigation  in the  future.  Given  the risks,  cost,                                                                    
time,   resources,  and   the   uncertainty  regarding   the                                                                    
continued litigation,  pursuing the  settlement would  be in                                                                    
the states best interest.                                                                                                       
                                                                                                                                
2:25:12 PM                                                                                                                    
                                                                                                                                
Representative  Austerman  asked  if the  dismissal  of  the                                                                    
lawsuit was dependent  on the tax number being  $34.50.  Mr.                                                                    
Sullivan replied that the actual  tax amount would depend on                                                                    
how large the material amendment would be.                                                                                      
                                                                                                                                
Representative Austerman asked if  the agreement between the                                                                    
department and the industry could  be found in the committee                                                                    
file.  Mr.  Sullivan  replied  no.  He  explained  that  the                                                                    
agreement was  still being  worked on  by the  department to                                                                    
ensure that  if the  legislation were  to pass,  the lawsuit                                                                    
would be dismissed. The agreement  would not be made public.                                                                    
The department  had been  provided a  copy of  the agreement                                                                    
and had been  working to revise it in order  to better serve                                                                    
the state.                                                                                                                      
                                                                                                                                
Representative  Austerman clarified  that the  agreement was                                                                    
with  the  ACA.  Mr.  Sullivan   replied  that  one  of  the                                                                    
amendments  stipulated that  every member  of the  ACA would                                                                    
sign the agreement.                                                                                                             
                                                                                                                                
Representative Austerman  understood that the  agreement had                                                                    
not been  in place when  the $34.50 figure had  been written                                                                    
into the bill.                                                                                                                  
                                                                                                                                
CHRIS POAG,  ASSISTANT ATTORNEY GENERAL, DEPARTMENT  OF LAW,                                                                    
interjected that  ACA had provided  a copy of  a stipulation                                                                    
that set  out the terms  of the negotiation.  The department                                                                    
had reviewed  the stipulation to ensure  the provisions were                                                                    
satisfactory to  the state. Mr.  Poag assured  the committee                                                                    
that the agreement  would be finalized by the  time the bill                                                                    
was passed and sent to the governor for signing.                                                                                
                                                                                                                                
2:29:27 PM                                                                                                                    
                                                                                                                                
Representative Austerman  assumed that  it was  a sufficient                                                                    
enough agreement  to base  a bill  on. He  expressed concern                                                                    
that  legislation had  been drafted  based  on an  agreement                                                                    
that had yet  to be signed and put into  place. Mr. Sullivan                                                                    
responded that the  purpose of the agreement  was to protect                                                                    
the state,  and to ensure  the lawsuit would be  dropped, if                                                                    
there was  action taken  by the  legislature. He  agreed the                                                                    
passing  of the  legislation  without  the signed  agreement                                                                    
would not be in the states best interest.                                                                                       
                                                                                                                                
2:32:05 PM                                                                                                                    
                                                                                                                                
Representative  Austerman  asked  what impact  changing  the                                                                    
dollar  amount would  have  on both  the  agreement and  the                                                                    
bill.  Mr.  Sullivan  replied   that  the  department  would                                                                    
research the question.                                                                                                          
                                                                                                                                
2:33:14 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked if the  tax was lowered,  and the                                                                    
lawsuit  was dropped,  what would  stop the  public or  city                                                                    
from  filing  a lawsuit.  Mr.  Sullivan  responded that  the                                                                    
settlement would be  binding between the state  and the ACA.                                                                    
There would  be nothing to  stop other entities  not subject                                                                    
to the agreement from filing a lawsuit.                                                                                         
                                                                                                                                
Representative  Gara understood  that  under the  governor's                                                                    
proposal  the  state  could  reduce the  tax  and  still  be                                                                    
vulnerable to  litigation. Mr.  Sullivan explained  that the                                                                    
state gets  sued a  lot. In all  cases the  department would                                                                    
vigorously defend the best interests of the state.                                                                              
                                                                                                                                
Representative Gara  asserted that the settlement  would not                                                                    
be binding  if it  bound only  in favor  of the  cruise ship                                                                    
companies and not the state. He  stated that over the last 4                                                                    
years the  amount that the  state and private  entities paid                                                                    
into  Alaska Travel  Industry  Association  (ATIA) had  been                                                                    
adjusted. He  believed that the  state had been  paying more                                                                    
and more while  the cruise ship companies had  paid less and                                                                    
less.  He  contended  that the  cruise  ship  companies  had                                                                    
cancelled their ATIA contribution.                                                                                              
                                                                                                                                
Co-Chair Stoltze interjected that  funding and ATIA would be                                                                    
discussed  at another  time in  an attempt  to separate  the                                                                    
head tax and marketing issues.                                                                                                  
                                                                                                                                
2:37:02 PM                                                                                                                    
                                                                                                                                
Vice-Chair Thomas  understood that  the governor's  bill was                                                                    
an effort to overturn an  initiative voted on by the people.                                                                    
Mr. Thayer responded that it would modify the initiative.                                                                       
                                                                                                                                
Vice-Chair  Thomas asserted  the  head tax  amount had  been                                                                    
established  by a  vote of  the people.  He stated  that the                                                                    
port fees  for communities that he  represented would suffer                                                                    
an  immediate  impact  from  a   lowering  of  the  tax.  He                                                                    
expressed concern  for the overturning of  the people's vote                                                                    
and  for the  effective  date.  He said  that  there was  no                                                                    
evidence of  a signed  agreement that  the lawsuit  would be                                                                    
dropped.  He noted  that the  immediate  effective date  was                                                                    
flawed, as  ships had already  been collecting the  head tax                                                                    
for  2010  cruises.  He  suggested   an  effective  date  of                                                                    
November  1,  2010.  He  relayed  that  he  was  1  of  1700                                                                    
commercial   fishermen  in   Southeast  that   lost  halibut                                                                    
individual  fishing   quotas  (IFQ)  over   charter  fishing                                                                    
industry issues. That  equated to a $30 million  loss to the                                                                    
Southeast  economy.  He requested  answers  as  to what  the                                                                    
department  planned to  do about  the direct  impact of  the                                                                    
tourism  industry on  communities.  He said  that Section  5                                                                    
should be written out of  the bill because it was confusing.                                                                    
He also  thought that  the Juneau  and Ketchikan  ports were                                                                    
being treated better than other ports in Southeast.                                                                             
                                                                                                                                
2:42:02 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  requested   further  explanation  of                                                                    
Sections 3 through 7 of the bill.                                                                                               
                                                                                                                                
Mr.  Poag explained  that Section  1 contained  a clarifying                                                                    
amendment that  codified the regulation to  clarify that the                                                                    
tax  did not  apply on  vessels that  were transiting  state                                                                    
waters. It  applied to  vessels that  stopped in  ports with                                                                    
the  intent  to allow  passengers  to  disembark. Section  2                                                                    
discussed the rate  reduction from $46 to  $34.50. Section 3                                                                    
contained  clarifying  amendments.   It  made  a  conforming                                                                    
amendment,  by repeal  of the  regional impact  fund, and  a                                                                    
clarifying amendment  that provided  a guideline on  how the                                                                    
legislature ought  to appropriate  proceeds in  the account.                                                                    
Section 4 described the same  clarification in regard to the                                                                    
ports  of call  sharing funds.  Section 5  explained that  a                                                                    
passenger  that purchased  a voyage  that stopped  in Juneau                                                                    
would pay the  $8 local levy, which would  reduce the $34.50                                                                    
statewide tax by $8.                                                                                                            
                                                                                                                                
Representative Doogan  asked why the statewide  tax would be                                                                    
reduced by $8  in Juneau ports. Mr. Poag  explained that the                                                                    
communities  of  Juneau  and  Ketchikan  had  imposed  local                                                                    
levies  and were  collecting them  to defray  local impacts.                                                                    
The provision  gave the credit for  collecting and defraying                                                                    
the local impacts.  The cities of Juneau  and Ketchikan take                                                                    
care  of their  own needs  so the  state had  less needs  to                                                                    
accommodate through the port of call sharing.                                                                                   
                                                                                                                                
Representative   Doogan  was   still   confused.  Mr.   Poag                                                                    
continued. Section  6 added the periodic  report. The report                                                                    
was important  because the level of  constitutional taxation                                                                    
would fluctuate  with passenger impact.  The state  could be                                                                    
subject to other lawsuits and  the provision would allow the                                                                    
tax rate  to take  into account the  rising and  lowering of                                                                    
impacts  to  reduce  the  risk   of  litigation.  Section  7                                                                    
clarified the  definition for  "voyage". Section  8 repealed                                                                    
the regional cruise  ship impact fund, all  proceed would go                                                                    
into the  commercial passenger excise fund  account. Section                                                                    
9 was the immediate effective date.                                                                                             
                                                                                                                                
2:46:23 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  quoted  from  Section  7;  ""voyage"                                                                    
means any  trip or itinerary  lasting more than 72  hours in                                                                
the state's  marine waters."   He wondered  how the  72 hour                                                                
number  was derived.  Mr. Poag  replied that  the department                                                                    
was  suggesting  an amendment  to  the  amendment; that  the                                                                    
language simply read 72 hours  in the state. Currently, most                                                                    
voyages were  within 72 hours  on the water, but  there were                                                                    
land-based tours as  well. The tax was similar to  a bed tax                                                                    
on a floating hotel.                                                                                                            
                                                                                                                                
Representative Doogan asked if it was  a bed tax, why not 24                                                                    
hours in  state marine waters.  Mr. Poag replied that  if it                                                                    
were  for 24  hours the  tax  would have  to been  collected                                                                    
every 24 hours. The initiative  had been crafted taking into                                                                    
consideration   administrational   reasonable   methods   of                                                                    
imposing the tax.                                                                                                               
                                                                                                                                
2:48:34 PM                                                                                                                    
                                                                                                                                
Representative  Kerttula  cited   section  Section  6,  Sub-                                                                    
section 1:                                                                                                                      
                                                                                                                                
   (1) addresses the projected needs of communities to                                                                          
        safely and efficiently host passengers that pay                                                                         
        taxes under AS 43.45.200-43.52.295                                                                                      
                                                                                                                                
Representative  Kerttula  wondered  if  the  needs  included                                                                    
ports, docks, harbors, and roads.  Mr. Poag replied that the                                                                    
language originated  in the commerce clause;  from old cases                                                                    
that  discussed safely  and  efficiently hosting  taxpayers.                                                                    
The tax was  on passengers to defray the cost  of safely and                                                                    
efficiently hosting  them when  they were  in the  state. He                                                                    
agreed that there may be better ways to draft the language.                                                                     
                                                                                                                                
2:50:22 PM                                                                                                                    
                                                                                                                                
CHIP  THOMA,  PRESIDENT,  RESPONSIBLE  CRUISING  IN  ALASKA,                                                                    
testified  that the  cruise tax  had helped  toward building                                                                    
infrastructure  that  was a  direct  benefit  to the  cruise                                                                    
industry.  Over $50  million had  been collected  in Juneau,                                                                    
and   had  been   used  for   infrastructure  projects   and                                                                    
government assistance.  On the state level  $100 million had                                                                    
been  collected  for  similar  projects.  He  supported  the                                                                    
legislation, but  suggested that Section 2,  Line 13, should                                                                    
be amended  to bring  the head  tax down  to $39  instead of                                                                    
$34.50. He thought  that there was enough money  in the fund                                                                    
that the  $7 discount could  be passed into  the passengers.                                                                    
He stated  that Page  2, Section 5,  was problematic  in the                                                                    
discounting  of  the  amounts  collected  in  Ketchikan  and                                                                    
Juneau.  He relayed  that  the  amendment would  effectively                                                                    
lower  the tax  in  those  ports to  $19.  He believed  that                                                                    
Section 5  should be eliminated  all together.  He supported                                                                    
the effective date of November 2011.                                                                                            
                                                                                                                                
Representative Austerman  asked if the  other municipalities                                                                    
that  did not  impose a  local  cruise tax  would the  state                                                                    
receive the full  $34.50. Mr. Thoma replied  that if Section                                                                    
5  were removed  any ship  entering  the state  would pay  a                                                                    
$34.50 head tax. If the  section remained the head tax being                                                                    
paid in Juneau and Ketchikan  would be $19. He believed that                                                                    
Section 5 was essentially a "math trick".                                                                                       
                                                                                                                                
2:56:53 PM                                                                                                                    
                                                                                                                                
JOE GELHIF, JUNEAU, stated that  he had drafted the original                                                                    
initiative for  the head  tax enacted  in 2006.  He asserted                                                                    
that it  was time  to eliminate  the sub-account  within the                                                                    
large cruise  passenger account.  He thought that  there was                                                                    
room to  lower the  excise tax from  the current  $46, which                                                                    
was $4  less than the  senate passed  in 2000. Now  that the                                                                    
state had  capitalized on some  of the  infrastructure needs                                                                    
the tax  could be lowered  by 15 percent. He  warned against                                                                    
skimming  the  local  head taxes  because  it  would  deeply                                                                    
affect   ports  without   local  levies   such  as;   Homer,                                                                    
Anchorage,  Prince William  Sound, and  little discretionary                                                                    
money  would  be  available for  places  like  Wrangell  and                                                                    
Sitka.  If  the  bill  passed   in  its  current  form,  the                                                                    
effective  drop in  state revenue  would be  significant. He                                                                    
believed the  case against  the state  was weak,  and should                                                                    
not force the state to discount its sovereign power.                                                                            
                                                                                                                                
3:01:56 PM                                                                                                                    
                                                                                                                                
JOHN   BINKLEY,   PRESIDENT,  ALASKA   CRUISE   ASSOCIATION,                                                                    
testified  in  supported  of the  governor's  provision.  He                                                                    
stated  that the  cruise industry  was  concerned about  the                                                                    
cost of traveling  to Alaska. This had lead  directly to the                                                                    
reduction of  the number of visitors,  and consequently, the                                                                    
number of  jobs. He understood  the number the  governor had                                                                    
chosen  was not  arbitrary.  The  governor, in  consultation                                                                    
with the attorney general, had  looked at the litigation and                                                                    
the various  aspects of the  tax. The law stated  that there                                                                    
was 25 percent of the tax  collected that could not be spent                                                                    
in the  ports of call  that the  ships made. He  stated that                                                                    
the  federal law  was clear  and  the current  tax could  be                                                                    
challenged legally.  He hoped the agreement  would be signed                                                                    
and executed before  the bill was passed  by the legislature                                                                    
and  signed into  law. The  bill would  allow every  visitor                                                                    
that arrived  on a  cruise ship  to be  charge the  same tax                                                                    
amount.                                                                                                                         
                                                                                                                                
Representative  Austerman   returned  to  the   $34.50,  and                                                                    
wondered if  it would make  a difference to charge  $1 more.                                                                    
Mr.  Binkley  replied  that  the   principle  was  that  the                                                                    
regional impact  fund was eliminated,  which equated  to the                                                                    
$34.50. He  believed that this  was the least  stable aspect                                                                    
of the tax.                                                                                                                     
                                                                                                                                
Representative Austerman  cited the $19 head  tax created in                                                                    
Section  5.  He  wondered  how   this  reconciled  with  Mr.                                                                    
Binkley's statement  that all port would  charge $34.50. Mr.                                                                    
Binkley contended that the amount  charged to each passenger                                                                    
was  exactly  the  same through  the  proposed  legislation.                                                                    
Currently  under law  passengers were  being charged  $61 if                                                                    
they stop in Ketchikan and Juneau.                                                                                              
                                                                                                                                
3:08:49 PM                                                                                                                    
                                                                                                                                
Representative Doogan asked if  there was a definitive study                                                                    
linking  the decline  in  passengers to  the  head tax.  Mr.                                                                    
Binkley responded  that the cruise industry  had articulated                                                                    
3 aspects  that were  affecting the  deployment of  ships to                                                                    
the state: (1)  marketing - Alaska had been out  of the game                                                                    
in  competing with  other destinations  around the  world in                                                                    
attraction visitors, (2) cost structure  - Alaska was a very                                                                    
high  cost  destination to  bring  ships  to; one  component                                                                    
being the high  head tax, (3) regulations  - the regulations                                                                    
imposed on the industry by  the state were unattainable. The                                                                    
governor had responded by introducing related legislation.                                                                      
                                                                                                                                
3:11:36 PM                                                                                                                    
                                                                                                                                
Representative  Kerttula  understood   that  passengers  not                                                                    
visiting Ketchikan or Juneau would  pay the same $34.50 tax.                                                                    
Mr. Binkley replied yes.                                                                                                        
                                                                                                                                
Representative  Kerttula  clarified  that  the  state  would                                                                    
receive $19.50 of the $34.50.  Mr. Binkley explained that it                                                                    
would depend on which ports  of call the passengers visited.                                                                    
If  the passenger  did not  visit Ketchikan  or Juneau,  the                                                                    
state would  receive the $34.50.  If they stop  in Ketchikan                                                                    
and not  Juneau, then it would  be $34.50 minus $7.  If they                                                                    
stop in  Juneau and not  Ketchikan it would be  $34.50 minus                                                                    
$8. If they  stop in Ketchikan, Juneau, and  Skagway then it                                                                    
would be $19.50.                                                                                                                
                                                                                                                                
Vice-Chair  Thomas  understood  that cruise  ship  marketing                                                                    
money was  already available for  marketing Alaska,  but was                                                                    
not being  used effectively.  Mr. Binkley  said that  he was                                                                    
simply restating  what cruise lines  had articulated  to the                                                                    
governor what they saw from a global perspective.                                                                               
                                                                                                                                
Vice-Chair  Thomas wondered  if the  tax was  lowered for  2                                                                    
years,  and the  number of  cruise ship  passengers did  not                                                                    
rise, could  the state  reinstate the  $46 tax.  He stressed                                                                    
the  need to  lock  down  a guarantee  that  the ships  were                                                                    
coming back. He believed that  all port fees should be equal                                                                    
across the state.                                                                                                               
                                                                                                                                
3:16:16 PM                                                                                                                    
                                                                                                                                
Mr.  Binkley responded  that under  the immediate  effective                                                                    
date the  tax money already  collected would go back  to the                                                                    
passengers. The governor believed  that the passenger credit                                                                    
was  mechanism to  get  the  money back  into  the hands  of                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
Mr. Binkley stated that a  sunset provision could be written                                                                    
into the  bill. If the  tax was not  enough to take  care of                                                                    
infrastructure needs  there would  be a review  process that                                                                    
could result in a written report before the legislature.                                                                        
                                                                                                                                
Mr. Binkley  believed that varying  amounts of the  tax were                                                                    
given to different ports  because all communities approached                                                                    
the industry in various ways.  For example, in Ketchikan the                                                                    
city built  and owned all of  the docks and the  $7 head tax                                                                    
was  reimbursement for  construction. The  docks in  Skagway                                                                    
were built by private contractors  and the cruise lines paid                                                                    
them  directly, so  $5 went  to the  community to  help with                                                                    
other infrastructure needs.                                                                                                     
                                                                                                                                
Vice-Chair  Thomas   pointed  out  to  the   committee  that                                                                    
traveling from  Alaska to  Florida by air  to take  a cruise                                                                    
was  extremely expensive.  He disliked  the  idea of  making                                                                    
travel to Alaska cheaper than any other destination.                                                                            
                                                                                                                                
3:20:38 PM                                                                                                                    
                                                                                                                                
Mr. Binkley admitted that air  travel was very expensive and                                                                    
was becoming  more of a  component of vacation  costs, which                                                                    
was  one  of  the  reasons 30  percent  less  visitors  were                                                                    
visiting  South  central  Alaska.  Trips  to  South  central                                                                    
Alaska were  called "open jaw",  a one way cruise  either up                                                                    
to  South  central,  or  from South  central  back  down  to                                                                    
Vancouver, which  included air  cost not  typically required                                                                    
by other cruise destinations.                                                                                                   
                                                                                                                                
Representative  Austerman wondered  how  many visitors  were                                                                    
expected  to return  to  the  state as  a  result of  taking                                                                    
$11.50 off  the tax. Mr.  Binkley reiterated the  3 industry                                                                    
requests.                                                                                                                       
                                                                                                                                
Representative Austerman  asked if  the all 3  components of                                                                    
the  agreement were  not passed  in  the legislative  cycle,                                                                    
would  the  lawsuit stand.  Mr.  Binkley  insisted that  the                                                                    
lawsuit dealt with the head tax  alone. If the head tax bill                                                                    
passed the litigation would be dropped.                                                                                         
                                                                                                                                
3:25:05 PM                                                                                                                    
                                                                                                                                
Representative  Salmon speculated  that  the economic  slump                                                                    
throughout the world may have  had some effect on the cruise                                                                    
line  industry, and  not  just the  head  tax. He  suggested                                                                    
giving the  industry the tax  break now and  reinstating the                                                                    
higher  number  when  the economy  picked  up.  Mr.  Binkley                                                                    
replied that growth  in the industry was up  by 6.5 percent.                                                                    
The industry was strong in  Europe, the Caribbean, the North                                                                    
Atlantic Provinces,  and Asia, but  not in Alaska.  He added                                                                    
that the review process had  been crafted to examine whether                                                                    
the tax was the right amount for the existing economy.                                                                          
                                                                                                                                
Representative Salmon  argued that $5,031 was  not much more                                                                    
than   $5,000.  He   asserted  that   the  tax   amount  was                                                                    
insignificant compared  to the  overall cost of  the cruise,                                                                    
which  made  the  theory  used   by  the  industry  and  the                                                                    
administration to  draft the bill moot.  Mr. Binkley replied                                                                    
that the  bill was attempting  to address the  expected drop                                                                    
of  142,000 people  visiting Alaska  in  2010. He  contended                                                                    
that the  bill was  not about  protecting the  industry, but                                                                    
protecting Alaskan jobs.                                                                                                        
                                                                                                                                
3:30:46 PM                                                                                                                    
                                                                                                                                
Representative   Joule  mentioned   that  the   cruise  ship                                                                    
industry  had announced  the release  of the  final schedule                                                                    
for 2012  would be delayed  to the  action of the  state. He                                                                    
wondered how  many ships would  be added to the  schedule if                                                                    
the tax was  lowered, and how the lowering of  the tax would                                                                    
affect  visitor's  decisions  to visit  Alaska  rather  than                                                                    
another destination.  Mr. Binkley  responded that  the model                                                                    
for the cruise industry was  to always fill the ships. Costs                                                                    
were fixed and  the pricing would be  discounted until every                                                                    
bed was  filled. If the  demand was  not there, or  the cost                                                                    
was too high,  revenue generated off of  the ship. Marketing                                                                    
to drive up demand and lower  the cost would help Alaska. In                                                                    
summer 2010 the industry would  get a better return on their                                                                    
money  by  traveling  to  a  more  competitive  destination.                                                                    
According to  the model, if  the ship returned, it  would be                                                                    
full.                                                                                                                           
                                                                                                                                
Representative Joule restated the question.                                                                                     
                                                                                                                                
Mr. Binkley repeated  the 3 aspects that  were affecting the                                                                    
market  in Alaska;  marketing, cost  structure (taxes),  and                                                                    
regulations.  The  governor  had  sent the  message  to  the                                                                    
cruise lines  that if  state made  changes, it  was expected                                                                    
that the ships  would return. The company had  yet to create                                                                    
the 2012  schedule and  there was  still an  opportunity for                                                                    
adjustment. A quid pro quo had  not been offered in terms of                                                                    
specific  ships,  or  specific  numbers,  for  any  specific                                                                    
changes.                                                                                                                        
                                                                                                                                
3:35:43 PM                                                                                                                    
                                                                                                                                
Representative Doogan  understood that the agreement  was if                                                                    
the state brought the tax  down to $34.50, the lawsuit would                                                                    
be dismissed. He  asked if the $34.50 was gross  or net, and                                                                    
would the taxes  levied by municipalities need  to be netted                                                                    
out in order for the  agreement to work. Mr. Binkley replied                                                                    
yes, and that it was explained in Section 5.                                                                                    
                                                                                                                                
Representative Doogan surmised that  the tax was not $34.50,                                                                    
but $34.50,  net whatever bold taxing  jurisdiction the boat                                                                    
might visit  was. Mr.  Binkley answered  that to  the extent                                                                    
that any community had a larger  head tax it would be net of                                                                    
the  tax, because  it  would  be an  off-set  to the  cruise                                                                    
passenger.                                                                                                                      
                                                                                                                                
Representative  Doogan   asserted  that   he  had   heard  2                                                                    
different ideas.  One was a  way to  lower the tax  based on                                                                    
the  amount  of money  that  was  going to  non-cruise  ship                                                                    
jurisdictions, which  would lower  it to $34.50.  The second                                                                    
was  the idea  that the  local Juneau  tax of  $8, would  be                                                                    
subtracted from the total tax,  which would result in $26.50                                                                    
for the state.  Mr. Binkley responded that  the latter would                                                                    
be the case if the passenger stopped in Juneau.                                                                                 
                                                                                                                                
3:38:40 PM                                                                                                                    
                                                                                                                                
Representative Kerttula  relayed concern  for the  impact on                                                                    
small local  merchants and the  loss of jobs. She  wanted to                                                                    
see  Juneau benefit  from the  agreement with  the industry.                                                                    
She appreciated  that with the immediate  effective date the                                                                    
money  would  be  credited to  the  passengers,  but  wanted                                                                    
assurances  that the  money  would be  sent  in Juneau.  She                                                                    
added that  there should be  a requirement in  the agreement                                                                    
that the ships  return to Alaska.  Mr.  Binkley replied that                                                                    
the industry open  to finding a mechanism  that would ensure                                                                    
the  credit   was  put  back   into  Juneau.   He  solicited                                                                    
suggestions and  reminded the committee  that at the  end of                                                                    
the  day the  passenger could  not  be forced  to spend  the                                                                    
credited funds in  Juneau. Mr. Binkley said  that writing in                                                                    
as a  stipulation agreement on  the lawsuit that  ships come                                                                    
back to  Alaska was  contingent on the  state meeting  the 3                                                                    
previously mentioned aspects of improvement.                                                                                    
                                                                                                                                
3:42:11 PM                                                                                                                    
                                                                                                                                
Representative Austerman  queried how the savings  of $11.50                                                                    
would  make a  significant  impact in  the  effort to  bring                                                                    
visitors back  to Alaska. He  asserted that the  $11.50 head                                                                    
tax  had nothing  to do  with  the industries  profitability                                                                    
because  they would  not be  keeping the  $11.50 anyway.  He                                                                    
wondered  if the  real issue  was  the slump  in the  global                                                                    
economy.  Mr. Binkley  stated  that  although the  passenger                                                                    
paid  the tax,  the cruise  lines had  to reduce  the amount                                                                    
that could be charged for  the Alaska product, which reduced                                                                    
the  revenue  that  was  brought in.  Alaska  was  the  only                                                                    
destination that was dropping  while others were increasing.                                                                    
He  stated that  North  American cruise  customers were  not                                                                    
traveling to Alaska in large  numbers because there were not                                                                    
as many ships to travel on.                                                                                                     
                                                                                                                                
3:46:22 PM                                                                                                                    
                                                                                                                                
Representative Kelly  asked if the  passing of HB  422 would                                                                    
be sufficient  for the  lawsuit to  be dropped.  Mr. Binkley                                                                    
responded that the lowering of  the head tax would be enough                                                                    
to drop the lawsuit.                                                                                                            
                                                                                                                                
Representative Doogan asked if  the lawsuit would be dropped                                                                    
if  Section  5 were  written  out  of the  legislation.  Mr.                                                                    
Binkley said no.                                                                                                                
                                                                                                                                
3:50:14 PM                                                                                                                    
                                                                                                                                
MIKE STEDMAN, OWNER, WINGS AIRWAYS,  testified in support of                                                                    
the legislation.  He shared  that his  business was  down 20                                                                    
percent in  the last year,  which would cause  the grounding                                                                    
of several  aircraft in summer  2010, and equated to  a loss                                                                    
of jobs.                                                                                                                        
                                                                                                                                
LAURA   MARTINSON,   MANAGER,   CARIBOU   CROSSINGS,   urged                                                                    
committee support for the bill.  She highlighted the ways in                                                                    
which   the  cruise   ship   industry   had  supported   her                                                                    
economically.  She  believed   that  the  legislation  would                                                                    
support the youth of Alaska by providing summer employment.                                                                     
                                                                                                                                
LAWRENCE    GAFFANEY,   PRESIDENT    and   CEO,    HUNATOTEM                                                                    
CORPORATION,  supported  the  legislation. The  company  had                                                                    
invested  $25  million to  build  a  cruise ship  port.  The                                                                    
corporation was  the largest  employer in  Hoonah, providing                                                                    
130 jobs. He  stated that the loss of ships  equated to less                                                                    
revenue which resulted in a loss of jobs for the community.                                                                     
                                                                                                                                
JOHN MCCONNACHIE,  OWNER, CYCLE  ALASKA, testified  in favor                                                                    
of  the legislation.  He  believed that  the  excise tax  on                                                                    
passengers had  hurt Alaskan businesses. He  stated that his                                                                    
company  would  be hiring  3  less  employees for  the  2010                                                                    
tourist season  as a  result of the  tax. He  also advocated                                                                    
for better tourism marketing.                                                                                                   
                                                                                                                                
3:57:29 PM                                                                                                                    
                                                                                                                                
BRETT CARLSON, COOK, COLDFOOT  AND DEADHORSE, testified that                                                                    
the tax  had affected  businesses in rural  areas up  in the                                                                    
Arctic  regions, well  away from  tidewater. He  shared that                                                                    
tourists  traveled  up  to Coldfoot  and  Deadhorse  on  air                                                                    
tours. He stressed that it was  not the size of the tax that                                                                    
kept visitors from coming to Alaska, it was the tax itself.                                                                     
                                                                                                                                
ELEANOR DAVENPORT, DIRECTOR,  WHITE PASS RAILROAD, testified                                                                    
in support of the legislation.  She spoke to the concerns in                                                                    
Skagway that fewer jobs available  in the city would lead to                                                                    
families being forced  to move out of town.  As the families                                                                    
leave the  schools in the city  suffered due to the  loss of                                                                    
funding. The White Pass Railroad supported the legislation.                                                                     
                                                                                                                                
4:02:42 PM                                                                                                                    
TOM    HALL,   KLONDIKE    GOLD    DREDGE,   SKAGWAY    (via                                                                    
teleconference),  urged support  for  the  legislation as  a                                                                    
vehicle  for  job creation.  He  expressed  concern for  the                                                                    
survival  of the  community of  Skagway  without the  cruise                                                                    
industry's support.                                                                                                             
                                                                                                                                
JILL   COX,  TEMPTATIONS,   SKAGWAY  (via   teleconference),                                                                    
strongly supported that legislation.                                                                                            
                                                                                                                                
GOVERNOR  BILL  SHEFFIELD  (via  teleconference),  spoke  in                                                                    
support of the  bill and relayed personal  experience with a                                                                    
rental  business. He  noted that  the  cruise ship  industry                                                                    
supported many Alaskan businesses.                                                                                              
4:08:47 PM                                                                                                                    
                                                                                                                                
Governor  Sheffield emphasized  that  nothing could  replace                                                                    
the tourism  industry, and  spoke to  the importance  of the                                                                    
cruise  ship  industry for  the  economic  stability of  the                                                                    
state.                                                                                                                          
                                                                                                                                
RICHARD BENEVILLE, NOME CHAMBER  OF COMMERCE, NOME VISITOR'S                                                                    
CENTER  AND  NOME   DISCOVERY  TOURS  (via  teleconference),                                                                    
stated  that   the  tourism  industry  up   north  was  just                                                                    
beginning and  was thriving. He  stressed that  the industry                                                                    
was in  the business of  fulfilling the dream of  people all                                                                    
over  the world  who  had  longed to  visit  Alaska. He  was                                                                    
afraid  that  the  regulations  that had  been  set  on  the                                                                    
industry  had been  viewed as  punitive  and unfriendly.  He                                                                    
believed that Alaska should be shared with the world.                                                                           
                                                                                                                                
4:13:32 PM                                                                                                                    
                                                                                                                                
PAUL LANDIS,  CHIEF OPERATING  OFFICER, CIRI  ALASKA TOURISM                                                                    
(via teleconference),  offered support of the  bill. He said                                                                    
that there  was a  direct correlation  between the  head tax                                                                    
and  jobs in  the  state. He  thought  that avoiding  costly                                                                    
litigation  was the  right move  for  Alaska. Resolving  the                                                                    
issue  would take  the uncertainty  out of  the industry  in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
FRANK   FLAVIN,    FLAVIN   PHOTOGRAPHY,    ANCHORAGE   (via                                                                    
teleconference),  urged  support  for  the  legislation.  He                                                                    
pointed  out  to the  committee  that  his company  was  not                                                                    
directly  a tour  company,  but that  half  of his  business                                                                    
generated  from  tour  related companies.  The  cruise  ship                                                                    
initiative has  had negative consequences, and  the economic                                                                    
turnaround was  necessary to stop  the companies  from going                                                                    
where there were less taxes and restrictions.                                                                                   
                                                                                                                                
JOHN  WHITE,   OWNER,  HEALY  AND  DENALI   BUSINESSES  (via                                                                    
teleconference), represented  the interests of  Nenanna Raft                                                                    
Adventures,  Denali Petal  Sports,  Chugach Outdoor  Center,                                                                    
and  Alaska Sea  Kayakers. He  thought that  the legislation                                                                    
was a  good start, but  believed that the excise  tax should                                                                    
be repealed completely. He stated  that Proposition 2 sent a                                                                    
message  that  Alaskans viewed  the  cruise  industry as  an                                                                    
adversary.  Through  conversations   with  tourists  he  had                                                                    
learned that the tax came  off as hostility toward visitors.                                                                    
He relayed that  the industry was held  to higher regulatory                                                                    
standard than  the communities that were  visited. He argued                                                                    
that the optimal tax rate for the industry was zero.                                                                            
                                                                                                                                
JUDY    WHITE,    BOOKKEEPER,     DENALI    BUSINESS    (via                                                                    
teleconference), urged supported for  the bill. She believed                                                                    
that the  state needed to  avoid litigation with  the cruise                                                                    
lines. She  cited Section 7,  Article 9 of the  Alaska State                                                                    
Constitution,  which states  that  the taxes  should not  be                                                                    
dedicated to any special purpose.                                                                                               
                                                                                                                                
4:23:41 PM                                                                                                                    
                                                                                                                                
LOIS WIRTZ,  ANCHORAGE (via teleconference), spoke  in favor                                                                    
of the bill.                                                                                                                    
                                                                                                                                
LEE   KENASTON,   TOUR   BUSINESS  OWNER,   FAIRBANKS   (via                                                                    
teleconference),  urged support  of  the  bill. He  believed                                                                    
that  raising the  price  of goods  lowered  the demand  for                                                                    
them. He testified  that the guest numbers  for his business                                                                    
were down by 35 percent from 2008.                                                                                              
                                                                                                                                
4:27:21 PM                                                                                                                    
                                                                                                                                
ALAN   LEMASTER,  ATIA,   COPPER  VALLEY,   GLENNALLEN  (via                                                                    
teleconference),  supported the  legislation. He  stated the                                                                    
loss in  cruise line  visitors over the  last few  years had                                                                    
negatively affected his community.  He shared that the ships                                                                    
docked in Whittier and then  transported their passengers to                                                                    
Valdez, filling  the hotel in  Copper Center  throughout the                                                                    
summer. He stated that the  hotel had been full the previous                                                                    
summer, but only because cruise  prices had been reduced. He                                                                    
explained the when  the price of the  cruise was drastically                                                                    
lowered,  passengers experienced  sticker shock  when paying                                                                    
for in-state tours.                                                                                                             
                                                                                                                                
SCOTT   REISLAND,  DENALI   GRIZZLY  BEAR,   FAIRBANKS  (via                                                                    
teleconference), testified  in support of the  bill. He said                                                                    
that his business numbers for  2009 were down 44 percent. He                                                                    
stated that 25  percent of the cruise  ship industry clients                                                                    
were   dropped  off   on  land   and  continued   to  travel                                                                    
independently  in   the  state.   He  believed   that  small                                                                    
businesses were hurt the most by the tax.                                                                                       
                                                                                                                                
MARY   RICHARDS,   ALL    SEASON'S   INN,   FAIRBANKS   (via                                                                    
teleconference),  testified in  support of  the legislation.                                                                    
She echoed previous statements of  declining business due to                                                                    
the head tax. She said  that the bed and breakfast community                                                                    
of the state lost 23 members in 2010.                                                                                           
                                                                                                                                
TIM   CERNY,   ALASKA    ACT   COMMITTEE,   FAIRBANKS   (via                                                                    
teleconference), urged  support of HB  422.  He  stated that                                                                    
over the past 2 years  tour traffic to Fairbanks had dropped                                                                    
significantly.  He  stressed that  more  should  be done  to                                                                    
advertise Alaska as a destination for travel.                                                                                   
                                                                                                                                
KORY  EBERHARDT, A  TASTE OF  ALASKA  LODGE, FAIRBANKS  (via                                                                    
teleconference),  testified  in  support  of  the  bill.  He                                                                    
stated that tourism  was down by 40 percent  in 2009. Hiring                                                                    
of new employees  and construction project were  being put o                                                                    
hold due to loss of visitor industry revenue.                                                                                   
                                                                                                                                
ERIKA    WELD,    ARCTIC    OUTFITTERS,    FAIRBANKS    (via                                                                    
teleconference), offered support for the bill.                                                                                  
                                                                                                                                
MATT ATKINSON, NORTHERN ALASKA  TOUR COMPANY, FAIRBANKS (via                                                                    
teleconference),   supported  the   bill.  He   shared  that                                                                    
although Fairbanks was  inland it was still  affected by the                                                                    
cruise industry.  He said that it  was particularly damaging                                                                    
to the  interior and Arctic  regions to lose the  ships that                                                                    
travel across the gulf.                                                                                                         
                                                                                                                                
KATHY HEDGES,  NORTHERN ALASKA TOUR COMPANY,  FAIRBANKS (via                                                                    
teleconference), supported that  legislation. She encouraged                                                                    
a strong  visitor industry and  a welcoming  environment for                                                                    
guests. She  believed that showing  gratitude to  the cruise                                                                    
line industry  would ensure strong economic  results for all                                                                    
of Alaska.                                                                                                                      
                                                                                                                                
DEB  HICKOK, FAIRBANKS  CONVENTION  &  VISITORS BUREAU  (via                                                                    
teleconference), spoke  in support  the bill.  She mentioned                                                                    
that about 50  percent of summer visitors  to Fairbanks were                                                                    
on a cruise land tour.                                                                                                          
                                                                                                                                
4:44:28 PM                                                                                                                    
                                                                                                                                
JANET  BUCKINGHAM,   ALASKA  TRAVEL   INDUSTRY  ASSOCIATION,                                                                    
KODIAK  (via   teleconference),  supported  the   bill.  She                                                                    
believed that  the tax credit  model in the bill  provided a                                                                    
long term  funding solution. She  spoke of the  necessity to                                                                    
keep the tourism industry thriving in the state.                                                                                
                                                                                                                                
BOB  STANFORD, KODIAK  ISLAND CONVENTION  & VISITORS  BUREAU                                                                    
AND ISLAND  AIR (via  teleconference), testified  in support                                                                    
of  the legislation.  He relayed  that tourism  was a  vital                                                                    
driver  to  the  Kodiak  economy.  He  reiterated  the  ATIA                                                                    
statistic that 25 percent of  all cruise ship passengers who                                                                    
visited the state returned as independent travelers.                                                                            
                                                                                                                                
4:50:05 PM                                                                                                                    
                                                                                                                                
BLAINE   ASHCRAFT,  KETCHIKAN   CHAMBER  OF   COMMERCE  (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
stated that  the city had made  significant investments over                                                                    
the  last 15  years in  the tourism  industry, transitioning                                                                    
from   a  resource   extraction  community   to  a   tourism                                                                    
community. The  economy was primarily  based on  tourism and                                                                    
would be devastated by the loss of ships.                                                                                       
                                                                                                                                
PATTIE MACKEY, EXECUTIVE  DIRECTOR, KETCHIKAN VISITOR BUREAU                                                                    
(via teleconference),  stated that Proposition 2  had failed                                                                    
in  the community  and  had narrowly  passed  in the  state.                                                                    
Lowering head tax and eliminating  fees would allow the city                                                                    
to move forward. The city  anticipated a loss of $17 million                                                                    
in  visitor  spending  in  2010.  She  pointed  out  to  the                                                                    
committee that coupled with the  loss of passengers would be                                                                    
the  loss  of  state  receipts  for  items  like  commercial                                                                    
permitting  into state  parks,  and  sport fishing  licenses                                                                    
purchased by out-of-state residents.                                                                                            
                                                                                                                                
RICK  ERICKSON,  EMPLOYEE,  SURVEY  POINT  HOLDINGS,  ALASKA                                                                    
ALLIANCE   FOR   CRUISE   TRAVEL   (ACT),   KETCHIKAN   (via                                                                    
teleconference),  supported the  bill.  He  stated that  the                                                                    
companies   and   families    that   he   represented   were                                                                    
economically  dependent on  the cruise  ships, and  would be                                                                    
negatively affected by  the loss of ships.  He believed that                                                                    
the  reduction of  140,000 visitors  in 2010,  was a  direct                                                                    
result of the head tax.                                                                                                         
                                                                                                                                
LEN   LAURENCE,   ACT,   KETCHIKAN   (via   teleconference),                                                                    
supported the bill.  He shared that this was  the first time                                                                    
in  40 years  that the  state  would suffer  from a  serious                                                                    
visitor  decline. He  lamented the  effect of  the passenger                                                                    
loss  on shore  excursions,  which had  been  forced to  cut                                                                    
employment. He urged the development  of a healthier climate                                                                    
with  cruise  industry  and  the   passage  of  the  tourism                                                                    
marketing income tax credit.                                                                                                    
                                                                                                                                
4:58:11 PM                                                                                                                    
                                                                                                                                
COLLEEN STEPHENS, STAN  STEPHENS CHARTERS, PRESIDENT, VALDEZ                                                                    
CONVENTION    AND     VISITORS    BUREAU,     VALDEZ    (via                                                                    
teleconference),  testified in  support of  the legislation.                                                                    
She relayed  that the operating  schedule for  Stan Stephens                                                                    
Charters  had fallen  by  22 percent  since  2008. With  the                                                                    
reduction of cruse call headed  into South central ports the                                                                    
community  expected  to see  a  continued  reduction in  the                                                                    
amount of travelers.                                                                                                            
                                                                                                                                
4:59:45 PM                                                                                                                    
                                                                                                                                
FRED REEDER,  ALASKA PREMIER CHARTERS  (via teleconference),                                                                    
spoke  in favor  of the  bill. He  believed that  the cruise                                                                    
industry  needed encouragement  from  the  state. Sitka  had                                                                    
experienced a net  decrease of over $1 million  in sales tax                                                                    
revenue since 2008.                                                                                                             
                                                                                                                                
JAMEY    CAGLE,    VICE-PRESIDENT,   ALLEN    MARINE    (via                                                                    
teleconference), urged support for  the bill. He stated that                                                                    
a majority of Allen Marine's  business comes from the cruise                                                                    
ships. Allen  Marine employed year-round employees  in their                                                                    
Sitka  shipyard who  build and  maintain the  fleet vessels.                                                                    
Without  the support  of the  tourism  dollars the  shipyard                                                                    
would be shut down.                                                                                                             
                                                                                                                                
5:03:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze closed public testimony.                                                                                       
                                                                                                                                
CS HB 422 (FIN) was HEARD  and HELD in Committee for further                                                                    
consideration.                                                                                                                  
                                                                                                                                
5:04:33 PM     AT EASE                                                                                                        
5:15:13 PM     RECONVENED                                                                                                     
                                                                                                                                
                                                                                                                                
HOUSE BILL NO. 167                                                                                                            
                                                                                                                                
     "An  Act relating  to a  corporation income  tax credit                                                                    
     for  contributions by  a person  owning or  operating a                                                                    
     commercial  passenger  vessel   to  a  qualified  trade                                                                    
     association  that   was  awarded  a  contract   by  the                                                                    
     Department   of  Commerce,   Community,  and   Economic                                                                    
     Development,  and used  for  planning  and executing  a                                                                    
     destination tourism marketing campaign."                                                                                   
                                                                                                                                
5:15:31 PM          AT EASE                                                                                                   
5:16:40 PM          RECONVENED                                                                                                
                                                                                                                                
Representative Fairclough introduced  the bill and solicited                                                                    
public testimony.                                                                                                               
                                                                                                                                
GENEVIEVE  WOJTUSIK,  STAFF, REPRESENTATIVE  MILLET,  stated                                                                    
that the tourism industry had  encouraged the development of                                                                    
HB  167. Alaska's  tourism industry  had informed  lawmakers                                                                    
that  Alaska had  failed  to maintain,  and  grow, a  market                                                                    
share  in  national  and  international  markets.  Competing                                                                    
destinations  were  outspending  the state  with  increasing                                                                    
marketing budgets.  All sectors of Alaska's  travel industry                                                                    
were  reporting  an  unprecedented  drop  in  summer  season                                                                    
bookings.  The  bill  attempts to  secure  funding  for  the                                                                    
marketing of  Alaska by taking  money from the  industry and                                                                    
giving a tax  credit back, which would  create a sustainable                                                                    
source  of  income. The  bill  would  ensure that  a  person                                                                    
making  a contribution  would not  receive a  direct benefit                                                                    
from the  contribution while also  receiving the  income tax                                                                    
credit.  The  bill  deals  only  with  commercial  passenger                                                                    
vessel income, and a credible passenger vehicle tax.                                                                            
                                                                                                                                
REPRESENTATIVE  CHARISSE MILLETT  (via teleconference),  she                                                                    
stressed state  investment in marketing the  Alaska product.                                                                    
She reiterated  that the state  was competing on  the global                                                                    
market  with international  destinations. Alaska  has unique                                                                    
wildlife attractions,  but other  areas often have  the same                                                                    
attributes.  She stated  that the  tourism industry  created                                                                    
jobs and sustained the economy,  and that infrastructure for                                                                    
tourism  had been  built that  should not  go to  waste. The                                                                    
bill provided  a mechanism  for a  steady stream  of revenue                                                                    
for  marketing, which  would alleviate  the need  for future                                                                    
legislative allocations in the area of marketing.                                                                               
                                                                                                                                
5:22:08 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  asked  how  much  revenue  would  be                                                                    
generated  by the  tax to  spend on  tourism marketing.  Ms.                                                                    
Wojtusik  replied  that  Title  44.33.125  defined  how  the                                                                    
marketing  would  be  done  with   both  private  and  state                                                                    
dollars.                                                                                                                        
                                                                                                                                
JOHANNA  BALES,  DEPUTY  DIRECTOR,  DEPARTMENT  OF  REVENUE,                                                                    
explained  that  the bill  would  allow  credit against  the                                                                    
corporate  income  tax  paid   by  operators  of  commercial                                                                    
passenger  vessels, which  would be  the difference  between                                                                    
the tax  already paid  without the excise  tax, and  the tax                                                                    
paid   including  the   excise  tax.   The  department   had                                                                    
encountered  2 problems  when trying  to  figure the  actual                                                                    
numbers.   First,  there   were  only   3  tax   payers,  so                                                                    
confidentiality was an  issue. Second, it the  nature of the                                                                    
corporate  income   tax  made   it  difficult  to   make  an                                                                    
approximation.                                                                                                                  
                                                                                                                                
Representative Doogan  requested the amount that  the cruise                                                                    
industry  would pay  the state  under  the legislation.  Ms.                                                                    
Bales responded the ships were  often subsidiaries of larger                                                                    
corporations  which  made  estimating the  funds  the  state                                                                    
would receive difficult.                                                                                                        
                                                                                                                                
5:26:40 PM                                                                                                                    
                                                                                                                                
Representative  Kelly noted  that  the version  of the  bill                                                                    
before the committee  referred to the 3  major recipients of                                                                    
the credit. The  governor's version was much  broader in the                                                                    
amount of  businesses that could  take part. He  queried the                                                                    
department's position on including  larger groups. Ms. Bales                                                                    
responded that  the governor's bill  was crafted  to include                                                                    
any corporation  engaged in tourism  activity in  the state.                                                                    
House Bill 167 was crafted  to include only 3 companies, and                                                                    
one small  segment of  the corporate  base, that  could take                                                                    
advantage  of  the  credit.  The  department  had  suggested                                                                    
putting a cap  on the credit, but opening the  credit to all                                                                    
corporations that were engaged in tourism in the state.                                                                         
                                                                                                                                
5:29:13 PM                                                                                                                    
                                                                                                                                
SANDRA LOOMIS,  BUSINESS MANAGER, TALKEETNA AIR  TAXI, spoke                                                                    
in favor  of the  legislation. She  stated that  the tourism                                                                    
industry  was  vital  to the  community  of  Talkeetna.  She                                                                    
shared  her  experience with  ATIA  and  the marketing  help                                                                    
provided by  the association. She  contested that  there was                                                                    
no  end to  the benefits  for the  state from  the marketing                                                                    
work done by ATIA.                                                                                                              
                                                                                                                                
ROARK BROWN,  OWNER, HOMER OCEAN CHARTERS,  HOMER, supported                                                                    
the  bill.  He stated  that  ATIAs  board of  directors,  on                                                                    
behalf of the 1,100  member businesses in Homer, unanimously                                                                    
endorsed  the  governor's  plan to  restore  the  health  of                                                                    
Alaska's travel  industry. If the  bill were amended  to add                                                                    
the  governor's  language   the  state's  tourism  marketing                                                                    
program  would  be  adequately funded.  He  noted  that  the                                                                    
program  had  extensive   state  oversight,  including  veto                                                                    
power.                                                                                                                          
                                                                                                                                
Representative Kelly  pointed out to the  committee that the                                                                    
element  differences between  HB  167 and  HB  422, was  the                                                                    
discussion  of  the 3  taxpayers  versus  the broader  based                                                                    
plan, he wondered which method  the testifier supported. Mr.                                                                    
Brown supported the broad based plan.                                                                                           
                                                                                                                                
5:36:34 PM                                                                                                                    
                                                                                                                                
BRETT CARLSON,  COOK, COLDFOOT  AND DEADHORSE,  testified in                                                                    
support  of the  bill. He  shared that  in his  region there                                                                    
were many  small businesses that  were not  primarily cruise                                                                    
related  businesses.  The  businesses  focus  on  non-cruise                                                                    
visitors and  were dependent on a  tourism marketing program                                                                    
that   reached  out   to  non-cruise   travelers.  Declining                                                                    
marketing  funding  over  the  past 20  years  had  made  it                                                                    
increasingly  difficult for  the  non-cruise businesses.  He                                                                    
stated that  the tourism  numbers in  the northern  areas of                                                                    
the  state  were  dismal.  He noted  that  the  low  tourism                                                                    
numbers were  expounded by  the weak  economy. He  felt that                                                                    
Alaska  was comparable  to other  destinations like  Hawaii,                                                                    
New  Zealand,  and Australia.  He  concluded  that the  bill                                                                    
offered a  long term sustainable funding  plan for marketing                                                                    
the state.                                                                                                                      
                                                                                                                                
5:42:19 PM                                                                                                                    
                                                                                                                                
ALAN  LEMASTER,  ATIA,  GLENALLEN, urged  supported  of  the                                                                    
governor's HB  422, but not  HB 167.  He argued that  HB 167                                                                    
was fragmented  and contained no fiscal  impact information.                                                                    
He divulged that in his  business experience, a reduction of                                                                    
marketing equaled  a reduction in visitation,  which equated                                                                    
to a reduction in jobs.  He believed marketing was the first                                                                    
step in reenergizing the tourism industry in Alaska.                                                                            
                                                                                                                                
COLLEEN   STEPHENS,   VALDEZ,   voiced   support   for   the                                                                    
legislation. She  stated that the  reduction of  visitors to                                                                    
the  state had  negatively  affected  10 full-time  seasonal                                                                    
jobs, and 1 full-time  year-round position in the community.                                                                    
She  believed that  seasonal  employment  help young  people                                                                    
develop a work ethic which  would continue with them through                                                                    
life. Scarce  entry level jobs  for young people  across the                                                                    
state would affect the work force  in to the future, as well                                                                    
as the economy and the viability of the state.                                                                                  
                                                                                                                                
SCOTT REISLAND,  DENALI GRIZZLY BEAR, DENALI  NATIONAL PARK,                                                                    
testified  in  support  of  the  bill.  He  said  that  ATIA                                                                    
marketing  was  critical  for marketing  his  business.  The                                                                    
funding  received by  the passage  of the  legislation would                                                                    
help with increasing the independent travel market.                                                                             
                                                                                                                                
MARY RICHARDS, ALL SEASON'S INN,  FAIRBANKS urged support of                                                                    
the bill. She  explained that the only way the  inn could be                                                                    
effectively  marketed  was  in  cooperation  with  the  ATIA                                                                    
marketing  plan. She  used her  money  to reach  out to  the                                                                    
association,  who in  turn reached  out to  the rest  of the                                                                    
world on her behalf.                                                                                                            
                                                                                                                                
MATT ATKINSON, FAIRBANKS spoke in  support of the governor's                                                                    
bill.  He offered  accolades to  ATIA for  the association's                                                                    
ability  to maximize  available funds.  He believed  the tax                                                                    
credit  would  allow  the  state to  direct  more  focus  on                                                                    
marketing  the   state  and  less  on   requesting  one-time                                                                    
appropriations.                                                                                                                 
                                                                                                                                
5:53:20 PM                                                                                                                    
                                                                                                                                
LOIS WIRTZ, SELF,  spoke in support of  the legislation. She                                                                    
stated  that statewide  marketing  was  crucial for  tourism                                                                    
development  in Nome,  Kotzebue,  and  Gamble. Reducing  the                                                                    
head  tax was  only  one  aspect of  what  was necessary  to                                                                    
foster tourism  in the state.  She believed that  an ongoing                                                                    
marketing effort was necessary  to bring back non-cruise and                                                                    
independent visitors.                                                                                                           
                                                                                                                                
JILLIAN  SIMPSON, ALASKA  TRAVEL  INDUSTRY ASSOCIATION  (via                                                                    
teleconference),  testified in  support of  the broad  based                                                                    
bill  for  tourism  marketing tax  credits.  She  felt  that                                                                    
Alaska  needed  sustainable  marketing funding  for  to  the                                                                    
domestic and international market in  order for the state to                                                                    
continue to grow.                                                                                                               
                                                                                                                                
TOM    HALL,    KLONDIKE    GOLD   DREDGE    BREWERY    (via                                                                    
teleconference), offered support for  the bill. He testified                                                                    
that ATIA offered unique  opportunities for collaboration in                                                                    
marketing the Alaska  product to visitors from  far away. He                                                                    
felt  that   there  would  be  significant   return  on  the                                                                    
marketing investment.                                                                                                           
                                                                                                                                
5:58:28 PM                                                                                                                    
                                                                                                                                
TAMMY  GRIFFIN, DIRECTOR  OF  OPERATIONS,  ALASKA HOTEL  AND                                                                    
LODGING  ASSOCIATION  (via  teleconference),  supported  the                                                                    
legislation. She  stated that  the association  supported an                                                                    
amended HB 167 that included  the participation of a broader                                                                    
selection  of  industry  players  in  the  tax  credit.  She                                                                    
concluded that an increase in  tourism marketing funding was                                                                    
imperative for the future of the industry in Alaska.                                                                            
                                                                                                                                
FRANK FLAVIN, PHOTOGRAPHER supported  the bill. He cited the                                                                    
marketing spending  increases made by other  destinations in                                                                    
the  past 6  years. He  revealed that  Alaska had  spent $10                                                                    
million in  2005, with an  additional $5 million  match from                                                                    
the  industry, but  had only  increased to  11.7 million  in                                                                    
2010.                                                                                                                           
                                                                                                                                
6:02:46 PM                                                                                                                    
                                                                                                                                
SHANNON   HAMRICK,  EXECUTIVE   DIRECTOR,  KENAI   PENINSULA                                                                    
TOURISM  MARKETING COUNCIL  (via teleconference),  testified                                                                    
in support  of the legislation.  She opined the  downturn in                                                                    
the  tourism  economy  of  2009,  and  the  equally  abysmal                                                                    
forecast for  2010. She explained  that her  family business                                                                    
relied  on the  building  of lodges  and  bed and  breakfast                                                                    
establishments,  which were  is less  demand because  of the                                                                    
industry slump.  She said  that the loss  of visitors  had a                                                                    
ripple effect of loss throughout the community.                                                                                 
                                                                                                                                
Co-Chair Stoltze closed public testimony.                                                                                       
                                                                                                                                
Co-Chair Stoltze discussed housekeeping.                                                                                        
                                                                                                                                
HB  167  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.                                                                                                                  
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 6:07 PM                                                                                            
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
Visitor Industry Impacts 3_30.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
Sponsor Statement Tourism Enhancement 31Mar10.doc HFIN 4/5/2010 1:30:00 PM
HB 422
Sectional Analysis Tourism Enhancement 31Mar10.doc HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Letters.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Gov Transmittal Letter.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
Testimony HB 167.docx HFIN 4/5/2010 1:30:00 PM
HB 167
Nov09HouseFinTourismReport.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
McDowell Group GDS Presentation 2009.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
HB 167 Testimony.PDF HFIN 4/5/2010 1:30:00 PM
HB 167
HB 167 Support Letters.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
HB 167 Referral Summary.doc HFIN 4/5/2010 1:30:00 PM
HB 167
HB 167 Back Up.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
06 HB167 PPT Presentation by ATIA.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
03 CSHB167 ver E Sectional Analysis.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
02 CSHB167 ver E Sponsor Statement.pdf HFIN 4/5/2010 1:30:00 PM
HB 167
HB 422 CS WORKDRAFT VERSION 26-GH2210 R.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
RCAgov31210.doc HFIN 4/5/2010 1:30:00 PM
HB 422
4-2-10 Ltr support HB 422 (3).doc HFIN 4/5/2010 1:30:00 PM
HB 422
RCAhb4224510.doc HFIN 4/5/2010 1:30:00 PM
HB4224
Deputy Commissioner Thayer's Testimony on HB 422.PDF HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Letters Additional.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Letters Sharp-7000-OMb_20100406_165809.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Letters Sharp-7000-OMb_20100409_113735.pdf HFIN 4/5/2010 1:30:00 PM
HB 422
HB 422 Support Letter.pdf HFIN 4/5/2010 1:30:00 PM
HB 422