Legislature(2007 - 2008)SENATE FINANCE 532
05/04/2007 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB168 | |
| SB53 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| += | SB 53 | TELECONFERENCED | |
| *+ | SB 168 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
May 4, 2007
2:08 p.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
2:08:06 PM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Kim Elton
Senator Joe Thomas
Senator Fred Dyson
Also Attending: MILES BAKER, Staff to Co-Chair Stedman; JEFF
BUSH, Juneau Assembly Member; CHIP THOMA; BOB WEINSTEIN, Mayor,
City of Ketchikan; TOM DOW, Vice President of Public Affairs,
Carnival Corporations;
Attending via Teleconference: From Seward: PHILLIP OATES, City
Manager, City of Seward; from an offnet location: JOHANNA BALES,
Excise Audit Manager, Tax Division, Department of Revenue.
SUMMARY INFORMATION
SB 168-PASSENGER VESSEL TAX CREDIT
The Committee heard from the bill's sponsor, representatives of
the municipalities if Juneau, Seward and Ketchikan, and another
interested party. The bill was held in Committee.
SB 53-BUDGET: CAPITAL, SUPP. & OTHER APPROPS
The Committee adopted a committee substitute and the bill was
held in Committee.
2:08:09 PM
SENATE BILL NO. 168
"An Act providing a credit for the payment of certain
municipal passenger taxes or fees against the excise tax on
travel aboard commercial passenger vessels; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
2:09:11 PM
MILES BAKER, Staff to Co-Chair Stedman, introduced this
legislation as a Senate Finance Committee bill. A "cruise ship
initiative" passed by Alaskan voters in 2006 established a $50
per passenger excise tax, $4 of which was to fund an Ocean
Ranger program. A regional cruise ship impact fund would receive
25 percent of the remaining $46. From the outstanding $35, $5
was to be allocated to each of the first five ports of call. Two
of the most heavily visited ports, Juneau and Ketchikan,
currently had municipal head taxes in law. According to the
initiative, a municipality with an existing head tax would not
be eligible for the $5 allocation from the $50 passenger tax.
2:12:08 PM
Mr. Baker explained that this bill would allow ports that
currently imposed municipal head taxes to "recoup" those fees
from the $50 excise tax. The existing taxes were $8 in Juneau
and $7 in Ketchikan, and this bill would allow those fees to be
paid from the $35 balance of the head tax. Thus, municipalities
with existing taxes would receive the same amount per person as
before the initiative passed, and passengers would not pay the
additional $15 in taxes for the ports of Juneau and Ketchikan.
2:14:15 PM
Senator Thomas calculated that if the first five ports of call
had municipal head taxes of $10 each the entire $50 tax would be
expended to cover those costs.
2:14:44 PM
Mr. Baker allowed that was "theoretically" correct. In reality,
fewer than five ports of call were visited in Alaska, with the
average being 3.4 ports of call per ship. The $35 amount was
based on an average of $10 per each of the 3.4 ports. In the
future, if ships began to visit more ports of call,
modifications to the formula would be necessary.
2:15:49 PM
Senator Elton asked if "port of call" included destinations such
as Glacier Bay in which the ship did not anchor or tied up.
Mr. Baker was unsure of the definition of "port of call", but
would provide that information to the Committee.
2:16:30 PM
JEFF BUSH, Juneau Assembly Member, testified on behalf of Juneau
Mayor Bruce Bothelo. He provided testimony as follows [copy on
file].
I am here to testify in support of Senate Bill 168,
legislation that would provide a credit for certain
municipal passenger fees against the statewide excise
passenger tax established by the 2006 primary election
ballot measure 2. The City of Juneau supports the purpose
that the sponsors sought to achieve in promoting the
passenger tax; that is, having the users contribute to the
infrastructure necessary to serve the communities they
visit by cruise ship. However, I believe there is a
fundamental flaw in the initiative that frustrates the
purpose, and that Senate Bill 168 is designed to cure. That
flaw is the creation of a vast pool of money at the State,
that cannot be expended constitutionally. You've heard from
the previous speaker how the initiative currently works, so
I won't review that. The problems that exist with the
initiative are two-fold. There's a constitutional problem,
and also a practical problem. Federal law limits the kinds
of taxes or fees that may be imposed on vessels in
interstate commerce through the tonnage clause, Article I
Section 10 of the United States Constitution, which
prohibits any taxes or fees on vessels except those
directly related to services provided to those vessels. 33
U.S.C. Section 5, a recent federal enactment based upon the
tonnage clause has been interpreted to mean, to be a
clarification of the tonnage clause of the constitution.
And that section authorizes the levy of "reasonable fees
charged on a fair and equitable basis that: a) are used
solely to pay the cost of a service to the vessel, b)
enhance the safety and efficiency of interstate and foreign
commerce, and c) do not impose more than a small burden on
interstate or foreign commerce."
The sponsors of the initiative were aware of these
restrictions and tried to meet the high burden set by the
federal law in the initiative by putting language in the
initiative that says that the tax may be used "in a manner
calculated to improve port and harbor facilities and other
services to properly provide for vessel or watercraft
visits, and to enhance the safety and efficiency of
interstate and foreign commerce." But this language is of
little import when you try to apply it to the regional
impact fund, which is the 25 percent portion of the tax.
That's because that fund is available only to be used in
ports that are not today ports of call. And that in other
words, ports that are not visited by the cruise ships at
all. So applying the federal statute what conceivable
service to a vessel should be recovered by these ports, and
on what basis. Similarly, what State owned port, harbor
facility, or other service is being directly rendered that
would permit these funds to be expended - that's for the
rest of the funds. I suggest that few expenditures could
meet the federal test.
Regarding the practical problems: first, there's little
incentive for major ports of call to take part in the State
program rather than maintain or establish their own
passenger fees. Municipalities right now may set higher or
lower fees to meet whatever local infrastructure needs they
have without reliance on the State program. Thus, Juneau,
as I'm sure most of you know, currently imposes two
separate fees that total $8, while Ketchikan imposes a $7
per passenger fee. Municipal ports electing to receive the
$5 as passed in the initiative per passenger instead of
imposing their own fee would be required to come to the
legislature each year and seek an appropriation for that
purpose. It leaves municipalities dependant on the
legislative process and having port monies traded for other
capital projects. In addition, reliance on annual
appropriations to bond for projects is probably impossible.
As recognized by the Department of Revenue in the fiscal
note on this bill, passage of this legislation is necessary
to remove the disincentive for communities to pass local
passenger tax ordinances. There's a disincentive because
right now, there's the incentive, if a local community
other than Juneau and Ketchikan attempts to pass a local
tax initiative on the cruise industry that's an added tax
burden onto the current situation to the cruise industry,
and there's very strong political pressure placed on those
communities. And so there's, the ports do not have the
incentive to create local taxes and end result is that they
don't have funds available to do what the initiative was
purportedly meant to do.
Co-Chair Stedman asked Mr. Bush to conclude his testimony.
2:21:57 PM
Mr. Bush concluded that an estimated $24 to $25 million in
revenues collected from the excise tax would remain in the
State's possession and could not be expended due to the federal
regulations governing allowable usage of those funds. The
amendments in SB 168 would reduce the amount of unusable
revenues collected under the provisions of the initiative.
2:23:41 PM
PHILLIP OATES, City Manager, City of Seward, testified via
teleconference from Seward in support of the bill. He spoke of
the improvements to port infrastructure that this legislation
would provide, allowing Seward to compete in the world market
while complying with federal regulations.
2:24:41 PM
CHIP THOMA, of Juneau testified in opposition of the bill. He
was a "strong supporter" of the cruise ship initiative as passed
by voters. He submitted written testimony [copy on file] and
read his statement into the record as follows.
SB 168 would have a negative impact on the finances of the
State of Alaska. Importantly, this bill would not help
municipalities cope with hosting the one million cruise
passengers coming to Alaska each year in a compressed five
month season. The "credit" that a cruise passenger should
receive under SB 168 will never reach that Alaska ship
passenger, as there are no requirements in SB 168 to return
these fees to passengers. In reality, this is a tax rebate
program that returns new state revenues directly to cruise
companies in Miami. For these reasons, I oppose the bill.
Also, SB 168 is not good public policy. It encourages
competition between Alaska port towns to solicit industry
favor on ship taxes, rather than making sound, community-
based decisions on expensive improvements to waterfronts.
Local waterfront activities are the heart and soul of each
costal town, and decisions should be made without constant
pressure over summer passenger fees. The new cruise law
ends the industry practice of comparing and selecting
communities based on their local tax climate. It no longer
makes any difference.
Instead, the cruise law is an opt-in, revenue-sharing
program of choice for local municipalities. In years ahead,
there will be many new cruise ports in the state that will
benefit, such as Cordova, Valdez and Kodiak, because cruise
demand and the market are certainly there. Other cruise
ports that can benefit now from the initiative are those
that have private cruise docks, such as Skagway, Whittier
and Hoonah. In these latter port towns, dock owners charge
a private passenger fee for using their properties. New
state revenues would allow municipalities with cruise
ports, but without local passenger fees, to make extensive
capital improvements to adjacent city docks, harbors and
lands used by passengers when they visit. This is a great
benefit to the industry, all cruise passengers, and local
ports.
As the initiative is written, each community has the choice
when to opt-in or to opt-out. They can choose to have the
State collect and distribute the cruise taxes, or to charge
and bond for municipal cruise docks and improvements with
local passenger fees, such as now occurs in Ketchikan and
Juneau. Juneau is the best example of a port community that
has legally defined the uses of cruise passenger fees, as
contained in the 2002 Maritime Security Act. This federal
law says that reasonable passenger fees can be spent on
cruise docks and adjacent access areas for the safe and
efficient movement of passengers and cargo. I have included
the opinions issued by Juneau Borough attorney Corso in
2003 and by Juneau Borough attorney Hartle in 2005 [copy on
file].
2:27:42 PM
Mr. Thoma continued his testimony as follows.
Eighty-one thousand Alaskans voted correctly on the cruise
initiative, and they knew what they were voting for: Clean
cruise ships verified by Ocean Rangers, consumer disclosure
for cruise passengers, and fair State taxes to be spent on
cruise infrastructure. The cruise lines in Alaska are a
multi-billion dollar industry that overwhelms costal towns
throughout Alaska each summer. It is time that the State
had a fair tax regime that provides new funds for the huge
cruise infrastructure costs needed in the years ahead.
Over three decades ago Governor Jay Hammond defined the
ground rules for industries doing business in Alaska:
Industry pays its own way, without subsidy; industry does
not pollute; and all industries pay a fair share in State
taxes. The ink was not even dry on the initiative results
before an all-out repeal effort ensued on every section of
the 2006 initiative. Passage of SB 168 would be a repeal of
the cruise initiative. According to the AG's opinion of
February 6, such a repeal would be found unconstitutional
in 2007 and 2008. I urge you to hold SB 168 in committee
this interim, and review the collection and application of
State cruise taxes during the summer cruise season. Thank
you.
2:29:31 PM
Senator Elton asked how "head taxes" were collected, and how a
rebate of those taxes would function.
2:30:17 PM
Mr. Thoma understood that each cruise fare contained charges for
"port fees", which could be a high as $80 total. Thus, a
passenger visiting both Juneau and Ketchikan could be charged as
much as $65 in port fees, including the $50 initiative tax. To
expect the cruise companies to issue $15 rebate checks to each
passenger would be "ludicrous".
2:31:00 PM
Senator Elton assumed that the price of the cruise would reflect
a flat $50 port fee, rather than incorporating the Juneau and
Ketchikan fees into a $65 total port fee.
Mr. Thoma remarked that the methods for collecting port fees
were set by each cruise company according to internal policies,
and the $50 limit Senator Elton suggested was not included in
the proposed legislation.
2:31:44 PM
JOHANNA BALES, Excise Audit Manager, Tax Division, Department of
Revenue, testified via teleconference from an offnet location.
She shared that the Department of Revenue did not support this
bill. For this legislation to be successful, each community
would be required to adopt its own head tax, and each passenger
would receive a credit for that tax if they visited the port.
Smaller communities were "enthusiastic" to receive funds under
the cruise ship initiative. This bill established several funds,
including the cruise ship impact fund. Other monies could be
utilized to fund cruise ship related projects such as sidewalk
construction, road expansion and bike paths. The passage of SB
168 would remove the State's ability to fund those projects with
the cruise passenger excise tax.
2:35:04 PM
BOB WEINSTEIN, Mayor, City of Ketchikan, testified in support of
the legislation. He opined that the bill would correct "flaws"
within the 2006 initiative by providing infrastructure and
services directly related to the activities of cruise
passengers. He reviewed his public service record in Ketchikan,
and divulged that the growth of the tourism industry had
coincided with the stagnation of other economic sectors such as
timber. Ketchikan's long-term port facilities development plan
supported port and harbor improvements as well as mitigation of
tourist-related impacts such as congestion. These projects could
be funded in compliance with the federal regulations with the
passage of SB 168.
2:38:36 PM
Mr. Weinstein informed that the Ketchikan port project was
financed through the Alaska Bond Bank, and would likely not have
been approved if the city was only able to identify annual
legislative appropriations as revenue sources. The bond bank
gave preference to projects that would be funded by a tax levied
by municipalities, rather than reliance on annual appropriations
from the State.
2:39:48 PM
Mr. Weinstein reiterated the structure and function of the
passenger excise tax. He stressed that the regional impact fund
was designated to be used by ports that were not currently
visited by cruise ships, yet the funds must be expended to
provide services and infrastructure directly related to cruise
ship visits. Based on the $5 per port per passenger allocation
of the $50 tax, and considering the average of 3.4 ports visited
by each ship, the maximum payout to ports would be $17. The
ballot measure also denied funds to communities that levy their
own taxes, thus reducing the payout to local cruise ship ports
to $7 per passenger. The $28 balance would be "stranded" and
unavailable for disbursement to ports that rendered services to
cruise ships.
2:42:41 PM
Mr. Weinstein noted that the proposed legislation would benefit
all ports, not just large ports of call.
2:43:12 PM
Mr. Weinstein opined that the initiative did not support port
communities as intended. He stressed the federal requirements
that the tax dollars be spent on projects and services to
benefit the cruise industry, and that this goal could best be
accomplished by allowing communities to levy local taxes to be
reimbursed through the tax revenues collected.
2:44:25 PM
TOM DOW, Vice President of Public Affairs, Carnival
Corporations, informed that Carnival Corporations was the parent
company of Princess, Holland America and Carnival Cruise lines.
According to existing law, government fees and taxes were
itemized separately on each passenger's ticket. All fees
collected were rebated to the government that levied the tax,
thus the cruise company did not profit from the taxes charged to
passengers. Port fees and taxes were "regularly" credited back
to passengers if a port was missed on the cruise due to weather,
illness, or any other unforeseen circumstance. Credits in the
amount of the missed port fees were issued to each passenger's
folio onboard, thus negating the need to issue thousands of
rebate checks. He suggested an amendment to require that rebates
be paid directly to passengers if that issue was of concern to
the legislature.
The bill was HELD in Committee.
AT EASE 2:47:53 PM/5:45:21 PM
SENATE BILL NO. 53
"An Act making appropriations, including capital
appropriations, supplemental appropriations, and
appropriations to capitalize funds; and providing for an
effective date."
This was the fifth hearing for this bill in the Senate Finance
Committee.
Co-Chair Hoffman offered a motion to adopt CS SB 53, 25-
GS1014\L, as a working document.
Without objection the committee substitute, Version "L", was
ADOPTED.
5:46:09 PM
FRED FISHER, Staff to Co-Chair Stedman, introduced the Senate
Finance Committee substitute, reminding that the bill was
transmitted from Governor Palin as a "bare bones" request.
5:47:01 PM
Mr. Fisher informed that Sections 1 through 6 contained capital
appropriations and grants totaling $237.4 million in general
funds to accommodate the Governor's requests, and $198.2 million
general funds for legislative priority projects. The total
proposed capital budget was $435.6 million general funds and
$1,495,600,000 in total capital expenditures. This committee
substitute also contained the remaining supplemental
appropriations for fiscal year 2007 (FY07), in addition to FY08
operating appropriations. Sections 7 through 9 represented
operating recommendations to fund the monetary terms of
collective bargaining agreements reached with the Labor, Trades
and Crafts Unit and the Teachers' Education Association of Mt.
Edgecumbe, for a total of $3.8 million in general funds and $6.7
million total.
Mr. Fisher continued that Sections 10 through 24 of the bill
contained the proposed funding levels for the remaining FY07
supplemental requests, totaling $55.9 million in general funds
and $95.4 in total funds.
5:48:31 PM
Mr. Fisher remarked that Sections 25 through 31 were Language
sections associated with capital projects. Sections 32 through
47 and Section 49 were reappropriation recommendations. Section
48 contained appropriations from the Railbelt Energy Fund,
totaling approximately $75 million. Sections 50 and 51 would
appropriate any remaining surplus dollars to the Constitutional
Budget Reserve fund and the Alaska Housing Finance Corporation
(AHFC) sub-corporation.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 5:50:29 PM
| Document Name | Date/Time | Subjects |
|---|