HB 160-TOURISM MARKETING CONTRACTS/CAMPAIGNS  11:36:05 AM CHAIR HERRON announced that the final order of business would be HOUSE BILL NO. 160, "An Act establishing and relating to the Alaska visitor industry investment fund; relating to matching funds for state tourism marketing contracts with qualified trade associations; and providing for an effective date." CHAIR HERRON stated his intent to discuss and hold the bill for amendments that are not ready at this time and to hear related discussion by the House Finance Committee. He called attention to Amendment 1, labeled 27-LS0509\I.1, Bannister, 2/28/11, which read: Page 2, line 27: Delete "$2,700,000 [AT LEAST"  Insert "at least $2,700,000 [" CHAIR HERRON, in response to Representative Joule, said work draft Version I was before the committee. In response to Representative Tuck, he clarified that "the $2.7 will become the floor, rather than the ceiling." 11:38:59 AM REPRESENTATIVE MUNOZ asked for the total amounts collected in the three tax areas of vehicle rental tax (VRT), recreational tax, and corporate tax associated with tourist activities. TERRY HARVEY, Staff, Representative Cathy Munoz, Alaska State Legislature, referenced a fiscal note from the Department of Revenue (DOR) that indicated $7.3 million in VRT in 2009, and $8 million in 2010. He deferred to DOR for details. 11:40:28 AM JOHANNA BALES, Deputy Director, Anchorage Office, Tax Division, Department of Revenue, informed the committee the effective date of the legislation is July 1, 2011, thus for this calculation the division would look at revenues received in 2009-2011. The division has data for 2009-2010, and for VRT the state collected $7.3 million in 2009, $8 million in 2010, and estimates $7.5 million will be collected in fiscal year 2011 (FY 11). Furthermore, for tourism corporate income tax the state collected approximately $21.4 million in 2009, $5.1 million in 2010, and estimates $5.5 million will be collected in 2011. Total revenue collected and estimated for three years is approximately $54.8 million, and 30 percent of that is $16.4 million. Ms. Bales advised the first amount directed into the sub fund in the general fund would become the "floor" for future years. REPRESENTATIVE MUNOZ asked whether the industry-to-state match is a 70 percent to 30 percent split. MS. BALES deferred the question to DCCED. 11:43:00 AM MR. HARVEY said his understanding is that currently the industry is operating under a 70 percent state and 30 percent industry match. In response to Chair Herron, he said this arrangement will expire at the end of this fiscal year. 11:43:34 AM REPRESENTATIVE MUNOZ recalled that this year the governor made a larger commitment to the tourism industry and asked for that percentage. MR. HARVEY stated that the governor has proposed an additional $7 million; however, he was unsure of what percentage that would be. REPRESENTATIVE KELLER surmised this may be viewed as unconstitutional because it may be dedicated funds. MR. HARVEY explained this is an annual amount of money that is subject to appropriation and identified in statute as funds based on revenue from the tourism industry, and thus is not considered a dedicated fund. He suggested hearing further testimony on this issue from the commissioner of DCCED. 11:45:16 AM REPRESENTATIVE KELLER described the reason for his interest, saying that the proceeds are for a particular purpose, and requested a review of the criteria by legal services. CHAIR HERRON indicated he would direct staff to obtain a response from Legislative Legal and Research Services, Legislative Affairs Agency. In response to Representative Olson, he said a response would also be obtained from the Attorney General, Department of Law, and distributed to the committee. REPRESENTATIVE GARDNER observed that if the funding is subject to appropriation each year, the legislature could refuse or change the amount. She surmised the bill simply makes a recommendation for what future legislators should appropriate. MR. HARVEY agreed, and asked for the viewpoint of the commissioner of DCCED. 11:47:22 AM REPRESENTATIVE GARDNER turned to the amendment, and asked whether passage of the amendment means that if the marketing campaign is $10 million, the industry is paying less, and if the marketing campaign is $5 million, the industry is paying more. 11:48:04 AM SUSAN BELL, Commissioner, Department of Commerce, Community & Economic Development (DCCED), concurred with Representative Gardner's statement, and said the bill addresses visitor industry-generated revenues, to make a connection between the health of the visitor industry, restoring its growth, and establishing a fund that preserves the legislature's power of appropriation in Section 2, subsection (a). REPRESENTATIVE GARDNER then asked for the historical cost of the marketing campaign contract. COMMISSIONER BELL advised last year there was a 60 percent increase in the state contribution from $9 million to $16 million, bringing the total ATIA marketing contract to $18.7 million. She reviewed the contract process and the decline in tourism visitors, and said increasing the state's marketing program was a significant piece in restoring visitor interest in Alaska. Thus, the total marketing campaign has grown from a state contribution of about $9 million and an industry contribution of $2.7 million, to a state contribution of $18.7 million. 11:50:55 AM REPRESENTATIVE GARDNER understood that according to the original bill draft, matching funds would be about $9.35 million; however, if the amendment passes, matching funds would be $2.7 million, which is a savings to the qualified trade organization of about $5.65 million in the year under discussion. 11:51:33 AM COMMISSIONER BELL said correct. She further noted that the current 70 percent to 30 percent match will sunset and become a 50 percent to 50 percent match; however, since the time of the original contract in 1999, there has been a change in the composition of taxes and fees on the industry. For example, VRT now brings in between $7-$8 million annually, and there is income from a suite of taxes and fees enacted by the Alaska Shipping Tax Initiative of 2006, Ballot Measure 2. Although revenue from the ballot measure has been "rolled back," the landscape of the state collection of industry-related taxes and fees has changed. In addition, the industry trade organization collects the fees from its members. REPRESENTATIVE KELLER, observing that the industry's need is measured by the number of visitors to Alaska, asked for the length of time required to judge the marketing campaign's success. 11:53:43 AM COMMISSIONER BELL related the travel industry feels the state's marketing efforts are insufficient. Her experience was that the state's marketing investment in the '90s was higher; in fact, the state's investment has dropped, and the market and competition has changed due to the terrorist attacks of September 11, 2001, and the response to the economic decline by other tourism destinations. Commissioner Bell confirmed that DCCED monitors the volume of visitors to indicate the health of the industry, and she concluded that the state's previous marketing budget of $11 million is insufficient "to achieve the presence that we wanted." REPRESENTATIVE KELLER suggested "a sunset on this" would ensure that the effectiveness is measured. COMMISSIONER BELL indicated there are tools to assess the success of the marketing plan such as a sunset, the power of appropriation, and the legislature's ability to question DCCED. 11:56:18 AM REPRESENTATIVE THOMPSON referred to the proposed transportation highway bill that would be funded by a percentage of VRT. COMMISSIONER BELL affirmed that there is a proposed bill competing for a percentage of VRT revenue, but she was unsure of the percentage affected. 11:57:18 AM REPRESENTATIVE GARDNER pointed out that between 2009 and 2010, corporate income tax related to tourism went down about 75 percent, and VRT went down about 10 percent. She asked whether a large portion of VRT is not tourism-related. COMMISSIONER BELL explained that VRT is collected at the time of sale; however, corporate income taxes are affected by other factors. She deferred to Ms. Bales for details. 11:58:38 AM REPRESENTATIVE OLSON relayed his growing concern that the proposed legislation codifies a level of expectation that may not be sustained. He opined the funding of this program and others may still be best handled on a year-by-year basis. REPRESENTATIVE KELLER observed that VRT would include cars rented for purposes other than tourism. He asked whether an exemption for other uses would avoid a "dedicated fund" situation. 12:00:30 PM CHAIR HERRON asked for the administration's stand on the proposed committee substitute (CS) for HB 160. 12:01:20 PM COMMISSIONER BELL informed the committee the governor was briefed on the proposed CS; in fact, the governor continues to consider a healthy visitor industry a priority and "he still remains comfortable with it." HB 160 was heard and held.