HB 252-ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX  11:27:39 AM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 252, "An Act requiring electronic submission of a tax return or report with the Department of Revenue; repealing the tax reduction for local levies for the commercial vessel passenger excise tax; amending the definition of 'voyage'; and providing for an effective date." 11:27:40 AM CHAIR OLSON opened public testimony on HB 252. 11:27:49 AM CAROL FRASER, General Manager, Lakefront Anchorage Hotel, said she was speaking as an Alaskan and as a member of the tourism industry. The Lakefront Anchorage Hotel employs over 120 Alaskans year-around as housekeepers, bussers, clerks, drivers, and servers. She opined HB 252 is a jobs bill. The hotel operates year-around but primarily relies on tourism; 70 percent of the hotel's revenue is received between 5/15 and 9/15, during the cruise ship season. The bill proposes to increase the cruise ship passenger tax, and she urged legislators to review the impacts of the [Alaska Cruise Ship Tax Initiative Measure 2, approved 8/22/06 (cruise ship initiative)] that resulted in taxation which made Alaska the "most expensive destination in the world for cruise ship operations." The cruise ships are floating hotels and can move anywhere in the world; in 2010, as a result of the additional tax, the cruise lines moved their ships to other destinations that brought a higher return - subsequently 140,000 less customers came to Alaska and there was a loss of 5,000 jobs. In 2009, through agreements between the tourism industry and state government, there was a reduction in taxes and the cruise ships moved vessels back to Alaska; since 2012, the tourism industry in Alaska has increased each year and tourism is expected to have a banner year in 2016. Ms. Fraser said this will create more jobs for Alaskans, more revenue for communities, and more taxes for the state. Tourism employs almost 40,000 Alaskans, many of which are entry jobs that can lead to careers. She stated there is a need to protect the tourism industry - which is a renewable resource for Alaska - and HB 252 will again make Alaska uncompetitive in the worldwide cruise market. She concluded, noting that Alaska cannot afford to lose any more jobs. 11:31:34 AM GIDEAN GARCIA, Chief Operating Officer, CIRI Alaska Tourism Corporation, stated his opposition to HB 252. He said CIRI benefits from a strong cruise industry as many passengers stay at CIRI lodges in Seward and Talkeetna, or take CIRI wildlife cruises. Not all cruise ship guests stay at affiliated hotels, but many do support other Alaska-owned businesses. Mr. Garcia said additional costs to passengers reduces potential "guest- spend" in the state. He questioned what can be gained from funds that are restricted by federal law and cannot be used in the general fund. In 2015, the number of visitors was the highest on record, and strong growth in the industry is returning after many years; he cautioned against risking growth by raising taxes. Although the state has a significant budget shortfall, his organization is generally against targeted taxes, and he urged for legislators to look for broad-based and equitable sources of new revenue. 11:33:24 AM PATTI MACKEY, president and CEO, Ketchikan Visitors Bureau, asked the committee to consider the negative impacts of repealing the tax reduction in communities where a local passenger fee is also imposed. Although she is aware of the state's fiscal issues, the [Commercial Passenger Vessel Excise Tax] fund is not a source of revenue for the general fund. At the time of the initial state fee, there was an adverse impact on communities that depend on the cruise industry; high taxes and fees caused the cruise lines to take a look at the high cost of doing business, which resulted in fewer ships and passengers, and less revenue. When the tax reduction was put in place five years ago, growth returned to the cruise ship industry. Ketchikan is more dependent than ever on locally-generated revenue, such as sales taxes paid by visitors, and the state faces competition from other cruise destinations; Alaska's market share has declined steadily from 7 percent in 2007 to about 4 percent today. The state needs to be mindful of its high operating costs for cruise lines. Ms. Mackey stated that the tax reduction was recognition that cruise lines help pay for services directly to port communities, and that Alaska is open for business. 11:35:35 AM BOB SIVERTSEN, speaking on his own behalf, said he is opposed to HB 252. In 2010, former Governor Sean Parnell worked to address industry concerns regarding cruise ship operations in Alaska. The governor and the legislature lowered the cruise passenger head tax out of concern for the future of Alaska's cruise industry. Mr. Sivertsen opined the state should honor the past agreement, and if necessary, the state and the industry should work out an equitable agreement. The present tax promotes investment and meets applicable federal and state laws regarding the use of the taxes. Mr. Sivertsen said increased taxes will hurt local and state tourism businesses and will not reduce the state deficit. What HB 252 may do is jeopardize the economy and send the wrong message to an Alaska-friendly industry. The state should learn from past mistakes and successes. 11:37:04 AM RYAN BINKLEY, President, Riverboat Discovery, stated his opposition to HB 252. He informed the committee he is a life- long Alaskan and his family's business has been building and operating boats across the state for over 100 years. In 1950, his grandparents began a river tour and became part of the tourism business and the economy in Fairbanks. He observed that Fairbanks is a cruise port, and relies on the visitors who cruise to Alaska; in fact, the effects of cruise visitors is felt even more in Fairbanks because the itineraries that bring visitors there are the longest and most expensive and are the first eliminated by barriers to travel, such as a tax. Mr. Binkley said one-third of cruise ship passengers cross the Gulf of Alaska, thus a negative effect is magnified in the Interior. Policy effects of legislation are usually speculative, but the state has seen the impacts of head tax increases to the visitor industry in 2006. In the Interior in 2008, there was almost a 40 percent drop in the number of visitors, and his business was forced to eliminate 70 positions. Also, the Interior has not rebounded as completely as other parts of the state, and remains at 30 percent off of the tourism business levels prior to passage of the cruise ship initiative. Mr. Binkley acknowledged that the state must work together to solve budget problems, and inquired as to why the state would harm the economy of Alaska, when HB 252 does not contribute to closing the fiscal gap. Furthermore, there may be litigation that jeopardizes "the entire tax program." He cautioned that cruise companies will not be harmed by HB 252, but small Alaska businesses will feel its effects. He urged the committee to oppose HB 252. 11:40:48 AM STEVE HITES, said he and his wife own the Skagway Street Car Company and have been in business for 30 years. He recalled that when the cruise ship initiative passed, the cruise industry pulled its ships out of Alaska due to the increased cost of doing business, and in subsequent years his family's company hired fewer employees. Former Governor Sean Parnell saw the need to address the problem and met with officials of the international cruise industry, which Mr. Hites said had not happened before in his 40 years of experience in the cruise industry. Mr. Hites said the governor and the legislature reduced the head tax and the ships were redeployed to Alaska. He said [HB 252] will not do any good and will create a giant hole in an industry that is a bright spot in the economy, and that provides an engine for the private sector. The Skagway Street Car Company pays $70,000 in city sales tax in Skagway, and pays $23,000 in property tax. In addition, his small business employs people and provides help. The bill will drive away a sector of the economy, and because Alaska is in competition with the Asian market, cruise companies are looking globally at operating costs. He recalled that Alaska was 14 percent of the global cruise ship industry and is now 4 percent. He stressed that Alaska must remain competitive by not imposing additional taxes. 11:44:42 AM LAWRENCE GAFFNEY, CEO, Huna Totem Corporation, informed the committee Huna Totem Corporation has 1,300 shareholders and owns and operates Icy Strait Point, which is the largest employer and the largest payer of sales tax in the City of Hoonah, a rural community of 760 residents. Last year, Huna Totem Corporation provided 125 jobs, 85 percent of which were local hire, and contributed over $4 million into the community. The last cruise ship tax increase resulted in a 30 percent decline in business and, 7 years later, the business has not fully recovered. This May, his firm is completing a $40 million new investment program, in conjunction with the City of Hoonah, as a public and private partnership, building a new cruise ship dock and expanding facilities. This tax increase will have a chilling effect on the attractiveness of Alaska to the cruise industry, which provides 90 percent of Huna Totem Corporation's revenues and is responsible for many jobs. The result will be fewer ships, less profitability, fewer jobs, and a blow to the economic driver of Hoonah. 11:47:28 AM The committee took an at ease from 11:47 a.m. to 12:00 p.m. 12:00:44 PM CHAIR OLSON announced that public testimony would remain open. [HB 252 was held over.]