SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE January 22, 1997 1:38 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Gary Wilken, Vice Chairman Senator Randy Phillips Senator Lyman Hoffman MEMBERS ABSENT Senator Dave Donley COMMITTEE CALENDAR SENATE BILL NO. 10 "An Act naming Mountain View Road in Gustavus." SB 10 MOVED OUT OF COMMITTEE SENATE BILL NO. 23 "An Act levying and providing for the collection and administration of excise taxes on the rental or furnishing of transient lodging, and authorizing disposition of estimated receipts from that tax; and providing for an effective date." HEARD, AMENDED AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 10 - No previous action to record. SB 23 - No previous action to record. WITNESS REGISTER Senator Bert Sharp State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of SB 23 Jack Chenoweth, Legal Counsel Legislative Affairs Agency 130 Seward St., Suite 409 Juneau, AK 99801 POSITION STATEMENT: Explained amendment to SB 23 Bill Elander, President & CEO Anchorage Convention & Visitors Bureau 1600 A St., #200 Anchorage, AK 99503 POSITION STATEMENT: Testified in opposition to SB 23 Brad Phillips 5019 W. 4th Ave., Suite 100 Anchorage, AK 99501 POSITION STATEMENT: Opposes SB 23 Max Lowe, General Manager Regal Alaskan Hotel 4800 Spenard Road Anchorage, AK 99517 POSITION STATEMENT: Opposes SB 23 Bob Southhull, General Manager Anchorage Hilton Hotel 500 West 3rd Ave. Anchorage, AK 99501 POSITION STATEMENT: Testified in opposition to SB 23 John Kreilkamp 3434 Wentworth Anchorage, AK 99508 POSITION STATEMENT: Voiced opposition to SB 23 Ann Rittal 5031 W. 80th Ave. Anchorage, AK 99502 POSITION STATEMENT: Opposes SB 23 Frank Rose, Chairman Alaska Hotel-Motel Association P.O. Box 72478 Fairbanks, AK 99707 POSITION STATEMENT: Testified in opposition to SB 23 Elsan Zimmerly P.O. Box 9508 Ketchikan, AK 99901 POSITION STATEMENT: Testified in opposition to SB 23 Bob Koenitzer, Manager Ingersoll Hotel P.O. Box 8452 Ketchikan, AK 99901 POSITION STATEMENT: Does not support SB 23 Jolene King Harborview B&B P.O. Box 1305 Seward, AK 99664 Hank Newhouse P.O. Box 9508 Ketchikan, AK 99901 POSITION STATEMENT: Opposes SB 23 Anne Hickock, Executive Director Sitka Convention & Visitors Bureau Box 1226 Sitka, AK 99835 POSITION STATEMENT: Testified in opposition to SB 23 Winetta Ayers, Executive Director Kodiak Island Convention & Vistors Bureau 100 Marine Way Kodiak, AK 99615 POSITION STATEMENT: Opposes SB 23 Kelly Lee Raven's Nest B&B P.O. Box 3151 Kenai, AK 99611 POSITION STATEMENT: Opposes SB 23 Alan Lemaster P.O. Box 222 Gakona, AK 99586 POSITION STATEMENT: Suggested alternatives to SB 23 Julie Krafft Alaska Municipal League 217 2nd St. Juneau, AK 99801 POSITION STATEMENT: No formal position on SB 23 Bob Englebrecht, President Alaska Visitors Association 1650 Maplesden Way Juneau, AK 99801 POSITION STATEMENT: Testified in opposition to SB 23 Rick Barrier, President Alaska Campground Owner's Association 4100 DeBarr Road Anchorage, AK 99508 POSITION STATEMENT: A broad based tax would be more appropriate Joan Budai 7722 Anne Circle Anchorage, AK 99504 POSITION STATEMENT: Believes SB 23 is discriminatory James Rousey 830 Jay Circle Anchorage, AK 99504 POSITION STATEMENT: No position stated Dennis Lavey 321 E. 5th Anchorage, AK 99501 POSITION STATEMENT: Testified in opposition to SB 23 ACTION NARRATIVE TAPE 97-2, SIDE A Number 001  SB 23 EXCISE TAXES ON TRANSIENT LODGING  CHAIRMAN MACKIE called the Senate Community & Regional Affairs Committee meeting to order at 1:38 p.m. Also in attendance were Senator Wilken and Senator Phillips. CHAIRMAN MACKIE brought SB 23 before the committee as the first order of business, and noted testimony would be taken over the teleconference network from various sites around the state, as well as from two individuals who would be testifying from Los Angeles, California and Seattle, Washington. Number 060 SENATOR BERT SHARP , prime sponsor of SB 23, said introducing this tax bill is a first for him, but it is an issue that he believes has to put on the table for discussion. Senator Sharp said SB 23 is a straight forward bill which would levy a 2 percent excise tax on the amount charged for occupancy or use in hotels, motels, rooming houses, bed and breakfasts, and other facilities providing temporary lodging or living quarters. These revenue dollars are intended to be use, subject to appropriation, for Alaska tourism marketing and promotional activities, as stated in the legislative intent in the bill. This is an option to provide revenue from the industry to support the marketing of Alaska in the tourism world. Presently, this activity is primarily being paid from the general fund. This is an option that is offered as a step toward self-pay by the third largest business in Alaska for promotional efforts benefiting their enterprises. This action has been recommended by previous legislative audits, special legislative reports, other findings by other legislative examination and testimony before finance committees and years of industry promises. Senator Sharp added that as of this date, he does not know of any occasion where the industry has come forward with any specific revenue proposals to fund tourism marketing for the state of Alaska. Senator Sharp directed attention to an amendment which was drafted to address some concerns that arose after the legislation was introduced. It will remove a trailer or recreational vehicle camp from the definition of "transient lodging", as well as clarifying that "transient lodging" is not applicable to employees of remote construction camp facilities and that type of facility provided by an employer. Number 182 JACK CHENOWETH , legal counsel and drafter of SB 23, explained that the bill, as originally drafted, left some gray areas, and the amendment expands the list of places or situations in which the tax is not applicable. In the original bill there is a reference to premises covered by the Uniform Residential Landlord and Tenant Act, which gives the right of occupancy of 30 or more days. It was agreed that the reference to 30 or more days should be deleted because there are situations that are covered by the Act that are not tied to a minimum number of days. In other words, it takes out from under the tax any occupancy if it is covered by the Uniform Residential Landlord and Tenant Act. The amendment also includes an exemption for people like the Alaska State Troopers and others if the lodging is offered in conjunction with educational, training, or similar services. As stated by Senator Sharp, the amendment will also exempt those situations where housing is provided by an employer for his employee. The exemption of vessels of the Alaska Marine Highway System has been broadened to include lodging aboard all vessels. Finally, the definition of "transient lodging" is rewritten to exempt reference to trailers and recreational vehicle situations. Number 217 CHAIRMAN MACKIE asked for clarification on exactly who is covered by the tax. MR. CHENOWETH said it covers hotels, rooming or apartment houses, lodges, motels, beds and breakfasts, and similar facilities or similar arrangements. Number 230 CHAIRMAN MACKIE stated he would entertain a motion to adopt the amendment. SENATOR PHILLIPS moved the following amendment be adopted: Amendment No. 1 Page 2, lines 16-22: Delete all material and insert: "Sec. 43.52.120. Tax not applicable. The provisions of as 43.52.100 - 43.52.199 do not apply (1) to occupancy in premises if occupancy is under a lease or rental agreement subject to AS 34.03 (Uniform Residential Landlord and Tenant Act); (2) to lodging at an institution, public or private, if incidental to provision of educational, training, or similar services; (3) to occupancy by an employee whose right to occupancy is conditioned upon the occupant's employment; and (4) to lodging aboard vessels." Page 2, line 30, through page 3, line 4: Delete all material and insert: (2) "transient lodging" means a lodging or space provided in a hotel, rooming or apartment house, lodge, motel, bed and breakfast, or similar lodging facility or under a similar arrangement that provides temporary lodging or living quarters." Hearing no objection to Senator Phillips' motion, CHAIRMAN MACKIE stated the amendment was adopted and would be incorporated into a C&RA committee substitute Number 260 The meeting was then opened to public testimony over the teleconference network. Because there was a number of people waiting to testify on SB 23, the chairman requested that the testimony be limited to two minutes, if possible. BILL ELANDER , President and Chief Executive Officer of the Anchorage Convention and Visitors Bureau (ACVB), testified from Los Angeles, California in opposition to SB 23. Mr. Elander said the two percent tax proposed in SB 23 would add to Anchorage's current 8 percent tax, which would place them in a less competitive position in marketing both conventions and travel trade. He noted ACVB dedicates more than half of its promotional funds to convention marketing, and their success has been proven on many occasions as based upon their fair tax level. Mr. Elander pointed out that Alaska is at the end of the line, and the marketing end that has to transpire to bring the convention trade into the state is very cost sensitive, particularly in the tax roles. Tourism marketing remains equally as difficult by increasing these taxes. ACVB feels that the state is infringing upon the municpality's and the community's revenue source, for not just tourism marketing, but tourism servicing as well. He said ACVB's budget is part of the marketing program for the state. Their organization has been working directly with the state and they have stretched their resources to help the state in its fiscal responsibilities. They feel strongly that if this bill is passed that the state is turning against them. In his closing comments, Mr. Elander said SB 23 is taking the tax rate up to the point where they will begin to lose business, and the revenue source will go into the general fund to be spent regardless of what the legislative intent for it is. He suggested the legislation should be withdrawn as soon as possible. Number 322 SENATOR SHARP commented that legislative intent on other bills has held up pretty good in the eight years he has been in the Legislature, and he doesn't know of any money that hasn't gone to where the legislative intent specified it should go. MR. ELANDER responded that he thinks the industry would feel much more comfortable if they were to sit down together with some legal discussions on tourism taxation. He said $120 million a year is being collected through the tourism industry that goes into local and state government programs. That $120 million amount has gone up $40 million over the last four years, and, yet, the tourism marketing budget has gone down consistently. He doesn't think there is much confidence that legislative intent will hold in this matter because there hasn't been any recognition on what the industry is contributing today. Number 345 BRAD PHILLIPS , Chairman of the Tourism Marketing Council, testifying from Seattle, Washington, said historically, the bed tax has been a source of revenue for the local communities that has been used directly for promoting their community and attracting visitors. Mr. Phillips said he served in elected office for 17 years, and he knows that legislative intent language goes away when a bill passes and is codified into law. There is no way that one legislature, regardless of its intent, can tell the next legislature what to do with the money. He suggested this problem won't be solved until we face the issue of changing the constitution to be able to raise funds for a purpose and to dedicate them. He said the industry has volunteered to support broad based taxes if there is some legal assurance that monies can be dedicated to the promotion for getting tourists and visitors to Alaska. Concluding, Mr. Phillips said SB 23 is another way to extract revenues out of communities that they could use directly for the purpose of attracting visitors. Number 390 MAX LOWE , General Manager of the Regal Alaskan Hotel in Anchorage, in voicing opposition to SB 23, said the increased taxation will result in less travel to Anchorage and to Alaska. As a destination, the state is already in a perceived cost disadvantage to those contemplating trips to Alaska. Mr. Lowe stated he took great exception to the sponsor's statement that presently the marketing of Alaska in the tourism world is primarily being paid for from the general fund. He said he doesn't think that could be further from the truth. He thinks the state's just over $4 million contribution to ATMC's activities pales in comparison to the revenue that comes privately from the industry for the marketing of Alaska. Number 414 BOB SOUTHHULL , General Manager of the Anchorage Hilton Hotel, said he spends a great deal of time selling the state of Alaska in Washington, D.C. to national and regional associations. He agrees with Mr. Elander that they need to have as many tools as possible to win these conventions, and he strongly believes that the passage of SB 23 will put them at a disadvantage. He suggested there needs to be discussions on how to market the state before considering a bill like SB 23. Number 430 JOHN KREILKAMP of Anchorage who serves of the board of the Anchorage Convention and Visitor's Bureau, said ACVB has a tremendous track record of going toe to toe with some of the most popular convention sites nationwide. This is business that predominantly is brought in during the fall, winter and spring, and the key to their success is the favorable tax climate. Raising the bed tax by 2 percent only dulls their competitive edge, and in the long run, hurts business during the time of year when it is sorely needed. He also questioned whether these additional monies would be reinvested to promote the state. Number 450 ANN RITTAL , owner of the Lakeside Bed and Breakfast in Anchorage, stated her opposition to SB 223. She said right now they are fighting the bed and breakfast tax for small B&B's in Anchorage. A permit is not required for operating a bed and breakfast, although it is highly recommended, so she questions how the state plans on gathering taxes from all beds and breakfasts when they won't know who they are. She also questioned why cruise ships are exempted since they are one of the largest bed providers of the state during the tourism season. Number 470 FRANK ROSE , Chairman of the Alaska Hotel-Motel Association, testifying from Fairbanks, said while it may seem reasonable in an emergency to increase a tax on outsiders, it really could be a self-imposed disaster; the occupancy tax can cost state and local governments more than it takes in. He said when travelers do not visit our state and they do not pay any number of other taxes that are assessed either directly on the traveler or indirectly on the property, it results in reduction in revenues. Mr. Rose said the hotel and visitor industry is not opposed to paying its fair share, in fact, some two million hard dollars were invested directly in the state's marketing effort by private enterprise this past year. He said Alaska's problem is not unique, and he suggested working together to explore the alternatives. He declared that a tax that is imposed on one industry and does not have some direct relation towards it use in advancing the visiting industry is not acceptable. Number 520 ELSAN ZIMMERLY , a bed-and-breakfast owner in Ketchikan, voiced her opposition to SB 23. Ketchikan already has a 6 percent bed tax, which in addition to their city tax is 11.5 percent on transient lodging. She suggested the need to consider the question of scale and appropriateness; for every activity there is a certain appropriate scale, which she believes is being exceeded right now and will be more so if the bed tax is increased. If specific communities or municipalities need to include a lodging tax, then she thinks it should be done at the local level instead of imposing a statewide tax. Concluding, Ms. Zimmerly said she sees SB 23 as a greed issue and greed will eventually cultivate a paralysis on tourism in this state. Number 545 BOB KOENITZER , manger of the Ingersoll Hotel and chairman of the Ketchikan Hotel-Motel Committee, testifying in opposition to SB 23, echoed previous speakers' comments that higher taxes reduce occupancy. Mr. Koenitzer pointed out that bed taxes do not come strictly from visitors. Ketchikan, like other cities in the state, acts as a hub for a lot of urban communities in that area, and these people comprise about 60 percent of his year-round business, so Alaskans are being taxed any time the bed tax is increased. Mr. Koenitzer believes there is a need to increase funding for destination marketing for Alaska, but the funding vehicle has to be spread out over the entire industry, not just the overnight hospitality segment. Number 560 JOLENE KING , owner of Harborview Bed and Breakfast in Seward and vice president of the Kenai Peninsula Tourism Marketing Council, said while many businesses benefit almost exclusively from tourism, lodging businesses would be discriminated against by being asked to collect this tax. Other businesses such as gift shops, restaurants, etc., may sympathize with the lodging business, but they will not be required to contribute anything in the way of this new tax revenue. Ms. King related that when the City of Seward created its bed tax, the annual gross rate in taxable sales dropped from an 8 percent annual increase to eight-tenths after the new tax while all other Kenai Peninsula cities without new taxes continue to thrive. TAPE 97-2, SIDE B Ms. King urged the committee to vote against SB 23. She suggested that if the goal is to balance the budget, stop spending. She also suggested no new taxes. Number 584 HANK NEWHOUSE , owner of Simply Solitude Enterprises testifying from Ketchikan, explained that his business involved sailing charters, yacht and lot management, and bed and breakfast activities. Mr. Newhouse suggested that the future of Southeast Alaska lay partly in diversifying the economy which could be achieved by catering to independent travellers. He contends that the independent traveller spends more money than tourists arriving by cruise ships. Mr. Newhouse opposed SB 23. Ketchikan already has a five and a half percent sales tax as well as a six percent bed tax; practically everything a visitor does in Ketchikan from a tour to eating is taxed. He feared that with more taxes, the independent tourism business would be hurt in Alaska as well as the business generated by the many Alaskan residents who utilize Ketchikan as a regional distribution area. Mr. Newhouse reiterated the need to meet with the tourism industry in order to discuss other manners in which to generate money for advertising to attract tourists. ANNE HICKOCK , Executive Director of the Sitka Convention & Visitor Bureau, opposed SB 23. Adding the two percent tax to the current nine percent tax charged to visitors lodging in Sitka would hamper Sitka's marketing efforts to attract conventions and organized visitors. Furthermore, the two percent tax would effect the local bed tax which helps to fund the Sitka Convention & Visitors Bureau. Ms. Hickock felt that the two percent tax was discriminatory, short-sighted, and not broad based. This tax would fall short of generating enough revenue to market Alaska efficiently and effectively. Ms. Hickock echoed comments regarding the need to meet with the tourism industry on this issue. Number 524 WINETTA AYERS , Executive Director of the Kodiak Island Convention & Visitors Bureau, opposed SB 23. Currently, Kodiak has a six percent city sales tax as well as a five percent bed tax. With the additional two percent tax, the total would be a thirteen percent tax which Ms. Ayers felt an unreasonable amount. Recently, Kodiak has imposed a borough wide bed tax and any additional tax would be unreasonable. Ms. Ayers explained that cities' and borough's have been able to utilize a bed tax in order to fund the local destination marketing for more than 20 years. This additional tax would hurt local efforts for destination marketing and economic development for tourism. She indicated that the purchase of a hotel property and building new hotel property seem to have been effected by the possibility of the tax increase encompassed in SB 23. Ms. Ayers encouraged the committee to work with the tourism industry in order to determine an equitable form of funding for tourism marketing. KELLY LEE informed the committee that she represented Raven's Nest Bed & Breakfast and the 32 members of the Kenai/Soldotna area Bed & Breakfast Association as well as various hotels in the Kenai area. Ms. Lee expressed opposition to SB 23. SB 23 has too narrow of a focus and exempts the Alaska Marine Highway, the cruise ships and the RV industry which are major portions of the tourism population. Bed and breakfasts, hotels and other standard accommodations will bear a significant burden under this tax. Furthermore, the money from this tax are to be placed in the general fund which means that the money is not specified for tourism marketing. Ms. Lee suggested that an across the board tax involving the entire visitor industry would be more amenable. Number 375 ALAN LEMASTER , owner of Gakona Junction Village in the Copper Valley, recognized that revenues are declining statewide. He noted that in order for the visitor industry to grow and remain healthy, the marketing funding provided by the state are very important. This funding is of prime importance to the small business operator with limited money for advertising. SB 23 appears to be discriminatory and calls for a small, struggling portion of the industry to carry the burden for the industry as a whole. There are no guarantees that those paying the tax will benefit which seems to lack fairness and equity. The language in SB 23 does not mandate that the money collected from this tax will be allocated to tourism marketing and promotion. Mr. Lemaster felt that the two percent tax on top of the tax many cities, boroughs and municipalities already collect would discourage tour operators and individuals from coming to Alaska. Travelling to and operating in Alaska is already expensive. Mr. Lemaster suggested that a one or two percent sales tax on all consumers would be a more equitable solution. Another option could be forming a task force to determine a solution. SENATOR RANDY PHILLIPS complimented Mr. Lemaster on his alternative suggestions. JULIE KRAFFT stated that she was with the Alaska Municipal League, who had not yet taken a formal position on SB 23. Ms. Krafft pointed out that the policy statement adopted by the Alaska Municipal League in November of 1996 states that, "The League opposes any action that would diminish the existing statutory authority of local government to raise revenues through the levy of taxes." The policy statement further says, "The League opposes the incursion of the state into current municipal taxes such as sales and property taxes. The League supports the states' right to enact sales and/or property taxes in the unincorporated areas of the state. The League also supports legislation that facilitates the collection of sales tax on out of state purchases such as catalog sales." Ms. Krafft noted that many municipalities have adopted both sales and bed taxes. Ms. Krafft extended appreciation to Senator Sharp for introducing the discussion on raising new revenues and indicated the League's desire to work with the state on the development of acceptable revenue options. Number 315 BOB ENGLEBRECHT , President of the Alaska Visitors Association (AVA), stated that the visitor industry is willing to pay its share in taxes. A recent study by the McDowell Group found that the visitor industry pays $124 million in taxes and fees per year. Of that $124 million, $52 million includes taxes, fees and program receipts to the general fund. Revenue to other state entities totals $18 million and revenue to local governments totals about $54 million. These taxes have doubled over the past five years. AVA has supported taxes in the past, including the local bed taxes for visitor promotion and increased motor fuel taxes for highway maintenance. Mr. Englebrecht informed the committee that AVA's Destination Alaska Plan identified sales and fuel taxes as the most equitable manner to capture visitor spending. Mr. Englebrecht indicated that taxing methods that effect visitor spending should distribute the tax burden equally through all visitor types and sectors. AVA opposed SB 23. He echoed the sentiment that SB 23 is discriminatory, clearly taxes one segment of the visitor industry, and would not raise enough revenue for a marketing program. Mr. Englebrecht discussed problems regarding receipt authority. In conclusion, he suggested a broad based approach such as a statewide sales tax. SENATOR RANDY PHILLIPS asked if Mr. Englebrecht was aware of the Long Range Fiscal Planning Commission's recommendation of a $20 million tax increase on tourism. What is AVA's position on that recommendation? BOB ENGLEBRECHT said that any increased taxes should go to tourism related programs and projects such as ATMC. The tourism industry is more than paying its way. Mr. Englebrecht informed the committee that the City and Borough of Juneau had commissioned a study which illustrated the same point as the statewide study. In response to Senator Phillips, Mr. Englebrecht stated that he would look into AVA's position on that recommendation and report back to the committee. Number 239 CHAIRMAN MACKIE requested that Mr. Englebrecht provide the information to the committee in writing so that it could be distributed for future meetings. Chairman Mackie inquired as to the status of this discussion within the visitor industry regarding how much the industry could contribute to marketing efforts. BOB ENGLEBRECHT explained that the industry has been involved with this issue in the past. For example, the visitor industry was involved in a legislative task force with Senator Pearce and Representative McLean which produced a list of alternatives for taxation. Mr. Englebrecht noted that the problem with this issue seems to be that some group tends to be omitted. This problem lead Destination Alaska to identify a statewide sales tax as an option since it is broad based. Mr. Englebrecht said that AVA was willing to work with the legislature and the administration on this issue. RICK BARRIER , President of the Alaska Campground Owner's Association and owner of Gold Nugget Campground Park in Anchorage, appreciated the committee's amendment eliminating the campground industry. Mr. Barrier acknowledged that campgrounds are a member of AVA and agreed that there are better ways to generate general fund revenues for the state. Marketing the state as a destination does benefit other sectors besides tourism. Mr. Barrier agreed with previous statements that a more broad based tax would be appropriate. Number 165 JOAN BUDAI , bed-and-breakfast owner in Anchorage, explained that she does not have repeat visitors; most have saved all there life to come to Alaska. Ms. Budai wanted to keep her prices down for these people which would require that she absorb the cost of this tax if passed. With this new tax, many of the smaller operators would be put out of business. Ms. Budai was offended by Senator Sharp's statement that this tax could generate funds to meet the $66 million of new revenues in the 1998 fiscal year budget plan. Why are new revenues in the budget? Why is the budget not being reduced to recapture that money instead of initiating new taxes? Ms. Budai reiterated the sentiment that SB 23 is discriminatory. She reminded the committee of previous communities' efforts to tax tourism and the negative effects that resulted. JAMES ROUSEY , testifying from Anchorage, said that others had answered his questions and comments and yielded his time to the next witness. DENNIS LAVEY , owner of the Day's Inn in Anchorage, opposed SB 23. Over 60 percent of Mr. Lavey's total revenue is generated from in- state residents illustrating that the tax increase would effect Alaskan residents. Mr. Lavey informed the committee of a study that concluded that room/occupancy taxes fall disproportionately on smaller properties and higher mill rates. Increased taxes does not bring in more business. CHAIRMAN MACKIE thanked everyone for there testimony. He announced that SB 23 would remain in committee. SB 10 MOUNTAIN VIEW ROAD - GUSTAVUS  CHAIRMAN MACKIE introduced SB 10 as the next order of business before the committee. He explained that this bill had been heard in the past and did not make it through the shuffle at the last minute in the Senate. SENATOR WILKEN moved to pass SB 10 out of committee with individual recommendations. Without objection, it was so ordered. There being no further business before the committee, the meeting was adjourned at 3:00 p.m.