03/08/2011 10:15 AM House ECON. DEV., TRADE & TOURISM

          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.