Legislature(2015 - 2016)BARNES 124

02/12/2016 03:15 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 252-ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                    
3:39:59 PM                                                                                                                    
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."                                                                                               
3:40:05 PM                                                                                                                    
The committee took an at ease from 3:40 p.m. to 3:41 p.m.                                                                       
3:41:26 PM                                                                                                                    
JOHN  BINKLEY, President,  Alaska Cruise  Association/CLIA Alaska                                                               
(ACA/CLIA),   disclosed  a   conflict   of   interest  with   the                                                               
legislation  as  he serves  as  the  chairman  of a  family  tour                                                               
business in  Fairbanks, which is  managed by his  adult children.                                                               
Mr. Binkley provided a  PowerPoint presentation entitled, "Alaska                                                               
Cruise Association/CLIA Alaska."   He informed the committee that                                                               
ACA/CLIA  represents twelve  member lines,  who bring  almost one                                                               
million passengers  to Alaska each year  [slide 2].  In  2015, 31                                                               
ships  made 487  voyages,  and of  those  passengers, about  two-                                                               
thirds  are round  trip visitors  through  Southeast Alaska,  and                                                               
one-third  either come  up through  Southeast, travel  across the                                                               
Gulf of Alaska to various  ports in Southcentral, and then travel                                                               
by land tours throughout Southcentral  and Interior Alaska, or do                                                               
the reverse [slide  3].  Mr. Binkley said he  would discuss three                                                               
subjects related  to HB  252:   the history  of entry  fee taxes;                                                               
legal issues related to entry  taxes; and relevant public policy.                                                               
Cruise passengers are roughly one-half  of the volume of visitors                                                               
to  Alaska:   967,500 travel  by cruise  ship; 898,500  travel by                                                               
air;  and  80,400 travel  on  the  Alaska Marine  Highway  System                                                               
(AMHS) and/or on the Alaska Highway [slide 4].                                                                                  
3:45:43 PM                                                                                                                    
CHAIR OLSON  asked for  the breakdown  of the  percentage between                                                               
travelers by road or AMHS.                                                                                                      
MR.  BINKLEY did  not have  that  information.   He continued  to                                                               
explain  that  the  tourism  industry   spends  $1.8  million  in                                                               
Southcentral,  $519 million  in the  Interior, $1,004  million in                                                               
Southeast, $115 million in Southwest,  and $25 million in the Far                                                               
North, for a  total of $3.4 billion of economic  impact to Alaska                                                               
[slide 5].  Historically, the  cruise industry grew steadily from                                                               
1995 to 2007  [slide 6].  However, beginning in  2007, there were                                                               
economic changes  in the U.S., and  in 2008 and 2009,  there were                                                               
dramatic  tax policy  changes in  Alaska specific  to the  cruise                                                               
industry, as embodied in [the  Alaska Cruise Ship Tax Initiative,                                                               
Measure  2, approved  8/22/06  (cruise  ship initiative)],  which                                                               
implemented  five new  taxes in  2007.   The  new taxes  affected                                                               
large  cruise  ship  visitors  and  generated  $68  million,  not                                                               
including $15  million in  local entry fee  taxes.   In addition,                                                               
there  were new  regulatory  requirements and  a requirement  for                                                               
full-time state  contractors onboard ships, referred  to as Ocean                                                               
Rangers  [slide   7].    In   response  to  the  new   taxes  and                                                               
requirements, the  cruise line companies  reviewed the  return on                                                               
investment for their  assets, seeking to be  responsible to their                                                               
shareholders.   One benefit  of the cruise  industry is  that its                                                               
assets  are  mobile,  and  companies can  move  assets  from  one                                                               
destination  to  another  for  the highest  rate  of  return,  so                                                               
companies  redeployed ships  to  other destinations  in order  to                                                               
gain a  better rate of return  on their investment.   As a result                                                               
of the  redeployment of ships,  Alaska lost about  142,000 cruise                                                               
visitors, an  estimated $150 million  in less spending,  and over                                                               
5,000 jobs [slide 8].   Proportionally, the losses were higher in                                                               
Southcentral because more voyages across  the Gulf of Alaska were                                                               
lost.    Mr.   Binkley  spoke  of  his   personal  experience  of                                                               
downsizing his business.                                                                                                        
3:49:56 PM                                                                                                                    
CHAIR OLSON asked about the impact to Fairbanks.                                                                                
MR.  BINKLEY   said  his  family  business   downsized  from  210                                                               
employees to 140 employees.                                                                                                     
REPRESENTATIVE KITO asked for figures  on the 2008 [stock] market                                                               
crash and  collapse of the economy  in the U.S., and  opined that                                                               
both would have had measurable impact on the cruise industry.                                                                   
MR.  BINKLEY agreed.   The  economic  downturn in  2008 and  2009                                                               
affected all travel to Alaska;  the assets were moved from Alaska                                                               
to a  different destination in  order to  get a better  return on                                                               
those assets,  and there  was a  combination of  causes involved.                                                               
Returning  to the  presentation,  he said  that subsequently  the                                                               
administration and legislature sought to  return the lost jobs to                                                               
Alaska, and  the industry  filed litigation  in federal  court to                                                               
determine  how  the  entry  fee   tax  revenue  could  be  spent.                                                               
Subsequently, there was a settlement  agreement between the state                                                               
and the  industry and new  legislation was enacted  which reduced                                                               
the entry  fee tax from $46  to $34.50, directed that  all cruise                                                               
ship  visitors pay  the same  amount,  and changed  state law  to                                                               
parallel federal law and clarified  how the funds could be spent.                                                               
For example,  a key  provision ensured that  the funds  were used                                                               
for  the passengers  and the  ships.   Therefore,  any entry  fee                                                               
taxes collected  must be expended  in a service  to a ship  and a                                                               
passenger.   In  addition,  the original  cruise ship  initiative                                                               
provided that any port with an  existing head tax, such as Juneau                                                               
and Ketchikan,  was not eligible to  receive the $5 head  tax; in                                                               
the new legislation, this provision  was changed and thus reduced                                                               
the amount  the state retains from  the entry fee taxes  to about                                                               
$2 million per year [slide 9].                                                                                                  
3:56:15 PM                                                                                                                    
MR. BINKLEY  expressed ACA/CLIA's belief  that HB 252  raises the                                                               
following  legal issues:   could  jeopardize the  2010 settlement                                                               
agreement and  existing taxes; could raise  constitutional issues                                                               
asserted   under   the  2009   litigation   [slide   10].     The                                                               
aforementioned  legal issues  are based  on the  following [slide                                                               
   · Tonnage Clause of the U.S. Constitution, which addresses                                                                   
     the "laying on of any duty of tonnage," possibly pertaining                                                                
     not only to the displacement of the vessel but to its                                                                      
     passengers as well                                                                                                         
   · Commerce Clause of the U. S. Constitution                                                                                  
   · 33 U.S.C. Section 5 and Supremacy Clause, which is not an                                                                  
     issue because state law now parallels federal law                                                                          
MR.  BINKLEY returned  attention  to slides  4  and 12,  entitled                                                               
"Visitor  Volume,"  which  illustrated that  nearly  one  million                                                               
cruise  passengers were  charged an  entry fee  of $34.50  by the                                                               
state.  He  reminded the committee that HB 252  raises the fee on                                                               
cruise  ship  passengers by  $15,  and  suggested an  alternative                                                               
source of  revenue could be  raised by  charging an entry  fee of                                                               
$34.50  to visitors  who arrive  by air,  AHMS, or  highway.   He                                                               
acknowledged that his  suggestion is "a bit  absurd," because the                                                               
Commerce Clause  directs that there  is free travel  and commerce                                                               
between the  states.  Mr.  Binkley opined the Commerce  Clause is                                                               
one of the "problems" when the  state decides to charge a toll to                                                               
cruise  ship  passengers for  coming  into  Alaska, although  the                                                               
state can charge  a fee as long  as a service is  provided to the                                                               
passenger and  the ship, in the  same manner as motor  fuel fees,                                                               
licenses, and taxes which are charged for highway use.                                                                          
4:01:06 PM                                                                                                                    
REPRESENTATIVE KITO  inquired as  to the average  fare paid  by a                                                               
cruise ship passenger.                                                                                                          
MR. BINKLEY said  he did not know what an  average fare would be,                                                               
but current fares  are available on the Internet.   He added that                                                               
fares  to Alaska  can be  as  low as  $399 per  person, and  some                                                               
luxury lines charge up to $17,000.   He pointed out that for some                                                               
passengers  $34.50  per  person  is meaningless,  and  for  those                                                               
seeking  the  lower-priced cruises,  the  entry  fee can  make  a                                                               
difference in their travel destination decision.                                                                                
REPRESENTATIVE KITO surmised  that during settlement negotiations                                                               
the state [agreed to] modify a  statute so that entry tax revenue                                                               
could  only  be  used  for  certain  purposes  that  benefit  the                                                               
passenger and the vessel.                                                                                                       
MR. BINKLEY said correct.                                                                                                       
REPRESENTATIVE KITO questioned  whether the aforementioned change                                                               
is being repealed by HB 252.                                                                                                    
MR.  BINKLEY   recalled  that   previous  testimony   before  the                                                               
committee on 2/10/16 suggested "maybe  we're better to leave well                                                               
enough alone," and  there could be a legal challenge  to the tax.                                                               
He restated  that the state and  the cruise lines entered  into a                                                               
settlement  agreement  to  which  the  cruise  lines  adhered  by                                                               
bringing ships  and passengers back.   Mr. Binkley opined  HB 252                                                               
could be seen as "going back" on that agreement.                                                                                
REPRESENTATIVE  KITO  pointed  out  that  discussion  during  the                                                               
hearing has  been related to  the use of  the revenue and  not to                                                               
the level of the tax.   He questioned whether the Tonnage Clause,                                                               
the  Commerce   Clause,  or  the  Supremacy   Clause  identify  a                                                               
reasonable amount the state can charge for the tax.                                                                             
MR.  BINKLEY said  an amount  was not  specified; however,  every                                                               
jurisdiction may be different.   He said compliance requires that                                                               
there  is a  service  to  the passenger  and  the  vessel, but  a                                                               
service may cost  $34.50 or may cost much less,  such as fees for                                                               
a  private dock  that are  paid by  the cruise  lines.   He said,                                                               
"People get confused  about this and think that  ... wherever the                                                               
passenger is utilizing a service, that  you can take that tax and                                                               
follow it  to that service ...."   Towns in Southeast  have found                                                               
that  the way  to capture  the  economic activity  of the  cruise                                                               
industry is by levying a local sales taxes.                                                                                     
4:06:12 PM                                                                                                                    
REPRESENTATIVE KITO  expressed his  understanding that  the state                                                               
tax is  $34.50 and will remain  so, but the change  brought by HB
252 is  that the  local tax assessed  by municipalities  would be                                                               
added on top, thus the  local municipalities would choose whether                                                               
to implement said tax.  The state  would not be adding a tax, but                                                               
is removing an exemption for local taxes.                                                                                       
MR. BINKLEY  said from the  perspective of the visitor,  there is                                                               
an additional  tax of  $15 if  there are  stops in  Ketchikan and                                                               
REPRESENTATIVE  KITO  restated  that  in statute,  the  tax  will                                                               
remain $34.50.                                                                                                                  
MR. BINKLEY restated that the fares are increased by $15 each.                                                                  
REPRESENTATIVE HUGHES  asked whether  it is  more common  now for                                                               
families  and  groups   to  visit  Alaska  on   a  cruise,  which                                                               
multiplies the effect of the tax.                                                                                               
MR.  BINKLEY said  that  is  true.   Generally,  all visitors  to                                                               
Alaska  are  getting  younger,  and  more  family  oriented,  and                                                               
grandparents are taking grandchildren on cruises.                                                                               
REPRESENTATIVE  HUGHES  directed attention  to  [slide  5 of  the                                                               
PowerPoint  presentation entitled,  "Commercial Passenger  Vessel                                                               
Tax HB252," provided to the  committee at the hearing on 2/10/16]                                                               
which indicated  that additional revenues would  be $14.8 million                                                               
to the state  and $1.8 million to municipalities.   She asked for                                                               
Mr. Binkley's opinion  as to how the additional  revenue would be                                                               
used - subject  to federal directives - and  whether said revenue                                                               
would help close the fiscal gap, as purported by the governor.                                                                  
MR.  BINKLEY  turned  attention  to  slide  13,  which  contained                                                               
excerpts  out of  a letter  to the  legislature from  Legislative                                                               
Legal Services,  Legislative Affairs Agency, dated  9/4/09, which                                                               
he  characterized as  a cautionary  note that  the funds  are not                                                               
general funds (GF),  but are restricted funds  under federal law.                                                               
The  legislature was  advised to  be cautious  because 33  U.S.C.                                                               
5(b)(2), and  the case law, require  a service to the  vessel, in                                                               
addition to  the passengers.   He further explained that  as part                                                               
of  the  settlement  agreement,   AS  43.52.230  was  amended  to                                                               
parallel federal law [slide 14].  He remarked:                                                                                  
     There has to be, for  the expenditure of these funds, a                                                                    
     nexus  to  the  ship,  so you  can't  just  follow  the                                                                    
     passenger, it has  to benefit the ship as well.   So it                                                                    
     becomes problematic,  the farther you go  away from the                                                                    
     dock, the service  that the ship requires  ... then you                                                                    
     start  to run  afoul of  U.S. Constitution  and federal                                                                    
     law, and now state law, that says the same thing.                                                                          
4:13:46 PM                                                                                                                    
MR. BINKLEY informed  the committee that the City  and Borough of                                                               
Juneau receives approximately  $13 million per year  in local and                                                               
state entry fee  taxes.  Proposed for the city  is a bronze whale                                                               
monument and reflecting pool [slide  15].  Although private funds                                                               
will pay  for the bronze  whale, entry  fee taxes paid  by cruise                                                               
ship passengers  are going to  fund the  foundation, water-works,                                                               
and transportation to the area.   He said, "This is an example of                                                               
what we think  has gone wrong with this and  why it's apparent to                                                               
us that too many entry fee  dollars and taxes are being collected                                                               
by  the visitors,  because this  is  where those  monies are  now                                                               
going."  Although a phenomenal  project for Juneau and Alaska, he                                                               
said it should  not be paid for by visitor  entry fees and taxes.                                                               
He further described  the project in detail, noting  the bill for                                                               
the entire  structure is  $13 million [slide  16].   He concluded                                                               
that this  is an example  of projects that concern  the industry,                                                               
as there is  no real benefit to the ship  and very little benefit                                                               
to  the  passengers; in  fact,  he  questioned whether  the  city                                                               
should "try  and lure them  away from the business  district down                                                               
to view  this whale sculpture  when they could be  spending money                                                               
in Juneau  and paying sales  taxes to  the local community."   In                                                               
austere times, a  manmade island, elevated causeway,  and a whale                                                               
sculpture are an egregious example of the use of tax dollars.                                                                   
4:18:27 PM                                                                                                                    
MR. BINKLEY restated  his opposition to HB 252:   potential legal                                                               
problems; a settlement agreement  is in place; potential jeopardy                                                               
to  existing state  and  local taxes;  restricted  use of  funds.                                                               
Although the  governor is to be  applauded for trying to  fix the                                                               
fiscal problem, these are not  GF, they are restricted funds that                                                               
cannot  be  used  to close  the  budget  gap;  HB  252 is  not  a                                                               
legitimate method  of generating revenue.   Furthermore, there is                                                               
no good  analysis on how  the existing funds are  being expended,                                                               
no indication within  HB 252 on how the additional  funds will be                                                               
used,  and no  economic analysis  on the  impact of  the bill  on                                                               
private sector jobs [slide 17].                                                                                                 
4:20:28 PM                                                                                                                    
REPRESENTATIVE HUGHES  asked for  confirmation that HB  252 would                                                               
direct $2 million to close the fiscal gap.                                                                                      
MR. BINKLEY  said that's correct.   He said his  understanding is                                                               
about  $2  million  would  be  retained  by  the  state  and  the                                                               
remainder goes  to communities.   He recalled  previous testimony                                                               
that the fund was overspent last year.                                                                                          
CHAIR OLSON  asked for two other  examples of how entry  fees are                                                               
spent by port communities.                                                                                                      
MR. BINKLEY said  some ports have collected  an "accumulated pool                                                               
of  money, looking  for  projects."   He  acknowledged that  some                                                               
expenditures  are   legitimate  and   used  in  GF   for  general                                                               
government  expenses,  and  it   is  believed  [by  certain  port                                                               
communities] that  it is  legitimate to  utilize these  taxes for                                                               
general government use.                                                                                                         
4:22:53 PM                                                                                                                    
REPRESENTATIVE  KITO stated  that  the money  in the  [Commercial                                                               
Passenger  Vessel   Excise  Tax,  Tax  Division,   Department  of                                                               
Revenue] is designated toward  activities specifically related to                                                               
cruise  ships  such  as  crossing  guards,  additional  ambulance                                                               
response, and  other direct support  services.  The  projects are                                                               
vetted  and  analyzed  for  compliance  with  the  statute  which                                                               
requires  that projects  are affiliated  with a  cruise ship  and                                                               
passengers, and enhance  their experiences.  He  pointed out that                                                               
the aforementioned  future park in  Juneau is already on  a route                                                               
accessed by cruise ship passengers,  and is a legitimate expense.                                                               
Further, the  money received  by Juneau is  not state  money, but                                                               
cruise ship tax assessed by  Juneau for Juneau, thus any increase                                                               
is not  going to a  specific community,  but is designated  to be                                                               
used in  the area or  region, and for the  benefit of any  of the                                                               
first seven ports  that can support cruise ships  and cruise ship                                                               
REPRESENTATIVE  HUGHES  directed  attention   to  slide  13,  and                                                               
     It's saying  that according to the  federal limitations                                                                    
     and  case law  it  actually  has to  go  to a  specific                                                                    
     vessel,  that's  collecting,  it should  be  supporting                                                                    
     that specific,  not even  just generally,  vessels. ...                                                                    
      It almost sounds like we're, we're running adrift of                                                                      
     that.  Would you agree?                                                                                                    
MR. BINKLEY said our interpretation is  that it has to follow the                                                               
specific vessel.   Thus, if  taxes are collected  from passengers                                                               
departing a  vessel, the  funds cannot be  used in  another port.                                                               
He said,  "You can't, for example,  collect the tax off  a vessel                                                               
that calls in  Juneau, and then use  that to, for a  service to a                                                               
vessel that calls in Ketchikan."                                                                                                
REPRESENTATIVE HUGHES  questioned whether ports that  have a pool                                                               
of  money  - and  have  legitimate  services  to provide  -  need                                                               
additional money at this time.                                                                                                  
REPRESENTATIVE  KITO  suggested that  the  Department  of Law  is                                                               
better equipped to address issues of a legal nature.                                                                            
MR. BINKLEY disclosed that he is not a lawyer.                                                                                  
4:27:41 PM                                                                                                                    
REPRESENTATIVE ORTIZ  recalled that an independent  audit related                                                               
to the legitimate use of the  cruise ship tax funds was completed                                                               
MR.  BINKLEY  has heard  there  was  an  audit requested  by  the                                                               
Legislative   Budget   and    Audit   Committee,   Alaska   State                                                               
Legislature,  over how  the funds  were  expended.   There was  a                                                               
proposal   to  the   Senate  Finance   Committee,  Alaska   State                                                               
Legislature,  for the  state to  hold the  funds back  from local                                                               
communities,  and  he said  the  opinion  in the  Senate  Finance                                                               
Committee was that the funds  were overspent, however, ultimately                                                               
the funds were appropriated to communities.                                                                                     
4:29:28 PM                                                                                                                    
CHAIR OLSON said  the audit was requested and  should be received                                                               
in March or April, [2016].                                                                                                      
REPRESENTATIVE KITO  expressed his  understanding that  the audit                                                               
would be available in March [2016].                                                                                             
4:30:20 PM                                                                                                                    
FRED REEDER provided a  PowerPoint presentation entitled, "ALASKA                                                               
ACT  Alaska Alliance  for  Cruise Travel,"  dated  2/12/16.   Mr.                                                               
Reeder informed  the committee he  is a  member of Alaska  Act, a                                                               
lifelong resident of  Sitka, and has five  family members working                                                               
in the visitor  industry.  He provided a brief  history of Alaska                                                               
Act, noting that at the time  of the 2006 cruise ship initiative,                                                               
Alaska businesses  unsuccessfully relied  on the cruise  lines to                                                               
fight  the  initiative.   Because  cruise  lines establish  their                                                               
schedules two  years in advance,  the effect  of the tax  was not                                                               
felt  until  2009, when  itineraries  were  changed.   After  the                                                               
effects of the  decrease in passengers were felt,  Alaska Act was                                                               
formed by  Alaskans to get  the passengers  back [slide 2].   Mr.                                                               
Reeder related hardships  faced by his business.   The purpose of                                                               
Alaska Act  was to find  a way  to modify the  legislation, which                                                               
Alaska Act members believed to be  illegal in the manner in which                                                               
the  legislation was  written, and  in  how the  funds were  been                                                               
expended.  He said  the over 900 members of Alaska  Act - who are                                                               
Alaskans, business  owners, and  workers -  generated substantial                                                               
newspaper articles  on its goals  and plans of action  [slide 3].                                                               
The  organization made  thousands of  contacts with  legislators,                                                               
and mobilized  resources, because the cruise  ship initiative had                                                               
severely impacted its members and local communities.                                                                            
4:34:12 PM                                                                                                                    
MR. REEDER  stated that  after years  of significant  growth, the                                                               
cruise  ship  passengers  left,  and  Alaska  Act  saw  a  direct                                                               
connection between the  regulatory aspects of the  state, and the                                                               
impact  said  aspects  had  on  local  businesses.    Mr.  Reeder                                                               
cautioned  that  before  taxes  are  implemented,  it  should  be                                                               
determined  what  the   impacts  of  the  taxes  will   be.    He                                                               
acknowledged  that Alaskans  need  to work  to restore  revenues;                                                               
however,  legislators are  expected  to look  ahead at  potential                                                               
impacts.   In fact, it  is known that if  the cruise ship  tax is                                                               
raised Juneau will probably lose  156,000 passengers.  Mr. Reeder                                                               
said  he has  been  working for  his company  since  1996 and  he                                                               
tracks  all  of the  passenger  numbers.    In 2008,  Juneau  had                                                               
1,032,000   passengers,  and   in   2011,   there  were   875,000                                                               
passengers,  which  was  a  loss   of  156,000  passengers.    He                                                               
estimated that each cruise ship  passenger spends $188 in Juneau,                                                               
which would be $29 million in  lost revenue.  The loss in general                                                               
sales  tax averages  about $2  million  [slide 4].   Mr.  Reeder,                                                               
speaking from his experience as a  former mayor of Sitka, said he                                                               
would rather have  sales tax revenue than other  types of revenue                                                               
because it can be used without restriction.                                                                                     
4:38:42 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  has heard  that Southeast  Alaskans are                                                               
worried about the  impact of a second sales tax,  because so many                                                               
communities already have them.                                                                                                  
MR.  REEDER observed  that he  is familiar  with local  and state                                                               
taxes in other states, and that  like he, most people are used to                                                               
paying sales taxes.                                                                                                             
REPRESENTATIVE  JOSEPHSON observed  that sales  taxes may  impact                                                               
passengers even more than a $15 fee.                                                                                            
MR. REEDER  asked whether Representative Josephson  noticed sales                                                               
taxes prior to traveling.                                                                                                       
REPRESENTATIVE JOSEPHSON said no.                                                                                               
MR.  REEDER advised  that most  tourist  destinations recoup  the                                                               
cost of visitors through a sales tax.                                                                                           
REPRESENTATIVE  JOSEPHSON  pointed  out   that  the  state  needs                                                               
revenue  because   a  $1.8   billion  budget   "would  absolutely                                                               
devastate  the economy."   He  questioned whether  the impact  of                                                               
operating  budget  cuts  should  also be  part  of  the  economic                                                               
MR. REEDER said, "I think it has to be."                                                                                        
REPRESENTATIVE  JOSEPHSON   recalled  that  the  impact   of  the                                                               
recession was  so profound that  it had to  be a major  factor in                                                               
the downturn.                                                                                                                   
MR. REEDER stated  that the ships were redeployed  after the tax,                                                               
but before the  recession.  In fact, the ships  are always filled                                                               
1 percent to 3 percent higher than what is originally forecast.                                                                 
4:43:42 PM                                                                                                                    
REPRESENTATIVE  KITO  observed that  sales  taxes  may not  be  a                                                               
concern for  those making a  certain level of income;  however, a                                                               
single parent  with two kids  living on  a fixed income  may have                                                               
significant  problems because  he/she  would be  paying a  higher                                                               
percentage of  his/her income,  and in Juneau  there is  no sales                                                               
tax exemption  for food.   A community sales  tax may not  have a                                                               
dramatic impact  on a tourist,  but would have a  dramatic impact                                                               
on residents in the community who  are struggling to survive.  He                                                               
opined that  a $15  per head  tax on a  $300 cruise  is like  a 5                                                               
percent sales  tax; if a  tourist spends $300 on  purchases, they                                                               
have paid 5  percent in sales tax.    Representative Kito pointed                                                               
out that statutes are in place  to address the issue of where the                                                               
money  can be  spent, which  was the  point of  the lawsuit.   He                                                               
     So, it seems like we're  just talking about a value and                                                                    
     then, our job  as the state, is to make  sure that that                                                                    
     money is  spent appropriately.  ... I'm  just concerned                                                                    
     about a sales tax and that  impact of that sales tax on                                                                    
     lower-income individuals in our community.                                                                                 
4:45:32 PM                                                                                                                    
MR. REEDER said  he can appreciate that a state  sales tax can be                                                               
a hardship.  Many localities don't  assess sales taxes on food or                                                               
housing,  but on  luxury  items, and  sales  taxes could  "target                                                               
those items  that [visitors] may  be involved with,  hotels ...."                                                               
Mr. Reeder returned to the  history of the cruise ship initiative                                                               
and noted that the tax was  reduced from $46 to $34.50, providing                                                               
for an additional offset for  head taxes that communities already                                                               
charged, and  that the funds  are to  be used for  facilities and                                                               
services for passengers and ships.   He further explained that is                                                               
why  an increase  in the  tax does  not help  the state's  fiscal                                                               
problem,  and the  fund must  be  reviewed every  three years  to                                                               
ensure that communities are not spending  the money in a way that                                                               
does  not  benefit the  ship  and  the  passenger; in  fact,  the                                                               
industry understood  that as ports  develop, less money  would be                                                               
needed,  and the  amount of  tax  would be  reviewed and  perhaps                                                               
lessened.   He opined  that the  cruise lines  would not  sue but                                                               
warned that a passenger offended  about improvements that did not                                                               
benefit the ship  may bring a class action lawsuit.   Part of the                                                               
goal of Alaska Act was to  prevent a single community from having                                                               
a head  tax that presents  a deterrent to  the cruise lines.   He                                                               
acknowledged that there  are legal port expenses that  need to be                                                               
paid by ports that have cruise  ships, and the statewide head tax                                                               
accomplishes  that  goal.   He  stressed  the importance  of  the                                                               
review and that  the projects have been vetted  by the Department                                                               
of Law  (DOL).  The  final change was  that all ports  receive $5                                                               
per  passenger  [slide   5].  Turning  to  the   impacts  of  the                                                               
settlement agreement and legislation,  Mr. Reeder said the cruise                                                               
lines agreed  to bring back  more ships - passengers  will number                                                               
more  than one  million  this year  in Juneau  -  and Alaska  Act                                                               
believes that the state should  honor its agreement.  A dedicated                                                               
tax on  the industry will not  help Alaska, and can  only be used                                                               
in the ports that serve the cruise ships [slide 6].                                                                             
4:51:29 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  observed that the state  has shrunk its                                                               
capital budget  to the amount  required to qualify for  a federal                                                               
match, and  he said there  must be great infrastructure  needs in                                                               
Southeast Alaska.                                                                                                               
MR. REEDER said  there were infrastructure needs  that pertain to                                                               
cruise ships and their passengers;  however, Sitka saved its head                                                               
tax  money and  is  redoing its  tender dock  area,  as well  the                                                               
visitors' center.   He said Sitka does not need  much else in the                                                               
near-term,  and  other communities  are  the  same.   Mr.  Reeder                                                               
opined  that the  number of  projects that  qualify for  head tax                                                               
funds will decrease, and he again warned of a lawsuit.                                                                          
REPRESENTATIVE  JOSEPHSON surmised  that the  vulnerability of  a                                                               
lawsuit would  still be  true, given  the settlement  was largely                                                               
based on the reduction of the tax.                                                                                              
MR.  REEDER   agreed;  however,  the  important   aspect  of  the                                                               
settlement was the review process  of the law, which ensures that                                                               
the amount of  the tax is appropriate to the  changing needs in a                                                               
port community and applies only  to legal projects.  He concluded                                                               
that the position  of Alaska Act is that the  $15 increase is not                                                               
warranted, cannot be  used to address the  state's fiscal problem                                                               
- which  the visitor industry  recognizes - and data  proves that                                                               
HB 252 will  cause the loss of thousands of  jobs and millions of                                                               
dollars of tax revenue [slide 7].                                                                                               
REPRESENTATIVE  KITO  stated  that  Juneau  and  other  ports  in                                                               
Southeast have  infrastructure needs  such as  accommodations for                                                               
larger  vessels, and  accommodations in  smaller communities  for                                                               
more vessels;  in fact, Juneau  is spending a  lot of money  on a                                                               
facility  to accommodate  larger vessels  scheduled to  arrive in                                                               
the future.                                                                                                                     
MR. REEDER  agreed; however, he questioned  the budgeting methods                                                               
of  certain  communities.    The  purpose  of  the  tax  was  for                                                               
communities to save over time and fund projects.                                                                                
REPRESENTATIVE  HUGHES asked  whether the  whale sculpture  falls                                                               
into  the  definition  of  a  service,  in  the  same  manner  as                                                               
restrooms, under federal law.                                                                                                   
MR. REEDER was unsure.                                                                                                          
5:00:54 PM                                                                                                                    
CHAIR OLSON announced that HB 252 was held over.                                                                                

Document Name Date/Time Subjects
HB252 Supporting Documents-DCCED Follow Up To 02-10-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 252
HB252 Supporting Documents-DCCED-CPV Report FYs07-14.pdf HL&C 2/12/2016 3:15:00 PM
HB 252
HB252 Supporting Documents-DOR Annual Report-Shared Taxes and Fees FY15.pdf HL&C 2/12/2016 3:15:00 PM
HB 252
HB248 Opposing Documents-Email Debara Kassik 02-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Supporting Documents-Email Bruce Van Dusen 02-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Email Hillary Bean 02-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Supporting Documents-Email Kristin Cox 02-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Document-Letter-Frank and Debara Kassik 2-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Email Brian Olson 02-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Article-ADN 09-15-13.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Beer_Wine_Spirits Tax Charts.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB252 Opposing Documents-Presentation by Alaska ACT 2-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 252
HB252 Opposing Documents-Presentation AK Cruise Assoc 2-12-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 252
HB248 Supporting Documents-Letter AK Mental Health Board 02-11-16 and McDowell Group Costs of Alcohol and Other Drug Abuse in AK 07-12 .pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Letter Katie Jacoy 02-11-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248
HB248 Opposing Documents-Letter Bill Fry 02-11-16.pdf HL&C 2/12/2016 3:15:00 PM
HB 248