Legislature(2015 - 2016)BARNES 124

02/13/2016 10:00 AM LABOR & COMMERCE

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

Document Name Date/Time Subjects
HB248 Supporting Documents-Email Perry Ahsogeak 02-12-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248
HB248 Opposing Documents-Written Testimony- Bill Howell 02-13-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248
HB248 Opposing Documents-Written Testimony-Larry Hackenmiller 02-13-16.pdf HL&C 2/13/2016 10:00:00 AM
HB 248