Legislature(1997 - 1998)
02/19/1997 01:34 PM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 5 EXCISE FEE ON PASSENGER SHIP TRAVELERS CHAIRMAN MACKIE brought SB 5 before the committee as the next order of business. SENATOR BERT SHARP , prime sponsor of SB 5, explained the legislation has several purposes, not the least being revenue to the state. It is also a preemptive strike, possibly, that would reserve this type of revenue for the state of Alaska so as not to have individual cities up and down the coast battling about what level of head tax they would want to charge in the future. He noted an attempt to levy a head tax on cruise ship passengers failed at the polls in the City and Borough of Juneau last October, and that there has been discussion in other communities about a possible head tax. Senator Sharp read the following sponsor statement into the record: "SB 5 would levy a $25 per passenger fee for each port of call within Alaska. "It is the intent of this legislation that the fee revenue collected be distributed to municipalities through the existing program of state revenue sharing to municipalities. The municipalities shall use the shared revenue to provide, operate and maintain emergency response capabilities as well as public safety and security services. "It is recognized that the large number of cruise visitors arriving in our state impact not only on the port cities but many continue their travels throughout Alaska, thereby impacting public service facilities in many areas. Several of the major cruise companies offer cruise and land tour packages as a majority of their options and to this end they own hotel/motel facilities throughout the state served by transportation equipment that they own. "Section 1 outlines the intent and purpose of this bill. "Section 3 establishes the exclusiveness of the state to levy or collect a passenger tax or fee except for those already in existence and pledged by covenant to the retirement of port facility bonds. This will preclude a hodgepodge of varying levels of port fees causing friction among port cities. It also will avoid the cruise companies from telling one that if you do that, we won't come there anymore, which has occurred in the past. "Section 4 adds a new chapter to AS 43 which sets the responsibility and procedures for collection of the fees, disposition of said revenues, subject to appropriation through the existing municipal revenue sharing statutes, establishes the fee and its applicability and defines certain terms used to assure clarity and understanding. "Finally, a "non-severability" clause is stated in Section 5 and Section 6 sets and effective date that is practical to the seasonal nature of this activity. The primary benefits of this proposed legislation are: 1. Provides a method for a large portion of the visitors to our state to share in the cost of providing critical public services that they demand, utilize and expect. 2. Provides a low cost system of levy collection and administration of this fee system. 3. Provides a fair and effective method of distribution of those revenues throughout the impacted areas via an already existing state municipal revenue sharing mechanism. 4. There is no question about our visitors needing and utilizing emergency and other public safety services; you read about them practically every day. Throughout the world, with the exception of Alaska, fees are levied at most port-of-calls and they range from $25 to $75 per call. These fees are added to the published fares in all instances; thereby, they do not affect the cruise operators bottom line profit, if, indeed, their cruise cost as advertised includes the cost of operation. "I urge each committee member to carefully scrutinize the contents of this proposed legislation, ask questions, and ask yourself ... Does this offer an acceptable, reasonable avenue to achieve a portion of the $66 million in new revenue called for in this second year of our long-range financial plan? Does this offer a new revenue stream that would be more acceptable to your constituents than other options? Is maintaining a viable state municipal revenue sharing funding level important to us? "If we are to be successful in achieving this year's financial plan goals, this may very well be one of the options that we want to consider. That is why I've offered this bill as option to consider, to get testimony and people to the table to talk about it." Number 140 Senator Sharp directed attention to a handout which outlines port charges, taxes and government fees that are added on to a passenger's fare by Holland America and Princess Tours. Last year these charges totaled approximately $50,525,130. A McDowell Group study found that approximately $2.8 million was paid in state for port moorages and lightering fees. He said this leaves $47,725,000 for some other services that are unclear, but he does not think that they qualify as taxes or government fees as stated in the publications of the cruise companies. He said the expenses probably are justifiable but he doesn't think the descriptions accurately say what they are. Senator Sharp also spoke to lawsuits filed in Florida by people that book reservations and then have to explain the additional port charges, taxes and government fees when writing up tickets. It was discovered that a majority of these charges were not port charges, taxes and government fees. That situation was settled, and the publication is being redesigned and clarified so that the buying public knows exactly what those added on fees are for. Senator Sharp stressed that he is not picking on the two companies that operate a majority of the business in Alaska; he is just saying that this may be the opportunity to avoid a dog fight down the road between communities once they consider levying a head tax. This legislation would preempt that by making it a state option, and then distribute the money through municipal revenue sharing all over the state where there is an impact from tourism. Number 255 SENATOR SHARP directed attention to two amendments. The first amendment clarifies that "vessel" is one that has overnight accommodations for more than 20 persons, so that eliminates the day cruises and the charter boat operators, etc. The second amendment clarifies the definition of "port." CHAIRMAN MACKIE suggested dealing with the amendments after all the testimony on the bill has been heard. He then opened the meeting to public testimony. Number 285 FRANK ROSE , testifying from Fairbanks on behalf of the Alaska Hotel and Motel Association, said their concern is making sure that there is a good understanding that this particular bill not only impacts what's happening in Southeast Alaska, but has a tremendous impact on what's happening in Interior Alaska. Eighty percent of the business during the summer months of two of the largest hotel operators in the Fairbanks area comes from cruise tour business, and fifty percent of the business of a hotel that he manages in Denali National Park comes from cruise tour business. The concern is that as prices start to rise, visitors will reconsider where to travel. He said to say that the tax will have no impact on the tour operators is short sighted, and as the prices rise, the number of passengers will obviously start to decrease. Number 316 TOM DOW , Vice President of Public Affairs, Princess Cruises and Princess Tours, testifying in Juneau on their behalf as well as the Northwest Cruise Ship Association, said he had several points to make in hopes of clearing up what he thinks may be some misconceptions or misunderstandings regarding the proposed tax. He added that he finds himself in the position of agreeing with Senator Sharp on several points that he made, if not all of them. Mr. Dow said this proposed tax is unprecedented; there is no other state or local government anywhere in the United States that imposes a general tax on cruise passengers to fund general government operations. On the other hand, cruise ship operators pay port charges everywhere, including Alaska. He said everybody knows about these charges before they book a trip so it is not a hidden charge. The charges paid by the cruise lines relate to facilities and services provided to the ships or the passengers, and they are customary and accepted widely in the industry. These customary charges include docking, tugs that are sometimes necessary, stevedoring, harbor pilots, etc., and in places like Juneau, Princess Cruises pay sales taxes on top of these charges. These are charges which would not be incurred were it not for the port call. It is estimated that industry wide the cruise lines spend about $25 million a year on these types of charges and fees. Mr. Dow also pointed out that the cruise industry works with the local ports in an effort to provide real solutions to real problems. In Sitka, the cruise industry paid 50 percent of the cost for an additional lightering dock, and they have done the same thing in other ports around the state. The long established cruise and tour operators make substantial investments in Alaska which contribute to the local tax base, employment and economic activity. He added Princess will become the largest bed tax payer in the Mat- Su Borough this year when they open their new hotel, as well as becoming one of the larger property tax payers there. Concluding his testimony, Mr. Dow stated Princess and the Northwest Cruise Ship Association support the Alaska Visitors Association's position that any tax on the visitor industry needs to be broad based and equitable, and he urged deferring action on SB 5 while efforts to come up with an alternative are explored. Number 485 CHAIRMAN MACKIE asked what the impact would be on pricing if their vessels were to stop at four ports during a cruise to Alaska. MR. DOW replied that the real pricing on cruising Alaska has not increased in the last five years, which is also true for all the major cruising destinations. However, they think they are probably at the pricing point they could be at, and the impact of this could be significant. Number 500 TOM TOUGAS , President of Kenai Fjord Tours in Seward and testifying from Seward, said it appears the concern about day boats and charter boats will be addressed by Senator Sharp's proposed amendment. Other concerns are the unfairness of singling out one industry and that the smaller ports like Seward, Sitka and Valdez will be bypassed by the cruise lines because of the added cost to stop at those ports. He said the industry understands the concern to raise additional revenues, and they stand ready to work with the Legislature on a broad based tax. Number 530 BOB ENGELBRECHT , President of the Alaska Visitors Association, testifying in opposition to SB 5 outlined the following concerns: (1) The tax is unfairly targeted; it targets one segment of the industry, of the traveling public. Additionally, this bill is trying to replace financial assistance to city governments with taxes imposed on visitors. (2) The tax is excessive; $25 per port per passenger will add somewhere between $75 and $100 or more to the price of a cruise for the privilege of disembarking at an Alaskan port. It is a very price sensitive market and this tax would add somewhere around 15 percent to the cost of a cruise. Visitors are already paying sales taxes to support general government services in many of the port communities. (3) The tax would negatively affect economic development, particularly in the area of some of the smaller communities that are trying to attract more cruise ship calls to their communities, and it would probably encourage them to stop at fewer ports. Mr. Engelbrecht stated the visitor industry is prepared to pay its fair share in taxes, and as the state looks for new sources of revenue, they ask the search be guided by principles of fairness and that new taxes be equitable and broad based. TAPE 97-7, SIDE B Number 020 CHAIRMAN MACKIE asked Mr. Engelbrecht if he could explain the process the industry would go through on taking a position on a broad based tax, either on the industry itself or overall. MR. ENGELBRECHT answered that he sees it starting at AVA's board of directors level and smaller committee groups, and then going out to the membership to see if it is something that works for them and is fair and equitable. Number 080 KAREN ROGINA , Executive Director of the Alaska Hotel and Motel Association, testifying from Anchorage in opposition to SB 5, said their opposition to this bill stems from the belief that it will not accomplish its goal of creating a sustainable revenue stream. It will erode the cruise visitors' travel into the Interior, and decreased visitors means fewer hospitality related positions to fill. Taxes that are specifically targeted at visitors will ultimately result in fewer visitors. Making the state more difficult to market will mean more money will need to be spent to attract visitors. Number 110 DAVID LEE , Executive Director of the Valdez Convention & Visitors Bureau testifying from Valdez, pointed out that for the 1997 cruise ship season, Valdez is already looking at 10 less dockings than they had in the 1995 and 1996 seasons, and they believe that SB 5 would further discourage any growth in this activity. He noted the City of Valdez has plans to expand and improve its port facilities, and this legislation would be self defeating to their local effort. Number 133 KEVIN RITCHIE , representing the Alaska Municipal League and the Alaska Conference of Mayors, said both organizations agree more work is needed on an issue that is this important. Mr. Ritchie thanked Senator Sharp for recognizing that stabilizing revenue sharing, which is another purpose of SB 5, is very important. He said without stable local taxation, we're hurting the growth of all business and all economies. Shared revenues is a good way to go, and those type of issues are being discussed. The more visitors, the more people that are on the roads the greater the wear and tear, and so there are some good broad based taxes that have a place in revenue sharing. Number 220 SHARON ROMERO , testifying from Fairbanks on behalf of the Fairbanks Convention and Visitors Bureau, voiced their opposition to SB 5. The industry and their Interior industry businesses are highly dependant upon the cruise segment of their marketing efforts and what they offer to their visitors. She noted the City of Fairbanks has a bed tax of which the Fairbanks Convention & Visitors Bureau gets 65 percent and the other 35 percent goes to the city for its efforts which includes some road repair as well as money going back to the city. For the Fairbanks North Star Borough, 100 percent of the bed tax collected goes into the borough's general fund. She concluded there are monies being collected from the tourism industry that are being put back into the municipalities. Number 260 The teleconference moderator in Seward informed the Chairman that John Tippett and Kim Hughes were present in the Seward LIO and wanted to go on record as being in agreement with the comments made earlier by Tom Tougas of Seward. Number 270 STAN STEPHANS , owner of Stan Stephans' Cruises in Valdez stated his opposition to SB 5. He urged the committee's favorable consideration of Senator Sharps' amendment which would exclude vessels having overnight accommodations for less than 20 persons. He has various charter trips that cover Prince William Sound. For one of his shorter trips that just goes into the bay, he charges $35 and an additional $25 head tax would bring the cost up to $60. He also has a trip to Whittier that stops at two ports and the head tax would mean an additional $50 to each passenger. He stressed the need for a broad based tax, which, he said, makes more sense. Number 288 C.J. ZANE , representing Holland America Lines, expressed appreciation for the hearing on SB 5. He informed the committee that Al Parrish, who is a vice president for Holland America Lines and based in Anchorage, had planned to testify, but his plane was unable to land in Juneau due to inclement weather. Number 310 CHAIRMAN MACKIE brought the following Amendment No. 1 before the committee: Amendment No. 1 Page 4, line 30: Following "or vessel" insert "having overnight accommodations for more than 20 persons" SENATOR SHARP explained it was never the intent to levy a tax on day cruises or small charter boats and he thinks the amendment would take care of that problem. CHAIRMAN MACKIE asked Mr. Stephans if he thought more than 20 persons was an adequate number and if he was aware of other operators in the same business that might be affected by that number. MR. STEPHANS responded that he has one vessel that sleeps 35, but it doesn't get used often for overnight stays so he doesn't think it will affect him more than four or five times during the year. He related that Alaska Sightseeing has a new vessel coming on line this year that will be making three-day overnight trips within Prince William Sound, and he thinks the passenger count on that vessel is close to 100. CHAIRMAN MACKIE stated it was not his intention to take any action on the bill or the amendments until concerns like those raised by Mr. Stephans could be looked at.