Legislature(1997 - 1998)

02/19/1997 01:34 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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              
 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              
 (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            
 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.                                              

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