03/29/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB28 | |
| HB36 | |
| HB2 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 2 | TELECONFERENCED | |
| *+ | HB 36 | TELECONFERENCED | |
| *+ | HB 28 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
March 29, 2005
8:14 a.m.
MEMBERS PRESENT
Representative Kurt Olson, Co-Chair
Representative Bill Thomas, Co-Chair
Representative Gabrielle LeDoux
Representative Sharon Cissna
Representative Woodie Salmon
MEMBERS ABSENT
Representative Pete Kott
Representative Mark Neuman
COMMITTEE CALENDAR
HOUSE BILL NO. 28
"An Act relating to the municipal dividend program; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 36
"An Act making an appropriation for the state revenue sharing
program and the safe communities program at fiscal year 1998
levels, as adjusted for inflation, to provide for public safety
and other municipal services; and providing for an effective
date."
- HEARD AND HELD
HOUSE BILL NO. 2
"An Act relating to taxes regarding certain commercial passenger
vessels operating in the state; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 28
SHORT TITLE: MUNICIPAL DIVIDEND PROGRAM
SPONSOR(S): REPRESENTATIVE(S) MOSES
01/10/05 (H) PREFILE RELEASED 12/30/04
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) CRA, STA, FIN
03/29/05 (H) CRA AT 8:00 AM CAPITOL 124
BILL: HB 36
SHORT TITLE: APPROP: MUNI REVENUE SHARING/SAFE COMM
SPONSOR(S): REPRESENTATIVE(S) KAPSNER, GARA, GUTTENBERG
01/10/05 (H) PREFILE RELEASED 12/30/04
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) CRA, FIN
03/29/05 (H) CRA AT 8:00 AM CAPITOL 124
BILL: HB 2
SHORT TITLE: TAX ON COMMERCIAL VESSEL PASSENGERS
SPONSOR(S): REPRESENTATIVE(S) GATTO
01/10/05 (H) PREFILE RELEASED 12/30/04
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) CRA, TRA, FIN
03/29/05 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
ADAM BERG, Staff
to Representative Carl Moses
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 28 on behalf of the sponsor,
Representative Moses.
KEVIN RITCHIE, Executive Director
Alaska Municipal League (AML)
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 28, discussed
property taxes in Alaska.
REPRESENTATIVE MARY KAPSNER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on HB 28 and spoke as the sponsor
of HB 36.
KATHIE WASSERMAN
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 28, related the
plight of small communities, and testified in support of HB 36.
REPRESENTATIVE DAVID GUTTENBERG
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 36.
BOBBY ANDREW, President
Aleknagik Natives Limited
Aleknagik, Alaska
POSITION STATEMENT: Testified on HB 36.
BILL ROLFZEN, State Revenue Sharing Municipal Assistance
Division of Community Advocacy
Department of Commerce, Community, & Economic Development
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 36, answered
questions.
REPRESENTATIVE CARL GATTO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 2.
CODY RICE, Staff
to Representative Carl Gatto
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 2 on behalf of the sponsor,
Representative Gatto.
ACTION NARRATIVE
CO-CHAIR KURT OLSON called the House Community and Regional
Affairs Standing Committee meeting to order at 8:14:15 AM.
Representatives Olson, Thomas, LeDoux, and Cissna were present
at the call to order. Representative Salmon arrived as the
meeting was in progress.
HB 28-MUNICIPAL DIVIDEND PROGRAM
CO-CHAIR OLSON announced that the first order of business would
be HOUSE BILL NO. 28, "An Act relating to the municipal dividend
program; and providing for an effective date."
8:14:32 AM
ADAM BERG, Staff to Representative Carl Moses, Alaska State
Legislature, explained that HB 28 proposes giving every
incorporated municipality in the state an amount of money based
on the municipality's population. The intent, he relayed, is to
empower local officials by allowing them to decide how best to
spend the money within their community. He explained that the
dividend is $250 per person with a minimum payment of $40,000
per municipality. Boroughs would also receive a dividend based
on the total population of the borough minus the total
population of incorporated municipalities within the borough.
The money will come from the earnings reserve account, and only
after permanent fund dividends have been accounted for and
inflation-proofing has taken place. In the event the earnings
reserve account is less than the municipal dividend payments,
municipal dividends would be reduced on a pro rata basis.
8:16:35 AM
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), opined that key components of this issue are the shift
away from local services, local issues, and economic development
over the last 10 years. The aforementioned came to a head with
the elimination of revenue sharing last year. Next year at this
time, as the facts indicate, there will be half the small cities
that there are this year. Although these small communities are
poor, they have been in existence for thousands of years and a
higher standard of living has developed such that some public
safety is expected as is the ability to fly or drive out of the
community. However, those services are being lost and the
smaller city population will migrate to the larger communities.
Those larger communities are losing their ability to address
problems. In fact, Alaska has some of the highest property
taxes and some of the highest total local taxes in the nation.
Mr. Ritchie then referred to a handout entitled, "Status Update
(3/1/05) Municipal Governments (DCCED Division of Community
Advocacy)," which provides a summary of what is happening in
Alaska's small cities. He pointed out that the committee packet
should also include letters from many of the impacted
communities. The green sheet entitled, "Local Government Issue
Paper" details property tax increases since 1986 as provided by
the state assessor, and illustrates the correlation between
property taxes and state funding. He noted that the committee
packet should also include a document that provides a comparison
of local taxes nationwide and in Alaska. One of the most
significant pieces of information is that Anchorage's property
taxes rank 17th in the nation in 2003, while on a per capita
basis the tax revenues in Anchorage ranked 31st in per capita
taxation in Alaska.
MR. RITCHIE then highlighted that one of the major factors for
rising taxes in communities is the fact that the state hasn't
fulfilled its statutory obligation to reimburse municipalities
for the senior citizen and disabled veteran property tax
exemption. In summary, Mr. Ritchie stated that what the
legislature does this year could save half of the small
communities of the state. The economy of the state is largely
dependent upon the commerce between small and large communities.
8:23:29 AM
REPRESENTATIVE LEDOUX asked if Mr. Ritchie meant to say that
Alaska has some of the highest local taxes in the nation.
MR. RITCHIE replied yes.
REPRESENTATIVE LEDOUX pointed out that the chart provided by Mr.
Ritchie specifies that while property taxes are ranked 17th,
when one considers [all taxes] Anchorage is ranked 50th.
MR. RITCHIE acknowledged that the chart covers state and local
taxes throughout the nation. He highlighted that Alaska is the
only state without state taxes. The significance of having
really high property and local taxes is in comparison with other
states, which provide significant sharing of revenues with their
communities. Furthermore, when any one tax is skewed, even more
of the competitive edge with the country is lost.
8:25:14 AM
REPRESENTATIVE CISSNA inquired as to why the [state] would want
smaller communities. She said she wasn't surprised with Mr.
Ritchie's testimony as she observed the problems small
communities face in her visits to small communities over the
interim. From all these, she has realized that what the
legislature does has an impact. She characterized this
legislation as good. She then indicated the need to know why
incentives are necessary for small towns and why small towns are
important to the state. Representative Cissna turned attention
to her own district, which is the core of the health services in
the state, including many of the institutions of last resort.
Those institutions reported a huge influx. For example, one
agency reported an increase in consumers in the amount of 3,000.
Such an influx begins to erode capacity, which in turn impacts
quality and causes costs to increase. Representative Cissna
emphasized the need for the state to have policies that maintain
stability. She said that revenue sharing is important to have
in attempting to keep health care costs in line. She indicated
that perhaps [the plight of small communities] is related to
[health care costs].
8:29:35 AM
MR. RITCHIE said that he would address the value of "small
cities to small cities" and to Alaska as a whole. In Alaska,
nearly all of the very small rural communities are poor and have
a rich cultural history. In the past 50 years, revenue sharing
and other programs have allowed these small communities to have
an acceptable level of services such as public safety, law
enforcement, and transportation. However, the quality of life
in these small communities is diminishing to the point that
residents are moving out. He highlighted [an Institute of
Social and Economic Research (ISER) study entitled, "Status of
Alaska Natives 2004"], which states: "Out-migration of Alaska
Natives from their homes in rural Alaska has accelerated over
the last 30 years. In the last decade, 11,011 Alaska Natives
(nearly 10% of the rural population) migrated to urban areas."
With regard to the value these small communities have to the
state, he related that about one out of five jobs in urban areas
sell items to other areas of the state. An estimated 20 percent
of the jobs in urban areas serve other parts of the state. Mr.
Ritchie pointed out that poor small communities are magnets for
federal funds that aren't available otherwise. If many small
communities are lost or shrink to the point of being nonviable
communities and more people move into urban areas, the urban
areas lose some of the jobs that serve the rural areas.
8:33:13 AM
REPRESENTATIVE LEDOUX pointed out that many small communities
aren't municipalities and are operated through tribal
governments. She surmised that this municipal dividend doesn't
include tribal governments, although they have the same
financial problems [as municipalities].
MR. RITCHIE said that he isn't competent to speak to the funding
of tribes, which have a different funding stream than
municipalities. However, he said that there is so little money
in much of rural Alaska and thus if the tribal government or the
municipal government doesn't work together, there are serious
impacts on the quality of life in the community. He noted that
those communities that have no municipal government at all, and
in some cases have no tribe either, are part of the
legislature's unorganized borough, to a large extent. "I think
the legislature as a whole would be well-served to look at all
communities and what could be done to assist them," he opined.
8:35:00 AM
CO-CHAIR THOMAS referred to the document entitled "Status Update
(3/1/05) Municipal Governments", which specifies that these
small communities struggling with financial situations have made
significant reductions to core services, including the closure
of washeterias. He asked if some communities provide
washeterias for the community.
MR. RITCHIE replied yes, and clarified that sometimes the
washeterias are run through a local health organization or a
municipality. He explained that if there's no running water or
sewer in a community, the washeteria becomes a center for
washing clothes, washing oneself, and obtaining water.
8:35:56 AM
REPRESENTATIVE MARY KAPSNER, Alaska State Legislature,
interjected that many small communities run the local water and
sewer plant to which the washeteria/laundromat is often
attached. Many communities, she related, believe washeterias
fall under the realm of public health. For instance, before
there were washeterias it would have been almost impossible to
stop a lice outbreak. She explained that traditionally [many of
these small rural communities] had steam baths, but now, with
more antibiotics being prescribed, bacteria that is more
difficult to kill is surfacing. For example, steam bath boils
are being transmitted and the steam bath has to be burned to
eliminate the bacteria. Therefore, the washeterias are becoming
more important [in these small rural communities].
8:37:36 AM
CO-CHAIR THOMAS related that he lives in a community that's
economically depressed. He related that three of his five
children have left Alaska because of the lack of jobs in
Southeast. Although people strive to obtain an education, that
education can't be used in [the small rural community] and thus
those individuals migrate.
MR. RITCHIE noted that in many Southeast communities when a
major industry closes, the community struggles to recreate
itself. However, when the initial wave of residents leave [due
to the closure of a major industry] the infrastructure remains,
which results in higher taxes or lower services. The
aforementioned could cause others, who don't really want to
leave, to do so. Therefore, the elimination of revenue sharing
and avoidance of the Public Employees' Retirement System (PERS)
and Teachers' Retirement System (TRS) issue pushes communities
down further.
8:40:10 AM
CO-CHAIR THOMAS recalled that when fishing was the hot industry
and fishing prices dipped, people [in small rural villages]
turned to logging, which also ultimately faced a downturn.
8:41:06 AM
REPRESENTATIVE SALMON pointed out that HB 28 is similar to [HB
49]. As funds are taken away from these small communities,
people have to move to the urban areas. The villages that
really need funds aren't even on the list included in the
committee packet. Tribal communities are still part of Alaska,
he emphasized. He further emphasized the need to look at this
problem [throughout] the whole of Alaska because the smaller
communities are part of [Alaska's economic] formula. He echoed
earlier testimony regarding the fact that resource-based
industries, such as fish, timber, and fur, are diminishing.
8:44:03 AM
KATHIE WASSERMAN, Alaska Municipal League, recalled her
experience as mayor the of one of these small communities, and
opined how it's virtually impossible to operate a small
community. She related the diminished services that Pelican has
experienced and the difficulty in taking care of a small
community to which no money is entering. Although every entity,
small community, and state may not operate wisely all the time,
it doesn't mean it should be cut. With regard to the governor's
recent comments at the Southeast Alaska Conference at which he
related that life is good in Alaska, Ms. Wasserman opined that
[the aforementioned view] is all about one's location. She
questioned what business will want to enter a community without
[basic] services. These communities, she opined, need the tools
to build themselves back up to viable communities.
8:47:27 AM
CO-CHAIR THOMAS remarked that he didn't like revenue sharing
legislation because such legislation doesn't provide funds to
the unorganized municipalities. He estimated that about 80
percent of Alaska's wealth is from the oil royalties from
outside the urban areas. Furthermore, the impacts of [the
industries producing those royalties] are felt in those [rural
areas]. He characterized the oil industry and the wealth it
brings as an asset that all Alaskans should share. He concluded
by echoing Representative Salmon's comment that the unorganized
municipalities should receive their share.
8:49:05 AM
REPRESENTATIVE CISSNA asked if the sponsor has thought about
ways to expand the impacted population.
MR. BERG said that subject has come up. Mr. Berg related that
Representative Moses is open to amendments that would include
unincorporated areas. However, the legislature has [encouraged]
the organization of communities. Therefore, the unincorporated
areas aren't included in this legislation because [the sponsor]
believes it's important to get these communities help. Whatever
[legislation helping communities] can make it through the
legislature is what the sponsor desires, he related. If
including unincorporated areas kills the legislation, then no
one would be helped.
8:50:56 AM
CO-CHAIR THOMAS recalled that under the old municipal revenue
sharing, everyone shared the funds.
MR. BERG reiterated that the sponsor is open to include
unorganized areas so long as it's backed by the will of the
legislature.
CO-CHAIR THOMAS surmised that allowing the funds to go to
unorganized areas would dilute the total allocation to each
community.
MR. BERG suggested that the committee could increase the
allocation. He reiterated that the desire is to provide as much
help as possible to as many communities as possible.
8:52:44 AM
REPRESENTATIVE SALMON pointed out that out of the 95 villages in
District 6, 72 villages are not on list of those that will
receive funds under HB 28. Therefore, he questioned what to
tell those villages. He opined that he would rather not see any
money go out [to any area], if those 72 villages aren't
included.
MR. BERG reiterated that the sponsor is open to amendments to HB
28. The desire is to provide help to all the communities
[possible], but the sponsor wants to have legislation that will
pass through both bodies. He also reiterated that if the
political will is there to take care of the unorganized areas as
well, the sponsor is supportive of that.
8:55:04 AM
REPRESENTATIVE CISSNA interjected that [the state/legislature]
has eliminated help to communities in many other ways beyond
revenue sharing. If [the legislature] doesn't act soon, she
opined that the nature of Alaska will change. Therefore,
Representative Cissna said that she would like to see the
committee do something with HB 28.
8:56:01 AM
CO-CHAIR OLSON announced that the committee would not take
action on HB 28 today.
HB 36-APPROP: MUNI REVENUE SHARING/SAFE COMM
CO-CHAIR OLSON announced that the next order of business would
be HOUSE BILL NO. 36, "An Act making an appropriation for the
state revenue sharing program and the safe communities program
at fiscal year 1998 levels, as adjusted for inflation, to
provide for public safety and other municipal services; and
providing for an effective date."
8:56:23 AM
REPRESENTATIVE MARY KAPSNER, Alaska State Legislature, sponsor,
began by noting her disappointment that HB 28 didn't move out of
committee because it's a long-term fix [for the revenue sharing
and safe communities programs], while HB 36 is a one-year fix.
She explained that HB 36 would reinstate municipal assistance
and revenue sharing at fiscal year (FY) 1998 levels. The 1998
levels were chosen because it was during a more fiscally
conservative time that also recognized the important role that
municipalities play in the delivery of services to all Alaskans.
Representative Kapsner informed the committee that currently
staffing at the small community level is skeletal. If no one is
present to open mail, then no one is there to receive the
notices regarding federal grants for which they could apply.
She reviewed the services provided by communities.
Representative Kapsner highlighted that this legislation
acknowledges the constitutional obligation to provide certain
services, such as public safety, public health, education, and
transportation. Whether the services are delivered through the
state or local level, these constituents have to be served. The
choice is whether to have the municipalities close and shift the
responsibility back to the state with line item appropriations.
Representative Kapsner pointed out that while an increase in the
price of oil is good for the state, it's not good for consumers,
municipalities, and small communities. Representative Kapsner
related that she had looked forward to this session because she
hadn't anticipated the fighting over pennies, but rather had
expected that there would be more generosity of spirit and an
understanding that municipalities are hitting hard times.
9:01:19 AM
REPRESENTATIVE LEDOUX turned attention to Table 2 in the January
2005 Legislative Research Service Report, which lays out the
revenue sharing distribution to unincorporated communities. She
noted that none of the seven unincorporated communities in her
district are listed in Table 2.
REPRESENTATIVE KAPSNER reminded the committee that this table
refers to the 1998 allocation. She offered to research why
those communities weren't receiving the appropriation in 1998.
REPRESENTATIVE LEDOUX surmised that those seven communities
didn't receive municipal revenue sharing because they are
unincorporated communities within an incorporated borough.
However, she said she didn't see any reason to distinguish
between unincorporated and incorporated communities within a
borough.
REPRESENTATIVE KAPSNER recalled that in 1996, because of a
Senate initiative, the contribution to unincorporated
communities was ratcheted down. For further information, she
deferred to Mr. Rolfzen with DCCED.
9:03:23 AM
CO-CHAIR THOMAS inquired as to why Metlakatla received zero in
municipal revenue sharing. He then turned to the municipalities
on the 1998 list, and informed the committee that Gustavus has
re-filed for second class city status and it's not on the list,
which is the case with other communities as well. Co-Chair
Thomas said that he didn't realize that it takes two to three
years to be recognized as a municipality. He expressed the need
to provide incentives for communities to organize.
9:05:07 AM
KATHIE WASSERMAN, Alaska Municipal League (AML), commented that
although some say that the state is in good shape and making
money, the smaller communities don't seem to be benefiting. She
highlighted the rising costs for fuel, insurance, and PERS as
well as the loss of capital grants, revenue sharing, and
reimbursement of the senior and veteran tax, all of which make
it difficult for these [smaller communities]. She concluded by
relating AML's support for HB 36.
9:06:50 AM
REPRESENTATIVE DAVID GUTTENBERG, Alaska State Legislature, spoke
in support of HB 36. He reviewed the erosion of funds for areas
throughout the state. Representative Guttenberg opined that
since the state is receiving higher oil revenues, it should pass
some [of that revenue] on to the communities. He pointed out
that many communities have no sustaining sources of income. He
echoed earlier testimony regarding the lack of local staffing
and the difficulties it creates. Representative Guttenberg
opined that it's key for the state to recognize its
responsibility to give back to communities, which he
characterized as most efficient because when things fall apart,
they find their way to the legislature. "Maintenance of dollars
will prevent that," he opined.
9:10:24 AM
BOBBY ANDREW, President, Aleknagik Natives Limited, informed the
committee that the Village of Aleknagik signed a memorandum of
understanding (MOU) October 29, 2000, to address village issues,
especially in the face of declining revenues coming in to the
village. Once HB 36 passes, it will help those villages that
don't have a tax base. He pointed out that most of the lands
[in many of the villages] are town sites or Native allotments.
He informed the committee that the main offices of many of the
regional corporations are located in urban areas. He emphasized
that there are many needs in the Village of Aleknagik, such as
improving the water and sewer systems. This legislation would
assist the village. In fact, [the assistance provided by this
legislation] could help with the matching dollars that some of
the programs for which communities apply. The [Village of
Aleknagik] is fortunate to be able to utilize [some funds] from
the Bristol Bay Economic Development Corporation.
9:13:20 AM
REPRESENTATIVE KAPSNER inquired as to with whom the Village of
Aleknagik's MOU was.
MR. ANDREW answered that the MOU is between Aleknagik Natives
Limited, the Aleknagik Traditional Council, and the City of
Aleknagik. He informed the committee that the aforementioned
organizations meet quarterly. At a recent meeting, a resolution
in support of HB 36 was passed.
9:14:22 AM
CO-CHAIR OLSON announced that all three municipal assistance
bills would be back before the committee next week.
9:15:01 AM
BILL ROLFZEN, State Revenue Sharing Municipal Assistance,
Division of Community Advocacy, Department of Commerce,
Community, & Economic Development (DCCED), informed the
committee that the revenue sharing program was revised in 1980
to the current statutory program, which only provides funding to
unincorporated areas within organized boroughs. Therefore, that
was followed in HB 36. With regard to the communities such as
Gustavus not being on the lists, the data used is from the end
of fiscal year 2004, prior to the governor's veto. If this
legislation is enacted, the information would be updated. With
regard to the community of Metlakatla, it, under revenue
sharing, received funding as an unincorporated community; under
safe communities, it received funding as a municipality; and
under capital matching grants it received funding as an
unincorporated entity.
9:16:23 AM
REPRESENTATIVE CISSNA pointed out that the City of Gustavus is
listed on Table 2.
MR. ROLFZEN clarified that in 2004 Gustavus was an
unincorporated community, but now it's a city government.
CO-CHAIR THOMAS commented that the amount of money a community
receives is dependent upon how it's organized.
[HB 36 was held over.]
HB 2-TAX ON COMMERCIAL VESSEL PASSENGERS
The committee took an at-ease from 9:17:38 AM to 9:26:45 AM
CO-CHAIR OLSON announced that the final order of business would
be HOUSE BILL NO. 2, "An Act relating to taxes regarding certain
commercial passenger vessels operating in the state; and
providing for an effective date."
9:26:53 AM
CO-CHAIR THOMAS moved to adopt CSHB 2, Version 24-LS0003\G,
Kurtz, 2/17/05, as the working document. There being no
objection, Version G was before the committee.
9:27:07 AM
REPRESENTATIVE CARL GATTO, Alaska State Legislature, sponsor,
explained that this legislation simply reimburses the state for
a portion of the expenses that are incurred due to the presence
of a certain industry.
9:28:29 AM
CODY RICE, Staff to Representative Carl Gatto, Alaska State
Legislature, presented a PowerPoint presentation, which began by
addressing the ability of the cruise ship industry to pay these
taxes. Mr. Rice highlighted statements by the senior vice
president of Royal Caribbean Cruises Ltd. regarding the impact
of taxes on the cruise ship industry as well, as a Juneau Empire
news article dated 5/19/03, which reported a lawsuit against
[Royal Caribbean Cruises, Ltd.] for fraudulent head taxes. The
aforementioned suit was ultimately settled out of court for $125
million in cruise vouchers. Mr. Rice then related 2004
financial data, which will be updated soon, although the
information seems to be in line with 2005 annual reports. For
instance, the net profit for Carnival this year is up 53-56
percent and the net income for Royal Caribbean Cruises [is up]
66 percent. He then turned attention to a Juneau Empire
article, which relates that people are still cruising although
prices for cruises have risen, on average, 20 percent. Yet,
testimony in the House Finance Committee [from Charlie Ball,
President of Princess Lines] related that a $50 increase on a
$1,200 package would be a significant increase.
MR. RICE then pointed out an actual brochure for Mexican cruise,
which specifies government fees totaling approximately $191.26
per person. The legislation before the committee proposes a $50
per person tax that is only applicable once in 30 days. He then
turned attention to the slide in his PowerPoint that related
Carnival Cruise Lines revenues, which he related would be
updated over the next few days. He noted that on the
aforementioned slides and others the timeframe between 2003 and
"2003-b" refers to one quarter of 2003. He highlighted that
although around September 11, 2001, there was a dip in profits,
Carnival Cruise Lines responded fairly well, particularly in
light of the fact that it and Royal Caribbean were building a
significant amount of ships. Mr. Rice moved on to the chart
specifying the number of passengers Carnival Cruise Lines
carried from 1995-2003, which specifies the companies 500
percent growth in the number of passengers carried, with a
significant amount of that growth occurring between 2001-2003.
He informed the committee that Carnival Cruise Lines increased
its total number of ships from just over 40 to over 70 ships
between 2002-2003. He noted that part of that was due to
Carnival Cruise Lines acquisition of Princess tours.
MR. RICE highlighted that the cruise ship industry does
contribute to charities in Alaska in the amount of more than
$500,000 a year and pays $844,750 to DEC for air and water
quality monitoring. However, [the charge for air and water
quality monitoring] is just less than $1.00 per passenger. He
then turned the committee's attention to a table entitled,
"Costs Attributable to the Cruise Ship Industry as Determined by
OMB and the Department of Revenue," which was created last year
in relation to House Bill 537, the governor's tourism tax. The
chart outlines the costs potentially attributable to the cruise
ship industry's presence in Alaska, which amounts to
approximately $115 million in costs to the state.
9:36:05 AM
CO-CHAIR THOMAS pointed out that the chart specifies that about
$60 million [of that $115 million] comes from airports, although
there is no airport head tax. Therefore, although those might
be tourism dollars, they wouldn't be from the cruise ship
industry.
MR. RICE said that he's not an accountant, and therefore he
couldn't speak to the process behind this table. However, he
related his understanding that the assumption was that most
cruise ship passengers do use one or more of the major airports
because most passengers cruise one way and fly one way.
Therefore, there is some usage of airports by cruise ship
passengers.
9:37:14 AM
REPRESENTATIVE GATTO related his understanding that airport
security systems are designed around peak loads and some portion
of the peak loads are attributable to tourists who arrive on a
cruise ship and fly home. "And so they've proportioned the
amount that the airport had to, essentially, have in place as
that amount that is attributable only to this group of people
[cruise ship passengers]."
9:38:09 AM
MR. RICE turned to the final issue of legality, in particular
how it relates to the Maritime Transportation Security Act
(MTSA). The MTSA specifies that only reasonable fees charged on
a fair and equitable basis can be charged and can only be "used
solely to pay for the cost of a service to the vessel or
watercraft; enhance the safety and efficiency of interstate
commerce; do not impose more than a small burden on interstate
or foreign commerce." Version G reiterates much of that
language with regard to how the state will distribute those
funds. He informed the committee that the disposition of
receipts is modeled after the Cruise Ship Initiative because
it's substantial and similar and falls in line with Attorney
General Renkes' opinion. He pointed out that the committee
packet should include an October 6, 2003, memorandum from the
attorney general regarding legal questions. He quoted the
following excerpt from the aforementioned memorandum: "While
there are limitations imposed by federal law on the purposes for
which the excise tax in section 1 of the proposed bill can be
used, it would be a mistake to interpret this federal
restriction as creating a dedicated fund." Mr. Rice explained
that current legislation has a subaccount to meet the standards
required in the MTSA, the receipts are placed in the subaccount
and are used to pay the $5 a port fee at the first five ports.
He noted that there is also a regional subaccount of which 25
percent of the receipts will cover the costs of regional areas
that may or may not necessarily be a port, but still be impacted
by the cruise ship industry. The remainder is placed in the
state GF for usage only on such projects as enhanced safety and
efficiency of interstate commerce. Mr. Rice acknowledged that
there is the question as to whether the subaccounts create a
dedicated fund by state standards. An attorney general opinion
in 2003 specified that while the subaccounts did satisfy federal
standards for creating a dedicated fund, they didn't violate
state standards for creating a dedicated fund.
9:41:53 AM
REPRESENTATIVE GATTO returned attention to the PowerPoint slide
entitled, "Issues for Discussion." He highlighted that the
cruise ships are enormously profitable. However, the cruise
ships continually say that any $50 tax would hurt business,
although the facts haven't borne that out. He related that
passenger interviews have shown that most passengers shrug off a
$50 tax because taxes in other places are substantially more.
For instance, when one cruises to Mexico, the port fees are
about $150, which amounts to about $50 per port. However, the
proposal in HB 2 would charge a fee of $50 for the first five
ports in Alaska. The current contributions to the state are
essentially zero. With regard to the cruise ship industry's
ability to continue to prosper in Alaska, Representative Gatto
pointed out that Alaska is a primary destination. Fully 10
percent of [cruise passengers] come to Alaska, which he opined
would continue to increase for some time. In fact, the building
of ships wouldn't continue unless the prospects of filling those
ships was clear and convincing. With regard to the illegality
of [a tax such as that proposed in HB 2], he said that's not a
decision that can be made in committee or can be made by the
cruise ship industry; "that's why we have a court system." He
indicated that [whether the tax is illegal] isn't of concern
[for the committee] unless the statute clearly specifies that
cruise ship taxes, in any form, are illegal. Representative
Gatto said his concern is that if the Department of Revenue
projections are correct, the state is already spending a certain
amount of money to support the cruise ship industry. However,
the argument [of the department] is that it doesn't like
targeted taxes, although the taxes on mining, timber, tourism,
and oil and gas are such. Representative Gatto said that he is
at a loss to find a non targetted tax. The cruise ship industry
has said it would support a sales tax and an income tax for the
state, which he opined is because they don't pay any part of
those. The idea [with HB 2], he stressed, is to recover a
portion of the state's costs on behalf of the cruise ship
industry.
9:48:08 AM
REPRESENTATIVE LEDOUX inquired as to whether any other states
have cruise ship taxes.
REPRESENTATIVE GATTO answered that Hawaii does. He informed the
committee that Bermuda, Jamaica, and the Virgin Islands also
charge cruise ship taxes. Representative Gatto also informed
the committee of the cruise ship industry's ability to do the
practice of "port pulling," which the community of Whittier
experienced with its minimum tax. However, this legislation
collects a certain amount of money up-front and distributes it
to the first five ports, and thus the ports aren't left in the
"wing." Representative Gatto opined that Alaska provides the
cruise ships arguably the most beautiful scenery in the world
for free and they sell it. He indicated that if other
industries in the state are going to be taxed, then it's only
fair to [tax the cruise ship industry]. "And if you're really
worried about the legality, let's concentrate on the legality
question in the courts," he opined.
9:51:25 AM
REPRESENTATIVE LEDOUX restated her question as to whether any
other states have head taxes and if so, have they met
constitutional challenges.
MR. RICE answered that he isn't aware of any other states that
have head taxes. However, discussions with the drafter of the
MTSA provision and the Legislative Legal and Research Division
attorneys have viewed the MTSA as so broad that it invalidates
quite a few existing taxes, such as riverboat taxes and
individual port taxes in Florida and Hawaii. Mr. Rice said that
most other states don't have a statewide head tax, which he
opined is fitting in relation to the size and number of ports.
9:52:47 AM
MR. RICE, in response to Representative LeDoux, specified that
whether [a tax] meets MTSA clauses depends upon how the receipts
are spent. If the receipts aren't spent solely on costs
attributable to the vessel and to enhance the safety and
efficiency of interstate commerce, then it doesn't meet the
MTSA. This legislation, he opined, would meet the
aforementioned standards and require the legislature to
appropriate receipts only in ways that meet those standards.
REPRESENTATIVE GATTO informed the committee that a lot of
shipping occurs in San Pedro, California, besides cruise ships.
Therefore, San Pedro already has its infrastructure in place to
handle large vessels. However, if it weren't for the cruise
ships, Alaska wouldn't have a need for large vessels and thus an
infrastructure has to be constructed to accommodate the only
large vessels arriving in the state.
9:54:22 AM
CO-CHAIR THOMAS turned to the notion that Juneau is the impacted
community, and pointed out that those coming in from other
Southeast communities are fairly well displaced when they come
to shop in Juneau. With regard to the impact funds that can be
given to municipalities, Co-Chair Thomas opined that the funds
should go to those communities outside of the port.
9:55:35 AM
REPRESENTATIVE CISSNA surmised that Co-Chair Thomas was
referring to the impact on communities to which the cruise ship
industry decides not to visit. However, she questioned whether
the money [from the cruise ship industry] makes up for the
expense of the port facilities.
REPRESENTATIVE GATTO informed the committee that the cruise ship
industry has categorized Juneau as a must see, and therefore it
doesn't matter how much money Juneau charges the cruise ships
because the industry won't bypass Juneau. The concern, he
related, is in regard to the other communities [that aren't must
see stops]. He highlighted that the subaccounts will take care
of those impacted communities.
MR. RICE explained that 25 percent of [head tax] receipts are
placed in a regional subaccount, which is specifically designed
to go to those communities impacted although they may not be a
port of call. The aforementioned happens so long as the money
is used to meet the safety and efficiency of interstate
commerce.
9:57:59 AM
CO-CHAIR THOMAS highlighted the graph specifying the $60 million
in impacts of [the Interior], which would result in funds being
generated in Southeast and sent to Fairbanks and Anchorage.
MR. RICE said that he can't predict where future legislatures
will send the money.
9:58:54 AM
REPRESENTATIVE SALMON recalled that over the past couple of
years those in Fairbanks have complained that there aren't
enough tourists. He opined that a $50 head tax will impact
those up north and thus that should be reviewed. He said that
tourists shouldn't be taxed to the point of not wanting to come
to Alaska.
10:00:19 AM
CO-CHAIR OLSON announced that HB 2 would be held over.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 10:00:31 AM.
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