Legislature(2009 - 2010)CAPITOL 106
04/13/2010 09:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Overview: Visitor Industry Impact | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
April 13, 2010
9:08 a.m.
MEMBERS PRESENT
Representative Bob Herron, Co-Chair
Representative Cathy Engstrom Munoz, Co-Chair
MEMBERS ABSENT
Representative John Harris
Representative Wes Keller
Representative Charisse Millett
Representative Sharon Cissna
Representative Berta Gardner
COMMITTEE CALENDAR
OVERVIEW: VISITOR INDUSTRY IMPACT IN ALASKA
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CURTIS THAYER, Deputy Director
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented an overview entitled "Visitor
Industry Impact."
STEVE HITES, Port Commissioner
Skagway Port Commission
Skagway, Alaska
POSITION STATEMENT: Encouraged passage of legislation reducing
the commercial vessel passenger tax.
FRED REEDER, Port Manager
Cruise Line Agencies of Alaska
Sitka, Alaska
POSITION STATEMENT: Encouraged the committee to support the
decrease in the commercial vessel passenger tax for Alaskans and
Alaskan jobs.
CRAIG DUNCAN, Finance Director
City & Borough of Juneau
Juneau, Alaska
POSITION STATEMENT: Discussed the financial impact of the
$34.50 commercial vessel passenger tax in Juneau.
ACTION NARRATIVE
9:08:52 AM
CO-CHAIR CATHY ENGSTROM MUNOZ called the House Community and
Regional Affairs Standing Committee meeting to order at 9:08
a.m. Representatives Munoz and Herron were present at the call
to order.
^Overview: Visitor Industry Impact
Overview: Visitor Industry Impact in Alaska
9:09:06 AM
CO-CHAIR MUNOZ announced that the only order of business would
be an overview of the impact of the visitor industry in the
state.
9:09:55 AM
CURTIS THAYER, Deputy Director, Department of Commerce,
Community, & Economic Development (DCCED), related that he would
discuss a recent study DCCED commissioned from the McDowell
Group regarding the economic impact of the tourism industry on
Alaska's economy. He then turned attention to the slides
entitled "By the numbers ...," the first of which uses pie
charts to relate the Alaska visitor volume as well as the cruise
market share in the summer of 2009. He informed the committee
that about two-thirds of summer visitors are cruise ship
passengers. Approximately 65 percent of Alaska's [summer]
visitors arrive by ship. Another way to measure the percent of
visitors to the state is regarding how the tourist entered and
exited the state. When tourists enter Alaska, they often exit
by airplane, ferry, and highway. The total number of visitors
to the state [in 2009] was 1.58 million. Referring to the first
slide entitled "The Good," he pointed out that those visitors
produced about $2.1 billion in total visitor industry spending
and $3.4 billion in direct, indirect, and induced spending.
Visitor industry employment accounts for about 36,000 jobs. He
then highlighted that in Southeast Alaska tourism amounts to
about 21 percent of the economy whereas in the Interior tourism
amounts to about 9 percent of the economy and in Southcentral it
amounts to about 7 percent of the economy. Tourism produces
$1.1 billion in labor income and $2.8 million in tax revenue to
state and local governments. Tourism spending in Southeast
Alaska amounts to about 35 percent, Southcentral Alaska about 43
percent or a little over $600 million, Interior Alaska about
$230 million, Southwest Alaska about $88 million, and the Far
North about $21 million. He then reviewed the visitor spending
by region and sector as illustrated by the pie charts in the
presentation. Mr. Thayer then reviewed the visitor industry
employment totals per region, with Southcentral having the
highest amount of employment in the visitor industry as 17,600
are employed in Southcentral Alaska. He mentioned that although
the employment in the Far North region is the lowest with 300
employees, it is growing as there are a lot of small niche
markets such as in Kaktovik and Prudhoe Bay. He noted that the
Office of Economic Development through the tourism agency is
mentoring smaller programs in the Far North region.
MR. THAYER reviewed the graph entitled "Selected Revenues to
Municipal and State Governments October 2008-September 2009".
The total municipal revenue tourism generated in the
aforementioned timeframe was $69.8 million. Revenue generated
by tourism in the form of sales tax totaled $28.9 million while
the amount generated in bed taxes totaled $23.5 million. He
pointed out that the decline in tourism results in a decline in
all economies across the state; the difference resulting from
the decline is usually made up by private property owners. The
state receives revenues from tourism that total $138.8 million,
including the commercial passenger vessel tax in the amount of
$46.4 million, the passenger gambling tax in the amount of $6.3
million, and the Ocean Ranger program in the amount of $4
million. The state revenues also include revenues in the
following categories: nonresident fishing/hunting/trapping
licenses and tags, Alaska Marine Highway, Alaska Railroad,
vehicle rental tax, and corporate income tax. The total
selected revenues amount to $208.6 million.
MR. THAYER, referring to the slides entitled "The Not So Good",
informed the committee that after decades of growth [in
tourism], visitation declined 7 percent last year. The decline
resulted in a loss of $270 million in spending in Alaska. This
summer alone, cruise ship passengers are expected to decline by
140,000 passengers. The decline in cruise ship passengers
amounts to a $150 million loss in the state's economy and the
loss, over a two-year period, in nearly 5,000 jobs. These are
jobs in mom and pop small businesses. He then directed
attention to the slide with the chart entitled "Loss of
government revenue from 2009 decline", which specifies the
percent loss in bed tax revenues, vehicle rental tax revenues,
Alaska Department of Fish & Game (ADF&G) license sales, and
sales tax revenues. He told the committee that Whittier expects
to have 88,000 less visitors, which will also impact Anchorage
car and hotel rentals. He reminded the committee that losses in
sales tax revenues have to be made up by residents in the area.
9:17:19 AM
MR. THAYER moved on to the slide "What can be done?" which
highlights the governor's tourism enhancement legislation. The
governor's legislation reduces the head tax from $46 to $34.50,
but keeps intact the corporate income tax, the gambling tax, the
Ocean Ranger tax, et cetera. The governor's legislation also
clarifies the guidelines on appropriating tax proceeds,
[relates] long-term and sustainable marketing efforts, and
removes barriers that inhibit growth. Alaska's marketing
efforts have slipped, especially in comparison to other
countries. For instance, Australia spends almost $70-$90
million on marketing. Referring to the slide entitled "Benefits
to state", he highlighted that the tourism industry has agreed
to drop its lawsuit against the state and reconsider cruise ship
deployments for 2012 beyond, if the head tax is reduced. He
pointed out that cruise ships make these determinations 18-24
months ahead. Therefore, it took a while for the redeployments
to occur after implementation of the head tax and will take time
to get these ships back in Alaska. He emphasized that Europe is
experiencing double digit increases in the number of visitors
and ships are being built that aren't going to be deployed in
Alaska. "So, it's not that there's a problem in the industry,
the problem is that Alaska has the highest tax and environmental
regulations in the world," Mr. Thayer said. He then highlighted
other benefits to the state, including putting Alaskan families
and businesses back to work and growing and diversifying the
state's economy. In conclusion, Mr. Thayer related that
reducing the head tax is the one piece of legislation that
impacts more small businesses and the entire state than any
other piece of legislation.
9:19:53 AM
CO-CHAIR MUNOZ noted her appreciation for Mr. Thayer's work and
the information he has provided today.
9:20:36 AM
STEVE HITES, Port Commissioner, Skagway Port Commission,
paraphrased from the following written testimony [original
punctuation provided]:
I am a 37-year resident of Skagway, and have served on
our City Council. I am currently serving as a Port
Commissioner.
In 1986 my wife and I took our life saving and
invested them in three 1920s antique automobiles for
sightseeing tours. We drove all of our own city tours
ourselves. My brother-in-law was the company mechanic
and back-up driver. The morning that we finally
started up our new tour business, we had exactly $50
in the cash box, and it was the very last of our
family's money. But the ships came in, they were full
of people who wanted to see "Gold Rush Skagway", and
we were there to show it to them.
The growing cruise industry allowed us to grow our
business, create other jobs for other family members
(my sister-in-law, her husband, my sister, my nephew,
my son), and create new jobs for other people in the
community. Some of these jobs are now year-around,
even in a seasonal industry. We developed property,
paid property taxes, started up several other
businesses, and collected sales taxes on all of our
transactions for the City. The City's revenue grew.
The individual job that is created by a private sector
company in a community is essential to understanding
the real value of cruise tourism. The person with a
job in tourism job pays rent, buys groceries, goes to
the hardware store, buys clothing, purchases gasoline
for their car, goes to local restaurants and bars, and
pays the local electric, phone, and internet provider
for service. As all this is happening, the company
this person works for is purchasing supplies and
materials for their business in the same way. Tourism
is a spending multiplier, and its effect puts the
tourism dollar into the hands of a broad and diverse
set of actors, reaching into many businesses and
touching a wider and wider range of individuals across
a community.
In 1986 when we started our business there were
100,000 cruise visitors to Alaska. Alaska hit one
million cruise visitors a year in the summer of 2007.
It had never happened before: it was a huge milestone
achievement. But since that time, the Alaska Cruise
Ship initiative, which added a series of taxes, fees,
and regulations onto the top of existing port
expenses, increased the cost of operating in Alaska.
For 2010, Alaska has lost 140,000 berths. This has
never happened before, either.
Alaskan communities built "churches for Easter": docks
and facilities that could handle the busiest days with
stacks of four and five ships in port at the same
time.
It was our decision to do this. We're the ones that
went to the bank, took out the loans, and built the
infrastructure. We bought extra buses, railroad cars,
built new gift shops, restaurants, and theaters. We
did this all based on the optimistic business
probability that this was all going to continue to
happen the way we had seen it happen every year for 30
years. And if there had been no Cruise ship initiative
the probability is that things might have continued.
Certainly there would have been fluctuations in
traffic, but we would not have seen ships removed from
the region because of the unacceptably high cost to
operate in Alaska vs. the lower cost to operate
anywhere else.
It's like moving money from a bank account: if you're
going to get a better interest rate at another bank,
you move your funds.
Remember: the cruise lines will ALWAYS fill their
ships, one way or another, whether they have one ship
or 25 ships sailing in the region. The question is:
how much of a "push" do the cruise lines put behind
your region? As they grew their fleet presence, the
industry grew their marketing budgets until they were
spending some $75 million each year marketing Alaska
to get their one million passengers. But when they
remove ships from a region, they also pull back their
marketing dollars so that money follows the ships.
With the loss of three big ships and 140,000 berths in
2010, Alaska has lost some $11.75 million in cruise
line marketing support this year alone. That's why the
State needs to address a funding source for Alaska
marketing: a huge chunk of it just sailed away! And
27% of the people who take an Alaska cruise returned
as an independent traveler within three years. THAT'S
where our "independent travelers" were coming from,
too. Reduce your cruise ship traffic now, and you will
reduce your independent traffic down the road.
So in addition to the thousands of jobs, hundreds of
businesses, and the millions of dollars in economic
benefits to communities, there is an overall benefit
to all Alaska tourism, all of it as an outflow from
the ship. This happens just by letting the ship come
in. None of it happens because someone watching the
ship sail by decides they "deserve a piece of the
action".
This is a clean industry. The discharge water coming
out of a cruise ship's outflow pipe is cleaner than
the water coming out of any municipal sewage treatment
plant in any city or town in Alaska. Many small
Alaskan towns don't have recycling programs, programs
that are in place on most cruise ships sailing in
Alaska. The ships have to recycle their waste. But
vocal citizen advocates in Alaska have succeeded in
imposing a higher bar on the cruise industry than on
any Alaskan community. One article in an extremist
environmental publication described how cruise ships
suck the life and beauty out of the land as they pass,
leaving behind only a blue haze of exhaust hanging in
the air, and a polluted ocean in their wake.
The implication is that cruise ships are destructive
by their very existence. This is patently absurd.
Alaska's leaders need to stand up to the extremists
and the extreme regulations and taxes they promote for
their agendas. These extremists are the most dangerous
opponents of Alaska's communities. Their course will
wreck our economy, remove paths to wealth, and
eliminate opportunities. Alaskans don't want this. But
there are many people who are easily swayed by the
seductive "spin" put out by the extremists. The only
way to counter this is to disseminate truthful
information about the value of this industry with our
neighbors, communities, and government. The end result
will be a public that understands the facts, and that
is open to supporting the industry.
The cruise tourism is a partner in our economy. They
are just like oil and gas, mining, timber, and
fishing. They are NOT a "target" to go after to try to
balance a budget. They are not a source of unlimited
funds that can be tapped to pay for everything. They
are an engine of regional economic growth.
Those of us in business, in local Government, those
who were the direct beneficiaries of the cruise
industry's growth, we are the most to blame. We didn't
properly stand up for the cruise lines, or rally our
neighbors to our cause against the extremists. It's
our fault. Quoting Pogo, the sage comic strip possum
from the bayous of Louisiana: "We have met the enemy,
and he is us."
It's no different than an auto manufacturer in Detroit
looking at his cost of doing business there. If I can
make more money, if I can be more profitable for my
shareholders, if I cannot get the people in Detroit to
understand the reality of my financial situation, I
will move my factory to Tennessee. If you're the Mayor
of Detroit, or the Governor of Michigan, or a member
of the Michigan legislature, and you don't UNDERSTAND
that, it's YOUR loss. It's no skin off the auto
manufacturer. Really. He may not WANT to do it, but he
will. He HAS TO. It's about the health and survival of
his business.
The cruise lines don't WANT to leave. Alaska cruises
have a good market niche. But they can make a whole
lot more money putting their ships in other places
where they don't have such high costs and restrictive
regulations. The lines are building and launching
almost two dozen brand new cruise ships in the next
two years to meet the growing world demand for cruise
vacations. NONE of them are coming to Alaska. Our
destination is too expensive, and no longer
competitive in the cruise industry. Economics
absolutely DOES enter into the equation.
The extremists tried to tell the Alaskan public that
economics didn't matter. They lied.
"It's only fifty bucks", they said. No, that's not
right, that's not true or factual, it's over $50
million every year, $150 million in total so far, and
so you can't say that.
Their $50 million State head tax this year will be
responsible for over $93 million in lost revenues to
businesses in Southeast Alaska, and over $165 million
lost statewide. So a "tax on cruise passengers" really
ends up taking three times as much out of the pockets
of Alaska small businesses. That was NEVER the intent
of that legislation. It was NEVER the intent of the
voters in Alaska.
Facing the loss of cruise passengers to Skagway this
summer, after 15 years I have closed my Skagway retail
businesses, and with it, eliminated 5 jobs. I have
canceled orders with dozens of small "made-in-Alaska"
family companies who were my suppliers. Those orders
were worth thousands of dollars annually. These orders
have stopped. I have had to reduce my driving staff by
two full-time positions, and two half-time positions.
And, because we know that with fewer ships again next
year things will be even worse, my wife and I have
already decided that we have to eliminate a minimum of
two more full-time jobs next year as well. This was
NEVER the intent of the cruise ship initiative. It was
NEVER the intent of Alaska's voters.
No one knows what havoc and economic destruction will
come in the wake of the loss of 140,000 cruise
visitors: but employees will be laid off, jobs will be
eliminated, businesses will close, and communities
will lose their local tax base. All of this so the
initiative sponsors can say they have created a
"steady flow of tax money coming in" to the State from
the cruise ships?
Where will that money come from when these excessive
taxes and regulations drive away all but a handful of
ships, and the source of all those taxes is no longer
around to take further abuse? What will the State do
when a dozen formerly prosperous communities, whose
local tourism economies have been wrecked by the
initiative, come begging, hat in hand, pleading for
help? What industry will the extremists, the pirates,
try to extort money from next?
When the extremists started preaching their views, we
ignored them, thinking their off-the-wall comments
were the raving of crazed anarchists. We learned that
if crazy things get said over and over enough times,
unfortunately, unbelievably, some people start to
believe them.
9:30:45 AM
MR. HITES continued:
We are greatly heartened by Governor Sean Parnell's
historic visit to the Seatrade Cruise Shipping
conference in Miami last month, where he personally
met with our cruise line customers. The Governor
carried our message to the cruise industry: Alaska
hears you. And Alaska is open for business.
Now it's the crucial job of this body to pick up on
the Governor's lead, and urge your colleagues in the
House and Senate Finance Committees to move the needed
legislation out onto the floors of these chambers for
discussion and vote.
Deployment of cruise ships to Alaska is usually made
st
by March 31. At least one of the major lines has said
that they will wait to make their deployment decisions
until after this Legislative session ends. If the
lines do not get some relief, I believe they will have
no choice but to make additional reductions in tonnage
in 2012. Given that, the next opportunity for Alaska
to reverse this downward curve and the collateral
damage it will cause will be for the summer of 2013.
Many small businesses will not make it that long. For
many of us, our family businesses have been our life's
work. We are watching that life's work crumble before
our eyes. We are here to plead for help. You can stop
this. With your vote, you can change this around.
There is a big wide world covered with ocean just out
there. Cruise ships can go ANYWHERE on it. Thousands
of working Alaskans and their families look forward to
welcoming some of them back in the not-so-distant
future…to Alaska.
9:32:39 AM
CO-CHAIR HERRON inquired as to Mr. Hites' reaction to the recent
briefing paper regarding the commercial vessel passenger tax and
the newspaper article relating that there is a pending
settlement pending legislation.
MR. HITES related that his first reaction was thank goodness
there might be a chance for this. He clarified that although he
has worked all his adult life in tourism, he doesn't work for
the cruise industry but rather works with them. He referred to
the cruise industry as his customer and like any other business
trying to make a little money. Mr. Hites said that his second
reaction was concern whether the [pending legislation] will make
enough of a difference to matter soon enough. He related his
belief that there is opposition to reducing the tax as well as
confusion and misunderstanding. In fact, some believe the
economy is the problem, which he opined isn't the case. He
further related the desire to work with the government and make
this work. Mr. Hites then acknowledged that the vocal
opposition who led the initiative collected 10,000 signatures,
but pointed out that he's representing 32,000 [tourism] jobs.
The future, he opined, is terrifyingly uncertain.
9:36:20 AM
CO-CHAIR HERRON recalled that those in opposition to reducing
the cruise vessel passenger tax suggest decreasing it to $39
rather than to $34.50 as is proposed in legislation. He
inquired as to what's the meaningful difference in amount, most
specifically he inquired as to why a reduction of approximately
$11 would work [for the cruise industry] and a $7 reduction
wouldn't.
MR. HITES responded that it's a formula of net onboard revenue.
He emphasized that the opposition doesn't understand because
they don't understand that after the cruise line takes all its
costs, they make a 10-11 percent return. When the $50 tax is
added on top of that 10-11 percent return, it results in a 1-2
percent return. There isn't a profit margin there, which is why
the cruise lines are going to the Mediterranean. At that point,
the argument is no longer on a reduction of $7 versus $11 but
rather is an argument with another country such as Spain. This
matter isn't $50, it's about the future of Alaska, he stressed.
9:38:59 AM
CO-CHAIR HERRON thanked Mr. Hites for his testimony.
MR. HITES said it's an honor to be a part of this industry and
to be blessed to be in Alaska and share it with others.
9:40:09 AM
FRED REEDER, Port Manager, Cruise Line Agencies of Alaska,
returned to the earlier question regarding why a reduction of
the tax to $34.50 was chosen. In order to understand why the
$34.50 was chosen, one needs to return to the founding fathers
and the Articles of Confederation under which the states were
more in charge than the federal government. As goods starting
moving, communities taxed goods as they moved through their port
such that those further down the line paid more for the goods.
The founding fathers decided that just because the barge went by
a community, that community couldn't just tax it. Therefore,
the Tonnage Clause was inserted into the constitution specifying
that the service provided to a vessel can be taxed, but just
because a vessel passes by it can't be taxed. Because there was
litigation in effect from the Alaska Cruise Association the
original 2006 initiative specified that 25 percent of the
proceeds from the tax would be used to create subaccount, the
regional impact fund. He explained that $34.50 is 25 percent of
$46.00. He then informed the committee that last year there was
a case, Bridgeport Ferry Authority v. Bridgeport Ferry in which
the Second Circuit Court of Connecticut found that the authority
had raised the price of the ferry ticket by $1 per head and then
spent those funds on things not related to providing services to
the ferry passengers. In that case, the judge said the
authority couldn't [increase the ticket price by] $1.00 if the
entire $1.00 wasn't spent on providing services for the ferry
passengers. The judge, after reviewing the authority's
expenditures of the $1 per ticket, determined that the authority
could only account for $.25 of the $1.00 it collected.
Therefore, Mr. Reeder said he believes that there was review of
what was legally defensible of the $46.00, of which the regional
impact fund was the first. The farther away the funds are spent
from the port at which they were collected, the more the judge
will review the line item expenses of the port. The
aforementioned means that the state would be held [responsible]
for money it already spent. He opined that the state has likely
spent funds collected from the tax on projects that won't be
defensible in the lawsuit. Therefore, although the state may
prevail in the lawsuit, it won't be at the full $46.00 level and
thus the state will have to reimburse passengers. He estimated
that the state would have already spent about $50 million. With
regard to the community offsets for Juneau and Ketchikan, Mr.
Reeder said those are already taxes that are being taxed and
probably legally defensible expenses. The other good part in
the proposed Senate legislation is that the final section
discusses performing a study after three years in order to
determine how much money was collected, spent, and the amount of
needs requested. The aforementioned is the best part of the
proposed Senate legislation, he opined.
9:46:55 AM
MR. REEDER informed the committee that the City of Sitka is
facing a $1 million loss in sales tax revenue because of the
decrease in cruise ship passengers. The City of Sitka has
already been before the legislature to increase the municipal
revenue sharing. If the City of Sitka is given $1 million extra
to account for the loss in cruise ship passenger [revenues],
then there's less money to provide to Anaktuvuk Pass or other
sources of funds have to be sought. Those Alaska communities
that can take care of themselves should do so. Such action
frees up funds for those communities that don't have a strong
economic base. He reviewed the losses Sitka is going to face,
and questioned from where the funds will be obtained. He
predicted that the City of Sitka will cut teachers, police
officers, and other staff. In fact, such discussions are
already occurring. Therefore, he emphasized that bringing back
cruise ships is a good thing for the community.
9:48:54 AM
MR. REEDER related that he was born in Sitka in 1952 and has
seen the community change since that time. He further related
that when he graduated from Sitka High School in 1971, the
Alaska world was available. Currently, Mr. Reeder has three
children, who he always anticipated would work for him if they
so chose. This summer his eldest son will work for him and earn
$9-$11,000 for the summer. He explained that typically he hires
seven college students, but this year he will only have two
college students working for him. He said he has been saddened
because he has had to turn away five college students. The City
of Sitka, he related, is short 100 jobs in the tourism industry.
Although many of the tourism jobs are seasonal in nature, they
provide hopes and dreams for Alaska youth. He noted that
although his middle son and daughter were lucky and did find
jobs in the tourism industry, they are not as good or as well
paying as the jobs he offers. He then informed the committee
that probably 15 fairly wealthy men have moved from Washington
State to Sitka, [opened businesses], and employee people in
Sitka. Upon contemplation as to why these men moved from Sitka
to Washington, he determined it was due to the fact that Alaska
has less taxes than Washington State. He opined that people
living in areas that are over taxed move to an area that taxes
less. "The economic benefits of those states that tax less is
amazing. We are the benefit of Washington's high taxes much
like the City of Sitka has low taxes and encourages people to
move there, we need to make sure that in our visitor industry
that we keep our taxes low and continue to ask people to come
here," he opined. The state's low taxes benefit all Alaskans.
In conclusion, Mr. Reeder encouraged the committee to support
the decrease in the head tax for Alaskans and Alaskan jobs.
9:55:56 AM
CRAIG DUNCAN, Finance Director, City & Borough of Juneau,
clarified that he is present to discuss the financial impacts of
$34.50 on Juneau, not the merits of the $34.50 tax. He
explained that the City & Borough of Juneau (CBJ) funds its
operations with a combination of property taxes and sales taxes.
In 2008 the property and sales tax was about equal. However,
beginning in 2009-2010, the sales tax has declined rapidly and
is actually less than the property tax by a significant amount.
The decrease in the sales tax is due to a combination of things,
including the economic down turn. In fact, there has been a 6
percent in local sales from local year round residents.
However, the actual decrease in the sales tax is significantly
greater, which he mainly attributed to a reduction in the cruise
ship passengers. He informed the committee that approximately
20 percent or so of CBJ's sales tax revenues are from tourism,
mainly from cruise ship passengers. The actual impact due to
the decline in tourists is about 40 percent of the reduction.
The tourism going from over 1 million [visitors] to a projected
860,000 [visitors] represents several million dollars of sales
tax revenue to the city, which places the city in a negative
financial situation along with other issues. Therefore, CBJ has
had to reduce its operating budget by some $4 million.
Fortunately, that reduction was accomplished without eliminating
occupied positions but rather it included the elimination of
vacant positions. Mr. Duncan related that he has heard reports
that those businesses that deal solely with tourism are simply
not going to reopen this year. The aforementioned will impact
the sales tax collected as well as the economy related to
employment in the year round businesses that [the seasonal
tourism businesses] support. He then referred to a graph he
provided to the committee which illustrates that the drop from
2008-2010 is about 6.5 percent. The critical part is that the
city continues to have cost increases. Had the city continued
to experience the same trend [prior to the decrease in tourism],
the city would've collected 14 percent more than its current
level. The sales taxes for CBJ are down to 86 percent of what
was anticipated prior to the economic recession and decrease in
cruise ship passengers. Of that 14 percent reduction, a more
than proportional piece is due to the fact that the cruise
industry is pulling ships from Alaska. Those 140,000 passengers
will make about a 40 percent impact on the sales tax. The graph
illustrates that in 2011-2012 CBJ's sales tax improves and some
increases in the economy in terms of the Kensington Mine.
However, the increase will not occur in the [tourism area] if
the cruise industry continues to have fewer passengers in
Juneau.
CO-CHAIR MUNOZ requested that Mr. Duncan comment on the impact
of property tax reassessments due to property value decreasing
in the visitor sector.
10:01:16 AM
MR. DUNCAN, in response to Co-Chair Munoz,
said that at this point it's a little early because the
assessments for the fiscal year ending in 2011 are assessed
January 1, 2010, which was three months ago. He then related
that commercial properties did decrease quite a bit last year,
by about 8 percent boroughwide. However, he opined that the
reductions will occur this summer when there is a full reduction
in the cruise ship passengers on those businesses that target
tourism. Therefore, there will likely be large reductions in
the 2011 assessed value. How much the reduction will be, he
said he could estimate.
10:02:21 AM
CO-CHAIR MUNOZ asked if the $4 million deficit CBJ faces for
this biennial budget cycle also take into account projections on
property.
MR. DUNCAN replied yes, but clarified that the deficit is $4
million per year. Therefore, [the deficit] is $8.8 million in
the two-year budget. Therefore, it's a significant cut and work
on cuts has been going on for a year now. The $8.8 million
deficit is due to a combination of things, perhaps 50 percent or
less of it is attributable to sales taxes. The property tax
projections assume stable commercial property, which is being
assumed because the belief is that any reductions in commercial
property reductions due to a decline in tourism will be offset
by the opening of the Kensington Mine. However, he confirmed
that there will be reductions in property valued of commercial
properties that are seasonal.
10:04:11 AM
CO-CHAIR MUNOZ thanked everyone for their participation. She
then related that she feels very confident that progress is
being made and there will be legislation addressing the cruise
ship passenger tax.
10:04:55 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 10:04 a.m.
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