Legislature(2005 - 2006)HOUSE FINANCE 519
01/25/2005 01:30 PM House FINANCE
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 25, 2005
1:35 P.M.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:35:23 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Eric Croft
Representative Carl Moses
ALSO PRESENT
Representative Mark Neuman; Representative Jim Elkins;
Representative Bill Thomas; Representative Paul Seaton;
Representative Kurt Olson; Representative Gabrielle LeDoux;
Representative Carl Gatto; Representative Jay Ramras; John
Hansen, Executive Director, North West Cruise Ship
Association (NWCA); Jim Calvin, McDowell Group; John
Shively, Vice President of Government and Community
Relations, Holland America Lines; Don Habeger, Royal
Caribbean; Charlie Ball, Princess Lines; Mike Windred,
Alaska Travel Adventures, Juneau
GENERAL SUBJECT(S):
Presentation
North West Cruise Ship Association (NWCA)
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 24th Legislative Session, contact 465-
6814. After the 24th Legislative Session they will be
available through the Legislative Library at 465-3808.
TIME SPEAKER DISCUSSION
1:35:37 PM Co-Chair Meyer Convened the House Finance Committee
for the purpose of taking testimony
from the North West Cruise Ship
Association (NWCA).
NORTHWEST CRUISE SHIP ASSOCIATION
1:37:08 PM JOHN HANSEN, Distributed a handout to Committee
PRESIDENT, members. (Copy on File). He
NORTHWEST introduced the representatives from
CRUISE other cruise lines, Mr. Calvin from the
ASSOCIATION McDowell Group, Mr. Shively from
Holland America Lines, Mr. Habeger from
Royal Caribbean Lines, Mr. Ball from
the Princess Lines, and Mr. Windred
representing Alaska Travel Adventure
(ATA).
He pointed out the handout identifies
"Economic Impacts of the Cruise
Industry in Alaska, 2003" as prepared
by the McDowell Group and noted the
accompanying video. The presentation
intends to provide background
information on the cruise industry.
1:39:19 PM Mr. Hansen Addressed the cruise industry future of
the cruise industry impacted by a
passenger tax increase. He noted that
in the past summer of 2004, there was
900,000 visitors to Alaska from cruise
ships visits only.
1:41:06 PM VIDEO presentation demonstrated the
impact of the cruise industry on the
State of Alaska and the potential to
that by the proposed taxation.
1:46:51 PM Mr. Hansen Concluded the video presentation.
1:47:13 PM Mr. Hansen Noted that to environmental protection
concerns are a high priority of the
cruise industry. He listed 12,000 jobs
created statewide resulting from the
industry according to the McDowell
report. There are approximately 1700
businesses in the State doing business
because of the cruise industry.
1:48:00 PM JIM CALVIN, Stated that the McDowell Group is an
MANAGING Alaska based research and consulting
PARTNER, firm which has been in existence since
MCDOWELL GROUP 1972. He pointed out that they came
into the study with quite a bit of
extensive related project work. He
listed other projects done similar to
this one provided by the McDowell
Group. He highlighted the Southeast
Conference study, which indicates local
government fiscal impacts of
government. In 2003, there were around
780,000 passengers traveling to Alaska.
The analysis was based on key sets of
data:
· Vendor data provided by the cruise
lines
· Alaska Travelers Survey
· Department of Labor & Workforce
Development data and information
from the Federal Bureau of
Economic data
In 2003, cruise ship passengers spent a
little less than $4 million dollars in
Alaska. That is only "on the ground"
spending and 85% of it was in Southeast
Alaska. The cruise lines spent
statewide just under $150 million
dollars in support of their operations.
1:52:22 PM Mr. Calvin Thought that a total of $633 million
dollars was spent in Alaska as a result
of cruise ship activity.
1:52:57 PM Mr. Calvin Emphasized multiplier monies spent as a
st
result of the 1 hand spending. He
stressed that the cruise business is a
big industry in the State of Alaska's
economy. There was over $500 million
dollars spent in Southeast Alaska only.
1:53:38 PM Mr. Calvin That money has created many jobs. The
cruise line averages approximately
1,600 employees and generates $46
million dollars in payroll.
1:54:30 PM Mr. Calvin Most jobs are created as a result from
passenger spending and the indirect
impacts result in approximately 8,000
jobs for the Alaska economy. All
totaled, there are about 12,000 jobs
created as a result of the cruise line
industry with a payroll of $385 million
dollars.
1:55:21 PM Mr. Calvin Acknowledged that the cruise industry
primarily impacts the coastal
communities but it is spreading into
the Railbelt communities more than
ever. He addressed tax revenues
resulting from the industry.
1:55:57 PM Mr. Calvin At present time, there is about $31
million dollars flowing into local
revenues from the industry and about
half of those results from sales tax
from spending related buying. There is
$8 million in moorage fees, $4 million
dollars in head tax, and about $2
million dollars in property taxes with
a total of $31 million dollar revenue
to local governments.
1:57:03 PM Mr. Calvin The McDowell Group did not provide a
cost side of the equation. The
revenues received and generated from
the cruise ships vastly exceed what
local governments are spending to
support the cruise ship industry.
1:58:09 PM Mr. Calvin Addressed State level concerns. The
McDowell Group worked with statewide
city managers and department heads that
had some knowledge of the effect of
cruise ship activity. Those people
identified fees generated around $2
million dollars flowing into the
general fund and at the same time could
only identify $800 thousand dollars in
costs resulting from cruise ship
traffic.
1:59:15 PM Mr. Calvin There are few unmitigated costs from
the cruise ship industry on statewide
services.
1:59:40 PM Mr. Calvin Summarized that the cruise industry
generates tremendous revenue and jobs
to the Alaskan economy. He stressed
that it is a statewide impact, not just
affecting the coastal communities, but
does also affect entities such as the
Alaska Railroad. He emphasized that it
is important to maintain realistic
impression of the industry on the
State's economy.
2:01:05 PM Representative Questioned infrastructures that are not
Holm being replenished by the industry. He
inquired if the analysis had indicated
concerns, which could be addressed by
the anticipated amount generated
through the cruise industry.
2:02:18 PM Mr. Calvin Replied that the McDowell Group had
spoken with statewide officials and
were clear that revenues being
generated were greater than the costs
incurred. He stressed that it is
important to recognize the scale of
what is being discussed. He referenced
Egan Drive and the impact of the buses
on that road, agreeing that the
industry does have an impact on the
infrastructure.
2:03:43 PM REPRESENTATIVE Questioned if the tax were imposed,
MARK NEUMAN would tourism decline.
2:04:07 PM Mr. Calvin Did not think that the tourism would
decline with the imposition of the tax,
however, he advised that if the price
of something goes up, the demand go
down. If someone on a limited budget,
purchases a cruise ship ticket,
imposing a tax could affect that
persons consideration. They might
spend less money at local businesses.
2:05:29 PM Representative Asked the average cost of a cruise ship
Neuman ticket. Mr. Calvin did not know.
2:05:50 PM JOHN SHIVELY, Introduced Don Habeger, Royal Caribbean
VICE PRESIDENT Line and Charlie Ball, Princess Lines.
OF GOVERNMENT
AND COMMUNITY
RELATIONS,
HOLLAND
AMERICA LINE
2:06:39 PM Mr. Shively Addressed the lawsuit brought forth
against the State of Alaska by the
cruise ship industry. He declared that
the certification process regarding the
number of signatures brought forward
was flawed. The industry did not
really want to sue the State, however,
it was the only option open. He
stressed that they are not being
specifically critical of the Division
of Elections, however, there has not
been a situation that was so close that
was so punish one industry. He urged
that the process be reevaluated given
the weakness of that situation.
2:08:12 PM Mr. Shively Noted that the press does not have a
"good feel" regarding what is contained
in the initiative. The initiative
contains four taxes, outlined on nine
pages. The initiative does have
constitutional concerns. The tax was
proposed by the State Department in the
1990's, at which time, they decided not
to implement it. It provides a new
environmental scheme, which establishes
standards checked by independent
monitors. It also requires that the
cruise line indicate their mark-up on
certain items sold on board.
2:09:46 PM Mr. Shively Enumerated the normal criteria required
in an initiative process. He
reiterated that the initiative is
punitive. It is important that the
number of signatures on the initiative
must be valid before it goes to the
voters.
2:11:18 PM Vice-Chair Questioned if the issue would move
Stoltze further than it had in the past. Mr.
Shively responded that people have
asked if the Legislature could address
the issue; he thought that if the
Legislature passed something similar,
the initiative could come off the
ballot. He reiterated how punitive the
current initiative is.
2:11:58 PM Mr. Shively Stressed that it is important that
people know what is included in the
initiative and that would be an
educational process.
2:12:18 PM Vice-Chair Asked if the industry would like to see
Stoltze a full legislative debate of the
process.
2:12:37 PM Mr. Shively Responded that decision cannot be made
by the cruise industry. He expected
that there would be hearings on the
issue.
2:12:50 PM Vice-Chair Commented on an issue happening in his
Stoltze district regarding cars owned by
members of the industry who have moved
into another jurisdiction to avoid
taxation.
Mr. Shively explained that in 1990, a
system was established for taxing
rental cars, a different kind of
situation. That system was in effect
from 1990 to 2003. In 2003, the
industry was notified that the
Municipality of Anchorage decided to
change it. The industry appealed that
process. To date, the appeal process
has not been completed. In the
meantime, the industry has moved the
cars into another jurisdiction. He
maintained that they would pay some tax
in Anchorage Municipality as the cars
will be there in the summer only. A
change to that system, doubles property
tax for the industry.
2:14:36 PM Vice-Chair Addressed the ballot measure in
Stoltze Anchorage on the Convention Center.
He asked if the industry was involved
with that. Mr. Shively responded that
Holland America Lines does support the
space, acknowledging that the
Convention Center would be an asset to
that community. Vice-Chair Stoltze
wanted to make sure that there was a
stable policy on tax development.
2:15:29 PM Representative Questioned the subject components of
Hawker the initiative. He thought that the
Legislature is supposed to have the
ability to "cure" an issue before it is
brought to the public. He inquired if
Mr. Shively thought if there would be
any way that the Legislature could pass
a single bill through session regarding
taxation. Mr. Shively did not know.
He reiterated that there are issues
regarding the initiative process and
preferred not to be involved in it.
2:17:25 PM Representative Asked about the substantive legal
Hawker challenges. Mr. Shively replied that
there should be legal problems with
letting public know the mark up
policies and vender information.
2:18:10 PM Representative Asked about the discharge provision on
Hawker the emission controls. He asked if
Alaska's discharge provisions were the
stiffest in the United States. Mr.
Shively replied that they are.
2:18:54 PM CHARLIE BALL, Stated that the cruise lines attempt to
PRINCESS LINES use the Alaska standards elsewhere.
Discussion followed regarding the
Alaska standards. Representative
Hawker voiced his concern.
2:20:24 PM REPRESENTATIVE Admitted a conflict of interest as he
JAY RAMRAS works in the hospitality industry,
which works with the cruise ship
industry. He referenced the overview
document "most vulnerable" by the
taxation. The person that pays the
most would be the person that travels
the furthest, which would affect areas
beyond Anchorage. Representative
Ramras questioned expenses for land
tours to Fairbanks.
2:23:58 PM DON HABEGER, Explained that in 2001, the industry
ROYAL asked a research-consulting group to
CARIBBEAN test that concern regarding the kind of
CELEBRITY impact a $50 head tax would have. It
CRUISES was determined that 10% surveying,
thought the head tax would cause them
not to come; 17% stated that they would
"probably" come; 21% reported that they
would probably not come. The result
was that a group of travelers in that
spectrum would choose not to visit
Alaska.
He commented about the economic impacts
and agreed that Interior Alaska would
be affected most dramatically by the
taxation.
2:27:58 PM Mr. Ball Noted that the Princess Line has
invested heavily in the South Central
and Interior Alaska. He observed that
his company has noticed erosion in the
length of the cruise passenger
vacations in Alaska. Customers have
decided to manage their budget by
shortening their trip.
He mentioned trends in tours to shorten
their travel plans. He stressed that
Southeast is the most reasonable place
for tourists to come and maintained
that the tax portion of the initiative
was problematic.
2:31:34 PM Mr. Shively Stated the amount of competition that
Alaska is up against. Tourists will
change their destination to the
Caribbean instead of Alaska. He added
that taxation should be done through
taxing the economic activity through a
State sales and income tax, which taxes
the growth.
2:33:00 PM Co-Chair Meyer Inquired which lines Carnival owns.
Mr. Shively stated that Carnival owns
Princess and Holland but not the
others.
2:33:29 PM REPRESENTATIVE Commented on the discrepancy last year
CARL GATTO between the Office of Management and
Budget (OMB) and McDowell Group
indicating cruise profit amounted to
10,000% difference. He asked how that
difference could be accounted for.
Mr. Shively explained that information
had been released before it had been
checked and discussed. The McDowell
Group did go back over the information;
the report did not reflect the cost of
government. The State has not come
back to correct the analysis.
2:34:58 PM Representative Added that the information suggested
Gatto that there were 800,000 visitors. This
year, it is anticipated to be over
900,000 visitors.
2:35:21 PM Mr. Shively Responded that the State does not do
much to run facilities. The industry
does pay taxes and airport fees. He
agreed that the figures could be
argued.
2:36:38 PM REPRESENTATIVE Interjected that he was involved in the
WILLIAM THOMAS cruise ship industry. He commented on
the downfalls of a public initiative
process. He stated that he was
surprised to see the length of the
proposed initiative and commented on
the idea of the sales tax.
Representative Thomas stressed that the
"threats" made by the cruise industry
are "real", noting the devastating
effect they had on the community of
Haines. The industry has the ability
to move their ships to other
communities.
He inquired why the 250' boats had been
exempted.
2:38:31 PM Mr. Habeger Stated that it does follow other
exemptions already listed in State law.
2:38:57 PM Co-Chair Meyer Requested that the meeting not draw too
much on the initiative itself but
rather the process of the study. He
stressed that in "fairness", the
authors of the initiative should have
equal time and that this meeting should
deal with the economic impacts of the
cruise ship business.
2:39:52 PM Representative Asked if the initiative would be a
Hawker revenue generating measure or a
punitive measure. He noted his intent
for the State to have a long-term
sustainable fiscal policy. He asked if
Alaska has, to date, been a "good
partner" to the industry.
2:41:15 PM Mr. Shively Acknowledged that the State has been
good to the industry. He added that
the industry wants to find a taxation
schedule that continues to provide a
growth for the communities without
hurting the industry.
2:42:04 PM Representative Noted that in the future, he would look
Hawker forward to discuss the "lawsuit bounty"
concept affecting the industry.
2:42:24 PM Co-Chair Meyer Reiterated that intent of meeting was
to discuss economic impacts to the
cruise ship industry in response to
comments made by Representative Kelly.
2:42:54 PM Representative Asked if the lawsuit was dealing with
Weyhrauch the number of the signatures and not
the tax issue. Mr. Shively said yes.
Representative Weyrauch stated that he
has not seen a sensitivity analysis
indicating the effects of a levied head
tax and requested more information on
that concern. He questioned why the
industry recommends sales and income
tax, when other people in Alaska
believe that there should be greater
taxation on the industry. Everyone
wants a tax on the "other guy" and they
do not want their own programs cut but
want to continue to receive statewide
benefits.
2:44:46 PM Representative Thought it would be worthwhile to have
Weyhrauch constructive dialogue on what taxation
policies do make sense and would be
equitable. Mr. Shively agreed to a
conversation addressing these issues.
He acknowledged that it is a difficult
choice.
2:45:47 PM Mr. Habeger Agreed that there should be a dialogue,
and added that targeted taxes are not
the way to go.
2:46:05 PM Co-Chair Meyer Asked if Juneau was the only place that
a head tax is paid. Mr. Habeger
replied yes, however, that Ketchikan
recently implemented a head tax, which
goes toward infrastructure concerns.
2:46:54 PM REPRESENTATIVE Inquired the common length for a tour
PAUL SEATON package in South Central Alaska.
2:47:12 PM Mr. Ball Responded that the average length last
year was approximately 4.5 nights per
person, off-time from the boat.
2:47:37 PM Representative Asked specifically about the Interior
Seaton and Fairbanks area. Mr. Ball guessed
that it had declined slightly to
approximately 1.5 nights. The patterns
have changed over the past few years
and he offered to provide by-location
information.
2:49:20 PM Mr. Ball Stated that people typically pay for
their vacations in cash and the
packages are sold "in total". A $50
dollar increase on a $1200 package
would be a significant increase. A
value decision by the passenger has to
be made regarding the costs, and
changes usually come out of the land
portion costs. He noted that some of
the longer tours are already being
subsidized in an attempt to get the
passenger to opt for these longer
tours. He concluded that pricing is
reasonably complicated.
2:50:54 PM Mr. Shively Added that the cruise is basically
seven days. Mr. Ball interjected that
there is a roundtrip 10-day cruise out
of San Francisco.
2:51:48 PM Mr. Habeger Noted that it was not until this past
year, that the companies added the 10
and 11 day cruises.
2:52:15 PM Vice-Chair Asked how much gaming is involved in
Stoltze the industry. Mr. Shively, Mr. Habeger
and Mr. Ball stated that all cruises
have gaming. Mr. Shively commented
that passengers have made their
decision whether or not they are going
to the Interior before they loose their
money on the gambling tables.
2:52:59 PM Vice-Chair Voiced confusion on the manner in which
Stoltze the cruises are made. Mr. Shively
explained the cruise destination plan
happens before boarding the ship. Some
people do excursions on their own after
boarding the ship.
2:54:09 PM Vice-Chair Knew that was the goal of the industry
Stoltze but thought there might be exceptions.
2:54:39 PM MIKE WINDRED, Provided a brief history of Alaska
ALASKA TRAVEL Travel Adventures (ATA), a business in
ADVENTURES, existence since 1978. He stressed that
JUNEAU if the tax were incorporated, the $50
would come out of the pocket of the
small business owner.
He pointed out that ATA has over 200
employees who are homeowners and pay
statewide taxes. As a company, ATA
owns property in most of the
communities in which they operate.
2:57:20 PM Mr. Windred Continued, providing specifics
regarding the amount ATA spends on
basic expenses for operation. The more
that the State government collects, the
less the customers will have to spend
on optional excursions. There will be
cumulative effects that the consumer
feels.
3:03:05 PM Representative Asked if when excursions are
Gatto advertised, if they include tax or
would it be additional.
3:04:03 PM Mr. Windred Informed members that it is law to
advertise the cost and that the tax is
added on top of that.
3:04:25 PM Representative Inquired if there survey was language,
Gatto which would indicate if a trip did not
include tax, would the passenger then
decide not to take that trip.
Mr. Windred said that they had not
administered that type of survey. ATA
would depend on surveying done by the
cruise ship association and the
McDowell Group to come up with that
type of information.
3:05:08 PM Representative Commented on local infrastructure of
Neuman the industry in the smaller towns and
villages. He suggested that there
could be a "burden" on the local
infrastructure by the industry. Mr.
Windred noted that the infrastructure
within Juneau is better because of the
cruise industry. He maintained that
the industry has a positive effect on
the local infrastructure.
3:06:50 PM Representative Pointed out that Juneau does impose a
Neuman tax on the industry. He commented some
areas in the Interior do not do that.
3:07:16 PM Mr. Windred Pointed out that most of the travelers
that opt for a recreational vehicle
(RV) trip or an overland package, are
the more affluent travelers. He did
not know when the average traveler
became a "burden" on the community in
which they traveled. If there were
such instances, ATA would want work
with to make sure that expenses are
fairly covered.
3:08:09 PM Co-Chair Meyer ADJOURNMENT
The meeting was adjourned at 3:08 P.M.
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