Legislature(2017 - 2018)BELTZ 105 (TSBldg)

03/01/2018 01:30 PM Senate LABOR & COMMERCE

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01:33:04 PM Start
01:33:41 PM SB110
03:01:04 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         March 1, 2018                                                                                          
                           1:33 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Mia Costello, Chair                                                                                                     
Senator Kevin Meyer, Vice Chair                                                                                                 
Senator Berta Gardner                                                                                                           
Senator Peter Micciche                                                                                                          
MEMBERS ABSENT                                                                                                                
Senator Gary Stevens                                                                                                            
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 110                                                                                                             
"An Act establishing the Travel Alaska Board; relating to a                                                                     
tourism marketing assessment; and establishing a tourism                                                                        
marketing fund."                                                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 110                                                                                                                  
SHORT TITLE: TOURISM MARKETING:BOARD;ASSESSMENT;FUND                                                                            
SPONSOR(s): LABOR & COMMERCE                                                                                                    
04/07/17       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/07/17       (S)       L&C, FIN                                                                                               
03/01/18       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
WITNESS REGISTER                                                                                                              
NATASHA MCCLANAHAN, Staff                                                                                                       
Senator Mia Costello, Alaska State Legislature                                                                                  
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented the sectional analysis for SB 110.                                                              
SARAH LEONARD, President/CEO                                                                                                    
Alaska Travel Industry Association                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 110.                                                                           
JOHN LAMBETH, President/CEO                                                                                                     
Civitas, California                                                                                                             
POSITION STATEMENT: Provided supporting testimony on SB 110.                                                                  
COLLEEN STEPHENS, Chair                                                                                                         
Tourism Marketing Board;                                                                                                        
Government Relations representative                                                                                             
Alaska Travel Industry Association; and                                                                                         
Stan Stephens Glacier & Wildlife Cruises                                                                                        
Valdez, Alaska                                                                                                                  
POSITION STATEMENT: Testified in support of SB 110.                                                                           
EMILY NAUMAN, Legal Counsel                                                                                                     
Legislative Legal Services                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Answered questions related to SB 110.                                                                     
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Answered questions related to SB 110.                                                                     
ACTION NARRATIVE                                                                                                              
1:33:04 PM                                                                                                                    
CHAIR MIA COSTELLO  called the Senate Labor and  Commerce Standing                                                            
Committee meeting  to order  at 1:33 p.m.  Present at the  call to                                                              
order   were  Senators   Micciche,  Gardner,   Meyer,  and   Chair                                                              
         SB 110-TOURISM MARKETING:BOARD;ASSESSMENT;FUND                                                                     
1:33:41 PM                                                                                                                    
CHAIR COSTELLO announced the consideration of SB 110 and                                                                        
solicited a motion to adopt the work draft committee substitute.                                                                
1:34:35 PM                                                                                                                    
SENATOR MEYER moved to adopt the CS for SB 110, labeled 30-                                                                     
LS0434\R, as the working document.                                                                                              
CHAIR COSTELLO found no objection and version R was adopted. She                                                                
introduced SB 110 speaking to the following sponsor statement:                                                                  
     Senate Bill  110, the Travel Alaska Act,  will establish                                                                   
     a  mechanism for  the State  of Alaska  to partner  with                                                                   
     the  private  tourism  industry in  support  of  Alaskan                                                                   
     tourism   destination   marketing.   Tourism   marketing                                                                   
     program  funding   produces  a  substantial   return  on                                                                   
     investment  for the  State  of Alaska  and many  Alaskan                                                                   
     citizens  given  that  tourism   is  currently  Alaska's                                                                   
     second largest  private sector employer.  Research shows                                                                   
     that every  $1 spent on  tourism marketing leads  to $58                                                                   
     in   visitor  spending,   $21   in   income  for   state                                                                   
     residents, and $2.84 in state and local revenue.                                                                           
     Alaska's tourism  marketing funding has been  falling in                                                                   
     recent  years  while  competitors'   budgets  have  been                                                                   
     rising,  resulting in  a loss of  market share  compared                                                                   
     to national  trends. To address  this, the Alaska  State                                                                   
     Legislature  included  intent   language  in  the  FY'17                                                                   
     operating budget  asking the tourism industry  to create                                                                   
     a    self-sustaining   program    funded   by    tourism                                                                   
     businesses.  SB  110  would   allow  the  Department  of                                                                   
     Revenue  to assist the  Travel Alaska  Board, create  an                                                                   
     Alaska   tourism   marketing   fund,  and   manage   the                                                                   
     capitalization and expenditures of the fund.                                                                               
     Funding   for  Alaska-specific   tourism  marketing   is                                                                   
     essential for  a robust and  thriving industry  that can                                                                   
     stay competitive  with national  growth trends.  Tourism                                                                   
     marketing  program  funding would  generate  significant                                                                   
     economic  impacts,  amounting  to billions  in  spending                                                                   
     over time.                                                                                                                 
     SB  110 is  an innovative  way for  private industry  to                                                                   
     partner with  the public sector  to address  the current                                                                   
     lack of  funding for Alaska  tourism marketing  and keep                                                                   
     Alaska   forefront   in  this   fast-paced   competitive                                                                   
     market.    This    private-public    partnership    will                                                                   
     strengthen  Alaskan  tourism  and  provide  a  long-term                                                                   
     solution for sustaining this crucial Alaskan industry.                                                                     
1:38:05 PM                                                                                                                    
NATASHA MCCLANAHAN, Staff, Senator Mia Costello, Alaska State                                                                   
Legislature, Juneau, Alaska, provided the following sectional                                                                   
analysis for SB 110.                                                                                                            
     Section 1: Provides  for an exception to  vehicle rental                                                                   
     tax collection, as outlined in Section 2.                                                                                  
     Section 2:  Allows for entities  subject to  the vehicle                                                                   
     rental tax (imposed  by AS 43.52.010   AS  43.52.099) to                                                                   
     request all or  a portion of the tax revenue  they remit                                                                   
     to  the Department  of  Revenue  be deposited  into  the                                                                   
     Alaska  tourism marketing  fund  established in  Section                                                                   
     Section 3:  Clarifies that  vehicle rental tax  revenues                                                                   
     will  be  deposited  into the  general  fund,  with  the                                                                   
     Department    separately    accounting   for    proceeds                                                                   
     requested  to  be  appropriated to  the  Alaska  tourism                                                                   
     marketing fund.                                                                                                            
     Section 4:  Allows for all  vehicle rental tax  proceeds                                                                   
     requested  for  appropriation   to  the  Alaska  tourism                                                                   
     marketing  fund,  as  outlined   in  Section  2,  to  be                                                                   
     appropriated to the Alaska tourism marketing fund.                                                                         
     Section   5:  Creates  the   Travel  Alaska  Board   and                                                                   
     mechanism  for an  Alaska tourism  marketing  assessment                                                                   
     within the Department of Revenue.                                                                                          
     Sec. 44.25.200  (Page 2)  Establishes the Travel  Alaska                                                                   
     Board in the Department of Revenue.                                                                                        
     Sec. 44.25.205  (Page 2-3) Creates a board  structure of                                                                   
     21,  23,   or  25  voting   members  appointed   by  the                                                                   
     Subsection  (b) outlines that  vacancies will be  filled                                                                   
     by the  Governor from  a list  of nominees forwarded  by                                                                   
     the  board.  If  the  Governor rejects  the  list  or  a                                                                   
     portion  of  the list,  the  board will  submit  another                                                                   
     list  for  consideration.  For  vacancies  based  on  an                                                                   
     expiration of  term, nominees forwarded to  the Governor                                                                   
     will be determined  via an election process  of assessed                                                                   
     tourism  businesses   established  in  Sec.   44.25.275.                                                                   
     Nominees for  all other vacancies will be  determined by                                                                   
     board approval.                                                                                                            
     Subsection   (c)   ensures   board   representation   by                                                                   
     different   regions,   business  sizes,   and   industry                                                                   
     segments. Voting  members must be both  a representative                                                                   
     of an assessed  business, or payer, and a  member of the                                                                   
     statewide nonprofit marketing association.                                                                                 
     Subsection  (d) allows  the board to  elect ex  officio,                                                                   
     nonvoting members.                                                                                                         
     Subsection (e)  provides the board shall  annually elect                                                                   
     a chair and vice chair.                                                                                                    
     Sec.  44.25.210 (Page  3) Defines  board terms.  Members                                                                   
     serve   staggered   three-year    terms   and   can   be                                                                   
     Sec.  44.25.215 (Page  3)  Provides  that board  members                                                                   
     may be removed for cause.                                                                                                  
     Sec.  44.25.220 (Page  3) Defines  quorum  requirements.                                                                   
     To initiate  a vote  among tourism  businesses to  levy,                                                                   
     amend,  or  terminate  an assessment,  approval  of  the                                                                   
     majority  of  all  voting  members  is  required.  Other                                                                   
     board actions  require only  the approval of  a majority                                                                   
     of voting  members present.  Subsection (b) permits  the                                                                   
     board to transact business electronically.                                                                                 
     Sec.  44.25.225 (Page  4) States  board members  receive                                                                   
     no salary, per diem or travel expenses.                                                                                    
     Sec. 44.25.230  (Page 4) Asserts the board  will meet at                                                                   
     least  twice a year.  Meetings can  also be called  upon                                                                   
     the written request of five members.                                                                                       
     Sec.   44.25.235  (Page   4)  The   board  may   request                                                                   
     administrative  support  from  the  statewide  nonprofit                                                                   
     tourism  marketing   association,  and  work   with  the                                                                   
     association  to  fulfill  its   duties.  Subsection  (b)                                                                   
     directs  the board  to  adopt definitions  for  "tourism                                                                   
     industry,"  "tourism  segment," and  "tourism  business"                                                                   
     and   forward  to   the   Department   of  Revenue   for                                                                   
     ratification.   Should   the   Department   reject   the                                                                   
     definitions,    the   board    may   submit    alternate                                                                   
     Sec. 44.25.240  (Page 4-5)  Describes the powers  of the                                                                   
     board  in  the  adoption  of  policies  related  to  the                                                                   
     board,    cooperation    with   public    and    private                                                                   
     organizations,  incurring   expenses,  appearing  before                                                                   
     government   entities,   acquiring  and   disposing   of                                                                   
     property,  entering  into  agreements,  and  designating                                                                   
     and removing ex officio members of the board.                                                                              
     Sec. 44.25.245  (Page 5-6)  Defines marketing duties  of                                                                   
     the board  to promote  travel and  tourism in the  state                                                                   
     and promote  segments participating  in the  assessment.                                                                   
     The  board   must  submit   an  annual  report   to  the                                                                   
     Governor,    Legislature,     and    assessed    tourism                                                                   
     businesses.  A  marketing  plan must  also  be  prepared                                                                   
     annually. Subsection  (8) directs the board  to identify                                                                   
     "segments"  of the  tourism industry,  based on  similar                                                                   
     goods and services provided.                                                                                               
     Sec. 44.25.250  (Page 6) Provides that  any expenditures                                                                   
     by  the  board  must  be  consistent   with  the  annual                                                                   
     marketing plan.                                                                                                            
     Sec.  44.25.255  (Page  6-7)   If  the  board  votes  to                                                                   
     initiate  the  process  of   levying  an  assessment  or                                                                   
     amending  an   existing  assessment  rate,  a   vote  by                                                                   
     assessed  businesses  will  be held  following  election                                                                   
     procedures outlined in Sec. 44.25.270.                                                                                     
     Subsection  (b)  clarifies  that different  segments  of                                                                   
     the  tourism  industry  can  be  assessed  at  different                                                                   
     rates. If an  election is held (per Sec.  44.25.270) and                                                                   
     an  assessment rate  is approved,  that assessment  will                                                                   
     then  be  levied   on  the  gross  revenue   of  tourism                                                                   
     businesses in that particular segment.                                                                                     
     Subsection  (c) defines assessment  rates available  for                                                                   
     consideration  as 0,  0.25, 0.5, 0.75,  1.0, 1.25,  1.5,                                                                   
     1.75 or 2 percent of gross revenue.                                                                                        
     Subsection  (d)  requires  the board  to  advertise  and                                                                   
     schedule  public  meetings  for  businesses  potentially                                                                   
     subject to a proposed assessment prior to an election.                                                                     
     Sec.  44.25.260  (Page  7-8) Provides  that  a  business                                                                   
     subject  to  an assessment  may  pass  the cost  of  the                                                                   
     assessment  on  to  its  customers   if  the  amount  is                                                                   
     disclosed  in  advance,  a  receipt is  given,  and  the                                                                   
     assessment is listed as a separate charge.                                                                                 
     Subsection  (b) states  that  information  given to  the                                                                   
     board or  Department of Revenue  by an assessed  tourism                                                                   
     business is confidential with four exceptions.                                                                             
     Subsection  (c) clarifies that  information obtained  by                                                                   
     the  board or Department  of Revenue  used to  determine                                                                   
     the assessment for a business is not public record.                                                                        
     Subsection  (d)  allows  the Department  of  Revenue  to                                                                   
     require   assessed   tourism  businesses   to   maintain                                                                   
     records  verifying gross revenue,  permit inspection  of                                                                   
     those records, and provide information upon request.                                                                       
     Sec.  44.25.265 (Page  8) An  assessment will  terminate                                                                   
     after six  years, or  on the sunset  date stated  on the                                                                   
     approved   election  ballot,   whichever  comes   first.                                                                   
     Subsection  (b)  provides that  if  the board  votes  to                                                                   
     initiate  the process  of terminating  an assessment,  a                                                                   
     vote  by  assessed  businesses will  be  held  following                                                                   
     election procedures outlined in Sec. 44.25.270.                                                                            
     Sec.   44.25.270  (Page  8-9)   Outlines  the   election                                                                   
     procedures  for an assessment  vote. The board  can hold                                                                   
     an  election after  the Director  of Elections  approves                                                                   
     the   notice,    ballot,   registration,    and   voting                                                                   
     Subsection  (b) establishes  meeting, notice and  ballot                                                                   
     requirements  of the  board  for any  election to  levy,                                                                   
     amend, or terminate an assessment.                                                                                         
     Subsection  (c) gives  parameters  for  the Director  of                                                                   
     Elections to certify results.                                                                                              
     Subsection  (d) allows  ballots to  be considered  valid                                                                   
     if  signed by  an officer  or authorized  representative                                                                   
     of the tourism business.                                                                                                   
     Sec.  44.25.275 (Page  9-10) Defines  the weighted  vote                                                                   
     process  used  in  elections for  both  assessments  and                                                                   
     board  nominees. Votes  will be  weighted in  proportion                                                                   
     to the  amount each business  is estimated to  pay under                                                                   
     the  proposed  assessment  in the  next  calendar  year.                                                                   
     When voting  on an existing  assessment, only  the votes                                                                   
     of  businesses that  pay under  that  assessment at  the                                                                   
     time of the  election shall be counted. Actions  must be                                                                   
     approved  by  businesses  representing  a  total  of  at                                                                   
     least 50 percent of the weighted votes received.                                                                           
     Sec. 44.25.280  (Page 10) Upon  request by the  Director                                                                   
     of Elections,  the Department of Revenue  will determine                                                                   
     the amount  each assessed business  is estimated  to pay                                                                   
     for  any  calendar  year,  including  future  years  for                                                                   
     purposes of weighting votes.                                                                                               
     Sec. 44.25.285  (Page 10)  Assessed business will  remit                                                                   
     payment to the  Department of Revenue within  30 days of                                                                   
     the  end of  each calendar  quarter. Within  60 days  of                                                                   
     the end  of each calendar  quarter, the Department  will                                                                   
     report  to the  board the  total  amount of  assessments                                                                   
     Sec. 44.25.290  (Page 10)  Applies existing  enforcement                                                                   
     statutes for  the Department  of Revenue (AS  43.05) and                                                                   
     the Attorney  General (AS 43.10)  to the Alaska  tourism                                                                   
     marketing assessment.                                                                                                      
     Sec.   44.25.295  (Page  10)   Establishes  the   Alaska                                                                   
     tourism marketing fund.                                                                                                    
     Sec. 44.25.300  (Page 10-11) Defines terms used  in this                                                                   
     chapter:  "assessment,"  "board,"   "business  segment,"                                                                   
     and "traveler."                                                                                                            
     Section  6: Designates the  leading statewide  nonprofit                                                                   
     tourism  marketing association  as  a transition  board.                                                                   
     The transition  board will  hold an initial  election to                                                                   
     determine  the list  of nominees for  the Travel  Alaska                                                                   
     Board  and  proposed  assessment  rates.  Following  the                                                                   
     election, nominees  for the Travel Alaska Board  will be                                                                   
     forwarded  to  the  Governor.  Once  the  Travel  Alaska                                                                   
     Board  is established through  the appointment  process,                                                                   
     the   transition   board  will   submit   any   proposed                                                                   
     assessment  rates  approved   in  the  election  to  the                                                                   
     Travel  Alaska  Board,  at which  point  the  transition                                                                   
     board will dissolve.                                                                                                       
     Subsection  (b) provides  that if  the Governor  rejects                                                                   
     the initial  list or  a portion of  the initial  list of                                                                   
     nominees,  the  transition  board  will  submit  another                                                                   
     list for consideration.                                                                                                    
     Subsection  (c)  permits  the  Travel  Alaska  Board  to                                                                   
     ratify assessments proposed by the transition board.                                                                       
        Subsection (d) refers to Sec. 44.25.300 for the                                                                         
     definition of "assessment."                                                                                                
1:47:36 PM                                                                                                                    
CHAIR  COSTELLO  invited Colleen  Stephens  and Sarah  Leonard  to                                                              
comment on the industry's proposal.                                                                                             
1:48:05 PM                                                                                                                    
SARAH LEONARD,  President/CEO, Alaska Travel  Industry Association                                                              
(ATIA),  Anchorage,   Alaska,  thanked   the  committee   for  the                                                              
opportunity  presented through  SB 110 to  potentially create  the                                                              
legislative   framework   for  an   Alaska   tourism   improvement                                                              
district.  She   related  that  ATIA  is  the   leading  nonprofit                                                              
membership  trade   association  for  Alaska's   visitor  industry                                                              
representing over  650 tourism businesses  in various  sectors and                                                              
regions throughout  the state. ATIA  is also the  state's contract                                                              
manager  for  Alaska's   destination  marketing  program   and  is                                                              
responsible for statewide marketing and program development.                                                                    
She described  tourism as  a bright spot  in Alaska's  economy and                                                              
noted  that  the  state's  investment   in  destination  marketing                                                              
declined 90  percent between 2014  and 2017. She pointed  out that                                                              
Alaska is  falling behind  as most  states are increasing  support                                                              
for destination  marketing. In 2017  Alaska accounted for  just .3                                                              
percent  of the  national  spending  on state  tourism  promotion.                                                              
That  is down  from  2.5  percent in  2014.  She also  noted  that                                                              
Alaska's  increasing  visitor  numbers  are  concentrated  in  the                                                              
cruise sector  while independent  travel is stagnant.  She posited                                                              
that  this  decline  translates  into  reduced  visitor  spending,                                                              
fewer jobs,  and lower  business revenue.  She shared  the results                                                              
of a  recent independent analysis  of the state's  competitiveness                                                              
in  terms  of  destination  marketing   investments  and  Alaska's                                                              
tourism  sector  performance.  It  shows  that  Alaska  lost  $189                                                              
million  in  visitor  spending  between  2012 and  2016,  and  $57                                                              
million in visitor spending in 2016 alone.                                                                                      
MS. LEONARD said  the industry was listening when  the legislature                                                              
said to come up  with a funding solution for marketing.  It was an                                                              
opportunity  to   develop  a  plan   to  phase  out   reliance  on                                                              
unrestricted  general  funds  for  marketing and  move  towards  a                                                              
self-sustaining  program funded  by industry.  A number of  models                                                              
were  considered, but  always  with the  parameters  that any  new                                                              
funding solution  should not  be reliant  on one industry  segment                                                              
or  funding  source,  that  revenue   should  focus  primarily  on                                                              
visitor  activity with  the  least impact  on  Alaskans, that  any                                                              
assessment or new  revenue could be passed on to  the visitor, and                                                              
most importantly,  that any  successful plan  for the  industry to                                                              
assess  itself would  be  a  private/public partnership  with  the                                                              
state that would  continue to leverage the vehicle  rental car tax                                                              
that the state already collects.                                                                                                
1:54:26 PM                                                                                                                    
JOHN  LAMBETH,   President/CEO,  Civitas,  California,   said  his                                                              
testimony  would  focus  on providing  background  on  destination                                                              
marketing  and  a  national  perspective  on  tourism  improvement                                                              
districts. He  agreed with earlier  comments about  the importance                                                              
of  the  travel  and  tourism  industry;  one  in  nine  jobs  are                                                              
dependent on  tourism. He addressed  the question about  why there                                                              
should  be destination  marketing  on a  coordinated basis  rather                                                              
than  letting individual  businesses  do their  own marketing.  He                                                              
explained  that the  primary motivator  of a  trip is usually  the                                                              
experience  of  the  destination  itself,  not  a  single  lodging                                                              
establishment  or  attraction.  Thus, the  destination  should  be                                                              
marketed  as a  unit. It's  also a  question of  scale because  no                                                              
individual business  can market Alaska on a broad  scale. It takes                                                              
the industry  as a group to  coordinate and pool its  resources to                                                              
do destination  marketing. He described  the cycle  of destination                                                              
marketing.  He   said  an  investment  in  travel   and  marketing                                                              
promotion  creates demand  that in turn  creates visitor  spending                                                              
which spurs  new jobs and new  tax revenues that  allow investment                                                              
back  into travel  and tourism.  He pointed  out that  nationwide,                                                              
the travel  and tourism  industry generates  about $160  billion a                                                              
year in state and local taxes.                                                                                                  
He  explained that  the model  for  tourism improvement  districts                                                              
dates back  to the 1930s when  the agricultural industry  levied a                                                              
charge  on  individual growers  and  used  that money  to  promote                                                              
their products. In  the 1960s that model was  expanded to downtown                                                              
improvement  activities.  Now  there   are  about  2,000  business                                                              
improvement  districts   across  North  America.  In   1990s  some                                                              
Californians extended  the concept to tourism promotion  which led                                                              
to  the  first  tourism  improvement   district.  The  assessments                                                              
collected  from  those  districts   is  typically  returned  to  a                                                              
destination marketing  organization that markets  the destination.                                                              
Some of  the advantages of  this funding  model is that  there are                                                              
no free  riders, there is transparency  in its operations,  and it                                                              
creates  a reliable,  consistent,  stable  source  of funding  for                                                              
tourism marketing.  He said there are now 167  districts across 14                                                              
states and  11 more states are  in the process of  either adopting                                                              
legislation  or  of  forming  tourism  improvement  districts.  He                                                              
opined that there will be a lot more going forward.                                                                             
MR.  LAMBETH  asked  the  committee   to  consider  two  important                                                              
concepts  as it  deliberates  on  SB 110.  First,  this  is not  a                                                              
partisan  issue. Republicans  and Democrats  alike understand  the                                                              
importance  of the  tourism industry  and  how tourism  investment                                                              
districts  support  it.  Second,  it's  been  a  game-changer  for                                                              
destinations  that have  adopted TIDs  and it  has taken  reliance                                                              
off  the  general fund.  He  concluded  that  SB 142  will  change                                                              
destination  promotion  activities  in  Alaska for  a  long,  long                                                              
2:01:23 PM                                                                                                                    
COLLEEN  STEPHENS, Chair,  Alaska Tourism  Marketing Board  (ATMB)                                                              
and  Government   Relations  representative   for  Alaska   Travel                                                              
Industry  Association,   said  she   also  has  a   business-owner                                                              
perspective  from the family  business, Stan  Stevens Glacier  and                                                              
Wildlife Cruses.  She said the board  has worked with  the tourism                                                              
industry  since   SB  110  was   introduced  in   2017  addressing                                                              
questions  and concerns.  The larger questions  were whether  ATMB                                                              
would  continue  to  advocate  to  partner  with  the  state  with                                                              
vehicle rental  car funds and the  structure of the  Travel Alaska                                                              
Board.  She said  SB 110  addresses  many of  those questions  and                                                              
concerns. The  industry has  also created  the TID Advisory  Group                                                              
to the ATMB that  has members from all sectors. She  said the goal                                                              
is to make this an open dialog and transparent process.                                                                         
She  explained  that  SB  110 is  the  enabling  legislation  that                                                              
outlines the  process and  provides the tools  to enact  a tourism                                                              
improvement  district.  In  phase  two, the  ATMB  will  determine                                                              
which sectors  may be  included in the  assessment, the  rates the                                                              
sectors will pay,  how the board will be developed,  and implement                                                              
the  program.  This  will create  a  sustainable  and  predictable                                                              
funding  model  for  Alaska tourism.  Research  shows  that  every                                                              
dollar  spent on tourism  promotion  in Alaska  results in  $58 of                                                              
visitor spending,  $21 in  income for  local residents,  and $2.84                                                              
in state and local taxes.                                                                                                       
MS.  STEPHENS  said   as  a  small  business  owner   it  is  more                                                              
unsettling to consider  what happens if there isn't  a well-funded                                                              
marketing  program. The  larger corporations  operating in  Alaska                                                              
won't be  affected, but small  communities, small  businesses, and                                                              
remote  locations will  feel the  impact if there  isn't a  broad-                                                              
based  program that  puts the image  of Alaska  before people  and                                                              
convinces   them   that   Alaska   is   their   preferred   travel                                                              
destination. She  said it's  time to take  the step to  change the                                                              
tourism marketing funding for Alaska.                                                                                           
SB  110 establishes  the  framework  for  a partnership  with  the                                                              
state. It asks the  state to make a policy change  relative to the                                                              
vehicle  rental   tax  (VRT)  and  the  industry   contributes  an                                                              
assessment  from  individual  businesses.  According to  the  2015                                                              
McDowell Report the  visitor industry brings $105  million in fees                                                              
and taxes  to the state every  year. She concluded  that combining                                                              
the  vehicle   rental  tax   investment   and  the  new   business                                                              
assessments will  guide the industry  into the future  for tourism                                                              
marketing and continue to fill the tourism pipeline                                                                             
2:07:35 PM                                                                                                                    
CHAIR  COSTELLO identified  the  individuals  available to  answer                                                              
SENATOR GARDNER  asked Ms.  Stephens if  ATMB's outreach  included                                                              
nonmember business  owners and how  people who should  be included                                                              
are identified. For example, is a driver for Uber included?                                                                     
MS. STEPHENS  said no segment  has been  identified as in  or out,                                                              
but taxicabs  and Uber have not  been part of the  conversation at                                                              
the  board  level.  ATMB  has  done  outreach  to  convention  and                                                              
visitor bureaus  and chambers of  commerce to identify  businesses                                                              
that are in a  different member base. The businesses  that will or                                                              
will not be included will be determined in phase two.                                                                           
SENATOR GARDNER  asked if  the legislature will  know how  much is                                                              
collected  through assessments  and  the number  of businesses  in                                                              
each of the nine assessment categories that are participating.                                                                  
2:12:06 PM                                                                                                                    
MR.  LAMBETH said  it's quite  common to  get summary  information                                                              
about the  number of businesses  that are assessed and  the amount                                                              
that is collected from each category.                                                                                           
SENATOR  GARDNER asked  if businesses  are able  to recover  their                                                              
assessments by passing those costs along to their customers.                                                                    
MS. LEONARD  said if  this legislation  passes, the Department  of                                                              
Revenue  (DOR) would  send a  form  to those  businesses that  are                                                              
part  of the  assessment  to self-report  what  they  owe in  that                                                              
assessment. The  state would collect  the money that  the business                                                              
collected from its customers.                                                                                                   
SENATOR  GARDNER  questioned  why   a  business  that  passes  the                                                              
assessment along  to its  customers would opt  to send  that money                                                              
to the state.                                                                                                                   
MS. STEPHENS  clarified that while  businesses have the  option to                                                              
pass  the   assessment  along  to   their  customers   or  guests,                                                              
remitting  the  assessment  becomes compulsory  for  the  business                                                              
once the legislation becomes law.                                                                                               
MR.  LAMBETH  agreed   that  the  business  owes   the  assessment                                                              
regardless  of  whether the  assessment  is  passed along  to  the                                                              
CHAIR COSTELLO  advised that page  4 of the sectional  provides an                                                              
2:17:45 PM                                                                                                                    
SENATOR MEYER asked how much the assessment might raise.                                                                        
MS.  LEONARD said  the assessments  have not  been identified  but                                                              
one  percent on  broad-based  accommodations  and tour  activities                                                              
(projected on numbers  from the McDowell Group)  could raise about                                                              
$7 million.                                                                                                                     
SENATOR MEYER mentioned  bed and breakfast and  vacation rental by                                                              
owner (VRBO)  and commented  that part of  the process will  be to                                                              
decide which businesses will be subject to the assessment.                                                                      
MS.  LEONARD  said  in jurisdictions  where  there  is  a  tourism                                                              
improvement  district  VRBOs  and   Air  B&Bs  join  the  programs                                                              
through individual agreements.                                                                                                  
SENATOR MEYER  asked if any  proposed increases in  the assessment                                                              
would come before the legislature.                                                                                              
MS. STEPHENS  explained that the  legislature sets  the assessment                                                              
levels in  .25 percent increments  with a 2 percent  maximum. When                                                              
the board  meets for  the first  time it  will define the  tourism                                                              
segments, the  Department of  Revenue will  ratify them,  and then                                                              
the businesses  that are  subject to the  assessment will  vote on                                                              
the  proposed  assessment  levels  and  the  Travel  Alaska  Board                                                              
recommendations that  will move forward to the  governor. The vote                                                              
is  weighted  based   on  the  gross  revenues   paid  toward  the                                                              
assessment.  The bill  requires  a second  vote  after six  years.                                                              
This  is an  opportunity  for  the industry  to  weigh  in on  the                                                              
success  of the program  and to  adjust the  assessment. The  bill                                                              
also provides a termination clause.                                                                                             
SENATOR MEYER said he assumes the program is compulsory.                                                                        
MS.  LEONARD   confirmed  that   an  individual  business   cannot                                                              
terminate its assessment.                                                                                                       
SENATOR MEYER asked what entity oversees enforcement.                                                                           
MS. LEONARD  advised that the  bill incorporates  existing statute                                                              
regarding the state enforcing the collection of fees and taxes.                                                                 
2:25:01 PM                                                                                                                    
CHAIR  COSTELLO   asked  Mr.  Lambeth  to  comment   on  the  bill                                                              
designating  the  entire  state  as a  single  tourism  investment                                                              
district  as opposed  to  the more  common  model of  establishing                                                              
TIDs for specific regions.                                                                                                      
MR.  LAMBETH confirmed  that the  program has  been most  commonly                                                              
used  in  individual  destinations,  but  it has  been  used  very                                                              
successfully  for  statewide  marketing  in  California.  He  said                                                              
several other  states are  looking at that  model and  he suspects                                                              
this model will become more common for states.                                                                                  
CHAIR  COSTELLO asked  if  the members  will  have  access to  the                                                              
research that is conducted using revenues from the assessments.                                                                 
MR. LAMBETH  replied research  is a  critical part of  destination                                                              
marketing  and  typically  it  is  widely  available  to  members.                                                              
"These   districts  tend   to  be   very   transparent  in   their                                                              
operation," he said.                                                                                                            
CHAIR COSTELLO  asked if there was  an avenue for a  business that                                                              
does not want to participate.                                                                                                   
MR. LAMBETH  explained that the  compulsory model is  preferred by                                                              
most  destinations because  there will  be free  riders if  paying                                                              
the assessment is  voluntary. The voluntary model works  well if a                                                              
benefit is provided to certain businesses and not others.                                                                       
SENATOR MICCICHE  asked if some  countries have a value  added tax                                                              
(VAT) for this purpose. He cited Australia.                                                                                     
MR. LAMBETH  confirmed that  some countries do  have that  type of                                                              
tax, but  they tend to  be used for  a variety of  activities, not                                                              
just  tourism  promotion. He  opined  that  this model  where  the                                                              
industry  is leading  the effort  will  be a  very successful  for                                                              
Alaska  given  the constitutional  constraints  against  dedicated                                                              
2:30:35 PM                                                                                                                    
SENATOR  MICCICHE asked  if anything  in the  bill eliminates  the                                                              
potential for a  larger scale partnership. He said  he believes it                                                              
would be  more efficient  as a  unit as  opposed to separating  by                                                              
industry or region.                                                                                                             
MS. STEPHENS said  the goal is to get the image  of Alaska out and                                                              
convince  travelers that  Alaska is a  possible destination.  Once                                                              
the traveler has  committed to Alaska the individual  regions will                                                              
step up  and help  them identify  where they  want to  visit. It's                                                              
the  responsibility  of businesses  to  work  with the  state  and                                                              
regions to  convert that to  customers in their  doors. Businesses                                                              
that  are the  farthest from  the  main stream  will benefit  most                                                              
from the  notion that a  rising tide raises  all boats.  She noted                                                              
that while cruise  ship visitors are increasing, it  is not at the                                                              
same  rate  as other  destinations.  That  is an  indication  that                                                              
there is a market share issue even within the cruise industry.                                                                  
SENATOR MEYER  asked if the  various community marketing  programs                                                              
are active participants in this discussion.                                                                                     
MS. LEONARD said  yes; community destination  marketing management                                                              
organizations  sit on both  the Alaska  Travel Industry  Board and                                                              
the  Alaska Tourism  Marketing  Board.  Responding  to an  earlier                                                              
question  she clarified  that  increasing  the maximum  assessment                                                              
above 2 percent would require legislative approval.                                                                             
SENATOR  MEYER asked  if the amount  from the  vehicle rental  tax                                                              
was fixed.                                                                                                                      
MS. LEONARD  said the  legislation does  not suggest changing  the                                                              
existing VRT  rate. She recalled that  is 10 percent for  cars and                                                              
3 percent for recreational vehicles.                                                                                            
2:34:49 PM                                                                                                                    
SENATOR  GARDNER   summarized  that  the  assessment   applies  to                                                              
everybody whether  they are  members or not  but only  members can                                                              
MS.  LEONARD replied  the assessment  would apply  to any  segment                                                              
that is identified  as a payer of the assessment  and those payers                                                              
would be the voters.                                                                                                            
SENATOR  GARDNER asked  if membership  is  required to  be on  the                                                              
MS.  LEONARD clarified  that  businesses are  not  required to  be                                                              
members of  the Alaska  Travel Industry  Association (ATIA).  It's                                                              
any business that  is identified as a segment  in Alaska's visitor                                                              
SENATOR  GARDNER  observed  that   the  appropriation  process  in                                                              
Section  2  carries  a  certain  risk because  it  is  subject  to                                                              
legislative  appropriation. She  asked if it  would be  simpler to                                                              
have a grant process.                                                                                                           
MS. LEONARD  said a simpler process  would be welcome.  The reason                                                              
for  pointing  to the  vehicle  rental  tax  was the  history  and                                                              
legislative intent  language. She opined  that it is  a reasonable                                                              
reinvestment of those dollars into tourism marketing.                                                                           
SENATOR GARDNER asked  why the bill proposes a  variable number of                                                              
board members.                                                                                                                  
MS. STEPHENS  said it was a  range the ATIA Board  was comfortable                                                              
proposing.  In phase  2 a guiding  document would  be written  and                                                              
clarify the exact size.                                                                                                         
2:38:13 PM                                                                                                                    
At ease                                                                                                                         
2:38:33 PM                                                                                                                    
CHAIR COSTELLO reconvened the meeting.                                                                                          
SENATOR GARDNER  why they  were proposing a  new board  instead of                                                              
using the ATIA Board.                                                                                                           
MS.   LEONARD  replied   that  option   met  with   constitutional                                                              
challenges because  of the partnership  with the state.  It's also                                                              
in line with the  way TID boards for tourism marketing  are set up                                                              
in other states.                                                                                                                
SENATOR  GARDNER  asked  how  assessments   will  be  handled  for                                                              
tourism  businesses  that  aren't  headquartered  in  Alaska.  She                                                              
cited the  Four Seasons hotel chain  and the cruise  ship industry                                                              
as examples.                                                                                                                    
MS. STEPHENS explained  that a direct assessment on  the cost of a                                                              
cruise could  have problems with  the interstate  commerce clause.                                                              
For  the  hotel  chain,  the  assessment  would  be  on  just  the                                                              
business  that is done  in Alaska  and the  Department of  Revenue                                                              
(DOR) would help with the collection process.                                                                                   
SENATOR  GARDNER asked  for  an explanation  of  Sec 44.25.280  on                                                              
Page 10.                                                                                                                        
MS.  STEPHENS  explained  that   the  assessment  is  based  on  a                                                              
business's  gross  revenues  and  the Department  of  Revenue  has                                                              
those confidential numbers.                                                                                                     
CHAIR COSTELLO asked  the bill drafter to comment on  how the bill                                                              
addresses taxation  authority and  the powers of  the legislature.                                                              
She also asked if  there are any structural issues  related to the                                                              
board that the committee should be aware of.                                                                                    
2:44:53 PM                                                                                                                    
EMILY NAUMAN,  Legal Counsel,  Legislative Legal Services,  Alaska                                                              
State  Legislature,  Juneau, Alaska,  explained  that  any time  a                                                              
portion or  the appearance  of a portion  of the authority  to tax                                                              
leaves the legislature,  it raises a concern about  a violation of                                                              
the  constitution's prohibition  against  the  delegation to  tax.                                                              
One  helpful  case on  the  topic  is  State  v. Alex.  A  private                                                              
aquaculture association  set an assessment and  members challenged                                                              
it.  The   Alaska  Supreme  Court   held  that  was   an  improper                                                              
delegation  of the  legislature's  authority  to  tax because  the                                                              
entire process  occurred outside  of the  state. In response,  the                                                              
state set out  salmon assessment taxes on which  ASMI was modeled.                                                              
The  assessment proposed  by SB  110 is  loosely the  same as  the                                                              
ASMI model  and that has  not been tested  by a court.  She opined                                                              
that SB  110 strays a little  farther towards an  unconstitutional                                                              
tax,  particularly in  the transition  provisions  because of  the                                                              
authority  given   the  transition   board  which  is   a  private                                                              
SENATOR  MICCICHE   asked  if  it's   just  the  absence   of  the                                                              
legislature  acting that  raises the constitutional  issue  and if                                                              
the  solution  could  be  as  simple  as  the  board  providing  a                                                              
recommendation  to the  legislature  that  would be  appropriately                                                              
approved and appropriated.                                                                                                      
MS. NAUMAN  said to  raise no concern  the legislature  should set                                                              
the rate  of the  tax and  who should  be taxed  in statute.  That                                                              
could be  done with  a recommendation from  industry or  a private                                                              
SENATOR GARDNER asked  for an explanation of the  language on page                                                              
2, lines 18-19, regarding establishing the Travel Alaska Board.                                                                 
MS. NAUMAN  said she would guess  it was to try to  establish that                                                              
the  board is  acting  as  a state  function  for  the purpose  of                                                              
avoiding triggering the delegation of tax issue.                                                                                
CHAIR  COSTELLO asked  her  to talk  about  the  structure of  the                                                              
MS.  NAUMAN said  one  unusual  thing is  that  a  segment of  the                                                              
tourism  industry that  is not  currently assessed  will not  have                                                              
representation  on the board.  That could place  the board  in the                                                              
position of trying  to determine an assessment rate  or whether an                                                              
assessment should be  levied on an industry segment  that does not                                                              
have representation.  It could also be tricky  if assessments were                                                              
terminated. There  would be no one  to be on the board  because it                                                              
is composed of assessed businesses.                                                                                             
She said the rental  car tax structure is unusual  in that the tax                                                              
payor requests  where the  proceeds of the  tax are  directed. She                                                              
pointed  out  that  it's  not  always  going  to  be  the  tourism                                                              
industry  that pays the  tax. In  some instances,  it will  be the                                                              
tourist that pays  the tax and in that case it's  a third party or                                                              
the tourism  company that gets  to decide  where the tax  they are                                                              
paying goes.  That too is unusual.  She also pointed out  that the                                                              
bill does  not specify  what happens if  the governor  rejects the                                                              
list the board submitted of potential board members.                                                                            
2:51:40 PM                                                                                                                    
SENATOR MICCICHE  asked if  all the  instate vehicle rental  taxes                                                              
are aggregated.                                                                                                                 
MS.  NAUMAN said  that was  her  understanding, but  she would  do                                                              
follow up research and provide a definitive answer.                                                                             
2:52:25 PM                                                                                                                    
KEN  ALPER,  Director,   Tax  Division,  Department   of  Revenue,                                                              
Juneau,  Alaska,  introduced  himself  and  declared  a  potential                                                              
conflict. Through his wife he is a member of ATIA.                                                                              
CHAIR COSTELLO  asked Mr. Alper to  explain how SB 110  would work                                                              
from the Department of Revenue's (DOR) perspective.                                                                             
MR. ALPER  said the  department's role  would be  to help  get the                                                              
affected  businesses licensed  and registered  in the system  like                                                              
any other Alaskan  taxpayer. The police powers of  the state would                                                              
enforce payment  of that  tax and  if someone  failed to  pay, the                                                              
department  has  the  power to  suspend  their  business  license,                                                              
among other powers.                                                                                                             
He noted  that the  bill converts  the vehicle  rental tax  from a                                                              
designated   general  fund   appropriation   to  an   unrestricted                                                              
category  that  is self-directed  where  each  individual  vehicle                                                              
rental tax  payer would  decide whether  they wanted to  designate                                                              
the money to  this tourism entity or keep it  unrestricted general                                                              
funds.  He  noted  that  Ms. Nauman  identified  it  as  a  little                                                              
problematic  to  have  a taxpayer  directed  designation  of  some                                                              
He advised  that DOR would  also collect confidential  information                                                              
to estimate  the gross  revenue of  businesses in various  tourism                                                              
segments, establish  a weighting system for the vote  based on one                                                              
vote per  dollar in  estimated gross  revenue,  and work with  the                                                              
Division of Elections to help score the election.                                                                               
SENATOR MEYER  asked if  administering the  assessment would  cost                                                              
the Department of Revenue.                                                                                                      
MR.  ALPER replied  there are  two  costs. First  is the  one-time                                                              
cost of  setting up a  new module within  DOR's software.  That is                                                              
estimated  to be  about  $900 thousand.  The  second  cost is  for                                                              
three additional  staff to administer  the tax. This  includes one                                                              
technician,  one  supervisory  or   audit-level  person,  and  one                                                              
economist  to figure  out how  to  do the  weighting and  estimate                                                              
what  the  payments  would  be  for  the  purposes  of  conducting                                                              
SENATOR MEYER  asked the  Chair if  there was  a fiscal  note from                                                              
CHAIR COSTELLO  said the fiscal  notes do not reflect  the current                                                              
version of the bill.                                                                                                            
MR. ALPER  advised that an updated  fiscal note should  be on line                                                              
later today.                                                                                                                    
CHAIR  COSTELLO asked  him to  alert  her aide  if the  department                                                              
does upload the fiscal note.                                                                                                    
SENATOR  GARDNER asked  how many  potential  taxpayers under  this                                                              
bill are already corporate taxpayers.                                                                                           
MS. ALPER  said he didn't  know but his sense  is it would  not be                                                              
many. Cruise  ships are international  corporations and  would pay                                                              
Alaska  corporate income  tax, but  they would  not be subject  to                                                              
this new assessment because of federal constitutional issues.                                                                   
3:00:25 PM                                                                                                                    
CHAIR  COSTELLO  thanked  the  participants  and held  SB  110  in                                                              
3:01:04 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Costello adjourned the Senate Labor and Commerce Standing                                                                 
Committee meeting at 3:01 p.m.                                                                                                  

Document Name Date/Time Subjects
SB110-DCCED-DED-02-23-18.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
SB110-DNR-PKS-02-27-18.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
CSSB 110 Work Draft Version R.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
SB 110 Supporting Document - Tourism Marketing Fund History - REV -- 2.26.18.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
SB 110 Supporting Document - Analysis of Tourism Marketing Program Funding - Alaska.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
CSSB 110 Sponsor Statement.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
CSSB 110 Sectional Analysis.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
SB 110 Supporting Document - TID Simple.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
CSSB 110 Frequently Asked Questions.pdf SL&C 3/1/2018 1:30:00 PM
SB 110
CSSB 110- 03.01.18 -Individuals and Business support.pdf SL&C 3/1/2018 1:30:00 PM
SB 110