HOUSE BILL NO. 147 An Act relating to matching funds in state tourism marketing contracts with trade associations. CHARISSE MILLETT, STAFF, REPRESENTATIVE JOHN HARRIS, explained that the legislation changes the current 50/50 to 90/10 match for tourism funding. The Alaska Travel Industry Association (ATIA) does not believe that they are able to do a good job at marketing the State of Alaska at the 50/50 match. BRETT CARLSON, VICE CHAIR, ALASKA TRAVEL INDUSTRY ASSOCIATION (ATIA), COLDFOOT, spoke in support of HB 147, noting that it is a "critical must have" piece of legislation to the future of the tourism industry. Mr. Carlson pointed out that Alaska's destination marketing program is facing a 60% fund cut unless the bill passes. The focus of HB 147 is to determine language to govern ATIA's ability to access dollars, changing the level at which the private sector is required to match dollars. He provided chart handouts - Tourism Marketing Industry Payment in Lieu of Taxes (Copy on File.) Mr. Carlson noted that in 2001, the Millennium plan was introduced, in which the Alaska tourism industry faced two options: · Tax themselves, trusting that future legislatures would reinvest new travel industry tax dollars back into destination marketing, or · Attempt to raise destination marketing funds through voluntary payments in lieu of taxes, from cruise ships. That is what ATIA choose. 2:57:46 PM Mr. Carlson pointed that during the years of a payment in lieu of taxes scenario, destination marketing did survive, but did not thrive. ATIA met match through payments in lieu of taxes. He recommended the need for change. In recent years, legislators through the vehicle rental tax and cruise taxes made the tax versus the payment in lieu of taxes decision. Changes in the tax landscape called for a return to a more traditional destination funding model. Mr. Carlson informed members that travelers come to Alaska and leave their money behind. State and local governments take a portion and reinvest it, as does private industry. He maintained that HB 147 returns the legislation to the norm. Mr. Carlson continued, $2 million dollars is the level of non-cruise, pay to play dollars that can be generated by ATIA. The goal is $20 million, $18 million, which hopefully will come from the State. Mr. Carlson stressed that if the State only contributes $8 million, ATIA would still contribute $2 million. There is incentive to contribute the maximum possible. ATIA's goal is to have a match that will work this year and in the future without additional legislative changes. ATIA believes that the 90/10 match is the answer & will help prepare Alaska for the future. 3:04:22 PM Representative Gara questioned the number of ATIA members that contribute. Mr. Carlson estimated that there is about 1,000 contributing members. Representative Gara observed then the average would then be about $2,000 each. Mr. Carlson indicated there are large and small contributors. Representative Gara asked the percentage of businesses that pay a corporate tax back to the State. Mr. Carlson did not know. 3:06:14 PM Co-Chair Meyer inquired if a bed tax had been considered, noting that Anchorage collects a bed tax & then pays it into regional tourism. Mr. Carlson acknowledged that a bed tax was a potential option. He noted that small businesses are concerned with additional taxes being reinvested; he discussed the vehicle rental tax, which initially was not reinvested. 3:08:21 PM Co-Chair Meyer advised that car rental tax brings in about $8 million dollars, of which about $5 million is reinvested into tourism. He expressed concern that the tourism industry relies so heavily on support from the General Fund. STAN STEPHENS, PRESIDENT, STAN STEPHENS WILDLIFE CRUISES, VALDEZ, spoke in support of HB 147. He noted that the changes that took place last fall with the new cruise ship tax initiative changed the financial structure of the ATIA marketing program. Two-thirds of the ATIM Board represents small businesses in Alaska reflecting the make-up of membership. Also, even though the cruise industry represents the smaller number of board members, they still voluntarily contributed 60% of State required match. With the amount of unknowns about the initiative, ATIA's mission is to find a way to save the marketing program, hence HB 147. Mr. Stephens continued, in FY07, the total combined funds from the State and private contributions was $l0 million dollars; $5 million State matched by $5 million voluntarily contributed by the travel industry. With the passage of the cruise ship initiative, the cruise industry will now be required to pay millions of dollars directly to the State and no longer is likely to pay a voluntary contribution to Alaska's travel marketing campaign targeted at the non- cruise travelers. 3:13:36 PM Representative Crawford referred to the Cruise ship Initiative, questioning what would occur if the cruise ship industry withheld their contribution. Mr. Stephens said they would have to wait to see, emphasizing the importance of marketing. 3:14 :53 PM Co-Chair Meyer questioned if the cruise ship industry would withhold their support. Mr. Stephens emphasized that all business must help in the generic marketing program. 3:16:29 PM In response to a question by Co-Chair Meyer, Mr. Carlson noted that the cruise ship industry has indicated that they would not contribute the previous $2 million. Mr. Carlson stressed that those benefits do not spread evenly into each area and that the independent visitors must be reached. The program should be by and for Alaskans, offering vacation planning and allowing all visitors to connect with the 3,000 plus independent tourism businesses. 3:18:22 PM Co-Chair Chenault inquired how many tourism businesses exist statewide. Mr. Carlson estimated that there are between 2,500 to 3,000. He explained that some businesses are so small that they contribute only to their local tourism marketing effort. Co-Chair Chenault commented on the tourism level in Kenai. Mr. Stephens noted that ATIA does represent all the very small business statewide even though there are not members. The State has a responsibility to help all business advertise. Co-Chair Meyer commended the track taken, while encouraging the membership to participate at a higher level. Representative Kelly noted something must shift. ATIA was funded at a higher amount than last year; he was intrigued with the percentage option, but supported the cruise ship choice. 3:26:33 PM Representative Hawker observed that the issue appears to be the passage of the cruise tax, which changed the Industry. He noted the number of communications from the general public and the tourism industry was done deliberately and is off limit funds. Understanding that, he commented that the cruise industry will pass the tax on to their customers. He did not have sympathy for that industry. He emphasized that the concern is "big". 3:30:21 PM Vice Chair Stoltze mentioned the vehicle rental tax relationship to the visitor industry and questioned if "history was being revised". Mr. Carlson recalled that it was not a tax that the visitor industry supported or proposed. The final bill did hurt the independent traveler. There was language added indicating that funds raised would be placed into a separate account and could be used for marketing. Vice Chair Stoltze asked if a lower rate had been proposed for recreational vehicles. Mr. Carlson said yes, lowered from 10% to 3% for recreational vehicles only. In response to a question by Vice Chair Stoltze, Mr. Carlson commented on the long term vision for Alaska's marketing program. It would not be bad if the independent small business, in order to meet their match, could be completely cruise focused. He wanted to see that the State of Alaska program become a generic program to help all travelers. Vice Chair Stoltze asked about language requiring ATIA to come in at least 10%, if that allows the Department of Community & Economic Development the required flexibility. Mr. Carlson determined that should be the minimum. 3:36:35 PM Representative Gara commented that the legislation initially "rubbed him the wrong way" when anticipating that the Industry should not get the rental car tax funds back; he did not accept that tourism related dollars should be returned. 3:41:42 PM Representative Gara commented on his personal frustration on the $15 million dollar increase request to the tourism industry. He thought that the industry should be taxed at the State level. He asked the total amount included in the operating budget for tourism marketing. Co-Chair Meyer advised that the State was in for $6 million dollars for the 50/50 match program and another $3 million dollars for the independent travelers. Representative Kelly pointed out that the difference comes from the Senate's position. The House Finance Committee version proposed $6 million dollars plus $720 thousand for the independent marketing. Mr. Carlson corrected, the Senate has recommended $8 million and $1.5 million for the independent traveler portion. Representative Joule was surprised by the various approaches. He commented that tourists are no longer coming to his area. He hoped for an arrangement with the cruise industry to bring more visitors in. He pointed out that his district gets about 1,000 tourists a year now. He did not think that the State's tourism dollars would get to people off the beaten track. He commented that it was important to invest in Rural Alaska. He appreciated the effort of the legislation. Mr. Stephens concluded that the tourism industry puts about $20 million dollars into the General Fund. The Industry is between a rock and hard spot at this time. In FY06, ATIA placed $1.5 billion dollars into the State's economy. Many statewide businesses could not survive without tourism during the summer. If the future holds corporate and gambling taxes, then maybe there could be funds taken from those 1090's. At present time, the gas line is about 10 years away. If not for the price of oil, Alaska would be hurting. He thought that tourism was the answer until the gas line comes on. Alaska has tourism potential and the Legislature needs to help find that potential. He urged a long range plan, which includes funding tourism. 3:53:24 PM HB 147 was HELD in Committee for further consideration.