HOUSE BILL NO. 312 "An Act authorizing an advisory vote on use of Alaska permanent fund earnings for an in-state natural gas pipeline; and providing for an effective date." 9:37:44 AM Co-Chair Hoffman proposed committee substitute, work draft #26-LS1633\S, Bullock, 4/13/10. Co-Chair Stedman OBJECTED. MILES BAKER, STAFF, CO-CHAIR STEDMAN discussed CS version S. He noted title changes conforming to the CS. Section 1 and 2 remain unchanged. Section 3 was added to the bill. The term "passenger" has changed. Section 4, 5, and 6 address the commercial passenger vessel head tax account and its uses. The proceeds of the head tax route into the commercial passenger vessel head tax account. He commented that Page 3, Lines 3 and 4 state that the legislature may appropriate from the account for two purposes. The first purpose is listed in Section 5, Line 10, "first five port of call payments." Section 6 addresses the second purpose of the fund. The mechanism of the fund has not changed. With the CS, the first five port of call payments once allocated to the communities, must be used for port facilities, harbor infrastructure, and other services provided to the commercial passenger vessels and the passengers on board. Mr. Baker continued that Section D addresses any balance remaining in the fund for appropriation by the legislature. The language on Page 3 states that the legislature may appropriate money from the commercial passenger tax account to projects that improve port and harbor infrastructure, provide services to commercial passenger vessels and the passengers aboard the vessels, and improve the safety and efficiency of the interstate and foreign commerce activities in which the vessels and the passengers on board those vessels are engaged. The language was changed to clarify that the funding is intended for services provided to those vessels and their passengers and the structure of the statute has been changed to clarify. 9:45:13 AM Mr. Baker continued with Section 7 and the Department of Revenue's (DOR) responsibility in distributing the payments subject to appropriation. Section 8 addresses the local levees. The communities with the local head tax in place prior to the passage of the original citizen's initiative were grandfathered in. The original bill proposed that if a vessel travels to one of the two ports, the local taxes are credited out of the $34.50 tax paid per passenger. The previous CS allowed the grandfathered communities to raise the local taxes a combined total of $2.25 establishing a grandfather floor of half of the $34.50. The current CS instead allows the communities to be grandfathered in and the local taxes to be credited against the state tax. Communities will not be allowed to raise the local taxes against the state tax. Section 12 changes the effective date to October 31, 2010. 9:50:31 AM Mr. Baker noted that the port of call payments are addressed in Section 5. The first five ports of call are eligible for the revenue sharing payments. Those revenue sharing payments in the CS have been reduced from $5 to $4. Because Juneau is a unified city with an existing head tax, they do not receive the revenue sharing payments. Ketchikan with two separate governments has not received payments, but the borough receives $2.50. 9:52:56 AM Senator Thomas noticed that language was altered to address the reduced tax and the first five ports of call. He asked about Section 6 and the detailed listing of potential uses for the revenue. Mr. Baker responded that Section 5 provides direction to communities subject to annual appropriation by the legislature. Upon appropriation, the section clarifies the language on Page 3, Line 24, where three types of expenses are eligible for funding. The funds must be provided to the vessel and the passengers on board. Changing the word "or" to "and" creates the stipulation that the money be spent on port facilities, harbor infrastructures, and other services. Section 6 states that the legislature may appropriate for projects that improve port and harbor infrastructure, provide services to commercial passengers, or improve safety and efficiency of interstate and foreign commerce activities on those vessels and passengers. Senator Thomas opined that the CS language lacks flexibility. 9:57:48 AM Senator Egan requested an explanation of the spreadsheet "Port of Call Payment Scenarios" (copy on file). He asked for a prediction of the port of call payment for Juneau. Mr. Baker reviewed the mentioned spread sheet which lists the communities and the passenger port of call numbers from the revenue, ranked in total for the three year program. Juneau is the number one port of call with 2.97 million passengers in three years. He noted that the Municipality of Anchorage may have 125 thousand visitors. He stated that a projection for Anchorage could be obtained by multiplying 125,000 by $5 or $4 as it is in the current CS. The DOR's forecasted passenger traffic in the 2010 column shows a 15 percent reduction from 2009. The bottom half of the spreadsheet shows the passenger numbers and the community sharing amounts to the ports of call. Juneau and the City of Ketchikan have not received money from the $5 revenue sharing program. The right side of the spreadsheet exhibits the port of call payment amounts under the status quo using the 15 percent traffic reductions estimated by DOR. He noted that if the port of call payment remains at $5 and the restriction on Juneau and Ketchikan is removed, the difference is apparent. 10:05:59 AM Mr. Baker reviewed spreadsheet "SB 312 Version A" (copy on file) which addresses the cash flow into the state. The current excise tax is $46. The two local taxes for Juneau and Ketchikan are listed. Under the current bill, a visitor to both towns allows for $19.50 per passenger to be distributed in port of call payments. If the port of call payments are reduced 25 percent, the new amount would be $3.75. The proposed amount in the CS is $4 which is simpler to divide. 10:08:44 AM Mr. Baker continued to describe the graph. Using the DOR passenger traffic forecast for 2010 of 850 thousand passengers and a three port of call itinerary, a five dollar port of call payment would allow sixty four percent of the passengers paying an excise tax of $19.50 to equal $10,500,000 in state revenue. The port of call payments for the three ports of call equals $8 million and leaves a balance of $2.4 million. He mentioned other itinerary scenarios via the spreadsheet. Senator Egan requested the amount received by the state last year. Mr. Baker responded that the 2009 cruise season amounted to approximately $41.2 million with $10.3 million allocated to the regional cruise ship fund and $30.9 million to the commercial passenger vessel tax account. He explained that $10 million were paid in port of call payments. The legislature and the governor appropriated $54 million in last year's capital budget and $500 thousand from the regional fund for the Whittier tunnel operation. He mentioned that the balances have rolled forward with more revenue than was appropriated. The legislature appropriated $15 million in the 2009 capital budget cycle. 10:13:40 AM Co-Chair Stedman offered an additional spreadsheet with 2009 project information. Senator Egan asked if the CS precludes Sitka, Haines, and Hoonah from instituting a fee. Mr. Baker understood that nothing precludes establishment of a standard fee or raising a current fee. Senator Egan asked if industry will continue the lawsuit if the CS is adopted. He mentioned the recent news release and whether industry would accept the CS as a compromise. Co-Chair Stedman responded that the legislation does not alter the dollar amount of $34.50. He stated that he did not expect opposition. Mr. Baker added that the CS does not alter the $34.50; only the distribution by the state is changed. He commented that the CS tightens up the language in terms of allowable uses of the funds. He opined that the industry would be amenable to the changes. 10:17:40 AM Senator Thomas asked about an estimation of funds available for Denali Park or the Interior where one third of passengers arrive. Mr. Baker responded that the money available based on the 2010 traffic projections is $4.3 million. He was unsure about the division of funds. Senator Huggins commented that many of the visitors travel through Wasilla and Palmer. Co-Chair Stedman removed his OBJECTION. There being NO OBJECTION, it was so ordered. Version S adopted. Co-Chair Stedman mentioned one fiscal note from DOR reflecting the annual loss of $22 million in cruise ship passenger receipts and one fiscal note from the Department of Commerce, Community and Economic Development (DCCED) for $10 million to conduct periodic reviews. Co-Chair Hoffman moved amendment one. Co-Chair Stedman OBJECTED. 10:20:29 AM Mr. Baker explained Amendment 1. He noted that the gambling tax proceeds are general fund proceeds. The commercial passenger vessel tax account is restricted on its use and will become more restrictive under this bill. The money remains in the account and has not been appropriated. He believed that past gambling tax proceeds have lapsed to the general fund or become part of a reverse sweep. He stated that approximately $12 million of gambling tax money will be available at the end of 2010 in the commercial passenger vessel tax account. Amendment 1 simply deposits the gambling tax funds into the general fund. Co-Chair Stedman removed his OBJECTION. Amendment one was adopted. Co-Chair Stedman referenced the port of call spreadsheet calculations. The CS shows a $4 port of call amount which gives the communities less than expected. He asked committee members' opinions regarding raising the port of call number to $5. 10:24:24 AM Mr. Baker commented that the difference between the four and the five dollar head tax based on the 2010 traffic projections leaves a balance of $7.1 million at the end of the year leading to a $3 million difference from the $4 port of call payment. He pointed out the principal change in the balance of the fund is not a product of the adjustment to the port of call payments. He noted the increased revenue due to the addition of Juneau and Ketchikan. 10:26:43 AM Senator Huggins advocated for the "path of least resistance." Senator Olson advocated for local control. He opined that money at the local level allows for proper spending. He stated that the $5 port of call tax would be best. Senator Egan appreciated the lower $4 tax and the need to work with the industry to implement the fee. He understood that needs exist in all of the various ports in Southeast Alaska. The cruise ships directly affect community infrastructure. He preferred the $5 tax. 10:29:13 AM Co-Chair Hoffman Moved Amendment 2. Co-Chair Stedman OBJECTED. Mr. Baker explained that Amendment 2 replaces the three sections of the bill identifying the amount of the port of call payments. The current CS states that the port of call payments are $4 for each passenger. The amendment changes the amount to $5. Line 19 and 20 of the same page splits the $5 to $2.50 bringing the CS back to revenue amounts in the current law. Senator Egan supported the amendment as he felt it was unfair for certain communities to be left out as the infrastructure needs are universal among southeast communities. Co-Chair Stedman removed his objection. Amendment 2 was adopted. Co-Chair Hoffman MOVED Conceptual Amendment 3 with corresponding numeric changes on Line 7 changing the "five" ports of call to "seven." There being no OBJECTION Amendment 3 was adopted. Co-Chair Hoffman MOVED to report CS SB 312 out of Committee with individual recommendations and the accompanying fiscal notes. Senator Egan OBJECTED for further information on Amendment 3. Mr. Baker suggested reviewing the spreadsheet and the concern regarding the current law. The additions of longer cruise routes necessitate the change from five to seven ports of call. The effect of the amendment is to allow the sixth and seventh port to receive a payment with an incremental difference of $100 thousand. Senator Egan asked if the current average was 3.4 ports of call visited by cruise ship passengers. Mr. Baker concurred. Senator Egan removed his OBJECTION. There being NO OBJECTION, it was so ordered. HB 312 was REPORTED out of Committee with no recommendation and with one new fiscal impact note from the Department of Commerce, Community and Economic Development and one new zero fiscal note from the Department of Revenue.