SB 138-TAX CREDIT FOR STATE TOURISM PROGRAM  1:35:37 PM CHAIR PASKVAN announced the consideration of SB 138. SENATOR MEYER, sponsor of SB 138, moved to adopt CS for SB 138, labeled 26-LS0626\P, as the working document. There were no objections and it was so ordered. CHRISTINE R. MARASIGAN, staff to Senator Meyer, sponsor of SB 138, explained that each year the Alaska Travel Industry Association, which is the non-profit, member-based visitor industry trade association that conducts marketing on behalf of the State of Alaska, makes a request for funds to promote an Alaska tourism marketing program. Last year the legislature applied a three-year sunset clause to the match requirement, which currently has a 70/30 split with the State of Alaska and private industry. Currently the state-wide car rental tax brings in about $9 million and is combined with $2.7 million of private industry match to make a total tourism marketing budget of $11.7 million for FY09. Last year the legislature requested the travel industry come back to the table with a long-term tourism marketing funding growth plan. So, the committee substitute (CS) would establish a tourism marketing tax credit towards the recently approved water's edge corporate cruise income tax. This tax is one portion of the state's estimated tourism revenues and language on page 2, line 2, makes sure that any other contributions can not be included in this tax credit. This also does not allow the credits to carry over from year to year. MS. MARASIGAN said this tax is a very specific and would be reinvested to promote the State of Alaska as a tourism destination. SENATOR BUNDE asked if the fiscal note for the original bill applied to the CS. MS. MARASIGAN answered yes. SENATOR BUNDE asked if the maximum potential liability would be something under $16 million. MS. MARASIGAN answered yes. SENATOR MEYER said in his previous life as co-chair of Finance he worked with the Alaska Tourism Association (ATA) to find a long-term funding mechanism for the tourism industry, and this is a good match. The dollar amount may go up as more tourists come in; so he suggested looking at establishing a cap. 1:42:26 PM BRETT CARLSON, Northern Alaska Tour Company, said he is the volunteer chair for the Tourism Marketing Association, and supported CSSB 138(L&C). Tourism plays a big part in Alaskan economy and has a record of proven economic development as indicated in the pie chart. Last year it brought in $122 million. He said the travel industry provides amazing opportunities for small businesses to participate at the ownership level. Research shows that the tourism marketing program works in Alaska as well as around the world. 1:45:18 PM Chart 12 shows what in 1990 inflation-adjusted dollars, the state's contribution to the tourism marketing program was just over $24 million. Over time, it went into decline and small businesses were hurt the most. They engaged with the legislature on ways to come up with a long-term tourism marketing funding model and the legislature adamantly said if they come up with a model, those dollars need to come from travel industry generated revenues. The first step was reinvestment of the vehicle rental tax. That is essentially a flow of revenue coming into the state from independent travel and the legislature. This tax credit is the second part of the solution - that also comes from travel industry generated taxes. MR. CARLSON said the economic crisis is affecting the travel industry, and this plan will help the state's ability to balance the budget. Travel intention studies indicate a decline of 30-60 percent in bookings for Alaskan businesses. As you get further away from the water those numbers become "most scary." This tax credit is one more tool that will help small businesses help themselves. 1:48:35 PM SENATOR BUNDE remarked that the maximum project amount if all taxes were claimed as credit would be $15 million and he has heard anecdotally that cruises are seriously discounted now. How low could this go? MR. CARLSON replied that the tax credit could go up and down year to year. "Next year we may be able to determine what the floor on this tax credit is going to be....One thing about it is that tax credit is not going to grow unless tourism marketing works." 1:50:05 PM RON PECK, President, Alaska Travel Industry Association (ATIA), explained that the most recent information indicates that cruise bookings are increasing, but the yields for Alaska are still down by 20-30 percent. SENATOR THOMAS said the only concern he has heard is the concept that when the cruise ship head tax was put in place that it was charged back to the customer as an actual charge of $50 on their ticket. Prior to that, the cruise ship industry had been contributing a couple million dollars to the tourism marketing effort on an annual basis. So, now they would be getting a credit for the couple million they had been contributing on their own prior to the implementation of the cruise ship tax. MR. CARLSON responded that any time you increase taxes on businesses in Alaska, whether it's shown to the customer above the line or below the line, it has to be passed on to them because there is no other place to get it from. Last year the legislature moved away from that model to a new one based on reinvestment of a portion of travel industry revenues. It seems to make sense that both independent and cruise travel have a revenue stream. MR. PECK added if this bill is passed, it would generate $10 million to $12 million, and the cruise industry still buys into ATIA programs in the amount of $500,000 to $600,000 annually. Prior to this new plan, their maximum annual contribution from a donation standpoint was $1.9 million to $2 million. Their contribution could grow substantially. 1:54:35 PM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue (DOR), added that the commercial passenger vessel excise tax is charged above the line to passengers. This particular tax credit doesn't offset that tax, but rather it offsets the corporate income tax that the cruise ships are required to pay. Normally those types of taxes get passed on below the line to the customers in the industry. SENATOR THOMAS said that information helps. 1:55:53 PM SENATOR BUNDE said a few years ago he asked the Department of Revenue to give the legislature a report on the net return to the state by various industries. He asked if her shop did that report. MS. BALES said she remembered a report about uncollected corporate income tax, but didn't recall doing this particular report. 1:56:51 PM DEBORAH KAY, representing herself, said she made her living in tourism for the last 20 years, and this bill will help to continue the growth of the state's tourism industry because of the marketing dollars it will have. It will allow her to continue to support herself and her family. 1:57:48 PM ETHAN TYLER, CIRI Alaska Tourism Corporation, said with a shrinking world-wide economy, it's more important than ever for Alaskans to have a strong and competitive presence in the market place. He supported SB 138. 1:58:56 PM DAVID KASSER, Vice President of Tourism, Anchorage Convention and Visitor Bureau, said he is also a small business owner and supported SB 138. He sees a lot of alarm and concern in just about every industry. He knows that Alaska could work to be more welcoming to this industry, especially the cruise industry which is being "wooed" globally. 2:01:18 PM DEB HICKOK, President and CEO, Fairbanks Convention and Visitors Bureau, supported SB 138. She said that entrepreneurialism is one of the hallmarks of the Alaska visitors' industry. Tourism has a ripple effect throughout the communities in terms of construction, transportation, and countless other life benefits to our communities. She reminded them that winter tourism is promoted by ATIA and she listed some of the businesses that could benefit. The beauty of a state destination campaign is that it reaches a depth and breadth of potential customers that is far beyond the reach of most small businesses. 2:04:22 PM MARY RICHARDS, President, State Bed and Breakfast Association, Fairbanks, said the Association has 211 members, and they are all small business owners that depend on the help that they receive through ATIA for destination marketing. There is no way they, as small business owners, can market independently to the domestic, European or Asian markets. Passing this bill would help each of them to reach a market and be able to continue to sustain the living they make. "If tourism ended tomorrow, a lot of us would be in a world of hurt." 2:07:12 PM CHAIR PASKVAN closed public testimony. SENATOR BUNDE pointed out that there could possibly be unintended consequences and said there is no such thing as a free lunch. Businesses have to worry about their bottom line and he wants them to succeed, but the legislature's job is to worry about the state's bottom line. The bottom line for the state is that tourism generates $25 million for the general fund, but with this bill that will decrease to about $15 million. Everyone needs to be aware of that, because in two or three years the state would be hurting for money. He was hoping they weren't robbing Peter to pay Paul. This model is sustainable only as long as the cruise industry stays in Alaska. 2:09:29 PM SENATOR THOMAS moved to report CS for SB 138, version P, from committee with individual recommendations and attached fiscal note(s). There were no objections and it was so ordered.