HOUSE FINANCE COMMITTEE April 14, 1999 1:50 P.M. TAPE HFC 99 - 79, Side 1. TAPE HFC 99 - 79, Side 2. TAPE HFC 99 - 80, Side 1. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:50 P.M. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Vice Chair Bunde Representative Kohring Representative Austerman Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Representative Gail Phillips; Joe Balash, Staff, Co-Chair Therriault; Jeff Keys, Alaska Travel Adventure, Juneau; Ken Dole, President, Alaska Visitors Association, Ketchikan; Tina Lindgren, Executive Director, Alaska Visitors Association, Anchorage; Steve Behnke, Executive Director, Alaska Wilderness Recreation and Tourism Association, Juneau; Duane Epton, Small Business Owner, Anchorage; Ginny Fay, Legislative Liaison, Acting Director of Alaska Tourism Marketing Council, Department of Commerce and Economic Development. SUMMARY HB 136 An Act relating to tourism and tourism marketing; eliminating the Alaska Tourism Marketing Council; and providing for an effective date. HB 136 was HELD in Committee for further consideration. HJR 20 Urging the Congress to amend the Internal Revenue Code of 1986 to eliminate the marriage penalty by providing that income tax rate bracket amounts, and the amount of the standard deduction, for joint returns shall be twice the amounts applicable to unmarried individuals. HJR 20 was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the House Special Committee on Economic Development and Tourism dated 3/31/99. HOUSE JOINT RESOLUTION NO. 20 Urging the Congress to amend the Internal Revenue Code of 1986 to eliminate the marriage penalty by providing that income tax rate bracket amounts, and the amount of the standard deduction, for joint returns shall be twice the amounts applicable to unmarried individuals. REPRESENTATIVE GAIL PHILLIPS pointed out that for the past 28 years, married couples have paid a higher tax rate and have received a lower standard deduction than two single individuals under the Internal Revenue Service (IRS) Code law of 1986. The proposed resolution would send a message to Congress emphasizing Alaska State Legislature's support of removing that penalty. Representative Phillips noted that at this time, there are several bills before the U.S. Congress proposing to eliminate the marriage tax penalty primarily through increasing the standard deduction allowed for married couples and adjusting the tax brackets. She urged the Committee's support of HJR 20. Representative Foster MOVED to report HJR 20 out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HJR 20 was reported out of Committee with a "do pass" recommendation and with a fiscal note by the House Special Committee on Economic Development and Tourism dated 3/31/99. HOUSE BILL NO. 136 An Act relating to tourism and tourism marketing; eliminating the Alaska Tourism Marketing Council; and providing for an effective date. CO-CHAIR GENE THERRIAULT discussed HB 136, a bill that is based on a plan brought forward by the tourism industry and which is similar to legislation sponsored last session by the House and Senate Finance Committees. He advised that during the meeting, discussion would be made to the House Labor and Commerce version of the legislation. That version would: * Consolidate the State's tourism marketing efforts; * Reduce the size and function of the Division of Tourism; and * Allow the State to reduce its contribution to tourism marketing over time. Currently, Alaska's statewide tourism marketing efforts are carried out by three organizations: * Alaska Tourism Marketing Council * Alaska Visitors Association * Division of Tourism Those efforts would be consolidated into a single marketing function that is broadly representative of various sectors of the visitor industry in the State. The organization will put together a marketing program to address media advertising, visitor inquiries, would publish and distribute information regarding vacation planning, and would establish and maintain Internet sites that provide tourism information. Co-Chair Therriault stated that the Division of Tourism will provide inquiry assistance, administer visitor information centers, plan and advocate for tourism and tourism development in coordination with the private sector, municipalities, and state and federal agencies. They would enter into a contract with a single, qualified trade organization for the purpose of planning and executing the State's destination tourism marketing campaign. The contract may include promotion of distinct segments of tourism, such as highway, seasonal, cultural, regional, rural, and ecotourism. He clarified that the proposed venture would take the State out of the business of marketing and reduce the number of employees required to carry out the functions of the division. Co-Chair Therriault advised the central feature would be that the organization awarded the contract would be required to match the State's effort with 30% of its own money. It is expected that the organization will grow and that membership collections will increase. Consequently, the match will rise to 60% by 2002. Co-Chair Therriault enumerated the twofold benefits: * The State would be able to reduce its contribution without doing extreme harm to the industry; and * The private sector would contribute more of its own funds towards the marketing efforts from which they benefit. Co-Chair Therriault summarized that the industry would be coming forward with more of its own dollars. He suggested that coupled with efficiencies provided by the consolidation, marketing efforts to bring more visitors to the State hopefully would be more effective. He suggested this would be a responsible approach to reducing the State's monetary contribution without harming the industry's growth. JEFF KEYS, ALASKA TRAVEL ADVENTURE, JUNEAU, testified in support of the proposed legislation. He noted that Alaska Travel Adventures (ATA) relies on a strong marketing program. He believed that HB 136 could provide such a service to the State to market products. KEN DOLE, PRESIDENT, ALASKA VISITORS ASSOCIATION (AVA), KETCHIKAN, commented that the main goal of the proposed legislation would be to get more money into the market place. The effort will include placing money from the private sector through a qualified marketing program while, at the same time reducing the amount of expected State funding. Currently, there is a Division of Tourism as well as the Alaska Tourism Marketing Council (ATMC), which splits the responsibility for Alaska tourist marketing. The intent of the legislation would be to roll those functions into one program that would be handled with a contract through the new qualified association. The State would provide decreasing funds while the private sector would have increased funds contributed. The original start match would be 30% private funding which would by increased to a 60% match by the fiscal year 2003. Mr. Dole pointed out that the bill would provide the vehicle to dissolve the Alaska Tourism Marketing Council and remove the main functions of the Division of Tourism. Additionally, the legislation would put into place, the main mechanism to contract with a qualified trade association. TINA LINDGREN, EXECUTIVE DIRECTOR, ALASKA VISITORS ASSOCIAITON (AVA), ANCHORAGE, voiced appreciation to Co- Chair Therriault for introducing the bill. She pointed out that it is critical to the industry to come up with a solution for a problem that has existed since 1990. Other states have been increasing their funding for tourism by about 30%, while Alaska has slipped from being in 7th place for nationwide funding to the 29th position. The entire State is looking for ways to turn this around and increase our competitive edge. Ms. Lindgren believed that HB 136 would work on some mutual desired increments including consolidation, privatization, increased private sector funding and reduced State funding, which would strengthen Alaska's competitive position and hopefully broaden the number of people participating in the program. Ms. Lindgren continued, to date, application cards have been sent out to tourism industries throughout the State requesting enrollment as a charter member for a $25 dollar fee. The expectation is that would create a broad-based organization. It is the intent that when that organization is up and running, the Alaska Visitor's Association and the Alaska Marketing Council will cease to exist and that the role of the Division will continue in an oversight capacity. She advised that over 6000 business have been surveyed, all of which have supported the concept of this legislation as well as receiving approval from the Department of Commerce and Economic Development. Representative Grussendorf asked if a "trade association" existed at this time. Ms. Lindgren explained that the best features of some of the existing organization would be retained. She suggested that AVA could possibly meet some of the requirements put forth for a trade association. The intent would be to create a much broader organization giving one membership and one vote. Representative Austerman commented that he agreed with the concept, however, noted his concern with the drop in funding the industry has experienced since 1989 compiled with the lack of adequate taxing. He questioned the methods proposed by the task force to help fund that industry. Ms. Lindgren replied the task force was formed two years ago and that to date, they had not arrived at any consensus regarding a future taxation. However, a list has been distributed regarding "possible" taxes. There is little consensus within the tourism industry as to what tax would be equitable. When researching possible ideas, the best plan is the one submitted in HB 136 promoting a self-tax. Representative Austerman discussed the number of situations which could be taxed. He emphasized that the tourism industry does place demands on State structures and facilities. Ms. Lindgren countered that there is a perception that the industry does not pay any tax, however, there are bed taxes in most communities, visitors pay motor fuel tax, corporate taxes, and tax for fishing licenses. There is about $124 million dollars in taxes paid each year through the tourism industry. Co-Chair Therriault commented that the bill was a way of providing for marketing while at the same time ratcheting down the State's expenditures. He acknowledged the impact from tourism on State roads and facilities. HB 136 would not be addressing that problem, however, there will be continuing discussion with the industry in addressing those concerns. Representative Bunde noted a possible conflict of interest having worked in the Lake Hood tourism industry. He voiced appreciation for the bill to solve the on going problem of subsidizing the tourism industry. He too looked forward to the industry helping to make a contribution to the general fund in the years to come. Co-Chair Therriault acknowledged that it was difficult to create a tax that would not isolate one specific segment of the industry. Additionally, he questioned how a tax could be incorporated which would not tax the Alaskan business traveler within the State. Representative Bunde commented that he had explored the option of a "watchable" wildlife license. He suggested that the industry could be taxed, which they then could pass on to the tourists. Representative J. Davies agreed and offered an additional mechanism of 1/2% to 1% sales tax to be calculated on the approximate contribution of tourism enterprises and then dedicated that to that market. Co- Chair Therriault thought it would be debatable where those funds would end up being placed. Representative Austerman questioned how the 30% - 60% transition would take place. Ms. Lindgren noted that was addressed at the end of the bill, Lines 21 & 22, noting that all sections would take effect by July 1, 2000 except Section 8, which would be implemented at 60% in fiscal year 2002. Ms. Lindgren spoke to the timing of the contract negotiation. She explained that Page 4, Line 25, speaks to the Department contracting on August 1st of each fiscal year with a qualified trade association for the expressed purpose of planning and executing a tourism marketing campaign, which would be subject to legislative appropriation. In essence, the Department and the trade association will need to assess a list of components which the Department determines important for the State to achieve. The proposed legislation calls for the Legislature to approve the marketing plan in advance of the plan to be executed. The concept is to have everything in under one roof. Co-Chair Therriault pointed out that the intent was to keep "one" overall marketing effort. The members of the qualified trade association would participate in a yearly contract. The Department and the Legislature would evaluate the success of that effort. He believed that the proposed system contained enough checks and balances. A conversion study would be moved to the Division of Tourism, to determine if the contractor was having the desired effect in maintaining inquiries. Representative Austerman asked what the relationship would be between the Division of Tourism and the Council. Co- Chair Therriault commented that the Division would no longer be handling the marketing. Representative Austerman foresaw problems with two organizations trying to gather funds from the membership. Ms. Lindgren shared Representative Austerman's concern. She acknowledged that to bring that amount of money to the table would require the industry to be cohesive and working together. That would give the Department an "out" if there was a disagreement. If there is no organization willing to match funds for the program which the State is proposing, then it would not be a viable program. The Division will have an important role in overseeing the contract, planning, advocacy and business development. Mr. Dole noted the reason the compromise was added was because everyone wants to see a vehicle which could address a future disagreement. Additionally, with the continuation of State dollars, will provide businesses, two places to use as a sounding board. Representative J. Davies asked about the match increase from 30% to 60% in the third year. Ms. Lindgren replied that the intent was to ratchet up the amount paid by the industry as quickly. She agreed that it would be a "giant" leap to that number. (Tape Change HFC 99 - 79, Side 2). Ms. Lindgren stressed that members of the Committee must understand that if the proposed plan should pass accompanied with a statewide tax, she believed that many of the members would withdraw their support. STEVE BEHNKE, EXECUTIVE DIRCTOR, ALASKA WILDERNESS RECREATION AND TOURISM ASSOCIAITON (AWRTA), JUNEAU, voiced support of the consolidation effort. AWRTA's main concern would be to maintain a strong role with the Division of Tourism to guarantee that the transition will work. He warned that AWRTA has concern with the rapid levels of proposed funding cuts to tourism marketing. Mr. Behnke emphasized that Alaska is competing with tourist travel in Canada, Australia, and New Zealand. Other countries are now focusing on the tourist market using the same high points that Alaska offers, however, those countries are providing much more money to market it. He informed Committee members that Alaska is now on a tremendous "down-slide" for generating tourism. Mr. Behnke agreed with previous comments made by Ms. Lindgren regarding further taxation to the tourist industry. He stated that it is important for the State's long-term interest to see that tourism works and is sustainable. He agreed that the tax issue has not been resolved and that AWRTA supports the proposed role of AVA. In response to Co-Chair Therriault, Mr. Behnke noted that many members of the tourist industry believe that the industry has been dominated by the larger corporations and has not worked to the advantage of the small Alaskan business. Co-Chair Therriault asked if the concerns would be satisfied with the one business, one vote component. Mr. Behnke agreed that could work in addition to developing a contract which represents a full range of interests and maintaining a strong Division of Tourism. Representative G. Davis spoke to the comments in opposition to imposing additional taxes. He pointed out that many businesses make money in the State because of the natural beauty of the State, however, the State continues to provide benefits to make these sights accessible with funding for the highway systems and State Trooper services. DUANE EPTON, SMALL BUSINESS OWNER, ANCHORAGE, spoke to the problems of the small "mom and pop" tourism businesses throughout the State. He commented that the small businesses are in support of the proposal in that they will have an equal say with the one vote, one business inclusion. The bottom line is that State funding has helped those businesses stay afloat. He urged that the Committee support providing the dollars needed to make the new program work. Representative Bunde interjected that the money, which the State invests into tourism must come in from some place. He asked private business owners where the money for the tourism industry should come from. He cautioned, for the industry to receive what it thinks it needs, other costs could be associated with it. Representative J. Davies questioned how members of the "mom & pop" group could participate in the marketing effort. Mr. Epton replied that determination would be the work of the newly to be formed trade association. An opportunity to become involved will be the main thrust of the bill. Representative J. Davies emphasized the importance of participation when creating such an enterprise. He asked if Mr. Epton foresaw businesses willing to contribute money to this effort. Mr. Epton hoped that these businesses would seize the opportunity to put their dollars into action. Mr. Epton pointed out that the $25 initial contribution was the beginning of that process. GINNY FAY, LEGISLATIVE LIAISON, ACTING DIRECTOR, DIVISION OF TOURISM MARKETING, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, commented that the Department has worked very hard with AVA and other groups to create the proposed legislation. She acknowledged that the bill was a compromise and that the Department looks forward to implementing it as it will be a major positive step forward putting tourism marketing into one entity. She emphasized that it was important to guarantee that the entity is responsive to all tourism business throughout the State. She explained that the Department of Commerce and Economic Development is interested in: * Job growth; * Retaining jobs; * Retaining income from tourism ventures in the State; and * That the diverse industry needs are met and protected. Ms. Fay pointed out that during the past several years with the State's fishing and oil industries down, there has been a big shift to the tourism industry, particularly in rural areas, where tourism offers opportunities for economic development. Ms. Fay noted that the Department supports the bill as written, however, that a strong part of that position is the intent to secure a Division of Tourism that will continue to carry out the protection of small business and market tourism development. She noted that the focus of past conversations with the Legislature has been on tourism marketing. Ms. Fay agreed that is an important element, however, pointed out the State's role in tourism development, as they provide coordination between state agencies with federal agencies, provide long-use planning, transportation and access, and working with foreign countries to access air travel into Alaska. She guaranteed that unless the State looks at ways of transporting people and disbursing them when they arrive, there will be major problems with a lot of crowding in a few small areas. Ms. Fay pointed out that since FY93, the Division of Tourism has suffered over 1/3 budget loss. There are approximately 6000-tourism businesses in Alaska, while AVA membership amounts to only 600 businesses or 10% of that total market. Communities come to the Department to do planning, provide feasibility studies and help determine needs and goals. At the present time, the Division of Tourism has 5 professional staff. Across the United States, the numbers of staff in the Division of Tourism ranges from 4 - 150 employees with an average of 36 employees in these offices. Ms. Fay continued, tourism marketing in Alaska at this time is done by contract. There are no marketing people in the Division Marketing Council or the Division of Tourism. The bill will consolidate contracting versus a consolidation of staffing. After the consolidation has taken place, there will be six less employees. The Department of Commerce and Economic Development, Division of Tourism, will be expected to oversee the contract. Ms. Fay emphasized that the Department has trouble with the draft fiscal note, as it will continue to reduce the salaries of the Division of Tourism, while at the same time, establishes a program where the State gives $4 to $5 million dollars of marketing money to tourism. She advised that this would not be an appropriate action to take when discontinuing the resources needed to implement that program. Ms. Fay pointed out that in the 2000 fiscal note, the Division of Tourism and Marketing is kept pretty much in tact. It would not be until the year 2001 that the deep cuts to tourism occur. She emphasized that at present time, the trade organization, which the Division will be contracting with, does not exist. No details have been worked out as to what that contract will look like. She requested no reduction to the fiscal note from the one submitted by the Department. In response to Representative Austerman, Ms. Fay explained that the Division continues to have dealings with oversea contractors. Those marketing activities are done primarily through those contractors. The Department now travels a lot less than before. She noted that the trade missions, in the Division of Trade Development and the Division of Tourism, are entirely self-funded. (Tape Change HFC 99 - 80, Side 1). JOE BALASH, STAFF, REPRESENTATIVE GENE THERRIAULT, walked the Committee through the fiscal notes prepared by the bill's sponsor. He spoke to two of the notes, one for the ATMC component and one for the Tourism Development component. He reminded members that the House Finance Committee had passed an amendment which eliminated all the funding from that BRU. For that reason, the entire fiscal note 2000 budget is reflected in the proposed fiscal notes. Mr. Balash pointed out that the numbers for FY00 in both notes reflect those budgets and are similar to the numbers requested by the Department. The proposed fiscal notes reflect action taken when the Subcommittee closed out. Co-Chair Therriault referenced fiscal note #1, ATMC. He pointed out that ATMC would be going away, which would cause a zeroing out in the first year. The entire effort would then be reflected in the second note, Tourism Development. Representative J. Davies asked if there would be $6.7 million total dollar funds. Mr. Balash stated that was correct. Co-Chair Therriault advised that would include "other" statutory program receipt funds received from the industry. Mr. Balash pointed out that the explanation of benefits for fiscal note #2 was on Page 2. He advised that a subtotal of $411,266 dollars indicates the same 4% vacancy factor as the Department had requested. The Department's fiscal note rolls the two divisions together. He noted that staffing for ATMC was expensive and is the first difference between the Department's fiscal note and that of the legislation's sponsor. He noted that the note would be discussed in further detail at a later date. Ms. Fay questioned only the fiscal note submitted for Division of Tourism. (Testimony inaudible). Mr. Balash pointed out that the total would amount was just under $700 thousand dollars. The contractual line decreases by $500 thousand dollars by FY00 and in FY03, it will again decrease an additional amount, leveling out to a State contribution of $4 million dollars. Ms. Fay indicated that the Division's main concern is that the note is focused on the resources of implementing the contract, which does not take into consideration what work is being done now, and the critical role that State government plays in assuring the industry has in Alaska. Staffing in that office is currently too small and they are not capable of implementing the obligations of the Department. She continued, much of the travel undertaken supports tourism development in the State. Ms. Fay reiterated that the fiscal notes proposed do not accurately portray the responsibilities expected. Co-Chair Therriault suggested that the overseas work would be done by the trade organization and would not be part of the State's staff function. Ms. Fay advised that Alaska has held the contracts and will continue to have the responsibility to negotiate and decide what the contracts will look like. Representative J. Davies asked how many staff currently works for the Department in these areas. Ms. Fay replied that there are 11 year round and 3 part time staff. The note provided by the Department reflects current staffing minus a $100 thousand dollar reduction; $673 thousand dollars would pay for the current staffing. Mr. Balash clarified that 11 positions had been left in the Department, giving them the authority to decide where to absorb the $100 thousand dollar decrease. He pointed out that positions to date have been vacated and it is presumed that various employees will vacate their positions knowing that the program will no longer be running after June 30, 2000. Consequently, funding was deducted from the personal services line. Representative Austerman asked if the FY00 allocation had enough staff. Ms. Fay replied that it was not sufficient staffing to meet the basic development activities. Representative Austerman commented to his concern with the expressed threats regarding any imposed tax. He believed that was a "sad" commentary on the tourism industry and added that he would not let the concept of taxation "fall through the cracks". Representative G. Davis questioned the $60 thousand dollar grant for the rural tourism development. Mr. Balash replied it is in place for the current fiscal year and proposed for the year 2000, a function of the rural village initiatives. Ms. Fay interjected that it has been an on going grant for a number of years in conjunction with the Alaska Village Initiatives. Their main base is located in Anchorage. HB 136 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:40 P.M. H.F.C. 13 4/14/99