SENATE LABOR AND COMMERCE COMMITTEE March 30, 1999 1:52 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Dave Donley Senator Loren Leman MEMBERS ABSENT Senator Tim Kelly, Vice Chairman Senator Lyman Hoffman COMMITTEE CALENDAR CS FOR SENATE BILL NO. 107(L&C) "An Act relating to tourism and tourism marketing; eliminating the Alaska Tourism Marketing Council; and providing for an effective date." -MOVED CSSB 107(L & C)OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 107 - No previous action to report WITNESS REGISTER Mr. Ken Dole Alaska Visitors Association PO Box 6440 Ketchikan, AK 99901 POSITION STATEMENT: Supported SB 107. Ms. Deborah Sedwick, Commissioner Department of Commerce & Economic Development PO Box 110800 Juneau, AK 99811-0800 POSITION STATEMENT: Supported SB 107. Mr. Steve Behnke, Executive Director Alaska Wilderness Recreation Tours & Association POSITION STATEMENT: Commented on SB 107. Ms. Carol Kasza Alaska Wilderness Recreation Tours & Association PO Box 73452 Fairbanks, AK 99707 POSITION STATEMENT: Opposed SB 107. Mrs. Diane McBride PO Box 956 Homer, AK 99603 POSITION STATEMENT: Opposed SB 107. Ms. Wanetta Ayers Afognak Native Corporation 215 Mission, Ste. 212 Kodiak, AK 99615 POSITION STATEMENT: Opposed SB 107. Ms. Nancy Lethcoe Alaskan Wilderness Sailing and Kayaking PO Box 1313 Valdez, AK 99686 POSITION STATEMENT: Commented on SB 107. Ms. Derotha Ferraro, Executive Director Homer Chamber of Commerce PO Box 541 Homer, AK 99603 POSITION STATEMENT: Commented on SB 107. Mr. Todd Bureau Hope, AK 99605 POSITION STATEMENT: Opposed SB 107. Mr. Dave Karp, Executive Director Alaska Tourism Marketing Council 3601 C ST., Ste. 700 Anchorage, AK 99503-5935 POSITION STATEMENT: Commented on SB 107. Mr. Bob Dindinger, President Alaska Travel Adventures 9085 Glacier Hwy. Juneau, AK 99801 POSITION STATEMENT: Supported SB 107. Mr. Alan LeMaster Box 222 Gakona, AK POSITION STATEMENT: Supported SB 107. ACTION NARRATIVE TAPE 99-10, SIDE A Number 001 SB 107-ABOLISH TOURISM MARKETING COUNCIL CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:52 p.m. and brought up SB 107, which would abolish the Tourism Marketing Council and create a new Milennium Plan. He noted the committee's sponsor statement in the packets, and announced the committee would hear public testimony from members of the tourism industry and the Administration. He explained his office has been working with the Alaska Visitors Association and Department of Commerce to devise and implement the new Milennium Plan. This bill version is different than the bill last year because it has worked out the department's issues and concerns. CHAIRMAN MACKIE said the committee would consider several amendments later in the hearing. MR. KEN DOLE, Alaska Visitors Association (AVA), stated that after a lot of negotiation with the Administration, they have reached a compromise to move the bill forward. The AVA looks forward to the consolidation of marketing and what it can do for the state, and AVA's ability to bring some private dollars to the table. He said the AVA would continue to work with the Legislature to move the bill. Number 54 CHAIRMAN MACKIE asked Mr. Dole to describe how the marketing entity would work and the contribution by the industry, noting that several members of the Legislature have urged the industry to begin paying for some marketing. MR. DOLE replied the goal of the program was to bring all marketing together. In the proposed initial funding, 30% would come from the private sector, and it would increase to 60% from the private sector over a three-year period. He said it would create a $10 million marketing program that, hopefully, would continue to grow after that third year. CHAIRMAN MACKIE stated that currently the state is paying about $6 million in General Funds to the tourism marketing programs. Over three years, the state would step down to $4 million and the industry would step up from zero to $6 million. MR. DOLE said the industry hoped to have that three-year transition period to increase the budgets. CHAIRMAN MACKIE said the small Convention and Visitor Bureaus (CVBs), particularly Skagway, but also Kodiak and Haines, have some real concerns about the formula that would be used. He told the CVBs it was not the committee's intent to legislate formulas, but that it was incumbent upon the industry to work together to find a fair formula so that everyone who benefits from tourism could pay. CHAIRMAN MACKIE expressed concern that there is still work to be done on the formula, and asked if the association would work with the affected communities. MR. DOLE responded the funding formula is not in the legislation. The new organization, not yet formed, will be adopting a funding formula that is not yet established. The AVA has heard from the CVBs that they would like their funding to be based more on a "pay to play" type program, hopefully still trying to meet the same level of funding that is the Association's goal. There won't be a program unless they can raise that amount of money. MR. DOLE asserted that AVA is committed to working with the CVBs, DMOs, chambers of commerce and city councils to get everyone to sign off on it. The AVA has been involved in getting public comment and received over a 5% return on 6000 surveys sent out last month. The AVA treated Skagway's information as a survey response while, he admitted, it should have been treated more proactively as a separate issue. CHAIRMAN MACKIE asked if there would be an elected board of directors from within the industry and by-laws charging the board with responsibility to devise the formula. MR. DOLE answered, "Exactly." Everybody would be an initial member and the Board would have representation from around the state, with one business license equaling one vote. CHAIRMAN MACKIE asked if the AVA supports the amendments the committee will offer to meet the concerns of the Department. MR. DOLE said that is correct. The AVA voted on those amendments and they received concurrence. SENATOR LEMAN asked if it is the intent to have a line function in the year 2001 to increase 30%-45%-60%, or would it be 30% for two years and then 60%. MR. DOLE answered, from 30% to 60% to provide the capability to increase in year 2002. The goal would be to raise their contributions in the second year, but in case they can't meet the match that quickly, the third year would be at 60%. SENATOR LEMAN expressed concern about this year's budget and next year's budget goals and said this legislation could mean as much as $1 million. CHAIRMAN MACKIE said he needs to confer with the Finance Committee on how to deal with it. He assumed it would be included in the fiscal note of SB 107 and removed from the Department of Commerce's budget, providing more incentive for passage of the bill. SENATOR LEMAN asked if Section 4 in the CS deletes existing Purposes (2) through (8), leaving only the former Purpose (1), and asked why those were removed. MR. DOLE replied a proposed amendment will address putting some of those purposes back in the bill. He would defer to Ms. Ginny Faye to explain the amendment. Number 190 MS. DEBORAH SEDWICK, Commissioner of the Department of Commerce & Economic Development, stated she was delighted to express the industry's and the Department's concurrence with the Committee Substitute for SB 107. The Department's difficulties have been resolved through compromise and the bill will create the dollars for tourism marketing in Alaska. A lot of people have worked hard on the legislation and she said, "I'm very happy that we have a proposal that makes sense and will work." SENATOR LEMAN asked when the CS could be reviewed. CHAIRMAN MACKIE explained the agreement was reached today, but there wasn't time to have it drafted for the meeting. It will be identical to Rep. Therriault's bill introduced in the House, and it will be addressed conceptually by the committee as a CS and redrafted. MR. STEVE BEHNKE, Executive Director of Alaska Wilderness Recreation Tours & Association (ARTA), said his trade association represents about 300 small businesses and tourism operators statewide. These range from bed & breakfasts to a small cruise line company with 7 ships in the state. ARTA has followed this issue closely for two years and expressed concerns about the approach AVA has taken in developing the new Milennium Plan. The proposed amendments today address only about one-third of ARTA's concerns with the bill. The concerns that are addressed by the amendments involve flexibility in the Plan, the role of the Division of Tourism, and the role of the State in overseeing the contract. MR. BEHNKE said he's not too sure about the other two-thirds of their concerns. The legislation should address the structure of the organization in order for it to work. It will be very difficult to get the support from the CVBs and the ARTA business members without more assurance of how it will be structured. While it's difficult to put into legislation, some sideboards could be identified and ARTA is developing recommendations it will pass along. The other major concern is that this will weaken rather than strengthen funding for tourism at a time when the state and private partners should be marketing, particularly to independent travelers who bring the most benefits to the State. The State could play a big role and money could make a difference in promoting economic development. ARTA members are convinced the funding mechanism isn't going to work and many feel the issue of taxation should be considered. CHAIRMAN MACKIE asked if Mr. Dole had specific suggestions. The industry needs to come together to have a $10 million marketing program versus the current funding program that could be zeroed out. MR. BEHNKE observed that the legislation proposes a public-private partnership, with the public having a significant say in how the state money is used. ARTA members believe the only successes in the past few years have come from the Division of Tourism addressing their concerns and needs. The AVA has tried to bring people along on this, and he appreciates their efforts, but the tourism industry is fractured with a huge range of interests. He would submit specific suggestions to the committee. CHAIRMAN MACKIE said he'd appreciate getting Mr. Behnke's recommendations from the ARTA. SENATOR LEMAN asked what type of tax Mr. Behnke alluded to in his comments. MR. BEHNKE replied it's premature to say. Senator Elton has proposed an idea that many ARTA members have commented would raise more money for marketing. It ought to be on the table, with a consideration of the returns if the industry were willing to tax itself. He asked the committee to look into what options exist for a tax. MS. CAROL KASZA, Vice President of ARTA, spoke on behalf of the ARTA President, Kurt Kessel, and as an individual small tourism business owner. On behalf of ARTA, she expressed that AVA did not involve everyone in the process and it doesn't represent or speak for the entire tourism industry. Only one-third of ARTA's concerns have been addressed in the CS. Speaking as an owner of a wilderness guiding business, she strongly supported a system for destination tourism marketing. Her business primarily advertises on the Internet now. Effective destination marketing would entice travelers to select Alaska as one of their top search choices. She doesn't support this bill because there isn't the money available, as in the 1970s, to truly promote Alaska on a really wide scale. Generic advertising intended to benefit all segments of the tourism industry isn't happening because there isn't the money to saturate the market. Instead, decisions are being made on which segments to target, which publications, which age groups...Her own and other small businesses feel the focus is slanted to serve cruise ships and other forms of mass package tourism. MS. KASZA asked, "Who controls those marketing decisions and for what purposes?" Small businesses have not been effectively represented within AVA and the Tourism Marketing Council, and she would not feel offended by the State stepping in to help ensure that the legislation addresses the specific structure of the proposed organization. It would do a lot to relieve her concerns. She's highly concerned about the funding mechanism because if everyone doesn't support this, it's not going to work. Consolidating and amplifying AVA's power will further alienate small businesses. There is not enough industry support now to sustain this plan, because many feel their interests won't be served by marketing plans; of more concern, many will figure on getting a free ride whether they pay or not. She suggested more research into states or provinces such as Alberta who attempted to implement privatization schemes with disastrous results. She expressed interested in Senator Elton's SB 122, proposing a broad-based tax to support marketing. MS. DIANE MCBRIDE, Homer, stated she's been a small business owner in tourism for 30 years. She's concerned about SB 107 which appears designed not to tax the industry. She felt relief when Commissioner Sedwick said there was agreement and concurrence on the new version of the bill. The Division of Tourism and Department of Commerce must be involved for checks and balances and retained authority to develop new markets and to evaluate the effectiveness and performance of marketing contracts. Local communities must have their tourism goals considered. AVA needs to be more proactive and involve small tourism businesses. She supported SB 350 last year which she felt had flexibility and she encouraged the committee to look at it again as a model. She supported a bed tax and Senator Elton's bill. Number 509 MS. WANETTA AYERS stated she works for Afognak Native Corporation which has several tourism holdings on Afognak Island. While she supports consolidation of tourism marketing programs and applauds AVA for taking the lead, she cannot support SB 107 because it doesn't reflect the compromises reached by AVA and other sectors of the industry. SB 350 as presented last year was much more representative of industry-wide concerns. It is a fragmented industry and she cautioned the committee to not think that one organization, such as the AVA, can be truly representative. Some of the most successful tourism destination programs on a community level are funded by a tax. She suggested reframing the question: how to create the most effective tourism development program, not just a tourism marketing program. She thought they would have a different result from the New Milennium Plan and she urged them not to advance SB 128. CHAIRMAN MACKIE said he shared her concerns. He asked if she had a choice between doing nothing and seeing the whole marketing plan go away or this type of an approach, which would she prefer. MS. AYERS responded that she thought the State should have a role to play in terms of public policy and promotion of tourism. She thought that many interests had not been represented in the New Milennium Plan which she thought was a loosely woven, social contract with no compelling reasons to participate. Communities could opt not to participate, but what options are there if the private sector fails to buy in to the program. She thought eventually the customers would be the ones who would pay the cost of this program. Number 578 MS. NANCY LETHCOE, Alaska Wilderness Sailing and Kayaking, said they are former members of AVA and are active members of the Valdez Convention and Visitors Bureau and of the Alaskan Wilderness Recreation and Tourism Association. She said she preferred Senator Elton's bill, because if you ask the tourism industry to contribute money, then the industry should have the say in the marketing plan, not the State. TAPE 99-10, SIDE B Number 590 Larger businesses who contribute more have had a much greater say in how the state's money is spent on marketing. She opposed the legislation saying they need something that is funded in a different manner. She recounted her experience with AVA and how it accepted her money, but did not really help her. They came to Valdez during their annual meeting with their Millennium Plan, but questions from the audience were discouraged in a very rude manner; there was no vote on whether the members of the Valdez Visitors and Convention Bureau accepted or rejected or wanted to see changes in the plan. She thought that ARTA had the same difficulties. MS. LETHCOE said that SB 128 might be the State micromanaging a private organization, but she is in favor of it if it's under the Department of Commerce, Division of Tourism. It is the only way all segments of the Alaskan tourism would be represented in the market plan and see a fair share of the budget, along with having research done to determine the efficacy of the marketing program. There needs to be a program that will market for everyone. Number 520 MS. DEROTHA FERRARO, Executive Director, Homer Chamber of Commerce, said they are a self supporting organization of 412 members. They receive a $20,000 grant from the City of Homer to purchase adds and do marketing for Homer. Their Board of Directors voted to adopt the intent of SB 107, as well, as the public and private effort of cooperative marketing. She noted that members from small communities have been invited to participate in this discussion. They cannot afford to not have this happen. She said that numbers of visitors to Homer has been declining recently and that is because of a decline in marketing the state. Her local marketing dollars aren't large enough to market Homer as a destination. We need a big pot of money to market the state and then the small communities take care of moving them around once they are here. The hurt to small communities by not doing something will be far greater than any perceived hurt in the details of how we are doing it. AVA has worked hard to include small businesses and the communities in the process. MR. TODD BUREAU, Hope tourism businessman, said he appreciated the work by AVA to come up with some solutions for private enterprise. He feels somewhat slighted in that his comments and others have not been included in the final plan as it is being presented. He has great concern that the proposed entity, the Travel and Tourism Association, is supposed to single handedly receive, administer, and dictate planning for the future, but is still an amorphous entity. His greatest hesitation comes from the perception that AVA's plan is mostly for the larger operators and those who are dealing with a different type of tourism than many of the smaller operations in the State who reside here. He has a great hesitation to think that the volunteer portion of the plan would be universally embraced. The Division of Tourism in the past has been a single source of keeping the playing field level. He didn't think the taxation issue was fully discussed as an alternative. Taxation is something that people initially discount, because nobody wants new taxes, but many people think it would be one of the fairest ways for the Division of Tourism or the State to derive a greater amount of monies from a greater and wider variety of representatives and administer it in a more equitable and useful fashion. The bills before this committee give him even greater pause given the fact that AVA has worked for so long on their plan. It seems like an end run. He said he would prefer nothing, because that would force the issue of taxation which is a much more equitable way of administering tourism funds and serving the smaller operators and independent travels, the backbone of the economic benefit to the State. Number 300 MR. DAVE KARP, Executive Director, Alaska Tourism Marketing Council, asked them to look good at the new committee substitute; it's not supposed to be the New Millennium Plan and all the rules of the game and, what amounts to, bylaws and incorporation in statute. There is a high level of awareness on the part of all the parties that have been involved that there is a lot of work that has to be done, yet. One of the new pieces of language that appears twice in the CS is the wording "prior to execution the marketing plan shall be approved by the department." There are some controls. MR. KARP said that people need to understand that there's going to be a new organization established. It's $25 to join; it's one member, one vote. Cruise lines contribute about a third of the overall visitor traffic to the state. These companies on their own go out into the national and global market place and spend over $30 million creating an image that cruising to Alaska is a good thing to do. MR. KARP reminded the committee that right now the tourism industry is stalled and the more we wait, the more market share we lose. Forty percent of the other states who are having economic problems are increasing their allocation of public money to tourism marketing. SENATOR MACKIE said the only thing this legislation does is put into place a contract and a match, but the industry needs to work together and come up with a plan that works. MR. BOB DINDINGER, Alaska Travel Adventures, commented that lack of will to adequately fund tourism marketing in the State of Alaska has turned operators against each other. It's because we are no longer driving the number of bodies the industry needs to support itself. We're growing, but in single digit numbers. In the 70's and 80's we grew in double digit numbers. At the same time our growth rate is declining, the amount of money that is being dumped into the tourism industry for new operations by Native corporations and people who have moved their resources out of timber, fishing, and mining is phenomenal. "We need more of your money," he said. He said there isn't the will to have a dedicated tourism tax in the State of Alaska. "Everyone is honest when there's more than enough to go around." When there was lots of oil money, that comment held more water. If a tax is in place, there is no mechanism that would dedicate that for the next 50 years. If it's voluntary, it's for sure. In conclusion, he asked the committee to move the Committee Substitute from committee. MR. ALAN LEMASTER, Gakona small businessman, said the AVA has helped him tremendously in building a very viable business. Since his hotel burned down, he is using the same marketing plan to help him reestablish his business. He supported the New Millennium Plan and said that SB 107 concerns him greatly. First, the Board would be appointed by the Governor and could be anyone in the State and there are no restrictions. The taxation plan as laid out is discriminatory and doesn't cover the bases, to say nothing of the fact that the people in the industry are placed with the burden of taxing themselves hoping government would give it back to them. SENATOR LEMAN move to adopt the CS to SB 107. There were no objections and it was so ordered. SENATOR LEMAN reiterated that he would like to see a multi-step increase from 30 percent to 60 percent instead of one big step after two years. SENATOR LEMAN moved to pass CSSB 107(L&C) from committee. There were no objections and it was so ordered. CHAIRMAN MACKIE adjourned the meeting at 3:10 p.m.