It took a grassroots movement to get Alaska’s $50 head tax on cruise ship passengers enacted. It may take another grassroots movement to have it rolled back.
That was the conclusion reached by attendees at the Economic Summit on Tourism, Southeast Alaska, held June 24 in Juneau, where legislators heard from local tour operators, small-town mayors and owners of hotels, all united to address a common problem facing the Frontier State: a severe downturn in tourism, compounded by an expected 14% decrease in cruise passengers in 2010.
The punching bag of the event was the ballot initiative that was voted into law by Alaska citizens in August 2006.
Ballot Measure No. 2, popularly known as the Cruise Ship Initiative, levied a $50 head tax on cruise passengers ($46 in head taxes and a $4 fee to finance an ocean ranger program) and a host of other new taxes on the cruise lines, including taxes on gaming and corporate income. It also imposed disclosure requirements that were later amended, as well as environmental rules that are still the subject of disputes.
Alaskans didn’t grumble much about the initiative in its first couple of years of life, except for a small uprising about the disclosure requirement, which was eventually amended so that local tour operators could continue doing business with cruise lines without revealing their markups.
But Alaska has seen changes in the last few years, and things are likely to be a lot different in 2010.
Next year, 140,000 fewer cruise passengers are expected to arrive in Alaska as a result of capacity cuts by Princess, Holland America Line, Royal Caribbean, Norwegian Cruise Line and Cruise West for the summer season.
A 14% reduction in cruise passengers means huge revenue losses to Alaskan communities. Juneau will lose $208,000 per day in local spending during the height of the cruise season in 2010, according to its Convention and Visitors Bureau.
Ketchikan expects to be out about $20 million in local spending next season, as a result of a $17.7 million drop in cruise passenger spending and $1.9 million less in local government revenue.
Broken down by cruise region, the Alaskan Gulf cruises will be hit even harder than the Southeast Alaska cruises. Gulf cruises tend to be one-way trips that leave or pick up passengers in Seward, Whittier or Anchorage. Those passengers often do either a pre- or post-cruise trip to Denali and other stops on the Alaska Railroad route to Fairbanks.
People have now begun to grumble, according to PeggyAnn McConnochie, the executive director of the First Things First Alaska Foundation, a group that describes itself as dedicated to preserving the viability of Alaska through responsible economic development and natural resource management. Tourism is a natural resource, she said.
"Anecdotally, we were receiving stories for about nine months from the tourism industry," McConnochie said. "They are having trouble in 2009, and with cruise ships leaving [the state] in 2010, we saw that cruise tourism was in deep trouble."
Coming out in full force
McConnochie said that as an independent body not specifically involved in tourism, the foundation was the right group to bring people together to figure out what was going on.
It organized the Economic Summit on Tourism, and even McConnochie was surprised at how many people showed up.
Representatives from the governor’s office were there, she said, as well as other legislators from the state and city level, mayors from every southeast city, members of the forest service, tour operators, bankers and owners of hotels and lodges.
There were 212 registered attendees, which meant standing-room-only crowds during some presentations. With attendees seeking to understand why tourism was down and the ships were leaving, the general economic downturn was a factor, but the cruise ship initiative took most of the blame.
McConnochie said that since the initiative passed, the additional costs to cruise lines gave Alaskan ports the dubious distinction of occupying four of the five top spots in a list of the most expensive ports for cruise ships, second only to Bermuda. Before the ballot, no Alaskan port was in the top five.
What McConnochie and Ron Peck, president of the Alaska Travel Industry Association, want to convey is that while the initiative was made famous by the head tax, it is made up of many parts that make it more costly for cruise lines to sail in Alaska than in other parts of the world.
"I’ve spoken to legislators and friends who say, ‘The citizens spoke, and we have to abide by it,’ " Peck said. "Well, that’s part of the reason I’m not so hot on ballot initiatives. It wasn’t one thing; it was five or six different things. When you are in the voter box, how are you going to make a capable, informed decision about six different things? The message was [that] it’s just a $50 head tax. It was so much more than that. A lot of well-meaning citizens would not have voted that way if they had been informed."
Adding to the cost of sailing in Alaska are the corporate and gaming taxes that ships are not normally subject to because they fly international flags and sail mostly in international waters.
Peck and the majority of people at the summit voiced support for a bill that is currently in the Alaska Senate that would allow cruise lines to offset some of those income taxes by giving to the ATIA’s marketing funds.
"It is altogether appropriate that a portion of [the taxes] be appropriated back to the visitor industry to grow the industry and bring more visitors who will generate more income and taxes for the state," Peck said. "It’s not rocket science."
What emerged from the summit was widespread agreement that there were probably three ways to successfully overturn the ballot: persuade the legislature to amend it; file a lawsuit; or create a grassroots initiative to lobby for a ballot measure that would reverse the tax and fee.
Governor takes hands-off approach
Attendees voiced hope that the new administration in Juneau, led by Sean Parnell, who replaced Sarah Palin as governor last month, would be more amenable to the idea of repealing aspects of the initiative.
But Parnell quashed any hope that he would take on the initiative, telling the Juneau Empire after the summit, which he did not attend, that he did not foresee changing any part of the state’s tax structure.
"That’s the guiding principle that I have, and short of a sea change in terms of reasoning, that’s where I’d stay," Parnell told the newspaper.
But he didn’t close the door to a legislative solution.
"If the legislature wants to take that up and debate it, I’ll certainly participate in that policy discussion," he said.
McConnochie said it wouldn’t be prudent for a new governor to support changing a initiative recently voted into law by citizens.
"When you look at how you change legislation from the people, it’s not top-down," she said. "It’s bottom-up. At the summit, we all got to see firsthand that the initiative is having unintended consequences on the people, the families and the business of Alaska."
Parnell, she said, is letting the system work. The legislators are seeing that their constituents are in trouble.
As for legally challenging the ballot, hope came from Washington in June, when the U.S. Supreme Court struck down the Alaskan city of Valdez’s tax on oil tankers, in a case brought by a shipping company, Polar Tankers.
John Binkley, head of the Alaska Cruise Association, the cruise industry’s local lobbying arm, said that the decision could bode well for the cruise industry’s ability to challenge the tax legally.
"I believe it will make the state’s cruise ship passenger head tax even more vulnerable to challenge," he said.
The case was also mentioned by Carnival Corp. CEO Micky Arison, who said in June that Alaska should expect the cruise industry to use litigation to repeal the initiative, and cited the Polar Tankers case.
Kirk Stark, a professor of tax policy and public finance at the UCLA School of Law, said that the Polar Tankers decision "marginally improves the chances of success of a legal challenge to the head tax."
The most obvious difference, he noted, is that the Polar Tankers tax was on the ship itself, while the head tax is assessed on the passengers.
"If litigation has a dollar value, the dollar value went up to some degree by virtue of the Supreme Court decision on the Polar Tankers," Stark said. "But the Supreme Court decision on the Polar Tankers did not address the head tax. It’s a completely different tax with a completely different set of facts."
Another question opponents of the Initiative are asking is how the tax revenue is being appropriated.
Last year, Alaska collected more than $46.8 million from the tax, which was supposed to be used to improve the ports and other services related to the cruise industry. But much of it has not been dispersed, and it is not clear where the funds are going, Peck said.
The initiative’s backers said that’s not true, and they denied that there has been any citizen backlash.
"The best news overall is that the head tax works," said Chip Thoma, president of Responsible Cruising in Alaska, which sponsored the bill in 2006. "Ports have fair revenue sharing, big capital projects are funded every year with available funds, and not one cent has been returned by any port mayor. There’s nothing but praise from the port towns."
Thoma said that tour operators complaining about their numbers are unfairly blaming the initiative.
"‘It’s the economy, stupid’ is our silent mantra, and Alaskans do get it," Thoma said.
"There’s no reason to make tax changes until after the 2010 and 2011 seasons, when a real impact analysis can be made. The call for change in 2009 is ‘Chicken Little’ hysteria; the sky is not falling, that was wind in the trees."