Though Alaska’s State Legislature passed a bill that will reduce the state’s cruise passenger head tax, the move does not guarantee a return of cruise ship capacity to the Frontier State.
Effective Oct. 31, the Alaska passenger head tax will drop from $46 to $34.50. On cruises visiting Juneau and Ketchikan, the tax will fall to $19.50 because the legislature also voted to offset municipal taxes charged at those ports.
The timing means that the lower taxes will affect cruise fares beginning in 2011.
In return for reducing the tax, the industry said it would drop a lawsuit cruise lines filed last year to overturn the tax.
But the reduction does not signal an end to the rancor between the cruise industry and the state over Alaska’s taxation and regulatory policies.
The tax reduction came almost impossibly fast. It was just over a month ago that Alaska Gov. Sean Parnell showed up at the Seatrade Cruise Shipping Conference in Miami Beach, where cruise executives told him that operating in Alaska had become prohibitively expensive.
Publicly, Holland America Line CEO Stein Kruse issued a strong condemnation of Alaska’s cruise regulatory environment, calling it the "most burdensome and costly" in the world.
Behind closed doors, Parnell heard the complaints of cruise executives in detail.
Within days, he introduced Senate Bill 312, calling for a reduction in the head tax. He cited statistics showing that after decades of steady growth in cruise ship passenger visits to Alaska, the state was facing a significant decline this summer, which would amount to a projected loss of up to 5,000 travel-related jobs, a 10% drop.
After the bill passed last week, Parnell stated on his website,"Alaska businesses have suffered because of the impacts of this tax. We need to incentivize tour travel to Alaska and build our businesses. Enactment of this bill will put litigation between the cruise industry and the state behind us and allow us to focus on restoring tour travel."
What he didn’t mention was any guarantee that cruise ships would be returning to Alaska. And no such guarantee appears to have been offered.
Despite widely reported early assurances of a quid pro quo — a ramp-up in ship capacity in return for the tax reduction — industry leaders quickly backed off that claim.
"It’s not guaranteed," John Binkley, head of the Alaska Cruise Association, the group that filed the lawsuit on the industry’s behalf, said last week. "It’s something that they discussed at Seatrade. The governor was strong in his desire to have more capacity come back to the market and having the industry drop the lawsuit."
Binkley said that the cruise companies owe it to their shareholders to operate wherever they get the best returns.
"The state can control to some extent the costs, and that’s what they’ve attempted by reducing some of the taxes," he said.
Binkley said the almost 80% increase in the state’s tourism marketing fund would also help the industry by increasing demand, "which should drive up pricing."
Carnival Corp. Chairman Micky Arison, who has been vocal about the tax’s adverse impact on the Alaska economy, called the reduced tax a "great first step" for the state’s cruise business.
But he also cautioned last month that a recovery of capacity to pretax levels could take years, just as it took several years for capacity to drop after the legislation became law.
"Our itineraries are in place for 2011, and it would be impossible to make any changes at this time," Arison said during an earnings call with analysts.
In addition, the head-tax reduction doesn’t address some of the central concerns the cruise industry has made regarding Alaska’s regulatory environment.
At Seatrade, Kruse said that cruise ships are held to such high water-discharge standards that they can’t take on water in some Alaskan ports "because when we take that water on, it has a higher copper content than what Alaska allows us to discharge. … That’s how crazy it’s gotten."
Binkley said those issues are being addressed by the Alaska Department of Environmental Conservation, adding that he hopes the agency will issue less stringent regulations that "treat the cruise lines like they do all other wastewater dischargers."
Because the reduction will mean a return of jobs, Binkley and Parnell said they believed Alaskans supported the new law.
But reports in Alaska newspapers suggested signs of dissent.
The Anchorage Daily News quoted Rep. Bill Thomas, a Republican from Haines, Alaska, as saying that the reduction "was a slap at people who voted for the tax in 2006" and that their voice "has been shut down."
Bill Wielechowski, a Democrat from Anchorage, expressed concern that the settlement did not include any solid assurances about cruise ships coming back.
"What is the evidence that we’ll get something in return?" he asked.
Alaska Travel Industry Association President Ron Peck, who has long advocated increasing Alaska’s marketing budget, said the almost 80% increase, to $18.7 million, would help the state and cruise industry bring more people to Alaska.
Peck noted that before the additional funds were allotted, Alaska had a much smaller tourism marketing budget than Hawaii, the most comparable long-haul destination state.
Hawaii’s budget, he said, was $80 million annually to draw 7 million visitors, while Alaska spent $11 million to $12 million to draw 2 million visitors.
Of the new funds, Peck said, $3 million will go to TV ad campaigns.
"The cruise industry said, ‘You need to grow the awareness and have a strong place in the market,’ " Peck said. "We’ll focus on markets we know are successful, but this will allow us to expand our national presence.
"I am very hopeful that the cruise industry will make some announcement in the near future about their deployment" in 2012, he added.