Lawmakers: Cut cruise head tax

Rollback advocates doubt extra cost drove away visitors

Posted: Sunday, March 28, 2010

Supporters of Gov. Sean Parnell's plan to roll back cruise ship head taxes say they doubt the taxes make much difference in visitors' travel decisions, but they still want a head tax reduction.

"It seems to me like no one is going to take a cruise or not take a cruise for some $46-odd dollars," said Rep. Bob Lynn, chairman of the State Affairs Committee, who supports reducing the tax.

Top cruise industry representatives maintain the head tax is driving down demand for Alaska cruises, rather than the recent recession.

Legislators, though, think the recession is the biggest factor in last year's decline in cruise industry profitability and this year's projected decline in Alaska cruise visitors.

"The national economy is playing greatly into this," said Rep. Nancy Dahlstrom, R-Anchorage, who believes the recession would takes its toll regardless of the head tax.

Dahlstrom called the head tax "just one issue" in the industry's troubles.

Dahlstrom, Lynn and other tax cut supporters say voters made a mistake in 2006 when they passed the cruise ship initiative that included the $46 per passenger fee, known as the "head tax." The initiative also included a gambling tax, required that cruise ships pay corporate income tax, and required new environmental regulations. There is also a $4 per passenger fee that funds the ocean ranger environmental monitoring program.

"It's a cumulative kind of thing," said Lynn, who generally opposes taxes in the Legislature.

House Speaker Mike Chenault said the cruise ship industry is convinced the head tax is what is reducing demand for Alaska cruises, but legislators think the economy played the largest role.

"With the conversations with the cruise ship industry, they feel it is a big part why their numbers are down," he said. "We know it is not the only reason why."

Chenault said he'd support a reduction in taxes if it ends the cruise industry's lawsuit against the state.

Parnell had earlier said he did not intend to reverse the voter-approved cruise ship head tax, but after speaking with industry executives at a cruise ship trade show in Miami he reversed course and returned to Alaska to propose a tax reduction.

"When I spoke to the cruise line officers in Miami last week, the two things they said impact their decisions to deploy ships here are costs and marketing," he said.

Parnell responded with a proposal to cut the head tax and increase state spending on marketing. Parnell maintains that the head tax is driving away business.

Sen. Bert Stedman, R-Sitka, said there could be other reasons why fewer ships were being sent to Alaska. The cruise industry may be taking a tough stance against the head tax to prevent other states or countries from raising their own.

Stedman said there was an "interest that some in the industry have to use Alaska as an example of what behavior they don't want to see other sovereigns do as far as increase the regulatory environment and increasing the head tax."

How much of the decline was the increased cost of the head tax, how much the economy and how much the politics, Stedman said he didn't now.

Cruise industry representatives did to respond to e-mails or phone calls on Friday, but last summer Carnival Cruise Lines Chairman and CEO Micky Arison told Wall Street analysts that the decline in profitability in Alaska was caused by the head tax.

"There is no question the referendum had a significant impact," he said, referring to initiative that established the tax.

Parnell said it was clear the head tax was having an impact, because cruise visits to the other destinations are increasing, while they're scheduled to decrease this summer in Alaska.

"Cruise traffic is increasing in other jurisdictions, it's decreasing here. I don't think our scenery has changed," he said.

Alaska is considered a "premium" destination in the cruise industry, with its seven-day or longer trips more expensive than average.

Last fall, Carnival spokesman Tim Gallagher said the head tax drove away customers.

"Anything that increases the cost of a cruise in a very, very price sensitive market is a deterrent to a potential cruise passenger," he said.

• Contact reporter Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.



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