State, cruise industry seek deal to end lawsuit

State, cruise industry seek deal to end lawsuit

Posted: Tuesday, April 06, 2010

JUNEAU - The state and cruise ship industry could sign by week's end an agreement ending a federal lawsuit over Alaska's head tax on cruise passengers.

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Michael Penn / Juneau Empire
Michael Penn / Juneau Empire

But the deal hinges on a proposal by Gov. Sean Parnell to rollback the tax by at least $11.50 - a proposal that lawmakers have yet to approve, with less than two weeks left in the legislative session.

Attorney General Dan Sullivan, in testimony before the House Finance Committee Monday, could not say if the Alaska Cruise Association would still be able to persist in its lawsuit if lawmakers proposed a lesser tax reduction than Parnell. The agreement being crafted pertains to Parnell's proposal without "material" changes, Sullivan said. He couldn't define what a "material" amendment might be.

Parnell has proposed cutting the head tax from $46 to $34.50 to address industry claims that the cost of doing business in Alaska is too high. The bill also allows for deductions of local charges, for ships stopping in Juneau and Ketchikan, which could bring the state's share down even further, to $19.50.

Versions of Parnell's tax reduction are pending in House and Senate committees. Parnell also has proposed tax credits for corporations contributing to statewide tourism marketing efforts. Tax credits aren't a part of the settlement discussions, Sullivan said, and lawmakers have sought to separate the two issues.

Rep. Alan Austerman, R-Kodiak, said he didn't want to be in an awkward position and was somewhat bothered that an agreement was being hammered out ahead of any firm action by the Legislature.

Sullivan said he believes pursuing a settlement is in the state's best interest and that the goal, in taking the approach officials have, is in putting the state in a strong position if the Legislature acts. If it doesn't - the Legislature is set to adjourn April 18 - he said he's prepared to "vigorously defend" the state against the lawsuit.

Sullivan also acknowledged, under questioning by lawmakers, that the agreement wouldn't prevent others from suing over the same issue.

The cruise association, in filing its lawsuit, claims the head tax, approved by voters in 2006 as a way to help cover the cost of infrastructure needed for large ships coming to port, is onerous and unconstitutional. Its president, John Binkley, blames tax costs and the regulatory climate here at least partially for the expected loss of ships - accounting for about 142,000 fewer passengers - this season.

He told lawmakers Monday it will take addressing all three issues - marketing, taxes and regulations - to help rebuild the industry.

A report commissioned by the state commerce department found cruise passenger traffic to Alaska was basically flat - down 1 percent - from 2008 and 2009. But the report also noted that cruise ship passengers were traveling less within the state, eating into sectors of the industry including land tours.

Overall, visitor traffic fell about 7 percent between the summers of 2008 and 2009, according to the report. The decline equated to a $270 million reduction in visitor spending, it found.

The Senate, in its version of an operating bill, approved a special $5 million marketing grant for the Alaska Travel Industry Association; by contrast, Parnell has proposed a tax credit provision for corporations making money off tourism in Alaska that caps contributions eligible for credits at $20 million this year.

Some leading lawmakers have balked at a tax credit program, seeing it as infringing on their appropriations powers. Before Parnell revived the issue last month, a long-languishing tax credit bill seemed destined to die in the Legislature.

Mike Stedman, vice president of flight operations with Wings Airways, of Juneau, attributes losses to his charter and tourist flight business directly to the state head tax - not to the recession or to other factors, like changes in travel trends.

He said business was down 20 percent last year, and that he expects an additional drop of 15 to 20 percent this year. He expects to hire fewer people and to fly two fewer aircraft.

"With less tourists coming to town, that's the direct impact on our business," Stedman said in an interview.

He was among a long list of small business and tourist interests generally in support of reducing the head tax that testified before lawmakers Monday; the Senate Finance Committee also held a hearing. There was little push-back.

Chip Thoma, with Responsible Cruising in Alaska, said he had no problem with a more moderate reduction - to $39 - but he opposes additional local offsets, of up to $15, and what he calls skimming. He said he doesn't want to see infrastructure projects get shortchanged.

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