Cruise lines agree to drop lawsuit if head tax cut

Posted: Tuesday, April 13, 2010

JUNEAU - An agreement has been signed to settle a federal lawsuit over Alaska's cruise ship passenger head tax. But it hinges on whether the Legislature lowers the charge.

The deal was signed Sunday by Attorney General Dan Sullivan and Alaska Cruise Association President John Binkley. Under the deal, the cruise association agrees that if Gov. Sean Parnell's tax reduction proposal or another tax reduction bill "without material amendment" is signed into law this year, the association would dismiss its lawsuit.

Another term is that member cruise lines agree that the reduced costs accomplished by such a bill would help in making Alaska "a more attractive destination" and increase ship traffic.

"Each member line, as well as the state, will work to achieve that mutual goal subject to economic conditions and each member line's overall market strategy," according to the agreement.

If legislation stalls, or the tax changes are materially different, the lawsuit can proceed, and support for a settlement cannot be used against either side. If legislation passes with an immediate effective date, passengers would get refunds and the state and lines would work on a way to encourage that they spend money in Alaska - and not on the ships.

The attorney general's office has been trying to settle the case as Parnell sought to reduce from $46 to $34.50 the tax on cruise ship passengers and allow for deeper offsets for local head taxes for ships stopping in Juneau and Ketchikan.

Voters approved the head tax in 2006; supporters see it as a way to help cover the cost of infrastructure needed for large ships coming to port. In recent cruise seasons, according to Department of Revenue figures, it's generated about $46 million a year.

But the cruise association has argued that the tax is onerous and unconstitutional. Binkley has blamed tax costs and the regulatory climate in Alaska, at least partially, for an expected loss of ships - accounting for about 142,000 passengers - this season.

Parnell pitched the rollback after returning from a cruise ship trade show last month. He cast it as something the state could do to address industry claims that the cost of doing business in Alaska is too high. He also revived a proposal that seemed destined to die in this legislative session that would allow tax credits for corporations contributing to statewide tourism marketing efforts.

But Parnell said he has also been clear with industry representatives - that if the state lowers the tax, they need to show this will bring more ships and create jobs here.

Time is running out. The Legislature is currently scheduled to adjourn Sunday.

And while finance committees on both sides have heard tax reduction bills since the governor's trip, so far, they haven't budged.

Sen. Bert Stedman, a finance committee co-chairman, said it's been his intent to bring the measure back up but that the panel has been preoccupied with other issues - like the capital spending proposal that passed out over the weekend and is awaiting a vote by the full Senate.

He expects the proposed tax structure that comes up to be "very similar" to Parnell's. "We're not getting too radical right now," said Stedman, a Republican from Sitka, a community that benefits from the cruise trade.

In negotiating the agreement, Chris Poag, an assistant attorney general, said the term "material amendment" was left specifically undefined "to protect the Legislature's flexibility," and hopefully allay lawmaker concerns.

Poag said considerable time was also spent negotiating on the deployment provision. "It holds them to work with us, on achieving their goal," he said. "But there are nine (cruise) lines involved, and this happened pretty quickly. And this is the most commitment we could get in that timeframe."

A report commissioned by the state commerce department found cruise traffic to Alaska was down 1 percent from 2008 and 2009, and passengers were traveling less within the state. Overall, the report found visitor traffic fell about 7 percent between the summers of 2008 and 2009.

Chip Thoma, with Responsible Cruising in Alaska, said the Parnell proposal would be "disastrous" for infrastructure improvement funds. He has supported a lesser reduction, to $39, but opposed additional local offsets. Thoma has also been among those skeptical that the tax - not the recession or other factors - are to blame for the expected lower visitor numbers.

House Speaker Mike Chenault said he doesn't believe the agreement puts any greater pressure on legislators to act.

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