Will cruise lines walk through Alaska's 'open door'?

Posted: Friday, April 16, 2010

Senators voting for a cruise industry tax cut Wednesday who said they expect to see more passengers could be disappointed, since cruise lines harbor multiple concerns about the cost of doing business in Alaska.

The state Senate voted Wednesday to approve a bill that would cut the $46 head tax in half for most visiting passengers. Lawmakers reported being swayed by tour operators who said they needed the lifeline after cruise lines pulled ships out of the state. The bill is now in front of the House.

But the $22 million tax break is not likely to protect Alaska business operators from steep declines in business. At least not by itself.

The cruise lines harbor "deep concerns," not just about state taxes, but also about additional fees and the costs of meeting stiff environmental regulations, industry lobbyist John Binkley said.

The costs are dipping into profit margins, causing cruise lines to look elsewhere to do business, Binkley said last week during an interview about Alaska's head tax compared to other destinations.

"In the end it really is, what are the perceptions of the companies, and whether they want to bring their business back," Binkley said.

A report completed by the independent Legislative research team last year shows Alaska's head taxes are in the ballpark of prices charged elsewhere - between $5 and $10 per day - but Binkley dismissed the report as "incomplete" and said head taxes are not the only point.

Binkley said Alaska's increased costs paired with the economic recession to lower profit margins and prompt the companies to send ships elsewhere.

"You had an increasing cost of doing business in Alaska when you had an economic climate where people were not willing to pay more for that same product," he said.

The 2006 ballot initiative that brought taxes and regulations was strongly opposed by the industry. Gov. Sean Parnell introduced this year's legislation, saying the tax cut - and a corporate income tax credit eventually dropped from the bill - would show Alaska is "open for business."

But instead of promising to bring more business this year in exchange for the tax cut, cruise lines agreed only to drop a lawsuit they brought over the head tax.

Still looming are concerns about environmental regulations on wastewater discharges, which have already cost the industry millions. A new rule proposed last month was written to ease standards but the cruise lines are not mollified, Binkley said. The final rule is due out soon.

"It's got them very nervous about how they'll operate in Alaska," he said.

Lawmakers eased environmental restrictions last year and gave the industry more time to comply.

This year, head taxes have been at the center of the debate. The industry focused on that because it could make the argument it impacts the public's willingness to visit Alaska, said industry critic Ross Klein, author of "Paradise Lost at Sea: Rethinking Cruise Vacations."

"I don't think that's a strong argument for them," Klein said. "They've always charged a premium for Alaska, they just don't like the idea of sharing that premium with the state."

Binkley said the industry chose the head tax because the Legislature and governor could easily make changes to it, but comparing the state's level of taxes and fees against other destinations is not an easy task.

A legislative analyst wrote that information on fees at various ports is "limited" and comparisons difficult because there's no common denominator among the destinations.

Binkley agreed the figures are hard to come by, and further said the report failed to include fees charged at private docks in Alaska, such as Skagway and Whittier, where the cruise lines have confidential agreements to use the facilities.

Binkley said cruise lines would not provide financial information showing what they pay because they're agreements with private companies. They provided the information to the McDowell Group in 2007 for a study on head taxes in Alaska, but the industry never released the report.

After getting permission from Binkley, McDowell's Jim Calvin told the Empire the cruise lines pay $30 million a year for the additional "hidden" fees.

The amount is based on 2007 fees. No other information was released.

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