Reducing the head tax offers cruise lines an incentive to stop removing ships

Posted: Thursday, April 22, 2010

Tim June's opinion article published in the Empire on April 16 requires rebuttal.

The cruise head tax money was being collected without tight parameters, or a needs list from the communities it was purportedly to serve. A hockey rink in Fairbanks was not providing facilities or infrastructure to service a vessel or its passengers.

Most regional docks are municipally or privately owned. The state of Alaska has never had to pay for them. The cruise lines pay docking fees, money that goes to debt repayment, operation and maintenance. They don't take advantage of Alaska just because they use this infrastructure.

If it has to continue, the Alaska Cruise Association lawsuit against the state has a very good chance of winning in Federal Court. There are solid arguments and case law indicating that the Regional Impact Fund violates the U.S. Constitution. The state can defend the statute, but even if it wins, Alaska loses: By the time the legal wrangling is concluded, hundreds of Alaska's small businesses will be out of business, and thousands of jobs will have disappeared.

No. Claiming that Alaska's taxes and regulations are "more burdensome than anywhere on earth" isn't "ridiculous." You've got the misconception that the head tax is a major customer consideration in an Alaska cruise purchase. That's not the issue. Four taxes, and some of the most exacting regulations in the world, make Alaska operations more expensive, forcing the cruise line to take that from their own net yield. A tax is never just a pass-through. In a competitive market, when price point impacts net yield, it impacts the bottom line and a company's profitability.

Additional costs aren't keeping passengers from cruising to Alaska. The cruise lines can't make as much money selling Alaska with the tax in place. So they move their ships to the Med, the Caribbean or to Australia where they are more profitable. Fewer ships equal fewer visitors.

When the Cruise Initiative became law in January 2007, the lines began planning to pull ships out of Alaska. It takes two years to redeploy a ship, so there was no immediate change in the number of ships in the summer of 2008 or 2009: the passenger numbers remained unchanged.

But three ships that left Alaska at the end of September 2009 would not return in 2010. It's extremely unfortunate that the economic recession occurred while the cruise lines pulled ships. This muddied the water, making many people think that the economy was to blame for their departure, which is not the case. One million people came on ships that were full, even in the "recession summer" of 2009.

In 2010, there are 140,000 fewer cruise visitors only because there are three fewer ships in Alaska. The ones that left are still sailing, full, in three other regions where they will make more money per diem for their shareholders than they could get in Alaska. And we have 140,000 less visitors to our state.

"It's only fifty bucks," Tim says. No, it's over $50 million every year, $150 million in total so far. And the $50 million State head tax this year will be responsible for over $93 million in lost revenues to businesses in Southeast Alaska, and over $165 million lost statewide. So a "tax on cruise passengers" really ends up taking three times as much out of the pockets of Alaska small businesses. That was never the intent of the initiative, or of the voters in Alaska.

Facing the loss of tens of thousands of cruise passengers to Skagway this summer, after 14 years I have closed my Skagway retail business, and with it, eliminated five jobs. I have canceled orders with dozens of small "made-in-Alaska" family companies who were my suppliers. Those orders were worth thousands of dollars annually. These orders have stopped. I have had to reduce my driving staff by two full-time positions, and two half-time positions. And, because we know that with fewer ships again next year things will be even worse, my wife and I have already decided that we have to eliminate a minimum of two more full-time jobs next year as well. We have gone from 34 employees to 25 employees because the ships have been driven away. This was not the intent of Alaska's voters.

With costs reduced, the cruise lines will consider redeploying ships to Alaska. It'll take two years, but they'll be good for their word. When they return, Alaska tourism businesses will be able to create jobs and put people to work again.

People - and businesses - respond to incentives. Reducing the head tax offers the cruise lines an incentive to stop removing ships, and hopefully, will bring a few back. Doing this will return the cruise line marketing dollars that keep independent travelers coming to Alaska and create the customer demand that creates jobs for Alaskans.

• Steve Hites is the owner of the Skagway Street Car Co. and a former Skagway City Councilman.

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