Last September, I wrote a series of columns about city plans to build a $10 million seawalk and 2.7-acre “recreational island” (subsequently renamed a “habitat island”) connected to a new city park for the bronze whale by the Douglas Bridge. Most of these improvements are being financed with marine passenger fees (cruise ship “head taxes”).
My columns reflected concerns expressed by some regarding the total cost of the project (unknown), location of the park (poor), and the legality of using head taxes to fund the project. Yet, the city bulldozed ahead, determined to get this project underway. Now, the Alaska cruise industry has filed a lawsuit to bring resolution to their long-standing differences with the city on how head taxes are used.
How did we get to this point? This dispute has been simmering for years but the seawalk/island project simply went too far. As background, the City and Borough of Juneau receives approximately $13 million annually from marine passenger fees — around $5 million coming from a statewide tax and another $8 million from CBJ’s own head tax and port fee. (This is in addition to an estimated $9 million per year in sales taxes derived through the visitor industry.)
In the last four years alone, CBJ has collected $55 million in marine passenger fees and, by some accounts, has more money than it can legitimately use. Like some communities, CBJ has pushed the envelope for years — funding projects and activities with dubious connections to cruise ship impacts.
According to federal and state law, regardless of what they’re called or their origin, marine passenger fees may only be used to fund projects or activities directly related to ship and passenger impacts. The existing seawalk and new adjacent cruise ship dock would seem to qualify, but what ship and passenger impacts are mitigated by a distant seawalk connected to an artificial island and park? Other Juneau visitors wouldn’t be required to pay an “entry fee” to access these same city facilities, so why are cruise passengers required to pay it?
The original seawalk and island project resulted in a bid almost $3 million over the engineering estimate. The city revised the proposal by splitting the project into three phases, deleting components to stay within the $10 million budget. Two of the phases were re-bid and contracts totaling $6.5 million were awarded to provide the fill for the island and park (Phase 1) and complete the seawalk between the park, the island and Egan Drive (Phase II). Phase III encompasses various park features and landscaping (estimated at $3 million to $3.5 million) and is scheduled to go out to bid shortly. While CBJ has officially kicked in $675,000 and the bronze whale has been donated, it is unclear how much more in head taxes and/or city funds will be required to complete the project.
The lawsuit is problematic because it may result in the city not having enough funds to finish the project. Even worse, it may negatively affect how head taxes are used in the future if a much stricter interpretation of qualified expenses is implemented. This would leave a large hole in the city budget, which relies heavily on millions of dollars of head taxes that directly subsidize annual operating expenses.
Unfortunately, there’s been little oversight on projects or activities funded with head taxes. Without a universally accepted system for identification and funding, inevitably head taxes will be spent in areas that have, at best, only a tenuous connection to the cruise ship industry. Up to now, the industry may have overlooked less egregious examples but building islands and parks, they contend, is well beyond the stated and legal purpose of marine passenger fees.
Cruise companies are not impacted directly by head taxes because they don’t pay them — their customers do. However, as business people, they realize taxes can make any product less competitive and less desirable. In our current state budget environment, where every municipality will be looking for extra revenue, the lure of head taxes could prove to be our own undoing. Without reasonable restrictions on how they are used, the temptation of adding new head taxes or increasing existing ones could result in making Alaska cruises even more expensive and less competitive. Indeed, in the past, the State of Alaska has allocated head taxes to cities that had no cruise ship visits. If there was ever a formula for “killing the golden goose” this is it.
It’s in everyone’s best interest that the controversy surrounding head taxes be resolved quickly with as little impact to the city as possible. Industry spokespeople say they do not wish to create an adversarial relationship with any cruise port, but, after attempts to resolve this situation went unheeded, they had no choice. Let’s hope our city leaders take this seriously and act accordingly.
• Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and is active in community and statewide organizations.
