Tourist tax may cost state dearly

August 29, 2009 

It's a tough year for Alaska's tourism firms. The forebodings earlier this year, of 20 percent to 30 percent declines in visitor-related business, have become reality. What's just as sobering is that next year may be worse, at least in Southcentral and Interior Alaska, because the major cruise companies are shifting ships out of Alaska waters and changing schedules. Southeast Alaska won't be affected as much.

Summer tourism, an industry that has been so reliable we all took it for granted, has turned out to be not so steady.

As for those ships leaving Alaska waters next year, it might be difficult to get them back. What's worse is that the marketing dollars follow the ships, so those national TV ads that said Visit Alaska with Brand X cruise line, will instead say Visit the Caribbean or Visit the Mediterranean.

The decision to move the ships was strictly bottom-line, the cruise companies say. (They say the diverted ships would have carried about 140,000 visitors; the Alaska cruises have averaged roughly 1 million passengers in recent years.) Alaska is a high-cost destination with long sailing distances, and heavy discounting on prices has hurt margins. That $50-per-head cruise passenger tax on top of the ticket price didn't help. It's a simple calculation: Cruises in other places are more profitable, and the companies made decisions that were rational.

This will hurt large segments of our community, the hotels and lodges, restaurants and small, mostly locally owned firms that cater to tourists, air taxis and the larger airlines. We've added a lot of capacity in the past few years to support the steady growth we've seen in summer visitors, and now there are sharp, unexpected reductions.

Even when the recession ends it will be tough to get this business back.

What can be done? One thing we can do is ramp up our own state marketing efforts. The Alaska Travel Industry Association, the Alaska tourism trade group, is pressing for an increase in our own promotion from $11 million to at least $20 million per year. While this won't bring the cruise ships back, it will attract more independent visitors and will take some of the sting out of the reductions.

Other states are spending far more; Alaska is in a very competitive market.

The ATIA has suggested legislation to allow the major cruise companies to contribute to a generic Alaska promotion program (one that promotes all the state, not just an individual company's cruise) and allow the contributions to be credited against the higher state taxes these firms now pay.

It's not as if the revenue from the state's $50-per-passenger tax is being used for any truly vital public purpose. In fact, legislators are having trouble finding ways to spend the money, at least for purposes that are legally defensible.

There are questions about the legality of the tax, and to be on safe ground its revenue should be used to fund projects that benefit cruise ships and their passengers. In coastal communities where the ships dock, finding suitable projects isn't difficult. Port or dock improvements that enhance safety or shoreside visitor amenities fit the bill. In small coastal towns this can be a short list, though.

Some appropriations legislators have made are for projects, such as in Interior Alaska, that have little connection to cruise ships or passengers. This doesn't help us if we have to defend the tax in court.

If the tax is ultimately litigated and we lose, this money might have to refunded. Some revenue is held in a special fund, but money spent already might have to be repaid to passengers who have paid the tax. We'll then see a hit on the state treasury at a time when traditional public services, like schools, are under pressure.

How likely is this? More likely now than before.

The legality of the tax is more questionable after the U.S. Supreme Court's recent decision striking down the Valdez tanker tax. Although that was a municipal tax on oil tankers rather than a state tax on tourists, both place levies on interstate commerce, a no-no under our U.S. Constitution.

The high court's logic in invalidating the tanker tax could be applied to the cruise passenger tax. Gov. Sean Parnell has asked the state attorney general to review the legality of the cruise tax. That's wise.

Alaskans sometimes shoot themselves in the foot when it comes to our major industries, whether it's hiking taxes on oil producers at a time when production is declining or imposing heavy taxes on tourists during a global recession.


Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every fourth Sunday.

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