Business/Economy

Alaska contends with cruise ban as state leaders criticize Canadian decision

Travel industry and local government leaders across much of Alaska are attempting to devise a Plan B after a decision by Canadian government officials upended the state’s coming tourism season.

That’s because Canada’s Feb. 4 move to again block cruise ships from calling on its ports in 2021 eliminates the only practical way for ships sailing to Alaska from West Coast ports to comply with the Passenger Vessel Services Act. The 19th century law requires foreign-built vessels traveling between U.S. ports to stop in a foreign port along the way.

Alaska’s congressional delegation and many state lawmakers have been critical of Canadian officials for the suddenness of the decision and the length of the extension; cruise vessels carrying more than 100 people are banned from Canadian waters through February 2022.

The ban has been in place since last spring but had previously been extended in 60- or 90-day blocks.

“Temporary prohibitions to cruise vessels and pleasure craft are essential to continue to protect the most vulnerable among our communities and avoid overwhelming our health care systems (with COVID-19 patients). This is the right and responsible thing to do,” Canada’s Transport Minister Omar Alghabra said in a prepared statement.

Prior to the pandemic roughly 1.3 million travelers — nearly 60% of all visitors to the state — were expected to visit Alaska via cruise ship during the 2020 season, continuing roughly a decadelong run of strong tourism growth.

Howard Sherman, an executive vice president with Norwegian Cruise Lines said he was surprised by the terms of the extension Canada announced as well during a Feb. 9 presentation hosted by the Southeast Conference. Sherman stressed the ultimate need is for a long-term fix to the Passenger Vessel Services Act requirement, but in the meantime the company will continue to advocate for a temporary waiver for Alaska cruises, both of which require congressional action.

“Anytime you’re talking about a legislative solution, it’s complicated,” he said.

U.S. Rep. Don Young said in a previous discussion with the Journal that his office was looking into logistical options around the required stop in Canada, such as rerouting cruise ships from the traditional Inside Passage — and sometimes on to Southcentral — voyages.

However, there simply are no practical options for avoiding the foreign-port stop, according to Sherman.

[Towns and businesses across Alaska brace for a second summer without cruise ship tourists]

A spokesman for Young did not respond to questions about the prospect of a waiver in time for this story. Young and U.S. Sens. Dan Sullivan and Lisa Murkowski said they “expect more from our Canadian allies” after indicating they were not made aware of the situation prior to the announcement but said they are working on possible solutions in a joint statement.

“Upon hearing the announcement, we immediately reached out to Canadian and American agencies to try to understand the rationale behind this decision — particularly the duration of the ban. We are exploring all avenues, including changing existing laws, to ensure the cruise industry resumes operations as soon as it is safe. We will fight for a path forward,” the delegation said.

Sherman said Norwegian is not sailing anywhere yet because it still isn’t safe — Holland America and Princess also canceled early season Alaska sailings in January — but continued improving macro trends in COVID-19 case and vaccination counts could make late spring and summer cruises viable.

Industry leaders will likely press Canadian officials to consider lifting the ban in favor of strict port entry requirements, such as negative COVID-19 test and possibly vaccine verifications, that would still allow the industry to adapt and operate, according to Sherman.

“The ships are all over the world right now and many of them are prepositioned for an Alaska season right now,” he said, adding that crewing the mostly idle vessels takes 60 to 90 days before they can resume sailing.

“If we’re sitting in the exact same position on May 1 I would expect there wouldn’t be a season; that would be my guess.” Sherman said.

Alaska Travel Industry Association CEO Sarah Leonard said the group has been “brainstorming” with the delegation on alternatives solutions to get more visitors back to the state. ATIA is also shifting its marketing strategy to focus on air travel and options for independent travelers such as the Alaska Marine Highway System as long as large cruise sailings are tenuous, according to Leonard. Gov. Mike Dunleavy included $5 million for ATIA marketing efforts in his proposed 2022 fiscal year capital budget.

“We know we can welcome visitors back safely and provide those wonderful and safe experiences in Alaska,” Leonard said.

Local governments in many Southeast and Southcentral coastal communities also rely on cruise ship passengers for revenue, mostly through per passenger taxes paid each time a vessel calls on a given port town.

The state of Alaska collects a $5 per-head commercial passenger vessel excise tax for local governments and distributes that money to them the following year. It must be used to either mitigate the community-level impacts of the large cruise ships and their passengers or to otherwise support the industry, per federal commerce laws.

The near-term outlook is mixed among some of Southeast’s biggest cruise port towns with the increasingly uncertain prospect of visitor revenue this year after ostensibly nothing in 2020.

Ketchikan Gateway Borough Manager Ruben Duran said in an interview that the local government is in fairly decent shape regarding its cruise ship “head tax” revenue largely because the borough has used the money to provide services it doesn’t need without the cruise ships — shuttle buses and cleanup crews, for instance.

“The costs went away and so did the revenue so it somewhat balanced out,” Duran said, noting that since the state distributes the money a year after it is collected the budget impacts of no cruise revenue last year hasn’t really been felt yet.

The borough also started saving a portion of the $2.4 million to $2.7 million in head tax revenue it has received in recent years, according to Duran, who said the roughly $2 million it has in reserve in combination with fewer costs should help the borough to the other side.

“We started putting money away back in 2017 and it’s going to carry us pretty much through this,” he said.

Juneau’s situation appears more challenging. In addition to the forgone state tax revenue, City and Borough of Juneau officials are trying to figure out how to deal with the loss of revenue from local passenger taxes as well. In total, the city collects $13 per cruise passenger, which has translated to upwards of $15 million of tax revenue in recent busy cruise seasons, according to CBJ Finance Director Jeff Rogers.

About $2.1 million per year in tax revenue is committed to debt payments on two new city docks and approximately $6 million per year in total is needed to cover all of the “operational activities servicing the waterfront,” Roger said.

Those activities include police, fire and other essential service expenses that aren’t always flexible, he added.

“You don’t have a smaller fire department because you don’t happen to have ships one year,” Rogers said.

Juneau’s remaining head tax revenue has typically been spent on capital improvements to infrastructure and services.

City officials initially thought they could withstand a single year of lost revenue in part because Juneau operates on fiscal year that ends June 30, potentially allowing it to absorb the halves of one lost season over two fiscal years, Rogers said. However, the news out of Ottawa could mean Juneau and the rest of Alaska’s cruise ports have to cover two lost seasons.

“If we really do have back-to-back seasons with no passengers we are going to have significant shortfalls with those expenditures,” Rogers said, noting that it would not only mean missing out on $30 million of excise taxes but also another $20 million in sales tax revenue visitors provide.

The decision on how to cover the lost head tax revenue is ultimately for the Juneau Assembly. Rogers said officials could choose to employ a mechanism in the city code that allows them to borrow money from a solvent fund to cover a shortfall elsewhere. That money must eventually be paid back to the original fund.

“We might have to effectively borrow from future revenues to pay those costs this year,” he said. “We just don’t really know what happens to tourism going forward — we don’t know if it stays soft or if it goes back to its previous strength.”

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