A Taxing Tug-of-War in Alaska

8/17/200911:13:43 AM Link 0 comments | Add comment

Alaska

Alaska appears to be caught in a tug-of-war between residents who want to encourage cruise tourism and those who wish the ships would all just go away -- and if they can’t make them go away, then hit them over the head with taxes.

That’s exactly what happened in 2006, when voters approved an initiative that levied a $50-per-passenger head tax on cruise lines, along with new taxes on corporate income, gambling and alcohol. Add on to that a slew of local port fees, the cost of placing ocean rangers on all ships, and wastewater standards that are more stringent than those faced by other industries. In all, it is estimated that the cruise industry paid about $73 million in taxes to Alaska in 2007, compared to $31 million by hotels and lodges and $8.5 million by rental car companies.

For the past three years, cruise line executives have complained about the punitive taxes and regulations and threatened to pull ships. Now those ships are being pulled out of the market, spurred on by the lagging economy. In 2010, Royal Caribbean International, Norwegian Cruise Line and Princess Cruises are each pulling one ship from the 49th State. When Royal Caribbean and NCL announced the redeployments, they publicly blamed it on the high cost of doing business in Alaska.

Other lines are modifying itineraries to skip or spend less time in various ports. For example, Holland America Line is moving the Amsterdam from a seven-day route between Vancouver and Seward to a new 14-day itinerary roundtrip from Seattle. That reduces its overall 2010 Alaska deployment by 10 sailings or about 11,000 guests.

Most Alaska ports are expecting double-digit decreases in the number of ship calls in 2010. Whittier welcomed 80 calls this year but expects just 28 next year, a drop of 65 percent. The number of calls to Sitka is falling 53 percent next year, from 222 to 104. Even the trifecta of the Alaska cruise itinerary -- Juneau, Skagway and Ketchikan -- are predicting drops of 22 percent, 20 percent and 14 percent, respectively.

The tax situation became an even heavier burden on cruise lines this year because they have had to slash fares to get passengers onto the ships. “The economic climate in the Lower 48 is not great, so the cruise ships are lowering the cabin rates to entice people up here,” said PeggyAnn McConnochie, executive director of First Things First Alaska Foundation. “It’s not as if you can lower cabin rates and still attach a $50 fee. In many cases, cruise lines were eating the $50 fee to get people onto the ships. In some ways, I don’t blame them for pulling out.”

Suddenly, Alaskans are taking notice, and a grass-roots effort is under way to overturn or amend the tax implications of the 2006 initiative. “It needs to be modified to improve the climate of tourism and to entice cruise ships back to Alaska,” McConnochie said. The First Things First Alaska Foundation, which works to encourage industry in an environmentally friendly way, spearheaded a recent Economic Summit on the cruise issue in Juneau. “People at the summit were not just tour operators who are hurting but also restaurants, hotels, lodges and charter boat operators,” McConnochie said. “Everybody’s hurting in Southeast Alaska.”

The Economic Summit attracted more than 230 people, including those in the tourism business, but also legislators, mayors and representatives from the state, chambers of commerce and CVBs. Another summit is scheduled for Aug. 20 in Anchorage and a third is planned for Fairbanks at an undetermined date.

The first summit in Juneau, which lasted five hours, did not resolve the issue. “Everybody agrees something needs to be done, but there’s not just one silver bullet,” McConnochie said. “We’re now turning to experts and lawyers to take a look at how it needs to be modified in order to entice cruise ships back up here. The initiative was passed by voters, so we have to be careful how it’s modified. The constituents in Southeast Alaska desperately need legislative help. My fervent hope is that the train is starting to roll, and these people will come to some type of agreement on how this needs to be modified to improve tourism and the economy in the broadest sense throughout Alaska.”

Theresa Norton Masek, a veteran cruise journalist, is editor in chief of Vacation Agent magazine.