Current issues

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Cruise ship at dock

HB 252 raises constitutional and legal questions.

HB 252 jeopardizes settlement, does nothing to close fiscal gap

Editors note: A special message from the president of CLIA Alaska.

By John Binkley
Alaskans are preparing for what is expected to be a banner visitor season, with more than two million guests expected this year.  These visitors will spend over $1.8 billion in our economy, create over 40,000 jobs and generate nearly $4 billion in total economic activity.

With the State of Alaska facing a $3.8 billion budget shortfall, visitors — like all Alaskans — should be a part of the solution. However, the proposal in HB 252 and SB 136 misses the mark.

Of the 2 million visitors to Alaska, 1 million arrive aboard cruise ships; the rest come by air, on Alaska ferries or over the highway.  The State currently taxes only cruise ship visitors an entry fee of about $35 each to come into Alaska.  There are 1 million more people coming to Alaska each year that do not pay that same entry fee.

The current bill proposes to raise the cruise ship passenger entry fee by $15, for a total entry fee of about $50 per person, just for cruise ship passengers.  The obvious question is: why not charge the other 1 million visitors $35 instead of raising the entry fee $15 on just one half of the visitors?

The answer to that question lies in our U.S. Constitution.  The founders of our country decided from the beginning that citizens of the United States were to be free to travel and do business from state to state without a toll booth being set up at every state border you might cross.  Thus the Commerce Clause in Article I of our Constitution.

This creates a dilemma for our desire to tax visitors traveling to Alaska, just like it protects us from a similar entry fee tax if we visit other states.

The solution that other states and some local communities in Alaska have found, is to tax the commerce that is produced from the visitors. They accomplish this through broad based taxes such as a statewide sales or income tax. Although I am not advocating it, the 40,000 tourism jobs and $4 billion in economic activity from visitors could help pay additional support to our state government.

A second problem with HB 252, and with the current entry fee tax on cruise ship visitors, is that the funds collected are “restricted” general funds.  That means that they cannot be used to pay for general government services.  They can only be used to pay for infrastructure or safety measures that benefit the ship that the passenger arrives on.  This is very similar to the current passenger facility charge paid on some airplane tickets; those funds must be spent only at the airport where the passenger arrives or departs.

The third problem is that the current rate of $35 per passenger as an entry fee for cruise passengers, was determined through a settlement agreement and change in the tax rate back in 2010.  The proposed increase could jeopardize the entire tax.

I applaud Governor Walker for taking the initiative to bring forward specific proposals to solve our fiscal problem, and while it might be appropriate to question whether visitors are contributing enough given the State’s fiscal challenges, HB 252 is not a solution.