Cruise industry tax changes work to

bring investment back to Alaska

By Deantha Crockett

When the 2010 legislative session came to a close, a pivotal moment appeared for the tourism industry in Alaska. Senate Bill 312 passed both houses in the final hours, reducing the amount of taxes the cruise industry pays to bring passengers to Alaska.

The story behind SB312 is not an altogether happy one. It began with the cruise ship initiative in 2006, touted by a few backers who alleged the cruise lines “took” profits from Alaska’s scenic beauty and many visitor offerings while “giving little back.”

As is often the case with ballot initiatives, it was poorly written, intended to penalize a productive business, and designed to wrongly influence voters into passing it. The initiative blatantly ignored the industry’s contributions to Alaska at the time and preyed on the premise of taxing outside visitors other than ourselves, which may have sounded like a good idea to some. But in actuality, the initiative began a slow dismantling of a thriving industry.

What wasn’t handily explained about the cruise ship initiative was how it imposed four new taxes on the industry, changed the methods of monitoring and compliance, and environmental standards that even the best available technology could not meet. Another component was that local vendors were required to publicly disclose confidential business pricing on their tours and excursions. That requirement was repealed by the Legislature the year after the initiative passed.

Many businesses would find these new requirements unacceptable, and the cruise lines were no exception.

Cruise ships are mobile assets, and as most businesses would do, they reviewed their options and deployed their ships to other more profitable regions of the world. These redeployments resulted in a loss of nearly 150,000 passengers for Alaska’s 2010 season.

Some might suppose the initiative writers were pleased with the reduced amount of cruise ships in Alaska. The cruise lines didn’t suffer significant hardship. But hundreds of Alaskans who make their living off passengers arriving on cruise ships did.

The reduced number of people looking for places to stay, tours to take and meals to eat hurt almost every kind of business and forced many to close their doors for good. These businesses, many family-owned and operated and all uniquely Alaskan, did not have the option of uprooting their foundations and suffered greatly.

Some of the struggling businesses, unwilling to watch their life’s work crumble away, decided to put their heads together and formulate a plan. Their brainstorm created AlaskaACT, an organization administered by RDC and made up of individuals and businesses benefitting from cruise passenger business in Alaska.

They strategized with other tourism industry groups, signed up hundreds of members, and gained the support of Governor Sean Parnell and many legislators. They traveled to a cruise conference, Seatrade, where destinations worldwide showed their locations off; it became apparent to the governor that Alaska needed to fight for its cruise business and all parties got to work.

“The governor’s attendance at Seatrade made huge strides in restoring Alaska’s relationship with the cruise industry,” said Bob Berto, President of AlaskaACT. “We were very pleased with the governor’s commitment to build a strong visitor industry in Alaska, bringing in critical dollars to help support Alaska businesses and thousands of jobs across our state.”

Upon return from Seatrade, bills were introduced to show the cruise lines Alaska valued their business, and ultimately SB312 passed. The cruise lines immediately responded.

Princess Cruises announced the redeployment of a ship back to Alaska in 2012, bringing 45,000 more passengers per year. In addition, this ship would originate in one destination and end in another and necessitate passengers to fly either in or out of Alaska; motivating them to extend their plans and solicit several businesses outside of the cruise lines.

Holland America Line increased their capacity for 2012, bringing an increased number of sailings and subsequently more passengers through Southeast and into Southcentral Alaska.

Norwegian Cruise Line added another ship to its Alaska market beginning in 2013, bringing 38,000 additional passengers to Southeast Alaska and Whittier. “With the strides made by the state government, we felt the time was right to add a third ship in Alaska,” said Kevin Sheehan, Norwegian’s Chief Executive Officer.

In response to the Norwegian announcement, Governor Parnell said, “We are pleased that Norwegian Cruise Line will bring even more passengers to our great state. This is more evidence that lowering taxes on an industry leads to increased investment that Alaskans will reap into the future.”

RDC is hopeful that the Legislature will look to this Alaska success story when deliberating changes to the State oil tax structure this session. “It is truly a case study of how lowering taxes attracts investment and sends a message that Alaska is indeed open for business,” said Tom Maloney, RDC Board President. “We have proven that making these changes can bring an industry back to life, and RDC urges lawmakers to take the same approach with the oil and gas sector,” Maloney added. “Oil and gas production is the lifeblood of Alaska’s economy, and it is critical we increase exploration and production. RDC believes this will be accomplished only by fixing the tax structure to encourage new investment, as was done with the cruise industry.”

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