As oil and gas taxes evaporate, Alaska slashes tourism funding

As oil and gas taxes evaporate, Alaska slashes tourism funding

Cruise lines are digging in for a prolonged slump in the
number of marketing dollars available to promote one of their highest-yielding
destinations, Alaska.

The state’s tourism promotion funds plunged to $1.5 million
in the fiscal year that will end June 30, off about 90% from several years ago,
said Sarah Leonard, president and CEO of the Alaska Travel Industry Association
(ATIA).

Alaska’s governor, Bill Walker, an independent, has proposed
about $3 million in tourism-promotion funding for the year that starts July 1,
but that number is not final.

The cruise industry is crucial to Alaskan tourism, and about
half the state’s visitors arrive by ship. But now, cruise executives are
worried that the marketing tailwinds long provided by Alaska’s promotion of its
fishing, mountains, backpacking and unspoiled nature might disappear.

“Absolutely, it’s a concern,” said Stein Kruse,
CEO of the Holland America Group at Carnival Corp.

Carnival Corp.’s Holland America Line (HAL) and Princess
Cruises brands are the two biggest players in the Alaska market.

Kruse said that in the past, funds used to flow from the
state to the ATIA to drum up continued interest in Alaska. “That
allocation has been substantially cut back due to financial hardship,” he
said.

The state’s primary source of revenue is taxes on oil and
gas production, and with those industries down, cutting tourism promotion might
put a chokehold on one of the few remaining sources of revenue contributing to
Alaska’s growth, Kruse said.

“You know, 1 million cruise passengers who go to Alaska
every year bring with them a considerable amount of disposable money that is
left behind on tours, shopping, restaurants and other activities,” Kruse
said.

Alaska’s predicament stems from the depressed price of oil.
The state’s tax system gets upward of 70% of its revenue from an income tax on
producers, but that generated no revenue last year, leading to a fiscal crunch.

The ATIA had about $2 million in funds to promote tourism,
$1.5 million coming from the state and about $500,000 raised by selling
advertising, PR and other promotional placements and opportunities to
businesses.

That was enough to keep the TravelAlaska.com website up and
running and do a few other things. Gone were television spots, trade show
participation, in-state promotion and international fam trips.

“We’re really not competitive with the other
destinations that we compete with for travelers,” Leonard said.

The sag in tourism promotion is part of a bigger fiscal
puzzle in Alaska, which has no state income tax or sales tax, the lowest
gasoline tax in the country and a $55 billion fund from past oil and gas
production that pays every permanent state resident an annual dividend.

Last year, the dividend was cut from $2,072 to $1,000 with
the reduction diverted to the state government.

Faced with the prospect of continued low oil prices, the
tourism industry is working on becoming less dependent on the state for promotional
funding. The main idea is a Tourism Improvement District, like those found in
California, Nevada, Montana and Washington.

Under that plan, tourism businesses would be taxed, with the
proceeds safeguarded for use in promotion.

Leonard said a figure of 1% of gross sales from visitor
activities has been floated as a means of generating about $10 million.

Alaska state senator Mia Costello has filed a bill that
would set up a mechanism to make the assessments. There is as yet no House
companion bill, Leonard said.

At least initially, cruise lines and airlines would be
exempt because they’re already subject to other taxes, and there are legal
questions about tax jurisdictions that might cause delays, Leonard said.

But Holland America and Princess own land assets such as
lodges and other properties that could be included in the Tourism Improvement
District, Leonard said.

“HAL really has a lot of important investments in land
infrastructure in Alaska,” Leonard said. “They own several hotels,
and beyond that, this assessment would capture cruise visitors when they take
land tours or stay in a hotel or when they rent a car.”

Kruse said he was not opposed in principle to a greater role
for the private sector in funding tourism marketing.

“If the state doesn’t promote itself, it becomes even
more important for us to do so,” he said. “But our resources are also
limited, and that’s why the partnership between the state and business on the
tourism side has been so important.”

While not commenting on the specifics of the Costello bill,
Kruse said, “I’m not opposed to anything that makes sense, and if there’s
going to be some kind of assessment or fee, if it’s collected for and paid for
and used in a sensible manner, then it’s always worth looking at.”

There is a broad agreement that the smaller the business,
the bigger the benefit derived from state tourism promotion.

 “Where there’s
more value in a destination marketing program,” Leonard said, “is for
those communities and businesses who either don’t have a local [visitor’s
bureau], or businesses that can’t afford to do some of the strategies that a
statewide campaign invests in, whether it’s TV marketing or having
representation in international markets. We can have a much broader reach than
even an individual, larger-size hotel. If they partner with our marketing
program, it can be a much larger reach.”

Tim Jacox, president and COO of Seattle-based Un-Cruise
Adventures, a sustaining partner of the ATIA, said the dramatic decrease in
tourism funding impacts small tourism businesses the most, as they are
generally able to run cost-effective ads in the ATIA’s publications.

Cruise lines are having a banner year in Alaska this summer
and are expected to get premium prices. But that can be misleading, Jacox said.

“One of the key issues is that 2017 is probably not
going to be hit quite as hard as 2018 or 2019 from the reduced [government]
tourism spending in 2017,” Jacox said. “Hopefully, the funding
picture will take a positive turn as the tough fiscal decisions are made for
2018.”

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