Thursday, April 15, 2010

cruise tax controversy

Alaska Lawmakers reward Cruise line Lobbyist
April 15, 2010
Written by David Rosenfeld
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Gov. Sean Parnell

Gov. Sean Parnell

There are few times when lobbying efforts pay off so handsomely. The cruise line industry increased its spending on lobbyists at the Alaska State Legislature last year 35 percent. And what did they get from Gov. Sean Parnell who took office after Gov. Sarah Palin resigned in July?

Parnell became chief proponent in March of slashing a voter-approved $46 cruise ship passenger head tax that cruise lines have blamed for declining sales and the loss of ships this season resulting in about 140,000 less passengers. The legislature in the waning days of the session this week looks to pass Parnell’s bill just as the cruise line industry wanted, reducing the head tax from $46 to about $19.

Environmentalists and most of the Alaska public favor the tax – based on a ballot initiative in 2006 – as a way to improve local economies and protect the oceans from dangerous cruise ship wastewater pollution, as reported in January.

Gershon Cohen, who co-authored the initiative that first instated the head tax with Responsible Cruising for Alaska, said Parnell is simply pandering to the industry.

“The most important thing is that people voted for this (cruise ship head tax) statewide,” Cohen said. “People voted for this in almost every area of the state, even in Southeast Alaska where the cruise lines are such powerful economic players. So now here’s this one guy who’s not even in an office he was elected to saying let’s undo what the voters did just a few years ago. To say it’s inappropriate is an understatement.”

Chalk it up to influence. Lobbying records examined by the Juneau Empire show cruise line companies took a focused approach to Alaska beginning in 2006 when the head tax first passed. In 2009, they spent $433,000, up from $315,000 in 2008, according to the paper. Now it appears the industry’s efforts are paying dividends.

Attacking the Tax

In its latest move to combat the head tax, the Alaska Cruise Association agreed to drop a lawsuit against the state over the tax as long as the legislature passed Parnell’s bill “without material amendment,” according to the New York Times.

The bill calls for reducing the head tax from $46 to $34.50 and crediting ships for taxes paid to individual ports such as Juneau and Ketchikan, which charge $7 and $8 per cruise ship passenger. Most ships would therefore pay around $19 per passenger, more than a 50 percent reduction from what voters approved four years ago.

In recent years the cruise ship head tax has generated about $46 million annually, and cruise lines largely passed the tax onto customers. To put it in perspective, Carnival Corporation alone netted $1.8 billion in net income last year.

Part of the Alaska cruise ship head tax that will not be affected is an additional $4 that pays for the state’s Ocean Ranger program, which puts independent inspectors on board cruise ships to monitor sewage and other wastewater releases. The program represents the most rigorous cruise ship regulation in the western hemisphere. State regulators cited Princess Cruises – a Carnival subsidiary – for most of the two-dozen violations last year for exceeding state pollution standards.

Industry Deems Advocate Too Controversial

The power of the cruise line industry hit home for Cohen earlier this year when Alaska Department of Environmental Quality Commissioner Larry Hartig was forced to remove Cohen from a cruise ship science advisory panel because of pressure he faced from the industry. The event sparked a media firestorm mostly within the state as a handful of legislators came to Cohen’s defense.

Meanwhile, the legislature mandated a cruise industry seat on the advisory panel, currently held by Lincoln Loer an attorney for Stoel Rives, which represents cruise lines on water regulatory issues. But Cohen was viewed as too controversial.

“Here’s the cruise industry dictating to the state who will be on an independent panel to evaluate technologies that might be used in their industry,” said Cohen, who’s no stranger to government committees. He advised senators and served on past water quality advisory groups for two governors. “The really big issue here is the whole notion that corporations should have this much influence over government. That’s the real disease here.”

Head Tax Blamed for Cruise Ship Woes

The cruise industry largely blames the Alaska head tax on slumping sales figures within the state in 2009, not to mention the country was going through the biggest economic recession since the Great Depression.

Carnival Corporation Chairman and CEO Micky Arison has been one of the most vocal critics of the tax. He told a group of investors in a conference call in March that the full impact of the tax had not been fully realized until last year, basically implying the economic collapse was secondary in its effects on the cruise industry to the Alaska head tax.

“When this initiative passed, the backers have no skin in the game and have little understanding of our industry,” Arison said. “After one year for something to happen and nothing did, they claimed victory. Now years later they are feeling the impact of the initiative. It will take a similar if not longer time to recover.”

Arison felt confident the industry had gotten through to the governor. “Based on what has happened and the understanding the governor now has on the way the industry operates and the huge negative impact it (the tax) has had on the state of Alaska, there’s a likelihood the bill will pass,” Arison said. “But I don’t know. I obviously don’t know the sentiment of the legislature, but that the governor is fully supportive of the bill that he has introduced.”

Surging in Europe

In response to a 13 percent slump in North American business, Carnival and other cruise lines began this year to shift more of its business to Europe where regulations are vastly less stringent. Coupled with an upcoming requirement by the International Maritime Organization for all ocean vessels to switch to cleaner burning fuels 200 miles off the Canadian and U.S. coastlines, it may just be the regulations that have cruise lines fleeing U.S. waters.

Holland America relocated just one of its Alaska lines to Europe this year, said Sarah Scoltock, spokeswoman. “In general, Alaska’s been just a tough place to operate these past few years with the laws they passed up there,” she said. “You’ll find the same response when you speak to other lines, but we are seeing a lot of demand for cruising in Europe. The one thing ships have over hotels is that we can move them when we see more demand in different locations.”

Carnival's cruise ship The Carnival Pride. Photo: Stan Shebs

Carnival's cruise ship The Carnival Pride. Photo: Stan Shebs

This year, six cruise lines announced reductions in its Alaska travel itineraries and more were reported for 2011. If the cruise industry gets the reductions it wants in the Alaska head tax it will keep an estimated $20 million this year split among a handful of companies, mere pocket change to corporations such as Carnival, which earn as much in net income every four days. Recent press reports show Carnival “poised to ride a wave of success” off an economic rebound.

Cohen said the whole question of corporate profitability has lost sense of reality. “One of the things that’s really missed in our rhetoric is that the issue of how much these corporations are making are really not ever part of the equation,” Cohen said from his office in Haines, Alaska in the southeast part of the state. “They make billions of dollars a year, but if they are off by a half percent from the quarter before, then that’s a problem. Whoever guaranteed you were going to make more profit than the previous quarter for the rest of your lives? I thought this was a free market.”

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