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Tourism group looks inward to replace state funding cuts

By: Elwood Brehmer
Alaska Journal of Commerce

The leaders of Alaska’s largest travel industry trade group are looking for ways to fill a void in their marketing budget left from budget cuts by lawmakers.

The tourism industry has been a bright spot in an otherwise struggling Alaska economy of late, growing consistently along with the national economy over the past decade since the 2008 financial crisis. Historically, about 85 percent of Alaska visitors come from the Lower 48.

Alaska Travel Industry Association President Sarah Leonard said that despite a record number of roughly 1.86 million visitors to Alaska last summer, the 2017 peak season for the industry was “a little bit underwhelming.”

That’s because it indicates a leveling-off of prior growth as most travel segments across the state were flat or grew by just a percentage point or two over 2016 figures.

Alaska’s summer tourist volume has grown by 21 percent since bottoming out in 2010 when 1.53 million travelers came to the state.

Most of the growth was in the cruise industry — primarily in Southeast — which brought 7 percent more visitors to Alaska last year compared to 2016, according to Leonard.

The number of Alaska cruise visitors is expected to continue to grow significantly to more than 1.3 million cruise ship passengers over the next two years, according to Cruise Lines International Association Alaska officials.

Leonard attributed the overall slowing growth not to an image problem, but to a lack of an image for Alaska in the industry brought on by steep cuts to the association’s marketing budget.

The state has long funded marketing for the ATIA; in 2013 the program received $16 million of state support. However, multibillion-dollar budget deficits since the 2015 fiscal year have led to cuts across the state budget and by fiscal 2017 the tourism marketing program got just $1.5 million after Gov. Bill Walker vetoed part of the annual appropriation.

The annual marketing funding was back up to $3 million in the current budget despite a directive from the Legislature for the association to wean itself off state support completely. Walker’s capital budget proposal includes another $3 million for 2019.

“In 2017 Alaska had no television ads, no print ads in national magazines and for the first time in 40 years last year we didn’t have a printed vacation planner — a main printed piece we can distribute to potential visitors,” Leonard said in describing the consequences of the marketing program cuts.

Leonard discussed the status of the tourism industry leading into the upcoming peak summer season at the April 2 Anchorage Chamber of Commerce “Make it Monday” luncheon.

The $3 million of state support puts Alaska 49th — just ahead of Delaware — in terms of state tourism marketing funding nationwide, according to Leonard.

“We’re asking for a reasonable reinvestment back into tourism marketing,” Leonard said.

But with renewed state support a long shot, she characterized the legislative intent language as “a wake-up call” to the association’s more than 600 member organizations and companies that an alternative funding source is needed.

ATIA leaders settled on what they call a tourism improvement district as a means to self-assess a fee that could be used to fill the marketing budget hole.

“Now is not the time to cut back on an industry that already contributes to the state economy,” she contended.

Every dollar the state spends on tourism promotion translates into $58 in visitor spend, $21 of local income and $3 of state and local tax revenue, Leonard said.

The tourism improvement district, or TID, revenue would be collected by the state and returned to the industry through annual appropriations.

According to the association, a 1 percent fee on gross revenue from lodging, tour activities and attractions could generate more than $7 million for the tourism marketing program.

Leonard said a key aspect of the improvement district is that the fee could be passed through to the customers to avoid impacting the businesses it is supposed to help. There are some 150 tourism improvement districts nationwide, she said further.

Separate but similar bills sponsored by Senate Labor and Commerce Committee chair Sen. Mia Costello and Rep. Jason Grenn, both of Anchorage, would authorize the state to collect the fees.

However, Leonard noted that the legislation would just set up the framework for the TID and not fully implement it. Doing that would require a vote from potential industry participants, she said.

Senate Bill 110 and House Bill 383 have received hearings recently; Costello moved SB 110 out of her committee to Senate Finance on April 2, but whether or not either will pass this year while larger budget issues continue to dominate the Legislature’s focus is unclear.

Either way, Leonard said the TID revenue would have to be augmented by appropriations from the state’s 10 percent car rental tax to support a robust tourism marketing program long-term.

The state collected $12 million from the car rental tax in 2017, according to the Tax Division. That money was once intended to support tourism development but has gone into the General Fund instead, according to Leonard.

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