Executive Summary with Supplemental Juneau Results

Prepared for:
Southeast Conference
213 3rd Street, Suite 124
Juneau, Alaska 99801

Prepared by: McDowell Group

Juneau, Alaska in association with Klugherz & Associates

February, 1998

The purpose of this summary document is to highlight Juneau results of the study of cruise industry impacts on local government revenues and expenditures in Southeast Alaska. This summary document includes the original Summary of Results along with specific Juneau-related findings.

The full study measured the revenue and expenditure effects of the cruise industry on these local governments in Southeast:

• City of Ketchikan
• Ketchikan Gateway Borough
• City of Wrangell
• City of Petersburg
• City and Borough of Sitka
• City and Borough of Juneau
• City of Haines
• Haines Borough
• City of Skagway.

This study focused on local government revenues and expenditures during the 1997 cruise season. Only sales tax and user fee revenues earned by local governments were measured. More specifically, this included:

• Sales Tax Revenues: These include the sales taxes generated by local governments as a result of local spending by cruise ship passengers, crew and from cruise lines directly. Transient room taxes paid by cruise passengers are included.
• User Fees and other revenues: These revenues include fees paid by cruise lines and cruise passengers. This includes docking fees, littering fees and other port charges, garbage disposal fees and charges for water sales. Examples of cruise passenger fees include museum admissions, and payments for medical services, among others.

Cruise industry related revenues not measured in this study include property tax payments made by businesses selling goods and services to cruise visitors or sales taxes paid by business people as they make local purchases in support of their operations. It also does not include any secondary or indirect tax revenues (such as sales and property tax payments made by employees (and their dependents) of the cruise industry. Estimating these kinds of indirect revenues would require very detailed and time consuming analysis of each local economy and is therefore outside the scope of this study.

Local government expenditures measured are of two general types:

• Marginal Costs: These are direct additional or new costs incurred by local government over and above what would be incurred in the absence of the cruise industry. For example, if the police department does not need to hire additional patrol or traffic officers as a result of cruise traffic, there are no marginal costs in that department, even though officers spend some of their time serving cruise visitors.
• Direct Overhead (Average Cost or Full Allocation): These are costs allocated according to services rendered rather than dollars spent. Returning to our police department analogy, if a patrol officer is spending 25% of his time dealing with cruise visitors, the approach dictates that 25% of his salary and overhead should be allocated to the cruise visitor industry. The theory underlying this approach is that while there may be no new cost associated with serving visitors, there is an "opportunity cost" in terms of reduced service for residents.

Local government expenditures related to the cruise industry not measured in this study include indirect overhead costs. These are all local government costs associated with providing services to the population in Southeast Alaska employed by the cruise industry. These costs are not measured in this study because of the detailed surveying required to identify income, household size, housing status and other demographic characteristics of Southeast Alaska households earning income directly or indirectly from cruise visitor spending.

Measuring local government revenues and costs associated with the cruise industry in Southeast is very difficult. In fact, local government impacts of the cruise industry specifically have never been measured (the effects of i.e. tourism industry overall on the City and Borough of Juneau were addressed in a 1995 study, Juneau’s Visitor Industry: An Economic Impact Study ). The challenge facing researchers in this field is that virtually no cost data exists (i.e. local governments do not track expenditures made in support of visitors) and even the most detailed examination of local government budgets does little to shed light on the issue. After all, services provided to visitors are the same services provided to residents. Because most departments of local government do not track cruise-related impacts, cost estimates are based largely on the perceptions of department managers and experiences of departments in other communities. To identify cruise-related costs, interviews were conducted with approximately 75 local government officials from around Southeast Alaska. Though not cited individually in this report, these officials are the primary source of cost data.

Spending and tax revenue estimates made in this study are based in part on secondary data, notably the 1993 Alaska Visitor Statistic Program. (AVSP), interviews with retailers and tour operators serving cruise passengers throughout Southeast, community-level business sales data, and other information.

Interested readers are urged to review the full report for more detailed discussion of methodology.

• Cruise ship passengers spending in Southeast Alaska totaled approximately $160 million during the 1997, including approximately $120 million in taxable spending.
• Cruise ship crew generated $10 million in taxable spending in 1997 region-wide.
• Taxable spending in support of cruise line operations totaled just under $10 million in 1997. Cruise lines spent another $18 million on Maritime services, medical services for crew, state/federal government fees and other non-taxable services.
• Sales tax revenues generated as a result of all cruise-related spending, including passenger spending, crew spending and spending by cruise lines, totaled $7 million in Southeast in 1997.
• Port fees generated another $3.2 million in local government revenues in 1997.

• Southeast Alaska’s local governments incur relatively few additional costs as a result of providing services to cruise lines, passengers and crew. In general, communities are able to provide basic services within their existing staffing and service infrastructure.
• Cruise passengers affect a broad range of local government services, with police departments the most significantly affected, but also emergency medical services, public utilities, and libraries, among others.
• The cost of providing these services is small compared to the local government revenues generated by the cruise industry.
• Region-wide, "marginal" or new costs to local governments totaled about $2.2 million. These are costs governments would not occur if not for the cruise industry.
• Region-wide "direct overhead" costs (local government overhead costs that can be allocated to the cruise industry, totaled $1.2 million). These are not new costs. Local governments would incur these costs even in the absence of the cruise industry.