July 2013 Economic Impacts of the Cruise Industry in Alaska 2011

Prepared for CLIA Alaska

Prepared by Economic Impacts of the Cruise Industry in Alaska 2011

Prepared for CLIA Alaska

Prepared by

July 2013 Table of Contents

Executive Summary ...... 1 Introduction and Methodology ...... 4 Introduction ...... 4 Methodology ...... 4 Cruise Industry Overview ...... 7 Cruise Lines Operating in Alaska ...... 7 Alaska Cruise Itineraries and Tour Packages ...... 7 Cruise Industry Investments in Alaska ...... 8 Cruise Passenger Volume ...... 9 Passenger Volume, 2011 ...... 9 Passenger Volume Trends ...... 10 Cruise Industry Spending ...... 11 Passenger Spending ...... 11 Additional Cruise Industry Spending ...... 11 Total Cruise Industry Spending ...... 13 Economic Impact Analysis ...... 14 Employment, Labor Income, and Spending Impacts ...... 14 Revenues to Municipal and State Governments ...... 16 Municipal Tax Revenues ...... 16 State of Alaska Revenues ...... 18 Executive Summary

Cruise Lines International Association (CLIA) Alaska contracted with McDowell Group to measure the economic impacts of Alaska’s cruise industry in 2011. This study represents an update to a more extensive study addressing 2007 impacts. Impacts are presented in terms of employment, labor income, and total spending. Both direct and indirect (including induced) impacts are estimated based on cruise industry-related spending in Alaska. This study draws heavily on a study McDowell Group conducted for the Alaska Department of Commerce, Community, and Economic Development: The Economic Impact of Alaska’s Visitor Industry, 2011-12. Additional sources for this study include the Alaska Visitor Statistics Program, Cruise Line Agencies of Alaska, cruise lines, Alaska Department of Labor and Workforce Development, and municipalities.

Employment and Labor Income Chart ES-1. Total Cruise Industry-Related Alaska’s cruise industry accounted for an estimated Employment in Alaska, 2011 annual average of 13,300 full- and part-time jobs in 2011, including all direct, indirect, and induced impacts. These jobs resulted in total labor income of $518 million.

Over half (56 percent) of cruise industry-related employment was attributable to the Southeast region, 26 percent to Southcentral, and 18 percent to TOTAL Interior/Other. Labor income was similarly distributed: EMPLOYMENT: 59 percent ($307 million) in Southeast, 24 percent 13,300 ($122 million) in Southcentral, and 17 percent ($89 million) in Interior/Other.

Spending Chart ES-2. Total Cruise Industry-Related The cruise industry generated $1.24 billion in spending Spending in Alaska, 2011 in 2011, including all direct, indirect, and induced impacts. Southeast again accounted for over half (62 percent) of the statewide total; Southcentral accounted for 16 percent; and Interior/Other accounted for 16 percent.

Spending, labor income, and employment impacts are derived from applying economic multipliers by region and sector to cruise industry-related spending (passenger spending, cruise line spending, cruise line TOTAL payroll, crew member spending, and spending on air SPENDING: tickets to enter/exit the state). $1.24 BILLION

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 1 Cruise Passenger Volume

A total of 883,000 people cruised in Alaska in summer 2011. This figure represented 57 percent of Alaska’s total summer 2011 visitor volume (1,556,800). Juneau, Ketchikan, and Skagway received the bulk of passengers at 99 percent, 96 percent, and 80 percent of total volume, respectively. Secondary ports, receiving 14 to 15 percent of volume, included Seward, Whittier, Sitka, and Icy Strait Point.

Chart ES-3. Cruise Passenger Volume by Port, 2011 !876,000!! !844,000!!

!709,000!! TOTAL PASSENGERS: 883,000

!133,000!! !130,000!! !129,000!! !128,000!! !27,000!! !15,000!! !15,000!! !15,000!!

Juneau! Ketchikan! Skagway! Seward! Whi?er! Sitka! Icy!Strait! Haines! Kodiak! Homer! Anchorage! Point!

Source: Cruise Line Agencies of Alaska. Note: Haines receives additional volume via fast ferry from Skagway.

Seven out of ten cruise passengers in 2011 were on round-trip itineraries, while 30 percent were on cross-gulf itineraries (sailing to/from Southcentral Alaska ports). Nearly all cross-gulf passengers visit Anchorage, and many choose to travel on to other areas of Alaska, often on cruise/tour packages that commonly include Denali and Fairbanks, among other destinations. This additional travel accounts for spending and employment in the Southcentral and Interior regions.

Cruise passenger volume to Alaska rose steadily in the 1990s and 2000s before peaking in 2008. Volume dropped by 14 percent in 2010, a decline attributed to increased State of Alaska taxes. Volume increased by less than 1 percent in 2011, then rose by 6 percent in 2012. An additional 7 percent increase is projected for 2013.

Chart ES-4. Alaska Cruise Passenger Volume, 2002-2012 (2013 proj.)

Source: Cruise Line Agencies of Alaska.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 2 Revenues to Municipal and State Governments

The cruise industry accounted for $38.8 million in sales tax revenues, lodging tax revenues, and dockage/moorage fees to Alaska municipalities in 2011. (This figure does not include property tax revenues.) In addition, the cruise industry paid $42.2 million in fees to the State of Alaska, including the Commercial Passenger Vessel Tax, Gambling Tax, Ocean Ranger Program, and Environmental Compliance Program. This figure includes only direct payments from cruise lines to the State of Alaska. It does not include revenues related to the Alaska Railroad Corporation, vehicle rental taxes, fishing license revenues, or corporate income tax revenues, for example.

Table ES-1. Selected Revenues to Municipal and State Governments, 2011 Estimated Revenues Municipal Revenues $38.8 million Sales tax revenues $15.8 million Lodging tax revenues $7.8 million Dockage/moorage revenues $15.2 million State of Alaska Revenues $42.2 million Commercial Passenger Vessel Tax $32.0 million Passenger Gambling Tax $5.8 million Ocean Ranger Program $3.6 million Environmental Compliance Program $0.8 million Total Selected Revenues $81.0 million Notes: Cruise industry-related property tax payments represent an additional source of revenue to municipalities, and were most recently estimated at $3.4 million in 2007. The State of Alaska collected $3.5 million in corporate income taxes in the tourism category in 2011. While the sources of this revenue are confidential, it is assumed that most (if not all) is attributable to cruise lines.

Estimated Impacts in 2013

With passenger volume in 2013 more than 100,000 above the 2011 level, the economic impact of the cruise industry has clearly grown over the past two years. Total passenger spending in 2013 will likely be $60 million more than in 2011. While it is beyond the scope of this study to precisely measure the employment and income impacts of the cruise industry in Alaska in 2013, it is likely that total cruise industry–related employment will be over 14,000 jobs with labor income of around $550 million.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 3 Introduction and Methodology

Introduction

Cruise Lines International Association (CLIA) Alaska contracted with McDowell Group to measure the regional and statewide economic impact of Alaska’s cruise ship industry for 2011, including direct, indirect and induced effects. In addition to estimating passenger-related spending, employment, and payroll, the report shows cruise line payments to state and municipal governments. The report draws extensively from The Economic Impact of Alaska’s Visitor Industry, 2011-12, conducted by McDowell Group for the Alaska Department of Commerce, Community, and Economic Development. This study represents an update to a more extensive study of 2007 impacts, conducted by McDowell Group for the Alaska Cruise Association.

Methodology

Passenger Volume and Spending

Cruise passenger volume is based on two sources. Cruise Line Agencies of Alaska provided passenger counts for port communities. Visitation by cruise passengers elsewhere in the state is based on data from the Alaska Visitor Statistics Program (AVSP), conducted by McDowell Group for the Alaska Department of Commerce, Community, and Economic Development (DCCED). In summer 2011, a total of 2,130 cruise passengers were surveyed on cruise ship docks and in airports prior to exiting the state. The survey collected information on where passengers traveled while in Alaska.

Passenger spending estimates were likewise based on AVSP survey data. The survey collected information on the total amount spent in Alaska as well as the amount spent in each community visited, by spending category (lodging, tours/activities/entertainment, gifts/souvenirs/clothing, food/beverage, transportation/ rental cars/fuel, and other). Spending figures exclude cruise packages and transportation used to enter and exit the state.

An adjustment was made to the spending figures from the survey for the purposes of economic impact analysis. Tour commissions were extracted from passenger spending estimates because they accrue directly to cruise lines at the time of the sale, and are accounted for under cruise line spending, below.

Final spending estimates were derived from applying average spending by category, and by region, to passenger volume estimates.

Additional Cruise Industry Spending

Additional cruise industry spending includes cruise line spending, crew member spending, and cruise passenger spending on airplane tickets to enter and exit Alaska.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 4 CRUISE LINE SPENDING

Cruise line spending was based on 2011 purchasing data provided by four major cruise lines: Princess Cruises, Holland America Line, Royal Caribbean International (which operates both Royal Caribbean Cruises and Celebrity Cruises) and Carnival Cruise Lines. Together, these lines represent 80 percent of 2011 cruise passenger traffic. Data was not available from Norwegian Cruise Line, Disney Cruise Line, or other (smaller) lines. Spending by other lines in Alaska was estimated using Carnival’s spending data as a proxy, as the other lines most closely resemble Carnival in terms of their Alaska operations. (That is, the other lines do not operate land-based tours like Princess, Holland America, and Royal Caribbean.)

Data referring to nearly 2,000 vendors (excursions, products, and services) was reviewed and categorized by economic sector and region. All payments from cruise lines to excursion providers were excluded from the final spending estimates, as this spending is already accounted for in visitor spending data. For example, payments to Mt. Roberts Tramway were excluded, because passengers reported that spending in the AVSP survey; therefore it is included in the Passenger Spending category.

CREW MEMBER SPENDING

Crew member spending for 2011 was based on previous surveys of crew members conducted by McDowell Group, modified to account for changes in crew member volume by port and inflation. Spending estimates were corroborated by crew spending estimates provided by cruise lines.

SPENDING ON AIR TICKETS

Since spending on air tickets to enter and exit Alaska is excluded from AVSP visitor spending estimates, these figures are estimated and added to total cruise industry spending figures. Spending on air tickets was based on average Seattle-Anchorage and Anchorage-Fairbanks airfares, cross-gulf passenger volumes, cruise tour volumes, and an assumption that roughly half of spending on air tickets to enter and exit Alaska actually stays in Alaska.

Economic Impact Analysis

McDowell Group maintains an Excel-based visitor industry economic impact model for assessing the effects of cruise industry-related spending in Alaska. Estimates of direct cruise industry employment and payroll are derived from industry spending estimates, and verified using employment and payroll data from the Alaska Department of Labor and Workforce Development and U.S. Bureau of Economic Analysis. The model incorporates modified IMPLAN multipliers to estimate indirect and induced impacts. IMPLAN is a predictive input-output model of local and state economies, and is widely used to measure the economic impact of industries and industrial/commercial development. Indirect effects include those jobs and income created as a result of cruise industry businesses purchasing goods and services in support of their business operations. Induced effects include jobs and income created as a result of employees of the cruise industry spending their payroll dollars in support of their households. Together, indirect and induced impacts are often termed “multiplier effects.”

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 5 Cruise Industry Revenues to Municipalities and the State of Alaska

The report includes estimates of tax revenues to municipalities and state government from passengers, to the extent possible. Tax revenues were estimated based on those determined in the 2008 study. The 2008 figures were adjusted based on passenger volume changes and inflation rates. Cruise ship dockage/moorage revenues were collected from municipalities. Cruise line payments to the State of Alaska were reported by the Department of Revenue.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 6 Cruise Industry Overview

Cruise Lines Operating in Alaska

A total of 16 cruise lines operated over 30 ships in Alaska waters in summer 2011. Seven major lines represented the vast majority of passengers: Princess, Holland America, Celebrity, Norwegian, Royal Caribbean, Carnival, and Disney. All of these cruise lines are members of CLIA Alaska. Several lines are affiliated with one another: Princess, Holland America, and Carnival are all owned by the Carnival Corporation, while Celebrity and Royal Caribbean are owned by Royal Caribbean International.

Princess added one ship and Holland America increased capacity in the 2012 season. Additional information on cruise passenger volume is provided in the following chapter.

Table 1. Cruise Lines Operating in Alaska, 2011 # of Ships Passenger Volume Large Cruise Ship Lines Princess Cruises* 6 259,200 Holland America Line* 7 212,200 Celebrity Cruises* 3 110,700 Norwegian Cruise Line* 2 108,600 Royal Caribbean Cruises* 2 68,600 Carnival Cruise Lines* 1 48,300 Disney Cruise Line* 1 44,100 Crystal Cruises* 1 6,300 P&O Cruises 1 1,900 Regent Seven Seas 1 7,900 Cruises* Oceania* 1 6,500 Small Cruise Ship Lines Silver Sea Cruises* 1 4,900 Lindblad Expeditions 2 2,200 Hapag Lloyd 1 300 InnerSea Discoveries 2 n/a Alaska Dream Cruises 2 n/a * Members of CLIA Alaska. Notes: Small ships are those with a passenger capacity of 400 or fewer. InnerSea Discoveries and Alaska Dream Cruises began operations mid-way through the 2011 season. Cruise Line Agencies of Alaska does not collect data on these lines.

Alaska Cruise Itineraries and Tour Packages

Cruise routes and itineraries vary among and within cruise lines, although there are general similarities. Cruises tend to supplement port calls with visits to geographical points of interest such as Tracy Arm and Glacier Bay. Round-trip itineraries usually use Vancouver or Seattle as the embarkation/disembarkation port.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 7 “Cross-gulf” itineraries use these same ports as a base, but also sail across the Gulf of Alaska, traveling between Vancouver/Seattle and Seward or Whittier. Passengers on cross-gulf itineraries cruise one-way and fly one-way. Alaska cruises generally last seven days, although some variations exist in cruise length.

Passengers on cross-gulf itineraries can choose from an array of land tour itineraries that last anywhere from three to ten days. Cruisetours spread out passengers, who embark and disembark their ships in large volumes, to different properties and locations – airplanes, hotels, buses, and railcars have much lower capacities than cruise ships. As a result, there are many variations in tour length, accommodations, and transportation used to get from place to place.

Land tours usually consist of a rail segment and overnights in Fairbanks, Denali, and Anchorage. Other cruisetour destinations include Girdwood, the Kenai Peninsula, Talkeetna, Glennallen, and the Yukon. Cruise passengers can also choose optional add-on trips to such destinations as Alyeska, the Brooks Range, and the Arctic Circle.

Cruise Industry Investments in Alaska

The cruise industry has invested in a significant amount of property and facilities throughout Alaska. These include hotels/lodges, rail cars, motorcoaches, offices, and maintenance shops. Most assets are owned by the lines with cruisetour operations in Alaska: Princess, Holland America, Royal Caribbean International (used by passengers of both Celebrity and Royal Caribbean). Princess and Holland America merged their land tour operations several years ago.

Hotels represent the cruise industry’s most substantial assets in the state. Some cruise line holdings serve other markets besides cruise passengers, such as the Westmark Anchorage hotel; others, like Princess’ hotels in Denali, serve almost exclusively cruise passengers. Two cruise lines own hotels in Alaska: Princess and Holland America. Princess owns properties in Fairbanks, Denali, Talkeetna, Cooper Landing, and Copper Center. Holland America owns properties in Anchorage, Fairbanks, Tok, Skagway, and Juneau.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 8 Cruise Passenger Volume

Passenger Volume, 2011 Chart 1. Cruise Passenger Volume by Round-Trip A total of 883,000 cruise passengers visited Alaska and Cross-Gulf, 2011 in summer 2011. Seven out of ten passengers were on round-trip itineraries: their cruises began and Total Passengers: ended outside of Alaska, usually in Vancouver or 883,000 Seattle. Thirty percent of passengers were on cross- gulf itineraries: their cruises sailed between points Cross3gulf& outside of Alaska and either Seward or Whittier, 263,000& 30%& and they flew one-way, to/from Anchorage or Round&trip& Fairbanks. 620,000& 70%& Cruise passenger volume increased by 6 percent in 2012 and is expected to increase an additional 7 percent in 2013 (see following page).

Cruise passenger volume is provided by Cruise Line Agencies of Alaska which tracks cruise passenger traffic by port and by ship. Source: Cruise Line Agencies of Alaska; AVSP VI.

Passenger Volume by Port

Juneau is the most popular port in Alaska, receiving 99 percent of all passengers in 2011. Ketchikan received 96 percent, and Skagway received 80 percent. Secondary ports include Seward, Whittier, and Sitka (all at 15 percent), as well as Icy Strait Point at 14 percent. Minor ports include Haines (3 percent), Kodiak (2 percent), Homer (2 percent), and Anchorage (2 percent). Note that Haines receives additional cruise traffic via fast ferry from Skagway. Additional ports that receive 1 percent or fewer passengers include Cordova, Dutch Harbor, Nome, Petersburg, St. Paul, and Wrangell.

Chart 2. Cruise Passenger Volume by Port, 2011 !876,000!! !844,000!! !709,000!!

!133,000!! !130,000!! !129,000!! !128,000!! !27,000!! !15,000!! !15,000!! !15,000!!

Juneau! Ketchikan! Skagway! Seward! Whi?er! Sitka! Icy!Strait! Haines! Kodiak! Homer! Anchorage! Point! Source: Cruise Line Agencies of Alaska.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 9 Passenger Volume Trends

Alaska cruise ship traffic increased fairly steadily between 2002 and 2008, showing an overall increase of 40 percent. Traffic dropped slightly in 2009 followed by a significant (14 percent) decrease in 2010. The sharp drop in 2010 traffic is generally seen as an outfall of the State of Alaska's Commercial Passenger Vessel Tax. Traffic increased by 1 percent in 2011, then by 6 percent in 2012. An additional 7 percent increase is projected for 2013. Chart 3. Cruise Passenger Volume to Alaska, 2002-2012 (2013 proj.)

Source: Cruise Line Agencies of Alaska; AVSP VI.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 10 Cruise Industry Spending

Passenger Spending

Cruise visitors to Alaska spent an estimated $493 million in Alaska in summer 2011. This figure includes instate spending only, excluding the cost of the cruise or cruise/tour package.

While passenger spending on cruises and cruise/tour Chart 4. Total Passenger Spending in Alaska packages is excluded from this figure, cruise line 2011, By Region spending in Alaska is accounted for in the economic impact analysis, and is addressed further, below. This Interior/ spending includes payments to hotels, motorcoach Other) $51m) companies, the Alaska Railroad Corporation, and Southcentral) 10%) other components of land tours that are included in $71m) 15%) Southeast) the cruise package price. $371m) 75%) For the purposes of this study, tour commissions were extracted from passenger spending data because TOTAL: $493 MILLION they accrue directly to cruise lines. Cruise lines, in turn, spend some of these earnings in Alaska; these are accounted for under cruise line spending.

The previous study of cruise industry impacts estimated passenger spending of $506 million in summer 2007. (This figure referred only to CLIA Alaska member lines, which represented 1,003,500 passengers out of a total 1,029,800.) The decrease from $506 million to $493 million is mostly attributable to the decrease in cruise passenger volume: from 1,003,500 CLIA Alaska passengers (or 1,029,800 total) to 883,000 total passengers.

Additional Cruise Industry Spending

Cruise Line Spending and Payroll

In 2011 cruise lines and their subsidiaries spent an estimated $208 million on goods and services in Alaska, including purchases with Alaska businesses, as well as tax and fees paid to state and local governments. This estimate is derived from detailed 2011 purchasing information provided by four major cruise lines: Princess Cruises, Holland America Line, Royal Caribbean International (which operates both Royal Caribbean Cruises and Celebrity Cruises) and Carnival Cruise Lines. Together, these lines represent 80 percent of 2011 cruise passenger traffic. Spending by the other cruise lines was assumed to resemble those of Carnival on a per- passenger basis. While Princess Cruises, Holland America Line, and Royal Caribbean International all operated land tours and therefore show much higher spending on a per-passenger basis, Carnival and all other cruise lines operated cruises exclusively.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 11 Cruise line spending data was adjusted to exclude payments to tour vendors, which are already accounted for in the visitor spending. (Many cruise passengers purchase shore excursions from their cruise line, then the cruise line pays the operator on behalf of the passenger.)

In addition to making purchases in Alaska, cruise lines directly employed approximately 1,900 workers in Alaska on an annual average basis, and 4,000 during the peak month of July. Total payroll for these employees is estimated at $18 million. These figures are based on employment and payroll data provided by the three lines that operate land tours and/or have hotel properties in Alaska: Princess Cruises, Holland America Line, and Royal Caribbean International. In addition, other cruise lines employ a small number of Alaska-based employees on a seasonal basis.

Table 2. Cruise Line Purchases, Payroll, and Employment in Alaska, 2011 Spending and Employment Cruise line purchases/payments $208 million Cruise line payroll $59 million Total cruise line spending $267 million Cruise line employment (annual) 1,900 Cruise line employment (peak) 4,000

The previous study of cruise line spending (measuring 2007 impacts) estimated total purchases/payments at $256 million, and payroll at $54 million. The decrease from $256 million to $208 million is attributable to two major factors: the State of Alaska lowered its Commercial Passenger Vessel Tax, and there were fewer cruise passengers.

Crew Spending

Approximately 22,500 crew members visited Alaska in 2011, spending an estimated $15.7 million in the state. Each crew member generally sails on 10 to 20 individual voyages, visiting multiple communities on each voyage. Crew members make a wide variety of purchases while in port: they visit restaurants and bars; they purchase communication-related items such as phone cards, Internet, and postage; and they often visit retail outlets such as Fred Meyers, Costco, and Wal-Mart. Estimated spending by crew members in 2011 was based on previous surveys of crew members conducted by McDowell Group, modified to account for changes in crew member volume by port and inflation. Spending estimates were consistent with figures provided by cruise lines.

Cruise Passenger Spending on Air Tickets

Spending by cruise passengers on plane tickets to enter and exit Alaska is estimated at $58 million for 2011. This figure refers not to total ticket purchases, but to the proportion of ticket purchases assumed to impact the Alaska economy.

The AVSP survey does not collect spending on airplane tickets to enter and exit the state. Because some of that spending accrues to Alaska, a rough estimate is necessary to complete the picture of cruise passenger

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 12 spending in the state. Passenger spending on air travel impacts the state’s economy in the form of landing fees, fuel purchases, airline employee wages, and other purchases in support of airline operations.

To estimate passenger spending on air travel, the number of cross-gulf passengers was multiplied by average Seattle-Anchorage round-trip fares. One-half of the total ticket spending was assumed to stay in-state. In addition, estimated cruise tour volume was multiplied by average Anchorage-Fairbanks one-way fares. Spending was distributed by region based on exiting air traffic volume. This methodology is inexact: passengers fly to and from various destinations with various pricing, and many passengers fly to or from points other than Seattle. In the absence of more specific data, this provides a reasonable and conservative estimate of impacts from visitor spending on airfare in and out of the state.

Total Cruise Industry Spending

The table below shows 2011 cruise industry spending. Combined spending by visitors, cruise lines, and crew members, along with spending on air and ferry tickets to enter/exit Alaska, totaled $834 million.

Table 3. Alaska Cruise Industry Spending by Category, 2011 Spending Passenger spending $493 million Cruise line spending/payroll $267 million Crew member spending $16 million Air tickets $58 million Total spending $834 million

Total cruise industry spending decreased from $914 million in 2007 to $834 million in 2011. The drop in spending is attributable to a decline in passenger volume as well as the change in the State of Alaska’s Commercial Passenger Vessel Tax, from $50 to $34 per passenger.

Cruise Industry Spending by Region Chart 5. Alaska Cruise Industry Spending 2011, By Region The chart at right shows how cruise industry spending is distributed by region. Two-thirds of 2011 cruise industry spending occurred in the Southeast region. Southcentral accounted for 18 Interior/Other) $136m) Southeast) percent of all spending, and Interior/Other for 16 16%) $548m) percent. 66%) Southcentral) This chart differs from the passenger spending $150m) chart in that Southeast’s share decreases, while the 18%) other regions’ shares increase. Cruise lines spend TOTAL: more on behalf of passengers in Southcentral and $834 MILLION the Interior, where trip components such as hotel and transportation are included in the package price. In Southeast, most passenger spending is out-of-pocket.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 13 Economic Impact Analysis

Spending in Alaska by cruise passengers and by the businesses that serve them creates jobs, income, and secondary spending throughout the Alaska economy. Passenger spending creates jobs and payroll with tour companies, hotels and lodges, retail establishments, transportation providers, and a range of other business. Cruise industry businesses and their employees in turn re-spend a portion of that money with other Alaska businesses (some is spent outside Alaska).

This chapter describes the regional and statewide employment and labor income effects of cruise industry- related spending. While the previous chapter described direct (cruise line) employment and direct cruise industry spending, this section shows total (direct and indirect) employment and spending, as well as associated labor income.

Employment, Labor Income, and Spending Impacts

The direct spending and employment described in Chart 6. Alaska Cruise Industry Spending, 2011, Direct and Indirect the previous chapter do not include multiplier effects, i.e., those jobs and income created in Alaska as the cruise passenger dollar is re-spent by cruise industry businesses and their employees. This secondary spending is estimated to total $416 million in 2011. Adding that secondary spending to the initial direct spending of $824 million indicates total direct, indirect and induced spending of $1.24 billion. A regional breakout of TOTAL SPENDING: these figures can be found in Table 4. $1.24 BILLION

Including all direct, indirect and induced effects, Alaska’s cruise industry accounted for an annual Chart 7. Total Cruise Industry-Related average total of 13,300 jobs in 2011. This estimate Employment in Alaska, 2011 is a tally of the total number of full- and part-time jobs linked to the cruise industry in Alaska. It includes annual average wage and salary employment, and total proprietors’ employment (the total number of sole proprietorships or partnerships active at any time during the year).

The Southeast region accounted for the bulk of statewide employment, at 56 percent. TOTAL EMPLOYMENT: Southcentral accounted for 26 percent, while 13,300 Interior/Other accounted for 18 percent.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 14 Chart 8. Total Cruise Industry-Related Labor Income in Alaska, 2011 The 13,300 jobs associated with the cruise industry generated an estimated $518 in labor income in 2011. Labor income is distributed throughout the state similarly to employment, with 59 percent attributable to Southeast, 24 percent to Southcentral, and 17 percent to Interior/Other.

TOTAL LABOR INCOME: The regional distribution of total visitor industry- $518 MILLION related employment, labor income, and spending is summarized in the following table.

Table 4. Total Cruise Industry Employment, Labor Income, and Spending in Alaska, 2011 (including direct, indirect, and induced effects) Employment Labor Income Spending Southeast 7,500 $307 million $767 million Southcentral 3,400 122 million 270 million Interior/Other 2,400 89 million 198 million Total 13,300 $518 million $1.24 billion

The estimates in Table 4, above, show decreased impacts from the previous report, which measured 2007 impacts. Employment is estimated to have decreased from 14,500 to 13,300, while labor income decreased from $565 million to $518 million. Total spending dropped from $1.35 billion to $1.24 billion. The decreases are attributable to the drop in passenger volume as well as decreased State of Alaska taxes. As passenger volume increases (up 6 percent in 2012 and another 6 percent projected for 2013), impacts will likewise increase.

Table 4 provides regional employment, labor income and spending that are not directly comparable to the study of 2007 cruise industry impacts, due to changes in methodology. In the 2007 study, a large amount of cruise industry-related spending could not be attributed to any particular region. In this study, additional data made it possible to attribute nearly all spending to a specific region.

Because of the seasonal nature of the cruise industry, estimates of annual average employment understate the total number of people directly employed in the industry during the peak of the cruise season. For example, in the accommodations sector, wage and salary employment averaged about 7,800 jobs in 2011. Peak employment that year, in July, totaled 11,000 jobs. Alaska’s “scenic & sightseeing transportation” sector is even more seasonal, with annual average employment of about 1,500 and peak employment of about 3,000, according to Alaska Department of Labor and Workforce Development data. While this study measured 13,300 full- and part-time jobs related to Alaska’s cruise industry, because of the seasonal nature of the industry, the total number of workers whose jobs are directly or indirectly connected to the industry was likely around 20,000 in 2011.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 15 Revenues to Municipal and State Governments

The cruise industry generates significant revenues for state and local governments in Alaska. User fees, sales taxes, lodging taxes, property taxes, income taxes and other payments all flow to state and local governments in Alaska directly or indirectly from the cruise industry. While it is beyond the scope of this study to measure all cruise-related municipal and state government revenues, this chapter includes estimates for the most significant sources: sales taxes, lodging taxes, moorage/docking fees, and State of Alaska taxes that are specific to the cruise industry.

Municipal Tax Revenues

Sales Tax Revenues

Total sales tax revenues associated with cruise industry spending are estimated at $15.8 million for 2011. Most sales tax revenues ($14.8 million) are attributable to the Southeast region, where passengers spend the most, and where most municipalities charge sales taxes. Southcentral and Interior account for much lower sales tax revenues because few municipalities in these regions charge sales tax.

Regional sales tax totals were calculated based on estimates from the 2008 report, adjusted to account for passenger volume changes and inflation rates. The original 2008 tax revenue estimates were based on average cruise passenger and crew spending figures, local sales tax rates, and total sales taxes collected by municipality.

Table 5. Sales Tax Revenues from Cruise Industry Spending By Region, 2011 Region Tax Revenues Southeast $14.8 million Southcentral $0.8 million Interior/Other $0.2 million Total $15.8 million

Lodging Tax Revenues

Cruise passengers generated an estimated $7.8 million in lodging tax revenues for municipalities in 2011. Southcentral accounted for $4.6 million in revenues, largely attributable to Anchorage where many passengers overnight, and there is a 12 percent lodging tax rate. The Interior/Other region accounted for $3.2 million in revenues, mostly accruing to Fairbanks. The amount of bed tax revenues attributable to the cruise industry in Southeast is negligible since nearly all cruise passengers overnight onboard while in the region.

Like sales tax revenue estimates, lodging tax revenues estimates were calculated based on figures from the 2008 report, adjusted to account for passenger volume changes and inflation rates.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 16 Table 6. Lodging Tax Revenues from Cruise Passengers By Region, 2011 Region Tax Revenues Southeast <$0.1 million Southcentral $4.6 million Interior/Other $3.2 million Total $7.8 million

Property Tax Revenues

Property taxes related to the cruise industry result from from cruise line-owned facilities and equipment; businesses that depend on cruise passenger spending such as retail shops; and tour operations, for example. Property taxes are also paid by residents dependent on the cruise industry for their livelihood. It is beyond the scope of this study to measure property tax revenues related to the cruise industry. A conservative estimate for 2007 was $3.5 million, not including taxes paid by businesses less dependent on cruise activity, or taxes paid by households of employees of cruise-related businesses. It is reasonable to assume that 2011 property tax revenues are roughly equivalent, although the drop in passenger volume between 2007 and 2011 may have indirectly resulted in slightly lower property tax impacts.

Dockage/Moorage Revenues

Some municipal governments in Alaska’s cruise port communities receive revenues from cruise lines in the form of moorage and docking fees, primarily Juneau, Ketchikan, Sitka, and Haines. (The docks in Skagway, Whittier, and Icy Strait Point are privately owned. Seward’s dock is owned by the Alaska Railroad Corporation.) Juneau has both private and public docks. Sitka has a deep-water dock, but it is privately owned. A majority of large cruise ships lighter in Sitka, for which the city charges fees.

Each community has its own system of charging cruise lines for using port facilities. Dock charges are generally assessed on a per foot/per day basis. Additional charges may include tonnage fees, passenger fees, lightering fees, and water supply fees, depending on the community.

Total revenues for 2011 were $15.2 million, most of it collected in Southeast.

Table 7. Cruise Ship Dockage/Moorage Revenues to Municipalities, 2011 Port Revenues Juneau $7,507,000 Ketchikan $7,561,000 Sitka $65,000 Haines $42,000 All other ports $50,000 Total $15,225,000 Sources: City and Borough of Juneau; City of Ketchikan; City and Borough of Sitka; City and Borough of Haines.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 17 State of Alaska Revenues

The State of Alaska receives several forms of direct payments from cruise lines: the Commercial Passenger Vessel Tax, gambling tax, Ocean Ranger Program, and Commercial Passenger Vessel Environmental Compliance Program. Below is a summary table of these revenues; details for each revenue category follow. (Although cruise lines also pay corporate income taxes to the State of Alaska, these amounts are confidential and are not included in the below table.)

Table 8. Cruise Line Payments to the State of Alaska, 2011 Revenues Commercial Passenger Vessel Tax $32.0 million Passenger Gambling Tax $5.8 million Ocean Ranger Program $3.6 million Environmental Compliance Program $0.8 million Total $42.2 million

Commercial Passenger Vessel Tax

At the end of December 2006, a Commercial Passenger Vessel Tax (CPV) was established for passengers on large vessels that operate in Alaska waters. As of FY 2011, the tax was $34.50 per passenger per voyage (down from the original amount of $50 per passenger). According to the Alaska Department of Revenue, the department received $32.0 million in FY 2011 from this tax.

The Department of Revenue deposits all the money into the Commercial Passenger Vessel Tax Account in the General Fund. For each voyage of a commercial passenger vessel providing overnight accommodations, the Commissioner of the Department of Revenue must identify the first seven ports of call and the number of passengers on board the vessel at each port of call. Subject to appropriation by the legislature, the commissioner distributes $5 per passenger of the tax revenue to each port of call.

The table below shows how CPV tax revenues have been distributed by municipality between 2007 and 2012. Distributions totaled around $10 million between 2007 and 2010, then grew to $14 million in 2011 and 2012. Juneau, Ketchikan, and Skagway have received the largest distributions, reflecting their status as the most popular Alaska cruise ports.

See table, next page

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 18 Table 9. Cruise Ship Revenue Sharing by Community, 2007-2012 2007 2008 2009 2010 2011 2012 Haines Borough $114,220 $215,410 $204,635 $154,270 $146,680 $154,080 City & Borough of Juneau $0 $0 $0 $0 $4,096,730 $4,151,020 City & Borough of Sitka $1,128,995 $1,359,030 $1,078,480 $706,505 $414,130 $135,355 Hoonah $550,025 $359,155 $640,015 $1,130,220 $636,345 $610,105 Hooper Bay $0 $0 $0 $0 $32,688 $0 Homer $0 $2,898 $3,725 $31,788 $0 $21,710 Ketchikan $0 $0 $0 $0 $1,947,248 $1,977,770 Ketchikan Gateway Bor. $2,244,585 $2,326,148 $2,313,793 $2,088,313 $1,947,248 $1,977,770 Kodiak Island Borough $5,103 $24,778 $25,488 $15,763 $32,623 $23,473 Kodiak, City of $5,103 $24,778 $25,488 $15,763 $32,623 $23,473 Kenai Peninsula Borough $383,653 $348,645 $391,138 $406,080 $357,553 $364,975 Municipality of Anchorage $0 $0 $865 $63,575 $66,190 $48,570 Seward $383,653 $345,748 $387,413 $374,293 $324,865 $343,265 Skagway $4,057,265 $3,862,970 $3,904,825 $3,455,540 $3,470,720 $3,728,105 Unalaska $0 $0 $7,620 $3,000 $1,310 $4,120 Valdez $0 $28,355 $31,730 $2,335 $1,650 $0 Whittier $1,104,810 $1,001,985 $1,045,550 $695,790 $637,265 $828,865 Wrangell, City & Borough $0 $9,975 $26,180 $2,510 $19,350 $1,730 Total $9,977,410 $9,909,873 $10,086,943 $9,145,743 $14,165,215 $14,394,385 Source: Alaska Department of Revenue.

CPV revenue for the Department of Environmental Conservation is estimated to be $3.6 million for FY 2011. This revenue is used to operate the Ocean Ranger program, which requires U.S. Coast Guard licensed marine engineers on board vessels to act as independent observers monitoring State environmental and marine discharge requirements, and to ensure that passengers and crew are protected from improper sanitation, health, and safety practices.

The large passenger vessel gambling tax was also introduced in December 2006. This tax applies to the use of playing cards, dice, roulette wheels, and coin-operated instruments or machines designed for gaming or gambling activities aboard cruise ships operating in Alaska waters. The tax is 33 percent of the adjusted gross income from these gambling activities.1 Gambling taxes are payable to the Department of Revenue and deposited into the CVP Tax Account. The Department of Revenue reports gambling tax revenues of $5.8 million in FY 2011.

Commercial Passenger Vessel Environmental Compliance Program

The Commercial Passenger Vessel Environmental Compliance (CPVEC) Program was established in July of 2001. This program requires all large passenger vessels to register and comply with quality control regulations. The program is operated with fees collected from large and small passenger vessels ($1 per berth). In 2011, $843,000 was collected for the Commercial Passenger Vessel Environmental Compliance Program.

1 "Adjusted gross income" refers to gross income, minus prizes awarded and federal and municipal taxes paid on the gaming income.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 19 Corporate Income Tax

Alaska’s corporate income tax rates are graduated from 1 percent to 9.4 percent in increments of $10,000 of taxable income. The 9.4 percent maximum rate applies to taxable income of $90,000 and over. Multistate corporations apportion income using the standard apportionment formula of property, payroll, and sales.

Tax payments by individual corporations are confidential; however, the Department of Revenue reports total corporate income taxes in the “tourism” category, including payments by cruise lines and other visitor industry businesses, of $3.5 million in FY 2011. It is reasonable to assume that a significant portion of these taxes were paid by cruise lines.

Economic Impact of Alaska’s Cruise Industry, 2011 McDowell Group, Inc. Page 20