A Disney cruise ship tied up at Skagway's ore dock. (Emily Files)

A Disney cruise ship tied up at Skagway’s ore dock. (Emily Files)

In December, a federal judge ruled that the City and Borough of Juneau’s cruise ship passenger fee could not be used to fund projects that did not directly support cruise ship vessels. Since then, communities in the Upper Lynn Canal have been trying to determine if the decision could affect funding for local infrastructure projects.

The Municipality of Skagway relies on funding from Alaska’s Commercial Passenger Vessel tax, or CPV, for roughly a third of its budget.

Vice Mayor Tim Cochran says that the tax helps pay for projects to accommodate the one million cruise ship passengers that visit the city over the summer.

“Our season population jumps up probably 2200-2500. We have now seen over 11,000 passengers on Tuesdays and Wednesday. Water, sewer, garbage incinerator, all of these services need to accommodate this influx of people,” Cochran said.

Last month Judge Russel Holland sided with the cruise industry in a lawsuit against the city of Juneau. Holland ruled that municipal cruise ship passenger fees can only be used to fund projects that directly support cruise ship vessels.  

During a discussion of the Skagway Borough’s finances at a meeting last week, Assemblyman Orion Hanson asked whether the ruling had any impact on CPV funding for Skagway’s infrastructure projects.

Vice Mayor Tim Cochran responded that state funding from cruise ship passenger taxes would not be affected.

“I don’t think that has any bearing on CPV, Orion. I think there is concern that there could be confusion, but the court case in Juneau was on a passenger fee that the City and Borough of Juneau imposed. It was not the CPV. Two different animals,” Cochran said.

Juneau’s Marine Passenger Fee and the state’s Commercial Passenger Vessel tax are different. Juneau calculates its passenger fee based on the number of passengers on a ship. That fee is paid for by the cruise lines even if the cost is passed on to consumers.

The state’s passenger tax, on the other hand, is paid directly by the passenger. That’s the tax that Skagway and Haines rely on for infrastructure projects that support passengers on shore.

Although Judge Holland’s decision only applies to Juneau’s fee, there are concerns that it could have implications for the state’s passenger tax. Holland’s ruling cites the 1899 Rivers and Harbors Appropriation Act, which states that fees imposed on a ship or its passengers can only be used to fund services for the vessel.

Incoming representative Sara Hannan of House District 33 said that this could cause problems for communities that rely on cruise ship tourism. 

“This is a deep concern. To have that ruling be so narrow, I think reflects the antiquity of the law that it’s based on,” Hannan said.

Hannan will represent the Upper Lynn Canal in the State Legislature once she is sworn in on January 15. She said that the decision raises questions about whether federal law conflicts with the state’s tax.

“I believe we will see an appeal of the decision, and this is me speculating, I have no insider information. Whether we need a federal law changed, because of course, our head tax law didn’t address the vessel. It was the passengers disembarking because the cost to communities and their infrastructure is primarily when they step ashore. It’s not when they tie up at the dock,” Hannan said.

Municipal spending of CPV taxes has come under scrutiny before. In 2016, a state audit found that Skagway misspent some CPV funds on school playground equipment.

According to Vice Mayor Tim Cochran, the Municipality of Skagway has commissioned an updated study from consultant Jim Van Altvorst to review whether the city’s usage of CPV funds meets regulations.

“We’ve done quite well I think, adhering to the rules. And like I said we have Mr. Altvorst doing another analysis and making sure that we are within those bounds,” Cochran said.

According to Cochran, the burden from cruise ship passengers in Skagway is particularly high compared to cities such as Ketchikan and Juneau because of the community’s small population.

KTOO’s Adelyn Baxter contributed to this story.