Ferry cuts may displace thousands of tourists
The full impact of proposed ferry system budget cuts could go well beyond the initial service cuts, according to state Transportation officials.
The state operating budget in conference committee April 15 would reduce the overall Alaska Marine Highway System budget by slightly more than $11 million, but the final tally is likely to be much more, DOT Deputy Commissioner Mike Neussl said.
Potential revenue lost from canceled sailings could end up setting the ferry system back nearly $25 million, when combined with the subsidy cut, Neussl told the Marine Transportation Advisory Board April 8.
Further complicating the problem is the large number of trips already booked on sailings subject to change with a smaller AMHS budget.
The ferry system releases its upcoming summer schedule each October, and through the end of March, Neussl said tickets for 9,261 passengers and 2,472 vehicles with a retail value of more than $1 million had been purchased for service that could be cut.
Neussl noted that the state was in a much different fiscal situation when the schedule was built.
About 30 percent of the itineraries were booked by Alaskans, meaning thousands of Outside tourists could be displaced by the budget reductions.
Southeast Conference Executive Director Shelly Wright said that would cut directly to the core of the biggest business in many of the regions small communities.
“The independent tourist is really the money side of tourism in Southeast Alaska,” Wright said.
A McDowell Group report done for the Commerce Department estimates each visitor to Alaska spends an average of $930 once in the state.
“The ramifications of this are far and wide and I’m not sure we understand them all right now,” Neussl said.
A revised sailing schedule has been drafted that would cut summer service by 15 percent to 20 percent. It would be the lowest level of service the ferry system has provided since 2004, when the current 11-vessel fleet was established, he said in an interview.
That schedule would go into effect July 1 to coincide with the start of the 2016 state fiscal year.
Revenue generated by the system goes into the Marine Highway designated general fund, which is controlled by the Legislature. If the operational losses are great enough it could mean the ferry system would ultimately need a larger subsidy next year, Neussl said.
The Alaska Marine Highway System generated about $50 million in fiscal year 2014. It has operated on a budget in the $160 million-plus range in recent years.
Beyond the tangible impact, Neussl and AMHS General Manager Capt. John Falvey told the MTAB board there is a fear changing the schedule could hurt the system’s image with prospective travelers and tour operators.
Neussl said the ferry system is not liable for additional travel expenses incurred by displaced customers because of “fine print” language on the back of each AMHS ticket. However, he said it’s important for the Legislature to know that tour companies booking trips for clients on the system do not have the same “out” and could take business elsewhere if they’re unsure about the reliability of the ferry schedule in the future.
“It’s going to be a very massive disruption to the schedule and not good for our business practices of sailing a schedule that we published back in October,” he said in an interview.
Neussl said Gov. Bill Walker restored some funding to the ferry system to the original draft of the operating budget when he was notified of the potential hit to future business, but that money has since been removed by the Legislature.
DOT and AMHS are waiting to implement the schedule change on the slim hope some funding is restored.
Falvey said the revised schedule is queued up in the online reservation system and would go live as soon as the budget is final, if funding is not restored. The whole online system would be locked for several weeks while AMHS ticket agents attempted to contact each person who booked an affected trip in the order the reservations were made, he said.
“We would be overwhelmed with trying to rebook everything and trying to create new bookings via calling in the call center where everyone’s reservations are going to be,” Falvey said to the board.
Over the past year the ferry system has closed all bars and gift shops aboard its vessels to save money, and is prepared to cut 31 positions — seasonal to high-level shore side jobs — to minimize impacts service.
Late last fall DOT announced 4.5 percent rate increases for most ferry routes beginning May 1.
Reducing service is also the last resort because vessels cost money whether they are active or not, Neussl said.
There are fuel savings but each ferry is required to have a crew onboard while it is laid up and there are mooring fees if the vessel isn’t tied to a state-owned dock.
It all adds up to a conundrum for the Alaska Marine Highway System and its parent agency DOT, according to Neussl.
Cutting winter service, which is primarily used by residents, means deviating from the mission of providing transportation to Alaskans. Further, about half the fleet runs during the winter on a normal year and more service cuts would result in some communities being cut off completely, an unacceptable outcome, Neussl said.
However, reducing summer service means killing some of the system’s most profitable routes, he said.
Neussl added that about 75 percent of summer ferry riders are Outside customers.
“I would argue that providing tourism in Alaska helps all Alaskans,” he said.
Wright, of the Southeast Conference, said her organization generally supports raising rates to help fund the ferries, but she emphasized that the ferry system is part of the national highway system and that no highway pays for itself.
“The ferry system touches every industry and every person and every business in Southeast Alaska. Small businesses use the Marine Highway for their commerce,” Wright said. “This is like closing the Glenn Highway three days a week.”
Elwood Brehmer can be reached at [email protected].