A recent Commercial Vessel Passenger excise tax audit of Southeast Alaska communities and a lawsuit against the city of Juneau has given the Municipality of Skagway cause to carefully monitor all future use of CPV funds from the state.

Conducted by the Alaska Division of the Legislative Audit, the research was requested by Eagle River Senator Anna Mackinnon in an effort to investigate the use of CPV funds.

The report found that of all investigated Southeast communities, Skagway has received the highest amount of shared CPV funds, totaling more than $30 million from 2007 to 2015, not including $10 million in CPV grant allocations.

Legislative Auditor Kris Curtis said the purpose of the report was to look at every community receiving the funds and provide policy makers with the information.

“Skagway is the only community that had a recommendation regarding inappropriate use of shared taxes,” she said.

According to the audit, since FY07 the municipality has used $11 million of CPV funds to pay its general water, sewer and garbage expenditures, a use justified by a cruise ship impact survey completed in FY08.  However, auditors noted an inappropriate use of funds in the purchase of $114,450 worth of playground equipment for Skagway School.

Ketchikan and Sitka also had recommendations from the auditors, but Curtis said theirs was more of a documentation issue.

Shared CPV taxes have limited uses. Under 33 USC 5, code states that fees charged are to be solely used to pay the cost of a service to the vessel or water craft or to enhance the safety and efficiency of interstate and foreign commerce.

The audit states “playground equipment primarily used for the elementary school does not quality as an allowable purpose under state or federal law.”

“You have to be really careful, otherwise it’s not an allowable tax and no one is going to be getting those revenues,” Curtis said. “If you read the rules and you read what Skagway spent the money on, I think it’s pretty clear.”

The audit recommends that the municipality’s manager only use CPV shared tax revenues for allowable purposes.

Skagway Borough Manager Scott Hahn said he’s not sure what the rationale was behind building the park, as he was not manager at the time. But after the audit was published, he said speculators remembered Disney asking for more on-shore family experiences. But the issue lies in a lack of documentation.  The municipality has nothing on file approving the expenditure.

As to whether it was appropriate, Hahn said it’s difficult to separate any one part of the town from direct cruise ship impact. Everyone is impacted by the influx of visitors during the summer season.

Despite the recommendation, he said the report won’t have any direct consequences.

“They didn’t recommend any consequences other than everybody be more aware and try not to have these things happen in the future,” he said.

The misuse of CPV monies is being felt by the city and borough of Juneau too, in the form of a lawsuit filed by the Cruise Lines International Association. The issue stemmed from a $3 million whale statue paid for with private donations. However, as reported by the Juneau Empire, CLIA finds issue with the $10 million in CPV funds used to fund a seawalk and park surrounding the statue.

Hahn said he doesn’t foresee a similar issue for Skagway, adding that the municipality has never heard of any disapproval from CLIA. But the audit in general gave cause for concern. With the state in such dire financial straits, CPV funds could be on the chopping block.

But Hahn said those funds would still have to be used for port infrastructure.

“We wouldn’t want any changes because it seems to be working well, and we are getting stuff done,” he said. “But the money would still have to come where the cruise ships drop off, which is here.”

Despite the recommendation from auditors, Hahn said the municipality’s report card was pretty clean, with the $114,450 equaling less than one percent of the total CPV funds allocated since 2007.

“I wouldn’t consider it a major problem, just a wake up call to do something differently,” he said.