Follow-up on beer tax relief ("the subsidy")

From the Seattle PI "Washington Beer Blog," this bit of support for the federal tax relief Joseph DiStefano was defaming (and misunderstanding) recently:

The estimated cost of the provision is about $44 million per year and less than $500 million over 10 years. A Harvard study of the Economic Impact of H.R. 4278 indicates that the bill would generate more than 2,700 new jobs over the first year to 18 months, followed by an average of 375 new jobs per year over the following 4 years. Each new job would cost less than $4,000 in foregone government revenue in 2010. According to the study, "Economic activity would increase by $10.91 per dollar lost in government revenue, making the bill an efficient use of government funds."

Sounds pretty damned good, doesn't it? And these are going concerns that are showing steady growth in a mature industry. Still some risk, but...that's damned near money in the bank. If the economy does double-dip, as fears are growing, maybe a different story, but it's going to be a different story for a lot of businesses, and why would you want high taxes on business in a recession anyway? Do this thing. And you, reader, tell your senators you'd like to see this happen.

The Dead Hand of Jim Bell...

No, Jim Bell isn't really dead; at least, not so far as I know. But his Frankenstein monster, Red Bell Brewing, continues to haunt Philadelphia brewing. Witness this misreasoned claptrap from the usually eruditer-than-this Joseph DiStefano, titled Beer Will Save America! Funny. DiStefano is bringing up the proposal by Senators John Kerry (D-Mass.), Mike Crapo (R-Idaho), Ron Wyden (D-Ore.), and Susan Collins (R-Maine) to lower the federal tax on craft beer. Kerry says it will create jobs (it will), Jim Koch of Boston Beer points out that craft brewing is one of the few success stories in the recession (it sure as hell is), and the Wall Street Journal says the tax cut will help the craft brewing industry (well, duh).

But DiStefano says "We've been this way before." He opens up the Scary Closet and brings out the shaggy boogiemen of Red Bell and Independence (and not even the right Independence, you big dope; that link goes to the closed brewpub) as being "among the many beermakers backed by the taxpayer-subsidized U.S. Small Business Administration in the late 1990s; both also sold shares to the general public; both are among the many investor- and taxpayer-subsidized brands that flopped."

Well, imagine that: there are businesses that sold stock and went under. That couldn't have anything to do with how the Inquirer sucked up to Jim Bell and printed any damned bullshit he sent them, could it? As far as that goes, "investor-subsidized"? What the hell's that? The shareholders made an investment, they took a risk. If they'd gotten bailed out, that would have been a subsidy. But small brewers don't get bailed out, they just close.

But the main point? This isn't even a subsidy! The Feds raised the beer tax back in 1991, the senators want to roll that back -- like every other part of the 1991 tax increase, like the luxury tax on yachts that somehow got repealed... -- they're not going to SPEND money on this 'stimulus package,' the brewers are going to do that. 

Then he gets silly: "What's the big deal with small-batch beers? Yes, they probably taste better. Yes, they're definitely winning market share from Bud and Miller and Coors over the years. So much that the giants have been closing and consolidating plants and selling out to foreign owners."

Okay, no. Much as this thought leads beer geeks to turn off the lights and fondle themselves in front of the gently glowing screen of a computer locked on ratebeer.com, it's simply not true. The "small-batch beers" just are not selling enough to have caused the "selling out to foreign owners." The big guys have been consolidating to save costs and boost market share, and right now it's the foreigners turn to buy. It's got nothing to do with craft beer, which is still under 5% of the market. You want to point a finger, point it at Corona and Heineken, which have taken three times the share away from the big brewers. So DiStefano is either ignorant, or misleading you. Take your pick.

It's the conclusion that's the kicker, though: "But does that really add up to more and better jobs that merit public subsidies?" Well, yes, it does add up to more jobs. Period. Give craft brewers a tax break, and I guarantee, they will SPEND that money on new hires, on better benefits for the workers they do have, on solid industrial equipment, on advertising and promotions. They won't squirrel it away in a tax break somewhere, or send it overseas. Which, I would think, would be a GREAT way to get an effective stimulus activity out of...wait, that's right, it's NOT a public subsidy! That would be if the government GAVE THEM MONEY. But we're not even talking about giving them money, we're just talking about TAKING LESS AWAY FROM THEM.

Am I wrong? Is it really a "public subsidy" when you cut back on an excise tax that shouldn't even be there in the first place? Or is this just one more example of how the brewing industry (and the spirits and wine biz) is treated unfairly because everyone is scared to death of alcohol? I'll tell you what, Mister DiStefano, I would much rather see taxes ratcheted back on a growing, thriving production industry than see government funds given to the banking industry. How about that, fella?

The PLCB hearings...at last

A mere three weeks after they happened, I'm finally commenting on what went down at the PLCB hearings on the Memphis44Resurrection beer registration raids.* I went to the hearings, I sat through the whole thing, and here's what I have to tell you.

I was one of the first people in the room. I wanted to see who came, in what order, and I wanted to get a seat. It didn't fill up, but it was close. The Harrisburg types -- the lobbyists, the bureaucrats, the legislators, the State Police officers -- were pretty cool, looking like all this was old hat, just another hearing. Well, except for Joe "CEO" Conti, who came in about 15 minutes before the hearings started and walked around in an apparent spate of nervous energy. Twice I heard him say, "Okay, let's go," a good ten minutes before scheduled time. Sorry, Joe, but the Legislature tells you what to do now.

The hearings opened and Representative John Taylor, minority chairman of the House Liquor Control Committee, said right up front that this incident was bad publicity for the PLCB and the state, and that changes can be made. That would set the tone for most of what followed, as most of the legislators seemed avid for change.

The first person to testify was Leigh Maida, co-owner of Memphis Taproom, Local 44, and Resurrection Alehouse, the three bars that were raided. Speaking quickly (I'm familiar with the kind of nerves testifying at one of these hearings can bring on if you're not experienced!), she laid out what happened. She noted that all the beers were acquired through "reputable wholesalers," that she had receipts for all of them: nothing off the books or from out of state. She said that they had tried reasoning with the agents, but that they were clearly not there to make decisions, just to carry out their orders. She took pains to describe the Bureau of Liquor Control Enforcement (BLCE) agents as "friendly and professional."

(I'm doing the quotes the best I can; they are not exact; if anyone involved has issues with what I have here, let me know and I'll be happy to go through my recording and get the exact wording. While I'm apologizing...the pix suck, I know. Blame Steve Jobs. ) 

We heard how nine out of 16 seized brands were returned as actually registered (the BLCE officials would recount just how incompetently the PLCB handled that end of it, and it was clear that they were pained and embarrassed about that part). Leigh admitted that some of the beers were indeed not registered. "We're waiting to find out how much trouble we are in," she said. "Which we are, despite how [the unregistered beers] got there."

She went on to make some general comments. Beer sales have changed, she said. There used to be huge sales of a few brands of beer. Now there are huge numbers of brands (over 2,800, by the PLCB's count). Brand registration discourages craft beer. The availability of rare craft releases in Philly and Pennsylvania drives tourism, good press, and jobs, she said, rightly. The system needs an overhaul. She was clearly upset that an "anonymous complaint" could "manipulate a state agency;" she suggested that it would be smarter to prioritize what is investigated. "Nuisance bars and underage drinking? Sure," she said. "That should be a priority of those whose living this is, too."

Then she got into more controversial stuff. There should be a common understanding of the Code. Interpretation is an issue when it's the agent on the scene making decisions. "I'm not contacting the LCB anymore," she said, citing agency policy that all answers to queries from licensees are copied to the BLCE, which, she said, implies that the agency expects that if you're asking, you're doing, and should be investigated. "I'd like to know when there are changes in the laws," she said, and noted that it would be nice to have all the stuff licensees have to know in one place.

(There kind of is such a document here, but you'll note the disclaimer at the top: "This list does not reflect all possible violations. It is not intended nor may it be used as an official document or to supplant the law. Since the law is subject to periodic amendment and legal rulings, users of this information are advised to remain alert to any such changes." You take your chances, and they own the rulebook.)

She summed up: "We are heavily taxed and under a heavy set of confusing laws."

The legislators asked questions. State Rep. Robert Donatucci, the majority chairman of the committee, noted that it takes more money to enforce brand registration than the $75 fee brings in (I'm guessing that's based on the money the BLCE spent on the raids).

Senator Sean Logan bored in on Leigh (apparently tone-deaf to her clear image as the wronged party here; he was obsessed with proving that she and Brendan had broken the law and therefore clearly deserved bad things); "I'm troubled by your confusion about the Code. Did you ever ask the PLCB for clarification?" Leigh: "I wouldn't feel comfortable contacting their Legal Department." Logan wanted to know why she didn't just call them; Leigh responded that she was told to check the website first. Then Logan unveiled his big question: "Did you know you had unregistered beers?" Leigh: "No." (Let me just say: if Logan is not confused by the Code, he's either a genius, an ignoramus, a liar, or he hasn't read enough of it and tried to apply it. To be fair, my money's on the last one.)

Senator Pippy mentioned that the Pennsylvania Tavern Association did educational work on the Code; did Leigh belong? "No." Given that the current top legislative priority of the Association is legalizing "small games of chance," I'm not surprised. At this point, Brendan, who'd been sitting quietly by Leigh's side, grabbed the mike: "I work an 80 hour week to make these businesses run, I want to run a legal bar, a non-nuisance bar. The actions the PLCB took with beer registration don't lead me to want to check with them on whether I'm legal or not." There was some discussion about how much latitude the BLCE agents had on the spot.

Then it was Representative Mike O'Brien's turn. He said that Memphis Taproom was not in his district; however, he said, if you stepped onto their front steps and spit, it would land in his district (which endeared him to me; very folksy for a city guy), and he lives within 500 feet of the taproom. He began a pattern of questioning that would reach hilarious heights when he talked to Dominic Origlio later.

"Are you a licensed tavern?" Leigh: "Yes."
"You ordered these beers from a licensed wholesaler?" Leigh: "Yes."
"Did you have any reason to believe it was not legal?" Leigh: "No."
"Was it delivered by a God-fearing member of Teamsters Local 107?" Leigh: "Yes."
"Please give me a feel for the bar. Is it true that if I went there on a Sunday morning, I would find the Sisters of St. Joseph from St. Anne's Parish there for brunch?" Leigh: "Yes." And Brendan leaned in and added: "They're there on Saturdays, too." Which brought down the house.

After we'd recovered our composure, O'Brien concluded: "To say what has happened to you was unfortunate would be an understatement. As a resident, I'll thank you; as a legislator, I'll apologize. You have set us on a path to correct this."

Next up was Dominic Origlio, the owner of Origlio Beverage in northeast Philly (full disclosure: I write for Origlio Beverage's company newsletters). They were raided as the wholesaler who had supplied many of the unregistered beers. Dominic's opening statement included (and these are direct quotes, from a printed copy supplied to attendees): "...while my company now checks the Liquor Control website daily to be certain that all the brands we represent are properly registered with the State, brand registration has never been the responsibility of the importing distributor." He continued: "Last year we remitted approximately $11 million in tax revenue to the Commonwealth." And added: "Through meticulous record keeping, we can easily access complete lists of our customers who retail a particular beer." He brought up this last to segue into his company's role in the Samuel Adams glass recall in 2008, a successful exercise in consumer safety...no thanks to brand registration, which had nothing to do with it (please remember this; I'll refer back to it during Conti's testimony).

Then he took umbrage. "To the best of my knowledge, Origlio Beverage and the LCB have always worked together in a spirit of mutual respect and cooperation. For this and other reasons, I was extremely perplexed by the actions taken by the State Police. That being said, you can imagine our shock and dismay when armed agents of the Pennsylvania State Police raided three Philadelphia bars based on an anonymous tip stating that beer, which had not been properly registered with the State, was being sold. I can only speculate that this tip came from the bars' competitor who was not allocated these limited production beers. Let's be clear about this; armed officers were deployed to check on registration papers."

It wasn't just money and time that was lost in the raids, Dominic reminded the legislators. "I was personally embarrassed and my employees, whose dedication cannot be called into question, were demoralized... The entire organization was reeling. Many of them asked, "What have we or the company done to deserve this kind of treatment?" Still others were concerned that they would lose their jobs."

Then we got to the nut: "Many of my customers want to know who would file such a complaint against a retailer. Was it just a matter of sour grapes from the anonymous caller who did not receive these limited production beers? What would have happened if a bar's patron was running from the police while they were investigating such a minor offense in such a vigorous and intimidating fashion? ... A lot of things could have gone wrong, and I submit that the entire matter could have been handled with a few simple phone calls."

He brought up alternatives. "I believe there is a huge disconnect between the LCB and the State Police, which are responsible for enforcement, resulting from the elimination of the Malt Beverage Compliance Unit which reported directly to the LCB's Board Secretary." He went on to explain that the MBCU was the recommended agency to handle these problems, and that they dealt in written notices of non-compliance...but the MBCU was eliminated. "The personnel who had worked so closely with our industry on these matters were dispersed, which resulted in the immediate and complete loss of experience in dealing with such matters. Enforcement was delegated to the State Police, and so we sit here today discussing what went wrong in March. If the MBCU allowed 24 to 72 hours to correct registration errors, why wouldn't the State Police do the same thing?

And there was an interesting thing, the closest we got all morning to anyone stating out in the open why we even have brand registration:  "Now the Bureau of Licensing accepts brand registration applications and territorial franchise agreements (my emphasis) that the Liquor Code requires to be filed." I do believe that brand registration exists so that the State can enforce business agreements made between wholesalers and manufacturers/importers. I don't like that. Let them enforce it themselves in civil court.

He concluded with a point that should be made every day by beervolk in the Commonwealth. "I would be remiss without mentioning what I believe is the underlying cause of these regulatory and enforcement problems. Pennsylvania's beer industry is regulated by its competitor -- the Liquor Control Board, a state run corporation which sells wine and liquor. The board consists of three members appointed by the governor. To my knowledge, not one of the sitting members has any experience with the intricacies of selling beer in the Commonwealth. I ask you all to please consider the wisdom of requiring that one of the members be a representative of the state's beer industry or at the very least someone who is [a part of] or has a working knowledge of the beer industry."

And then there were questions (we're into approximate quotes again). Representative Taylor (who was looking progressively more stormy as the hearings went on): "How does a beer become unregistered?" Dominic: "Not my responsibility. I'm pretty up to date on the Code. This completely escaped me."

Representative O'Brien was short and sweet.
"If you don't mind, Mister Origlio, could you share with us the gross sales of your business last year?" Dominic: "$230 million, sir."
"And how long has your family company been in business?" Dominic: "Since Repeal, sir."
"And in all that time...have you ever been raided like this before?" Dominic: "No, sir."
"Thank you. I have no further questions." I loved that.

Senator Larry Farnese (who had said he would try to turn these hearings into a forum on why it takes the BLCE so long to shut down nuisance bars) asked if with all the different brands -- "it's a nightmare" -- was it easier to register them or not? Dominic: "I believe they should be registered." Farnese concurred that there is a disconnect between the PLCB and BLCE...and then did his nuisance bar thing. "You have to deal with this, but nuisance bars stay open. Can you explain that?" (which really wasn't fair, but Dominic rose to it quite readily) Dominic: "The State Police will investigate any tip; every tip is investigated. But the headline in the papers is "Philadelphia Wholesaler Raided." It's embarrassing, and we shouldn't have to deal with it."

Senator Pippy suggested -- to general head-nodding -- "Why not take a picture of the label and put it in some kind of database? It sounds like an easy fix." Well, yeah...only doing away with it entirely would be even easier.

Anyway...that was half the morning. After this, it would be the turn of the PLCB, the BLCE, and a surprisingly relevant Artie Tafoya of Appalachian Brewing. Stay tuned: more blow-by-blow, and then analysis.

*It hasn't been easy: I left the next day for Sierra Nevada (which is next on the list!), took Thomas to last visits at Vassar and Penn State (he finally decided he'd go to Boston University last night), and, of course, had plenty of wonderful paying work I had to do in there as well. Not making excuses, but you deserve to know why this took so long.

Should Maryland raise its beer tax?

I think you know how I feel about that question. But the Baltimore Sun wants to know what people think about the idea and has a no-registration-needed poll here. Go vote!

5 more Giant Eagles cleared for licensed beer sales in western PA

The beat goes on. Looks like the supermarket beer sale genie is loose, and no one is going to be able to put it back in. Whether Sheetz will be able to overcome the irrational prejudice against selling beer at a gas station or not remains to be seen (what is the issue: you drive to bars, distributors, State Stores...is it something about gasoline fumes that makes you helpless against the insane urge to drink while driving?!!!). Meanwhile, PA consumers are getting a tiny little taste...of normalcy. I challenge anyone to give me a good reason that supermarket beer sales are bad for consumers.

Brilliant idea from CAMRA (no, really!)

The Campaign for Real Ale has a fantastic idea: zero tax on beers that are 2.8% ABV or lower. I blogged about it over at The Session Beer Project; take a look.