More strangeness surrounding 1105

The Washington State Wire today reports on both the beer industry's $4+ million investment in "Protect Our Communities Beer Sales" NO on 1100/1105 campaign, as well as the bizarre donations from the backers of I-1105 to the No on 1105 campaign.

We noted last week that Young's Columbia, the northwest outpost of I-1105 sponsor Young's Market, also donated over $300,000 to state Beer and Wine Wholesalers PAC, which was regifted to "Protect Our Communities Beer Sales". In today's Wire article, I-1105's charming but excitable spokeswoman Charla Neuman dismissed the apparent contribution from Young's Columbia as "a complete and total error". She noted that the PDC report has since been corrected to show the donation coming from Columbia Distributing, and claimed that  Young’s Columbia and Columbia Distributing “are two separate companies.”

This doesn't hold water. Young's Columbia shares the same website with Columbia Distributing and describes itself as a

joint venture between Columbia Distributing and Young’s Market out of CA. They have a shared services agreement in that Young’s Columbia pays Columbia Distributing for warehouse, delivery, and administrative services on a per case basis. The agreement covers the entire states of WA and OR.

They also have the same offices and phone numbers. It's hard to believe that venture partners so closely joined at the hip would be making 6 and 7 figure investments on opposite sides of the same ballot initiative affecting them both.
 

The PDC still reports a smaller contribution from Young's Columbia to the Beer and Wine Wholesalers PAC on August 9. (see all contributions to the Beer and Wine PAC since July) According to the Secretary of State's corporation records, there are two entities registered in this state, Young's-Columbia of Washington, LLC and Young's-Columbia of Oregon, LLC. Both list as a Managers Young's Market executives Vern Underwood, John Klein and Dennis Hamann.

Not only that (and sorry we missed this last week), but the PDC also reports a $5,800 donation on Aug. 9 to the PAC from The Odom Corporation, jointly owned and affiliated with Southern/Odom, the other funder of I-1105.  This is all too cozy to be a coinkydink.

Finally, we were really surprised by Charla Neuman's quote to the AP last week:

I-1105 spokeswoman Charla Neuman said the best scenario would be for both initiatives to pass.

"The best of both could be merged," she said, saying that while I-1105 supporters want to keep the current three-tier system, the main point is to get an affirmative vote on privatization.

So the 1105 people have been playing all three sides here, at different times asking voters to pass 1105 and defeat 1100, pass both, pass neither.  Hmmm.

Beer interests double down, now in for $4+ million

According to today's PDC filings, the beer industry has poured another $2+ million into the "Protect Our Communities Beer Sales" campaign against selling (other forms of) alcohol in grocery stores.  The Beer Institute, representing the breweries, tossed in $1 million and the National Beer Wholesalers added their second $1 million.

The Wholesale Beer and Wine Association of Ohio, which, the last time we checked, doesn't do business in this state, even coughed up $20,000. Ohio is also a control state, so presumably this is a preemptive strike to try to ensure Ohio's voters don't get any wrong ideas in their heads about treating their adult consumers like grown-ups.

But we're most upset by the Oklahoma Malt Beverage Association's donation of $500. It's not enough for them to take our basketball team, they have to start meddling in our elections?

Are Initiative 1105's backers pivoting to simply oppose Initiative 1100?

We noticed two odd things today.

First -- As of this writing the Initiative 1105 campaign ("Washington Citizens Out-of-state Wholesalers for Liquor Reform Monopoly") has not updated its Facebook page or its Twitter feed in nearly a month.

Second -- Young's Columbia, the northwest subsidiary of L.A.-based Young's Market, one of 1105's two funders, has just donated $306,000 to the WA Beer and Wine Wholesalers' Assn. PAC.  As noted below, the WBWWA PAC, with its $1+ million investment, is the largest shareholder in the NO on 1100/1105 campaign.

Some have long suspected that the 1105 effort might merely be a ploy to confuse voters in order to obstruct 1100. 1105's backers, who also sell lots of beer and wine, have an interest in protecting their existing beer and wine revenues. At the same time they also have steady, easy work brokering spirits to the state store system. Why bother to change a sweetheart state-protected monopoly?

The recent OFM report, which, for all its other flaws, conclusively exposed 1105's promises to increase state revenue as bogus. 1105 has now lost the only selling point relative to 1100 that it ever pretended to have. Since Young's and Southern apparently believe that the status quo is better than losing their monopoly (and certainly better than letting Washington voters dismantle the "Three Tier System" and set a precedent for other states), perhaps they're letting the air out of 1105 and joining the "Protect Our Communities Unnatural Profits" NO on 1100&1105 campaign.

We're speculating here, but why else would the 1105 campaign have gone dark, and why on earth would the 50% funder of 1105 also provide, in effect, 13% of the No On 1105 campaign's $2.7 million war chest?

"Protect our Communities Beer Sales", indeed

Wow. Check out today's PDC filings. The WA Beer and Wine Wholesalers' Association has invested a cool $1,000,000 cash in the "Protect Our Communities" NO on 1100 committee. This is an addition to its earlier $94,000 in-kind contribution. The National Beer Wholesalers' Association has matched with another $1,000,000.

77% of the NO campaign's $2.7 million total is from the beer vendors.

Last week we noted the Washington State Wire's report on the state beer wholesalers' earlier in-kind contribution.

Other leading news outlets would do well to take note. Perhaps we can stop calling the NO campaign "a coalition of unions and church groups" and call it what it is: beer wholesalers protecting their grocery store shelf space from customers who would rather purchase other products.

Survey USA: Initiative 1100 is leading 59% - 27%

SurveyUSA / KING-5 poll released today shows that Initiative 1100 is leading 59% - 27%, with 13% undecided.

Initiative 1105 is also leading, but by a smaller margin: 54% - 29% with 17% undecided.

We haven't won yet. Take heed from Massachusetts. The Bay State voted on "Question 1" in 2006 which would have allowed more grocery stores to sell wine. Polls shortly before the election showed it winning 57-38. A cynical, but withering campaign featuring bogus horror stories about public safety risks  defeated the measure 56-44. The NO campaign was bankrolled by those afraid of new competition ("package" stores and beverage wholesalers).

A similar coalition, "Protect Our Communities Monopoly", is bankrolling the NO on I-1100 campaign here, for the same self-interested economic reasons, using the same bogus scare tactics.  Scaremongering aside, all the credible evidence shows that the differences between state vs. private stores have no impact on public safety.

Vote for the consumers to win in Washington.

File Not Found, Information Doesn't Exist

Go to the beer wholesalers' "Protect Our Communities Economic Rents" campaign website "Get The Facts" page and click on the link to a PDF file titled "Public Health Concerns with 1100 and 1105". Your browser will return a "404 File Not Found" error message. Heh.

Snarkiness aside, this illustrates a serious point. The so-called "Public Health Concerns" about I-1100 are little more than scaremongering fabricated by the beer wholesalers and others who are trying to protect the revenue that they would lose in a fair consumer-centered marketplace. There is no credible evidence that the state liquor stores achieve any of their purported public health and safety claims. 

Our friends in the substance abuse prevention and treatment community would do well to stop spending their valuable time and resources fighting I-1100, which has no reasonably foreseeable negative impacts on alcohol abuse (not foreseeable on the basis of empirical evidence, anyway). They should instead focus their efforts on measures that actually are effective at reducing alcohol abuse and its harmful consequences. Among the effective measures are enforcement of underage drinking and DUI laws. We remind those whose concerns about alcohol abuse we share, that alone among the three present alternatives (status quo, I-1100, I-1105), I-1100 is the only option which focuses the Liquor Control Board solely on reducing abusive and underage drinking, and also increases its budget for doing so.

Request for Information

This blog might be polemical, but it relies solely on solid and documented facts. We invite our readers to send us any unpublished documentation about Liquor Control Board operations and practices (e.g. obtained through public records requests), and documented information about the I-1105 campaign, the "Protect Our Communities Beer Sales" campaign and their respective backers.

e-mail: yes1100no1105 at gmail

Protecting their beer sales to help Washington families? Huh?

In addition to its $94,000 in-kind contribution to the "Protect Our Communities" campaign, the WA Beer & Wine Wholesalers Association PAC has raised $984,000 cash in the last month alone. That's many times more than they've ever raised in any single year.  It looks like they're ready to invest a lot more money to protect their communities beer sales.

It's ironic that the Wholesalers Association is the biggest investor in the campaign claiming outrage that I-1100 would cause the state to "lose revenue that helps Washington families" (when they say "lose", the only thing that's lost is the foregone opportunity for the state stores to artifically inflate liquor prices to raise money, instead of letting the Legislature transparently tax the stuff).  Ironic because the Beer Wholesaler Assocation's John Guadnola was also outraged last April when the Legislature increased the beer tax to raise another $58 million a year. Even more ironic because $58 million is just what the surplus from the state stores' artificially inflated mark up delivers to other government programs in a typical year.

Adding irony to irony here, in April Guadnola honestly expressed his main concern that the new beer tax would lead to "higher prices". But yesterday he expressed concern that 1100 would cause beer to become cheaper.

Outraged against a lawful tax on his own products, but more outraged at a "loss" of hidden fees on his competitors' products; Outraged at different times about both higher and lower beer prices. These inconsistent messages indicate a desperate campaign for a self-serving, the-heck-with-the-consumer agenda that can't possibly appeal to the voters' sense of fairness.

The Yes on 1100 initiative is for consumer choice, fair prices and honest taxes. Our opponents' campaign isn't.

No, Virginia, the Washington state stores' compliance rate is NOT the "best in the nation"

The Washington Liquor Control Board's primary claim for itself is that its no-sales-to-minors compliance rate is "among the highest rates in the nation at 94 percent". [2009 Annual Report, p. 10] Give the LCB the benefit of the doubt that its compliance rate (determined by the LCB's own inspectors) really is 94%.  As far as we know, the LCB has never produced any documentation comparing its compliance rate to that of any other state. Then again "among the highest" is a completely meaningless claim. Is Washington among the top 3 states, or among the top 30? Do they even have any idea how high they rank?

Nevertheless, the LCB's defenders, including the beer distributors' "Protect Our Communities Shelf Space" NO on 1100 campaign, one-up the LCB itself and claim that its compliance rate is "the highest in the nation". (e.g. here, here and here) Except that it's not the "highest in the nation". Not even close.

Virginia, which also has a state liquor monopoly, reports that its compliance rate is 97% [2009 Annual Report, p. 9]. Give both states equal benefit of the doubt reporting their own success rates.  The difference between 94% and 97% is the difference between a 3% and a 6% failure rate. Washington state stores serve minors twice as often as Virginia's do. And a 6% failure rate is not very good given that the state store system costs $100 million a year to operate and its single most important mission is to prevent minors from buying liquor.

There are a couple of lessons here: First, the folks behind the "Protect Our Communities Shelf Space" campaign invent "facts" for dramatic effect. They've given us plenty of material to debunk. Keep checking this blog for updates.  Responsible journalists should be careful about repeating their claims without verifying them first.

The second lesson is that the Liquor Control Board is squandering its resources running  an ineffecient store system, while failing to put enough resources into effective enforcement. The proof is in the pudding. Washington's underage drinking rate is worse than the national average, no matter how many times certain people say "best in the nation".  In recent years, the LCB's enforcement budget has actually declined, while sales expenses have ballooned.  If I-1100 passes, it will increase the LCB's education and enforcement budget by 20%.  This will enable more "best practices", such as more frequent compliance checks, which have been shown to be effective at reducing underage sales in other states.

"Protect Our Shelf Space"

The Washington State Wire reports that the Washington Beer and Wine Wholesaler Association is the primary contributor to the campaign opposing both 1100 and 1105. -- $94,000 out of $226,000. The NO campaign is called "Protect Our Communities", but as the Wholesaler Association's John Guadnola admits, its about protecting beer and wine's market share. As the wags at Modernize Washington's Facebook page put it, the campaign could call itself "Protect Our Shelf Space".  Guadnola's quote cracks us up:

There are some good public-policy reasons to oppose both proposals, Guadnola said. If either measure passes, the number of hard-liquor outlets in the state could explode. The measures would allow stores that currently sell beer and wine to apply for hard-liquor licenses – up to 5,000 of them if every eligible outlet wins a license. 
...
“We believe there would be a significant increase in underage access to liquor,” he said.

Uh, huh. ...  5,000 outlets selling beer and wine is not a public safety concern when they're selling his alcohol. It's only a public safety concern when they're also selling his competitor's alcohol.

Does he really have such a low regard for the intelligence of Washington's voters?

I-1100 will generate a good $300 million a year for state and local government

Certain press reports on the OFM's flawed fiscal analysis predict that I-1100 will cause the state to "lose" money. But they failed to mention an extremely important point. Initiative 1100 (but not 1105) maintains the current tax rates on alcoholic beverages. Last year these generated $223 million, $30 million and $20 million on spirits, beer and wine respectively. (It might seem a bit of a stretch to include beer and wine taxes in a discussion of spirits privatization, but the Liquor Board always includes beer and wine taxes in its accounting of what it "returns to the state", so we include it for an apples-to-apples comparison).

License fees and penalties, nearly all of which is distributed to other government programs as Liquor Board "profit",  amounted to another $12 million last year. Those will still be collected after 1100 passes. (New retail spirits licenses will be retained by the Liquor Board to increase the enforcement budget). When the wine currently sold in state stores is sold in regular retail stores, the same $2.5 million in retail sales tax collected by the state stores last year (and included by the Board in the total revenue it claims as its contribution to state and local coffers) will simply be collected by retail stores. Private sector retailers and wholesalers will also pay state and local B&O tax. Per the tax rates in the OFM's Tax Reference Manual, and using standard mark-up estimates, the total combined state+local B&O rate on wholesale+retail is about 1.7% of the manufacturer's price. Based on the Liquor Board's nearly $400 million in  product purchases in each of the last few years, B&O tax will bring in another $7 million or so each year..

Of course the specific numbers will vary from year to year and will depend on impossible-to-predict product prices and consumer purchase volume. Then there are known, but harder to quantify benefits such as increased tax revenue from state residents choosing to buy more reasonably priced liquor in-state, instead of buying out-of-state; increased private sector business activity from new private sector jobs, etc.

Another difference between current and post-1100 liquor revenues is the inflated "mark up" that the Liquor Board tacks on to the store price.  The foregone mark up would amount to about $29 million a year for the state general fund, roughly 0.08% of the total state budget of $35+ billion a year. A similar amount would be divided among all the cities and counties in the state.  The Legislature gets to decide next session, before the state stores close, whether it's necessary to raise the liquor tax by the same amount as the Liquor Board's excess mark up, or not.

I-1105's imaginary financial gains

The Initiative 1105 campaign claims that its initiative "guarantees $100 million or more in additional revenue to the state in the next 5 years" . But the initiative itself makes no such guarantee. It does repeal all existing taxes on liquor, replacing it only with a directive that the Liquor Board issue a non-binding recommendation to the Legislature for a brand new liquor tax. In other words, it repeals the liquor tax and the rest is up to the Legislature. That's a big difference between 1100 and 1105. If 1100 passes, the liquor stays the same unless the Legislature votes to change it. If 1105 passes, the liquor tax disappears, unless the Legislature votes in a brand new one.

Not to be deterred by the plain language of its own initiative which offers no assurances about new tax rates, the campaign posted on its web site last week projections claiming that I-1105 "will raise at least another $130 million revenue for the state, counties and cities over the next five years."
Curiously enough, the same campaign concurrently posts on a different page on its same website a completely different set of numbers claiming that I-1105 would increase revenue by $98 million.

The $130 million prediction assumes that the new tax would be $6.35 a liter, plus the normal retail sales tax of "8%" and a bonus $66.9 million from selling the liquor board's merchandising assets. The $98 million prediction assumes that the new tax will be $9.77 a liter, with no retail sales tax and $98 million from selling the board's merchandising assets.

What are the right numbers? $98 million or $130 million? $6.35 a liter or $9.77 a liter? Nobody can possibly know. But the 1105 folks do have vivid imaginations.

Spending more to sell less

The Liquor Control Board has released its (unfinalized) financial statements for Fiscal Year 2010 (ended June 30).
Here are the 2010 Operating Statement and the 2009 Operating Statement. The OFM's invaluable fiscal.wa.gov site, which has detailed information about all state agencies and funds, also has additional information about the Liquor Board's financials.

Note how the numbers have changed since 2009. Net pre-tax sales appear to have increased, from $558 million in 2009 to $579 million in 2010. But that's only because the board imposed a massive temporary price increase starting last August, to raise more money for state programs. (State officials thought that would go down smoother with the voters than having the Legislature go on the record and vote to raise the liquor tax).

If you look at the Cost of Goods Sold (the liquor stores' total cost of products purchased from its suppliers, at suppliers' prices), that decreased from $399.1 million in 2009 to $379.5 million in 2010 -- with both the higher prices and the recession, customers are buying less expensive brands and also less volume over all. Nevertheless,  the total spending on operating the stores (sum of "Direct Sales Expense" and "Other Expense Applicable to Merchandising Function") increased from $101.2 million in 2009 to $102.0 million in 2010. What changed to account for more spending -- among other things, according to the OFM, merchandising head count went up, from 833 employees to 888. Selling less, and spending more to do so.

The other noticeable change since last year -- resources for licensing and enforcement declined from $18.5 million to $16.4 million -- a mere 14% of total spending.

Wouldn't it better to let the private sector sell products more efficiently, and let the Liquor Control Board spend 100% of its time and attention enforcing alcohol safety laws? That's exactly what I-1100 will accomplish

What are the differences between 1100 and 1105?

Among the key differences:


1. 1100 is pro-consumer. It was started by a grassroots movement and eventually won the backing of Costco, other grocery stores (both small and large), restaurants and family wineries. It would introduce a fair, modern and competitive marketplace with fair prices (lower than in the state stores), innovative products and a broad selection.

1105 is pro-middleman, but expensive for everybody else . Its only backers are two out-of-state wholesalers -- Southern Wine and Spirits of Miami, Florida, the largest liquor distributor in the U.S., and Young's Market of Los Angeles, California. Together they paid more than $2 million to get 1105 on the ballot. Their purpose is to secure a monopoly on liquor sales in Washington State. 1105 would require all sales of alcoholic beverages to pass through these middlemen on the way from the producer (winery, brewery or distiller) to the retailer. Without the legal requirement, producers would often choose to sell to wholesalers, and retailers would often choose to buy from wholesalers anyway. But with 1105 there's no choice. Even when it's more economical for retailers to buy directly from producers, 1105 would require them, under penalty of law, to pay the middleman for services they neither want nor need.

Of course the retailers and restaurants who support 1100 are doing so because it benefits their businesses. But their interests here are aligned with the customers they serve. They win customers only by offering fair prices and good selection -- which is what we'll get with 1100. With 1105 on the other hand, the added costs of carrying the extra middleman would passed on to the consumer. The middleman monopoly would make us all pay more, with no added benefits of any kind.

2. 1100 preserves existing liquor taxes. Liquor prices and state tax revenues are stable and predictable.


1105 repeals all existing liquor taxes, replacing them with what, nobody knows. Its sponsors promise to increase revenue for the state, but 1105 actually wipes out current liquor taxes ($223 million last year). It replaces current taxes only with a mandate that the Liquor Board make a recommendation that the Legislature create a new liquor tax to be higher than the current liquor tax by about $120 million a year (a  55% increase). Nobody knows what the Liquor Board would actually recommend. The Legislature isn't bound by the Liquor Board's recommendation, it can do whatever it wants. We could either end up with a massive tax increase (and much higher product prices), or a gaping hole in the budget, or both. And we wouldn't know which one we'd get until after we voted for 1105. A vote for 1105 is a vote for an unpleasant surprise.

3. 1100 will reduce alcohol abuse and improve public health and safety: Under 1100, all fees from the new liquor licenses must be used for licensing, enforcement and education to reduce abuse and underage drinking. This will increase the enforcement and education budget by 20%.

1105 imposes more enforcement requirements on the Liquor Board, without increasing resources. The Liquor Board will have less time and fewer resources to spend on enforcement and education against abusive and underage drinking. Instead, it will have to spend more time and resources on purely economic regulations, which only protect the wholesalers monopoly, with NO benefits to public health and safety.


Read the texts of both initiatives and confirm for yourself -- I-1100 and I-1105

and Vive la Difference!