A few questions for Sen. Mike Hewitt (UPDATED)

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State Senate Republican Leader Mike Hewitt appears in a video ad for the beer industry's "Protect Our Communities Shelf Space" NO on 1100/1105 campaign. The ad should prompt diligent reporters to ask Sen. Hewitt a few questions:

Before he proclaims his opposition to both 1100 and 1105, Sen. Hewitt tries to show his bona fides by claiming that

"I co-sponsored legislation in the State Senate to privatize liquor sales"

Question 1: Sen. Hewitt, which bill exactly did you co-sponsor?

While we'll stop short of saying conclusively that he never co-sponsored any such legislation, we can't find any evidence that he actually ever did. The list of all bills he's co-sponsored since he joined the Senate in 2001 can be found here.  As far as we can tell, none of his bills would have privatized liquor sales. He definitely wasn't a co-sponsor of any of the three Senate privatization bills in the 2010 session  that we know about (SB 6204, SB 6840, SB 6886). As anonymous bloggers with an axe to grind, we can't just call him up and ask him to tell us the number of the bill that he claims credit for.  But we encourage our friends in the media to do just that.

Sen. Hewitt did sign on to a Seattle Times op-ed last January that called for liquor store privatization, but it doesn't appear that he actually did anything to follow through.  Now that there are two privatization measures in front of the voters, he turns around and claims in the video ad that these initiatives are "exactly the wrong way to go about it".

Question 2 part 1: Sen. Hewitt, what is "exactly the right way to go about" privatizing liquor sales, and how is that different from these bills? 

Question 2 part 2: And why didn't you introduce exactly that bill during this year's session when you had a chance to do so?

We will link to any news articles in which these questions are asked and answered. If Sen. Hewitt wants to e-mail us directly with his answers [yes1100no1105 -AT- gmail.com], we'll post his response in full.

UPDATE 9/29 4:00pm: Progress report: Michelle Dupler of the Tri-City Herald e-mailed to say that Sen. Hewitt sponsored SB 5729 "Concerning Alcohol Sales", filed in January 2009.  This bill would have converted 25 state owned stores to contract status, changing the mix from 160 state / 155 contract to 135 state / 180 contract. The state would continue its monopoly on distribution and setting prices at all retail stores. We don't think this meets any reasonable standard for "privatizing liquor sales".

Gas station mini-marts joining the pile-on against gas station mini-marts?

The latest bizarre twist in the NO on liquor privatization campaign, courtesy of today's Seattle Times:

Some small retailers worry about I-1100, too.

"It's wide open and means volume discounts for Costco and other large stores, which makes it very competitive for the smaller stores," said T.K. Bentler, executive director and lobbyist for Washington State Neighborhood Stores [sic], a group of 500 independent convenience stores.

Despite the Washington Association of Neighborhood Stores cuddly name, it isn't only about "independent" "neighborhood" stores, unless your neighborhood is a highway rest stop. The organization is dominated by large chains of gas station mini-marts. Its board of directors includes executives from the 103 store Plaid Pantry chain, BP, the 7-Eleven Franchise Owners Association and local gas station chains like Yorkston Oil. Here are some photos of WANS members.

And who is the beer industry's NO on 1100 "Protect Our Communities Excessive Beer Prices" holding up as the poster child of Stores-That-Can't-Be-Trusted-To-Sell-Beer-Responsibly-So-We-Can't-Let-Them-Sell-Other-Forms-Of-Alcohol?

So... Let's see if we can get the NO on 1100's overall argument straight. It's okay (not great, but not worth changing the law over)  to allow gas station mini-marts to sell beer at current prices between 6am and 2am. But if 1100 allows consumer-driven competitive pricing,  they won't be able to compete against larger retailers (against whom they are currently able to compete selling every other product even though there's competitive pricing on every other product). But even though they supposedly can't compete selling alcoholic beverages, there will still be a lot more of them selling scotch until 2am, which is somehow infinitely more dangerous than selling beer until 2am.

Of course this makes no sense whatsoever as a public safety argument. The real motivations here are that the beer industry doesn't want competition from other forms of alcohol. And nobody who currently wants to sell beer at prices which are artificially inflated by government-enforced anti-competitive restraints wants to give up their inflated prices. But inventing imaginary public safety problems makes better television than asking voters to vote to preserve pointlessly higher prices.

At least he's honest about it

We swear we're not making this up. It was on an eastern Washington TV or radio station website last week, and seems to have disappeared into the memory hole. Silly us, we saved the text, but forgot the link. You'll just have to take our word for it, the quote is better than anything we could imagine. From a wine maker in Zillah:

Sales Manager for Hyatt Vineyards, David Adair said "[wine is] just a huge very valuable input for every economy here. If that's threatened, those dollars will go away."

Initiative 1100, on the ballot this November would privatize liquor sales.

Adair says if I-1100 passes, it will hurt the local wine industry because it would take wine off store shelves, to make room for hard liquor.

"We need as many shelf feet as we can get. Those shelf feet are going to be smaller when spirits are allowed to be sold outside of the state liquor system," Adair said.

Consumer choice? Feh. What else does Adair want the government to ban from grocery stores in order to protect his shelf feet? Grape soda? Milk?

Brilliant

Ryan Ryals of the Covington Reporter has a great answer to the few beer and wine producers who pout that they are somehow deserving of current "legal protections" (which are unique to alcoholic beverages, but irrelevant to public health and safety considerations): "Follow the liquor money and decide on intiatives"

“But we need the current laws to protect the little guys!”, they might say. Well, what about other markets? I’d like to make a breakfast cereal called Ryan’s Raisin Flakes, which would be made here in Washington. However, I can’t compete with Kellogg’s and Post for shelf space, and their prices are far lower than I can sell my cereal for.

Should we make some new protectionist cereal laws so that I can employ 20 people to make Ryan’s Raisin Flakes? Should the state start opening breakfast cereal stores, and restricting wholesale cereal prices so I can compete? If you said no, then please tell us why you don’t support jobs in Washington.

And that’s the biggest argument you hear whenever a protectionist law is lifted; “We’re going to lose jobs in our state”. Yup, we probably will. But are those jobs worth saving? They’re artificially supported by higher prices charged to you and me, which are more like hidden taxes

Ryals concludes:

You can tell that I’m in favor of this initiative [I-1100], but please research it and decide for yourself. And remember, public safety and health are not at risk here; this whole issue is only about money. Where do you want your money to go? 

Time to let the consumers reign (for a change)

Fred Obee of the Port Townsend Leader makes what strikes us as a strange argument about Initiatives 1100 and 1105:

There may be good reasons to take down the state liquor store system, but I would feel a lot more comfortable with the idea if the proposal had been fashioned and vetted in the state Legislature. That way, we could have heard the testimony of wholesalers and small wine and beer producers. That way, we could have weighed the impact of revenue losses more carefully.

It’s not too late to have that conversation. All we have to do is vote no on both measures.

Huh?

The Legislature created the state liquor store system in January 1934 and has spent the last 77 years maintaining that system. None of the several liquor privatization proposals fashioned by legislators last session were even vetted out of committee. To think that the Legislature would act differently any time soon seems less than realistic -- especially if both I-1100 and I-1105 are defeated by voters this fall. If voters defeat both measures, your typical legislator's reaction to any liquor privatization proposal for years to come would of course have to be "Well no, the voters said they didn't want that". 

Obee's main concern might be what he calls the "revenue losses". We reject the notion that the state's discontinuation of a retail business can fairly be called a "revenue loss", but it's not unreasonable for Obee to want the Legislature to preserve some or all of the liquor board's current surplus sales revenue. That surplus revenue is really a de facto liquor sales tax imposed by the Liquor Board. The Legislature can vote to fold the Liquor Board's sales tax into the proper statutory liquor tax any time it wants to, whether I-1100 passes or not.


Finally, we see no appeal in kicking this issue to the Legislature in order to hear the testimony of wholesalers and small wine and beer producers. The Legislature hears from their lobbyists all the time. We don't believe that economic regulations should be fashioned and vetted by business lobbyists to give advantages to their clients. Economic regulations should be enacted (or repealed, as in this case) to provide a free and fair marketplace for consumers, and by extension for the businesses who best serve the consumers. The Legislature has chosen not to take up the consumers' cause here. Now it's the voters' turn.


For voters who want a fair marketplace and for the liquor board to concentrate on protecting public health and safety, the only sure way to achieve that is to vote YES on 1100.

Francisco Franco is still dead ...

... and so is the link to the document "Public Health Concerns with 1100 and 1105", which is alleged to exist by the International Beer Industry's "Protect Our Communities Inefficient Distribution Network From More Efficient Retailers" campaign.

We first noticed and mentioned this on August 22. The link is still dead 23 days later. We now add to the list of "Books that Were Never Written": Public Health Concerns with 1100 and 1105 by Ann Heiser Bush.

Hopping Mad: What the beer boys fear about I-1100 (in addition to losing shelf space)

What the beer manufacturers and distributors fear about I-1100 is losing their government-enforced anti-competitive trade restraints.

These antiquated protectionist measures, imposed after prohibition with the intent of preventing the return of the 1890s saloon, were exposed to modern sunlight and became local news in 2004 when, as the P-I then summarized it:

Costco Wholesale Corp. is suing the Washington State Liquor Control Board, alleging its distribution regulations for alcoholic beverages limit competition and force retailers to charge higher prices for beer and wine.

Among the distribution regulations at issue in Costco v. Hoen:

• Beer and wine manufacturers and distributors required to post their prices with the liquor board and "hold" those prices for a month
• Beer and wine distributors required to charge uniform prices to all retailers
• Requirement that beer and wine distributors charge same "delivered" price to retailers regardless of actual delivery costs
• Prohibition against volume discounts to retailers
• Prohibition against sales to retailers on credit
• Prohibition on central warehousing of beer and wine by retailers
• Prohibition on retailer-to-retailer sales

The same Washington Beer and Wine Wholesalers Association which is now frightening mothers with Halloween stories about the supposed deadly social costs of (other vendors') alcohol in grocery stores, joined the Liquor Board as an Intervenor Defendant.

As usual, the LCB and the WBWWA tried to argue that these restraints delivered all kinds of public health, safety and other benefits to the People of Washington, other than transfer payments from consumers and efficient retailers to inefficient beer distributors and extra bureaucrats.

After being forced to listen to a lawyered-up version of this press release for several days, Federal District Judge Marsha Pechman ruled that the defendants' claims that the challenged restraints offered public benefits were equivalent to the end result of  feeding beer byproduct to livestock. As she wrote in her Findings of Fact and Conclusions of Law:

The Court concludes that the challenged restraints are ... either ineffective or only of minimal effectiveness in promoting temperance, ensuring orderly markets, or raising revenue. ... the state's interests do not outweigh the federal interest in promoting competition under the Sherman Act.

Costco won on nearly every point.

Later, however, most of Judge Pechman's ruling was overturned by the Ninth Circuit. But ONLY on the grounds that the Sherman Act does not preempt state law regarding most of the restraints. In its opinion, the Ninth Circuit did not dispute Judge Pechman's findings of fact regarding the anti-competitive and overall uselessness of the challenged restraints. Indeed it noted that:

The ban removes from the market certain firms or persons who might otherwise compete; with fewer, and likely larger, horizontal competitors, prices for the consumer may be higher than they would otherwise be in the absence of the ban. But the potential anti-competitive effect is not the result of private pricing or marketing decisions, but the logical and intended result of the statute itself.  

Nevertheless:

The State failed to demonstrate that its restraints are effective in promoting temperance;

So there. To the beer wholesalers, however, the state-enforced anti-competitive price-jacking is what they were and still are fighting for.

And if it wasn't already clear, I-1100 eliminates most of those same trade restraints.

Among those who filed Amicus Briefs in the appeal were the same beer interests that are funding the "Protect Our Communities Anti-competitive Trade Restraints" campaign -- the National Beer Wholesaler Association and the Beer Institute (whose #1 member is Anheuser-Busch, St. LouisLeuven, Belgium. It's touching that those Belgians care so much about protecting our communities! Perhaps it's out of gratitude for Herbert Hoover)

The Liquor Board used to post the Costco v Hoen documents on its website. They were silently taken down sometime after Costco announced its support for Initiative 1100. Hmm.  You can still find many of the filings and exhibits here at the Way Back Machine.
 

Has Initiative 1105 thrown in the towel?

As we remarked two weeks ago and notice again today, the I-1105 campaign hasn't updated its Twitter feed or  Facebook page since July 27. The Facebook page has a paltry 118 fans, compared to the new I-1100 page, which recruited over 1,500 fans in barely a month.  The 1105 campaign website hasn't been updated since they posted a hallucinatory "revenue estimate" on August 10 (the day before the OFM torpedoed 1105's only plausible selling point by calling out the Emperor of "more revenue" for wearing no clothes).

Meanwhile, I-1105's charming and formerly excitable spokeswoman Charla Neuman keeps making the defeatist plea (first noticed here, most recently here) that voters "should vote for both measures". At the Tacoma News Tribune's endorsement interview, she stated that the two initiatives were not in competition. (This is a distinct change from early summer when she expressed the non sequitur that I-1100 would bring us the "Wild West").

Last month's SurveyUSA poll showed 1105 leading, but 1100 winning more decisively. I speculate that 1105's internal polling shows that their support is soft and possibly depends on enough tax-happy voters buying their now discredited claim of a "guarantee" of higher revenue. The non-scientific web poll at the Puget Sound Business Journal shows that 46% of respondents would vote for 1100 alone, 34% would vote for both measures and a pitiful 3% would vote for 1105 alone.  If they ever expected to win for real while defeating 1100, they've probably looked at their prospects and concluded it's too tough and expensive of an effort for its poor odds of success.

So what do they accomplish by pulling back on their own messaging and tying themselves to 1100? If their real goal is to defeat 1100 and maintain the status quo, they've done their part by confusing voters, sticking 1100 with its odor of worse financial consequences than it actually has, and letting their beery siblings do the heavy lifting. Alternatively, if they're genuinely motivated to win, but realize they can't win through the ballot box alone, their next best option is encouraging both to win and letting the courts and/or Legislature sort out the mess -- where their lawyers, lobbyists and ability to influence elected officials [look up by employer = Southern Wine] can give them a better deal than the voters are likely to.

Either way, the 1105 campaign is remarkably strange.

$#*! My Liquor Board Says, Episode 1, Part 2

The Seattle P-I's Chris Grygiel also busted the LCB yesterday over its bogus claim that loss of the state store mark-up would strip the LCB of its funding for licensing and enforcement.

The P-I: "State wrongly says privatized booze would hurt enforcement"

But the "clarification" by the LCB's Brian Smith of his original bogus statement is still bogus:

"The $23 million wine tax would cover Board expenses under a privatized system," he said in a recent e-mail to seattlepi.com. "That money is currently going to the state and local communities because the Board's expenses are currently covered by markup. For the Board to use that will be a takeaway for state and/or local government. I've heard the Initiatives take credit for their initiative(s) to fund the LCB. It (or they) don't. The funding already exists in statute."

As both we and Grygiel pointed out yesterday, the OFM Tax Reference manual specifically states that "expenses of the Board are first funded" by the Wine Tax before any surplus may be distributed to other government programs. Not to mention that his "clarification" is at best accounting gobbledygook. The LCB is already complaining about the total amount of "lost" mark-up. The latest statement is an attempt to count this "loss" twice.

The LCB needs to come clean with a clear and truthful disclosure of its finances.

$#*! My Liquor Board Says, Episode 1

Unfortunately, LCB officials eager to hold onto "their" retail empire, have resorted to spreading false information about I-1100's alleged impacts in order to frighten voters into voting NO.

Perhaps the most outrageous $#*! the LCB says is that the state store "mark-up" is the sole source of funding for LCB operations, including licensing and enforcement.  Therefore, they claim, loss of the state stores would leave enforcement "unfunded".

In recent days, LCB spokesman Brian Smith has been quoted saying this to both the Seattle Weekly (here) and The Stranger, here:

"We pay for ourselves in the markup," says Brian Smith, spokesman for the WSLCB. "Without it, we can't run enforcement, licensing, alcohol-awareness programs, or the liquor control board."

Baloney. According to the LCB's own internal financial documents, which we've obtained, 100% of the board's funding for licensing, enforcement, education, rule-making (everything except merchandising) comes from a dedicated portion of the wine tax and from license fees and penalties. None of it came from store sales. The current funding sources are untouched and retained by I-1100.  Furthermore, I-1100 specifically requires all fees from new liquor licenses to be spent on licensing, enforcement and abuse prevention (See Sec. 1.9 of the Initiative Text) -- that's several million of dollars of additional funding a year, depending on the number of new licenses.

The Gory Details
See the Operating Statements for FY 2009 and FY 2010 respectively. Notice how the LCB strictly segregates revenues and expenses for Merchandise Function from those of the Licensing and Enforcement Function.  The LCB spent $18.6 million on licensing and enforcement  in FY 2009 and $16.8 million in FY 2010.  Everything having to do with Licensing and Enforcement is funded out of the total Wine and Beer Taxes and Licensing Fees and Penalties, with a large "Net Revenue" left over after the operations are funded. Other LCB documents we've reviewed show that the Licensing and Enforcement function is almost entirely paid for by the wine tax, with but a small portion coming out of license fees. The dedicated funding from the wine tax is confirmed by the OFM's Tax Reference Manual , specifically in the Wine Tax section.

"Basic tax of 20 cents per liter (3.59 cents for cider); receipts go to the liquor revolving fund from which expenses of the Board are first funded"

On top of this, other LCB documents also show that all of the Beer Tax (about $30 million a year) and nearly all of the Licensing Fees ($11 - 12 million a year) are distributed and advertised by the LCB as part of the "profit" from the state stores. Seriously. The internal documents seem credible, but in public issuances they're padding the numbers.

(We don't want to bury readers with too many details, but we'll provide additional confirmatory documents upon request)