Private clubs, middle ground?

The Prohibition is known as the noble experiment ... that failed! The lesson learned from the experiment that legislating morality and person conduct is difficult. Not only is it difficult, it has proved to be counterproductive, since drinking increased during the 1920s, with an estimately 100,000 speakeasies in New York alone. While the Prohibition was repealed, states are empowered to make their own legislature when it comes to how it regulates alcohol. The focus of this blog is on how Arkansas has exercised this right.

Arkansas operates on a “local option” system, under which each county or city may determine whether alcoholic beverages may be sold in that area.  The 1969 law allows a private club to exist in a dry county as a nonprofit corporation with certain purposes “other than the consumption of alcoholic beverages.” Then in 2003, the law was amended to add three more purposes for private clubs — community hospitality, professional association and entertainment. The map below represents the unofficial "wet-dry" status of the counties in Arkansas.

"In a wet county, the retail sale and manufacture of alcoholic beverages in legal. In dry counties, only a private club permit may be issued." It is interesting to note that "most of the wet counties have dry areas within their borders such as townships or cities." Every year these areas can put local option on the elections through petition during November General Elections

The issue gets complicated due to the private club permit provision within the regulation. For example, Cleburne County is “dry;” that is, alcoholic beverages may not be sold to the general public. Even so, alcoholic beverages may be legally dispensed through non-profit private clubs, provided certain criteria are met by those establishments.  This bothers people and organizations, such as The Dry Counties Coalition, who believe if the county has voted to be “dry,” it should actually be dry. In order to accomplish this, Arkansas General Assembly would need to actually change the law.  

The bizarre practice of "voting dry, but drinking wet" is a consistent theme with American's relationship with liquor. On the one hand, our nation sees it as a sin, an immorality that is not good for individuals and society. However, people want to drink and so they do. Further, because of this desire, alcohol regulations can have economic effects on an entire town. In fact, Arkansas Legislature highlighted this conflict in their alcoholic beverage control law which states that "such activities will be strictly regulated, but then acknowledges the importance of tourism and conventions to the state; the competition among states for them; and proclaims that visitors to the state must be provided “accommodations, services and facilities” to allow Arkansas to be competitive with other states."

An example of the detrimental economic effects of being dry is the history of Monmouth, Oregon, which was the last dry town on the West Coast. OBP's historical piece is an insightful reflection on the turmoil regarding this issue. Ultimately, the economic impact on the town was just something that cannot be ignored. In fact, it even lost its supermarket due to population loss. It seems holding onto the dream of a dry county makes no sense if you don't have any people left.

Summary of: “GRAPES OF WRATH? HOW THE UNITED STATES CAN REDUCE THE NEGATIVE EFFECTS OF WINERY WASTEWATER”

Grapes of Wrath is not only a John Steinbeck novel relaying the trials and tribulations of Okies on their way to California pushed out of their homes because of the Dust Bowl, but also a 2009 Law Journal article by Kristen Cunnhingham that discusses the negative effects of winery wastewater. What a clever title. (Non-bluebooked citation: GRAPES OF WRATH? HOW THE UNITED STATES CAN REDUCE THE NEGATIVE EFFECTS OF WINERY WASTEWATER, Kristen Cunningham, 20 Colo. J. Int'l Envtl. L. & Pol'y 223)

This blog will give a brief summary and overview of said article.

I. The Economy of Wine: The article begins with an introduction to the increasing size and scale of winemaking in the United States, and California in general. Citing a 2007 report by Congress, the article notes that the winemaking industry contributes more than $162 billion annually to the American economy. That’s a lot of money. California alone produces 95% of the wine in America, and 61% of all the wine consumed in America. Given those numbers, the economic impact of winemaking, in the United States and California, is massive. With all industries that can create massive positive economic impacts, there is generally a strong push by local, state, and federal government to encourage growth in that industry (even if that impact means increasing consumption of Alcohol. Let’s party!). However, beyond encouraging a “nation of drunkards” thirst for booze, encouraging winemaking as an industry also presents environmental problems. The article presents this information as a way to introduce the idea that, this potential economic growth must be accompanied by the regulations that take into account winery wastewater and its effect on natural resources.

II. Wastewater Concerns of Winemaking: Some of the concerns that winery waste water include:

·         Discharges of high levels of sugars: It doesn’t take much imagination or insight to realize that winery wastewater will likely include high levels of sugars. But what environmental effect do those sugars have when released into the natural environment? Well, as the article explains, microbes in the water are suddenly provided with an enormous food source, the associated consumption gives rise to increased oxygen consumption creating an oxygen-deprived environment that can suffocate the plant and animal life that depends on oxygen for respiration. (I’m not a biological expert, but this reminds me of the “dead zones” that occur due to fertilizer discharge – which I understand to basically mean that fertilizer that is not absorbed in farms makes its way into groundwater, and then ultimately into areas like the Gulf of Mexico, after traversing the Mississippi, and ultimately leading to massive growths of algae fed by fertilizers and ultimately altering the environment for other aquatic plant and animal life. Rant over.)

·         Unforeseen Chemical Reactions: Additionally, these sugars can combine with other chemicals typically found in water and result in dangerous chemical reactions. For example, sugars combined with chlorine - typically found in drinking water sources – can result in carcinogenic compounds that have been found to cause increased risk in cancer for humans. (I’m not trying to ruin your fun when drinking wine, I promise)

·         Improper, insufficient wastewater treatment and filtering

III. Technological Innovations: Cunningham next looks at two wastewater treatment technologies that can help alleviate some of the aforementioned concerns and promote sustainable practices.

I’m no expert, but both technologies seem to involve treatment that involves adding bio-matter that can feed off of, or react with the sugars in a way that can result in an easy to remove the end-product, or

IV. Current Domestic Laws: In this section, the article looks at the Clean Water Act (“CWA,” which we are discussing today!), and California’s wine regulations.

·         Clean Water Act: After a brief discussion of the CWA, the article notes that under the CWA, wineries are categorized as point sources because they discharge directly into waters of the United States. However, they are categorized as a general food producer, not a more specific regulation directly focused on wineries. The author proposes that a more specific category could be more effective to address the concerns raised directly by wineries.

·         California’s Regulations: California, as a major wine producer, has some regulations which wineries must comply with at a more specific level. If a winery’s discharge, but not grape growers, will affect the state’s waters, it must apply for a General Waste Discharge Requirement permit (WDR) with the Regional Water Board. If given a WDR permit, the winery must publish a description of their project, provide that to the board, and give notice to local residences and businesses. Ultimately, the permit sets effluent limitations and prohibits discharge to surface waters.

V. International Models: The article next summarizes some regulations established by South Africa, the European Union, and Australia, how they differ and how some of those methods could be implemented in the US.

VI. Proposals: Lastly, the article presents some proposals to regulate the wine industry and its wastewater. Some proposals include:

·         Adding the wine industry as a subcategory within the CWA, with apple/citrus juice producers to ensure that winery effluents meet stricter and standards specifically focused to the concerns presented by wineries.

·         Promoting a national policy to favor sustainable wine production (following the EU’s lead), and provide subsidies for following newly established “agri-environmental” measures.

·         At the state level, follow California’s lead, and require permitting specific to winemaking discharge.

VII. Conclusion: Ultimately the article concludes that the growth of winemaking needs to be addressed with preemptive law and policy action to protect the nations water resources from the potential harmful effects of increased winemaking.

Drink up!

Costco will not Lend a Hand in Neighboring States' Efforts to End State Monopolies on Liquor Sales

Last fall, Costco (COST) contributed almost all of the $22 million spent in a campaign to end the state monopoly on liquor sales in Washington. Voters passed Initiative 1183 on November 8^th, dissolving the state-owned liquor stores and replacing them with licensed, private-party distributors and sellers. Despite their success, Costco has announced that it will not contribute financially to liquor initiatives in other states. If similar efforts come to Idaho and Oregon, a lawyer for Costco Wholesale Corporation says, “We’re going to be cheering on the sidelines.”

Costco’s victory inspired supporters in neighboring states with similar liquor controls and caused lawmakers to take notice as well. Referring to liquor regulations that date back to Prohibition, Oregon Republican Representative Bill Kennemer said, “Things have changed since 1930, and it would be good to have another review about what we’re doing.” Oregon’s liquor laws only allow the sale of hard alcohol in stores run by state-licensed agents. Idaho has similar liquor laws. However, with Costco out of the picture following their victory in Washington, one article speculates that ballot initiatives are unlikely this year.

In the meantime, state officials have been working to preempt such efforts. In Oregon, the Oregon Liquor Control Commission proposed to allow grocery stores to open “store within a store” liquor operations and allowing some liquor stores to sell beer and wine. Grocery chains, however, think that the proposal is insufficient to satisfy their desire to break into the liquor business. Additionally, an Oregon House committee will spend the summer and fall dissecting the issue and potentially drafting legislation to open the liquor system to private parties. However, the article previously mentioned also speculates that the Legislature will want to ensure that the broadening of the liquor market won’t cause social consequences like an increase in drunk driving and alcoholism, or reduce the state’s revenue from liquor sales.

Where do these state monopolies on liquor come from?

Following the repeal of Prohibition and the ratification of the 21^st Amendment, states were given the freedom to craft their own alcohol regulations. Some states chose the “license” model, in which manufacturers and sellers obtain licenses from the state in order to carry on their business, while others chose the “control” model, in which the state maintains a monopoly (to varying degrees) over the alcohol market.

The theory behind the “control” model was that it enabled the state to prevent the evils Prohibition was aimed at extinguishing (“intemperance,” crime, adultery, spousal abuse, prostitution, gambling, etc.) by controlling the location, operating hours, and even advertising of liquor stores.

Washington, Oregon, and Idaho are all examples of states that chose the “control” model. They each opted to keep hard liquor under the complete control of the state and allow for its sale at state-owned liquor stores only (beer and wine, however, is sold at grocery stores). The passage of 1183 in Washington eradicates the State’s exclusive control over hard liquor and instead passes it on to distributors and sellers that possess the proper licenses.

The push (and push-back) to end state monopolies: 

There are several parties that are interested in the eradication of the state monopoly on liquor. First, consumers are interested in ending monopolies like those that still exist in Oregon and Idaho, because it gives them the option to buy hard alcohol from retail giants like Costco, that provide large quantities at a lower cost. Second, there are private parties, including grocery stores, that wish to capitalize on the liquor market by selling or distributing hard liquor. 

Opposed to the eradication of state monopolies on liquor have traditionally been the states themselves, that fear that relinquishing control on hard alcohol will mean an increase in alcoholism and drunk driving and a decrease in the state revenue generated from state-owned liquor stores. 

Apathetic parties don't see the difference- if consumers want alcohol, they are going to get their hands on it. This begs the question...are "control" states more concerned with revenue, or public health? 

            

Wine-O Canada

While the United States deals with its own challenges regarding shipping of wine across state lines, our neighbors to the north face a similar problem. Though the laws of some of our own states may seem archaic and overly stringent, they pale in comparison to at least one Prohibition-era law still on the books in Canada. Under the 1928 Importation of Intoxicating Liquors Act, provinces are able to prohibit individuals from carrying wine and alcoholic beverages across provincial lines, let alone receive direct shipments from out of province wineries. Presently, some in Canada are trying to remove this vestige of the Prohibition-era, but are facing significant pushback from the provincial liquor boards.

History of Prohibition in Canada

The temperance movement was not unique to the United States, and our country was neither the first nor last to prohibit alcoholic beverages. Russia, Iceland, Norway, Finland, and Canada each had their own prohibition eras. Just as in the U.S., however, each faced the same fate as a result of opportunistic bootleggers and organized crime.

Much like the United States, religious and women’s groups were the lead proponents of prohibition early on, hoping to cure the social ills they believed to be caused by intemperance. Canada’s first prohibition on the sale of intoxicating liquors occurred during the War of 1812, when an Act was passed as a temporary war measure to prohibit the exportation of grain restrict the distillation of spirituous liquors from grain.

In 1878, the Canada Temperance Act was passed as a local-option measure, prohibiting the sale of intoxicating liquors in those localities that decided to adopt it. In 1898, an official, though non-binding, federal referendum on prohibition was held, receiving just over half the votes for prohibition. Despite its popularity, however, the government chose not to introduce a federal bill on prohibition. Therefore, Canadian prohibition was enacted through laws passed by the individual provinces. By 1921 every province except Quebec and British Columbia had declared for prohibition. However, the provinces repealed their prohibition laws, mostly during the 1920s.

Advocates of the temperance movement realized that they would not be able to keep the population from drinking entirely, but were able to pressure all of the provincial and territorial governments to curtail the sale of liquor through the tight control of the liquor control boards.

In 1928, the federal government passed the Importation of Intoxicating Liquors Act. This Act gives provincial liquor control boards monopolistic power and control over the importation, inter-provincial shipment, distribution, and retailing of wine and other alcoholic beverages in Canada. Taking liquor across provincial borders is a federal offense. Though it appears that no one has ever been prosecuted under this law, in the current era of internet ordering and transcontinental shipping of wine, it may prohibit individuals from easily accessing and enjoying wines from other regions, and prove to be a detriment to Canadian wineries.

The Legal Argument

Under existing law, Canadian wineries can ship to liquor stores, but not directly to customers. Alcoholic beverages cannot be sent or taken across provincial boundaries unless prior arrangements have been made to consign he shipment through the liquor control board of the destination province. Customers are not allowed to directly import wine from another province, but rather must either only purchase that which his local liquor control authority makes available, or use the special order system of the liquor control board in his home province, a process involving extensive paperwork, waiting for shipments, and paying provincial markups.

Canadian legal scholars make the argument that just as the U.S. Supreme Court found state laws prohibiting direct shipment to be unconstitutional in Granholm v. Heald, so too are Canada’s restrictions unconstitutional under its constitution. One scholar reasons that prohibitions on the inter-provincial shipment of wine are contrary to § 121 of the Constitution Act of 1867, which requires that products made in one province must be “admitted free” into other provinces.

Current Action

Presently, a Member of Parliament is attempting to pass a bill that would change the existing law and allow for direct shipping of wine and other alcoholic beverages. Bill C-311, an act to amend the Importation of Intoxicating Liquors Act, was introduced in the House of Commons last fall by British Columbia Conservative MP Dan Albas. The bill has passed committee and will return to the House of Commons for further debate.

While trade between provinces in Canada is a federal responsibility, liquor sales themselves are regulated by the provinces. Therefore, even if the bill passes, the provinces can control how much people bring in. Presently some jurisdictions place volume limits on the amount of wine begin shipped or require it to be on one’s person.

Groups such as the Alliance of Canadian Wine Consumers argue that current laws encourage Canadians to buy foreign wine, thereby hurting domestic wineries. Some argue that privatization of the distribution and sale of premium wines will expand opportunities for the domestic wine industry and provide Canadian consumers with a greater level of convenience and a wider selection.

However, not everyone agrees with the proponents of the bill. Canada’s provincial liquor boards say that the amendment is unnecessary because they can order wine from outside of their borders for their customers. The executive director of the Canadian Association of Liquor Jurisdictions told MPs last week that he and the Association have concerns with direct sales into other provinces since this would be a new and distinct retail channel. Such a change allowing direct sales would have a potentially substantial impact on the jurisdictions’ business and the provincial revenues.

It is clear that while winemakers and consumers stand to benefit from a change in the law, the provincial liquor control boards are fearful that they will be squeezed out of the distribution chain, and thereby lose profits. Canadian constitutional scholars have a strong argument for allowing direct shipments and transportation to take place, and it is the hope of many that current legislation will eradicate this remnant of the Prohibition-era.  

Combatting Alcohol’s Adverse Effects in California: An Alternative Funding Approach

Despite receiving hundreds of millions of dollars in general fund revenues from the Alcohol Beverage Tax, and spending even more hundreds of millions on state and local efforts to combat alcohol’s adverse effects in the state every year, some lawmakers in California believe that the alcohol industry should pay more towards the public costs of alcohol-related “illness and injury, criminal justice, lost productivity, and impacts on the welfare system, fire and law enforcement response, trauma and emergency care, and the foster care system, among other costs.”

In the legislative “findings and declarations” of AB 1694 of 2010 is an alternative approach to funding programs seeking to combat the adverse effects of alcohol in California: Assembly Member Beall notes that “[t]he alcohol industry currently does not pay any fess at the state level to offset or mitigate the enormous costs its products impose on California.”

The California Supreme Court in Sinclair Paint, 15 Cal.4th 866, 877 (1997), approved of regulatory fees on industries causing specific harm to society in California, especially where the revenue from the assessment is used exclusively for mitigating the adverse effects of that specific harm. This is true because assessments on those persons or entities causing harm to society “help in mitigation or cleanup efforts . . . by deterring further manufacture, distribution, or sale of the dangerous products, and by stimulating research and development efforts to produce safer or alternative products.” Id.

After Sinclair Paint, the California Legislature has clear constitutional authority to impose regulatory fees by a simple majority vote of both houses. The same reasons in favor of regulatory fees in Sinclair Paint can be applied to the alcohol industry in California. Consider the following: (1) alcohol is a potentially life-threatening substance with many varied adverse health effects and other social costs; (2) costs to society at large associated with alcohol consumption are undoubtedly in the billions of dollars every year; (3) a regulatory fee imposed on the alcohol industry to specifically help mitigate the adverse effects of alcohol on society would satisfy the Sinclair Paint test.

Imposing a regulatory fee on the alcohol industry – instead of increasing the Alcohol Beverage Tax generally – will provide large sums of revenue for state and local programs seeking to combat the adverse effects of alcohol in California. Alcohol producers, distributors, and sellers make up a multi-billion dollar alcohol industry in the state and a regulatory fee across the board on the industry will potentially bring in billions of dollars every year for state coffers.

Unfortunately, the true intent of AB 1694 of 2010 may be less altruistic than the above explanation would have us believe. The state and local departments of alcohol and drug programs are currently funded via the state’s general fund, and Alcohol Beverage Tax revenues are deposited in the general fund. As a result of perennial budget deficits, the State of California has reduced funding to may state and local programs providing health and human services, including the departments of alcohol and drug programs. In order to increase the Alcohol Beverage Tax, however, the California Legislature would have to pass a bill by a two-thirds supermajority vote of both houses, essentially foreclosing any possibility of its passage.

But a regulatory fee only requires a simple majority vote in both houses of the state legislature in order to receive legislative approval, greatly increasing its chances of success.

Clearly though this is just a tax by a different name: instead of departments of alcohol and drug programs being funded from the general fund with revenues from the Alcohol Beverage Tax, the departments will now also be funded by a regulatory fee paid by the same persons and funding the same state and local programs.

Legislative gymnastics notwithstanding, the persons left with the bill will ultimately be consumers of alcohol if bills like AB 1694 of 2010 are successful in future years.

Taxing “Alcoholic Beverages” in California

In my last post, I wrote that arguments in favor of raising so-called “sin taxes” on all types of liquors, including beer and wine, sparkling cider and wine, and distilled spirits, are largely founded on prohibition-era and earlier thinking about alcohol and its presumably undesirable effects on society. In this post, I will analyze California’s “alcoholic beverage” tax structure to show just how much in taxes currently paid on alcohol in California already goes to programs and other efforts in the state to combat “alcohol-related illness and injury.”

As the chart below shows, California already imposes sizeable taxes on beer and wine, sparkiling cider and wine, and distilled spirits at expontentially increasing rates. This likely reflects a public policy of discouraging consumption of stronger intoxicating liquors,  presumably because of the increased harm to society caused by such liquors, even though “distilled spirits” are available for sale throughout California in the same quanities as “beers and wines” and “sparkiling ciders and wines.”

* BEVERAGE TYPE	* TAX RATE               PER GALLON	* CAL. REVENUE and TAXATION CODE §§
Distilled Spirits (100 proof or less)	$ 3.30	§§ 32201 and 32220
Distilled Spirits (over 100 proof)	$ 6.60
Beer	$ 0.20	§§ 32151 and 32220
Wine	$ 0.20
Sparkling hard cider	$ 0.20
Champagne and sparkling wine	$ 0.30

* California State Board of Equalization, Alcoholic Beverage Tax, Special Taxes: Tax Facts, Aug. 2010, available at www.boe.ca.gov/pdf/pub92.pdf.

A tremendous amount of all types of alcohol is sold in California every year, generating large sums of money for many state and local programs in California seeking to combat the effects of alcohol on society. Indeed, California’s “alcohol beverage tax” provided over $226 million in general fund revenues for the state in 2011 alone. And the California State Controller projects revenues from this tax source will increase by 4% in fiscal year 2012-2013, generating an additional $9 million for state coffers. See John Chiang, Statement of General Fund Cash Receipts and Disbursements, Office of the California State Controller, Feb. 2012, A2, available at www.sco.ca.gov /Files-ARD/CASH/fy1112 _feb.pdf.

Further, the State of California in 2011 appropriated well over $1 billion for state health and human services including funding for the California Department of Alcohol and Drug Programs which “is responsible for administering prevention, treatment, and recovery services for alcohol and drug abuse . . . .” See http://www.adp.ca.gov/. The state also appropriated over $135 million in the same year to local departments of alcohol and drug programs to provide even more assistance to communities seeking to combat the effects of alcohol on society in California.

Nevertheless, Assembly Member Beall in his AB 1694 of 2010 insists that costs to society associated with alcohol-related problems are high enough to justify increased taxes on beer and wine, sparkling cider and wine, and distilled spirits across the board, noting among other things: (1) The use of alcohol is a factor in the majority of child and spousal abuse cases; (2) Eight out of every ten felons sent to state prisons are alcohol abusers; and (3) The use of alcohol is closely associated with mental illness and contributes enormously to the cost of treating the mentally ill.”

But a fundamental flaw underpinning Assembly Member Beall’s justifications for his bill shows just how much prohibition-era and earlier thinking about alcohol still affects the debate about alcohol regulation in the United States. What the bill overlooks is that “costs to society” from myriad sources, many less accepted and less valued than alcohol, contribute to – among other problems blamed on alcohol – child and spousal abuse, sending felons to state prisons, and serious mental illness in California. By singling out alcohol consumers as especially deserving of paying more taxes towards the public cost of these broad based social problems is one more example of our attempt to demonize alcohol and, ultimately, those who consume it.

New TTB rule allows multi-state labeling of imported wines

The Alcohol and Tobacco Tax and Trade Bureau, the federal agency that collects excise taxes on alcohol, recently announced a new rule that will allow the imported wine labels to include multi-state appellations of origin. According to the rule announcement released in March,

This amendment provides treatment for imported wines similar to that currently available to domestic wines bearing multi-state appellations. It also provides consumers with additional information regarding the origin of these wines.

Section 4.25(d) defines appellations of origin for American wines as:

• The United States;
• A State;
• Two or no more than three States which are all contiguous;
• A county;
• Two or no more than three counties in the same State; or
• A viticultural area as defined in § 4.25(e).

American wines can include an appellation of origin on a label if at least 75 percent of the wine is derived from fruit or agricultural products grown in the appellation area indicated. Prior to the announcement of this rule, there was no identical rule for imported wines.

With this amendment, imported wines coming from two to three contiguous political subdivisions are also allowed to use a multi-state appellation in their labels if:

• All of the fruit or other agricultural products were grown in the indicated political subdivisions, and the percentage of the wine derived from fruit coming from each political subdivision is shown on the label with a tolerance of plus or minus 2 percent; and
• The wine conforms to the wine laws of their place of origin.

The Australian Wine and Brandy Corporation (AWBC) submitted a petition to TTB to amend the definition of an appellation for imported wines to permit the labeling of Australian wines with multi-state appellations.