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.