BILL ANALYSIS Ó
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Date of Hearing: September 8, 2015
ASSEMBLY COMMITTEE ON HEALTH
Rob Bonta, Chair
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(Bonilla) - As Introduced August 31, 2015
SUBJECT: Taxation: distilled spirits: Cocktails for Healthy
Outcomes Act.
SUMMARY: Imposes a $0.05 per drink tax on all spirits-based
cocktails purchased in restaurants, bars, and other venues in
the state to fund developmental disability services and other
health programs. Specifically, this bill:
1)Imposes a surtax of $0.05 for each spirts-based cocktail
purchased by an individual from an on-sale licensee, beginning
January 1, 2016.
2)Requires the State Board of Equalization (BOE) to recalculate
the rate annually, for each calendar year beginning January 1,
2017, in accordance with the percent change in the California
Consumer Price Index. Prohibits the rate from being less than
$0.05 per cocktail.
3)Requires the licensee to collect the surtax as a charge
separate from, and not included in, any other fee, charge, or
other amount paid by the purchaser.
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4)Requires the BOE to administer and collect the surtax imposed
by this bill pursuant to the Fee Collection Procedures Law.
5)Allows the BOE to prescribe, adopt, and enforce regulations
relating to the administration and enforcement of this bill,
including, but not limited to, collections, reporting,
refunds, and appeals.
6)Requires the licensee to remit the surtax to BOE quarterly on
or before the last day of the month succeeding each quarterly
period.
7)Requires licensees that collect the surtax pursuant to this
bill to register with the BOE as a surtax collector, as
specified.
8)Specifies that the taxes imposed by this bill are in addition
to any other taxes imposed under current law.
9)Specifies that the cocktail purchaser is liable for the surtax
until it has been paid to the BOE, except that payment to an
on-sale licensee is sufficient to relieve the purchaser from
further fee liability.
10)Creates the Healthy California Special Fund (fund) within the
State Treasury, to receive revenues collected by BOE pursuant
to this bill.
11)Specifies that, upon appropriation by the Legislature, all
moneys in the fund will be expended to either:
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a) Developmental disability services, and other health
programs; and
b) Reimbursement for expenses incurred by BOE pursuant to
this bill.
EXISTING LAW:
1)Establishes the State Department of Alcoholic Beverage Control
(ABC) and grants it the exclusive authority to administer the
provisions of the Alcoholic Beverage Control Act in accordance
with laws enacted by the Legislature.
2)Contains various provisions regulating the application for,
the issuance of, the suspension of, and the conditions imposed
upon, alcoholic beverage licenses by ABC.
3)Establishes the BOE to collect sales and excise taxes, among
its other duties.
4)Imposes, under the Alcoholic Beverage Tax Law, the following
taxes and surcharges on the sale of beer, wine, and distilled
spirits:
-----------------------------------------------------
| | Tax | Per | Total |
| | | Gallon | |
| | | | |
| | | | |
| | |Surcharge| |
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| | | | |
| | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Beer | $0.04 | $0.16 | $0.20 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Wine (not more than 14% | $0.01 | $0.19 | $0.20 |
|alcohol) | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Wine (more than 14% | $0.02 | $0.18 | $0.20 |
|alcohol) | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Sparkling wine | $0.30 | $0.00 | $0.30 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Hard cider | $0.02 | $0.18 | $0.20 |
| | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Distilled spirits (100 | $2.00 | $1.30 | $3.30 |
|proof) | | | |
| | | | |
| | | | |
| | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
|--------------------------+--------+---------+-------|
|Distilled spirits (100+ | $4.00 | $2.60 | $6.60 |
|proof) | | | |
| | | | |
-----------------------------------------------------
The proceeds from these taxes and surcharges are deposited
into the Alcohol Beverage Control Fund and are withdrawn for
use by the General Fund or used to pay refunds under the
Alcoholic Beverage Tax program.
5)Establishes an entitlement to services for individuals with
developmental disabilities under the Lanterman Developmental
Disabilities Services Act (Lanterman Act).
6)Grants all individuals with developmental disabilities, among
all other rights and responsibilities established for any
individual by the United States Constitution and laws and the
California Constitution and laws, the right to treatment and
habilitation services and supports in the least restrictive
environment.
7)Establishes a system of 21 nonprofit regional centers
throughout the state to identify needs and coordinate services
for eligible individuals with developmental disabilities and
requires the Department of Developmental Services (DDS) to
contract with regional centers to provide case management
services and arrange for or purchase services that meet the
needs of individuals with developmental disabilities, as
defined.
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8)Establishes Department of Health Care Services (DHCS) as the
single state agency responsible for administering and
coordinating the state's efforts in alcohol and drug abuse
prevention, treatment, and recovery services.
FISCAL EFFECT: This bill has not been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author, this bill will
help provide the necessary funding to ensure California's
compliance with the Lanterman Act, a California law passed in
1969, which provides people with developmental disabilities
and their families the right to receive necessary services in
their community. There have been significant reductions in
the DDS budget. One billion dollars has been lost since the
Great Recession. This is about 25% of the entire DDS budget.
According to information provided by the author, Approximately
$400 million is needed for DDS programs including in-home
supportive services, community-based programs, and supportive
living services. The current regional center caseload ratio is
1 worker/75 consumers. However, in statute the regional center
caseload is required to be 1 worker/62 consumers. Given the
current regional center caseload, the state is at risk for
losing federal dollars if it does not come into compliance
with the Lanterman Act. In order to meet caseworker ratios
required under current statute, the state would need about 650
additional regional center workers. The author further states
that the funding from a $0.05 charge on cocktails is needed
for providers to deliver respite care, transportation, day
treatment programs; and independent and supported living
programs to our developmental disability community.
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2)BACKGROUND.
a) Alcohol Consumption and Public Health. According to the
Centers for Disease Control and Prevention (CDC), excessive
alcohol use, either in the form of heavy drinking (drinking
15 or more drinks per week for men or eight or more drinks
per week for women), or binge drinking (drinking five or
more drinks on an occasion for men or four or more drinks
on an occasion for women), can lead to increased risk of
health problems such as liver disease or unintentional
injuries. Alcohol use contributes to illnesses as varied
as liver cirrhosis, esophageal cancer, pancreatitis, and
epilepsy. It also plays a role in violent crimes such as
sexual assaults, domestic violence, and child abuse, while
also causing serious injuries and traffic fatalities.
According to the CDC's Behavioral Risk Factor Surveillance
System (BRFSS) survey, more than half of the adult U.S.
population drank alcohol in the past 30 days.
Approximately 5% of the total population drank heavily,
while 17% of the population binge drank. The 2010 BRFSS
notes that, compared to other states, Californians report
relatively low rates of binge drinking. CDC states that
excessive alcohol consumption cost the United States $223.5
billion in 2006. This amounts to about $1.90 per drink, or
about $746 per person. The costs due to excessive drinking
largely resulted from losses in workplace productivity (72%
of the total cost), health care expenses (11%), and other
costs due to a combination of criminal justice expenses,
motor vehicle crash costs, and property damage.
While a relatively small percentage of drinkers report
binge or heavy drinking, these drinkers accounts for a
disproportionately high percentage of state costs. CDC
estimates that binge drinking is responsible for more than
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70% of the cost of excessive alcohol use in all states and
the District of Columbia. Additionally, about $2 of every
$5 of the economic costs of excessive alcohol use were paid
by federal, state, and local governments. CDC found that
the total state costs for excessive drinking were generally
of the same order of magnitude as the costs for smoking and
Medicaid.
California is the largest market for alcohol sales in the
United States. It is estimated that in a single year,
Californians consume almost 14 billion alcoholic drinks
(including spirits, wine, and beer). The National
Institute of Alcohol Abuse and Alcoholism Surveillance
Report #102 estimated that, nationally, Americans consumed
an average of 2.34 gallons of ethanol each in 2013.
California was ranked with 30 other high consumption states
that had over 2.31 gallons per person per year. According
to the Distilled Spirits Council of the U.S., about
one-third of alcohol consumed in California is
spirts-based, while the remaining two-thirds are wine and
beer.
A 2006 study published in the American Journal of
Preventive Medicine calculated the cost of excessive
alcohol consumption in California at $32 billion, with
$13.7 billion coming from the state funds. A 2008 study
published in the journal Alcoholism: Clinical and
Experimental Research titled "The Cost of Alcohol in
California" calculated the overall economic cost of
excessive alcohol consumption - including costs such as
health issues, injury, violent crime, property crime, and
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traffic collisions - at $38.5 billion. According to the
California Department of Public Health, excessive alcohol
consumption caused approximately 88,000 deaths and 2.5
million years of potential life lost annually in the U.S.
during 2006 to 2010, making it the fourth leading
preventable cause of death. In California, the rate of
alcohol-attributable deaths (ADD/year/100,000 population,
2006 to 2010) is higher for males (43.9) and African
Americans (36.6) in comparison with the total population
(29.4).
b) The Lanterman Act. The Lanterman Act, which was enacted
in 1977, guides the provision of services and supports for
Californians with developmental disabilities. Each
individual under the Act (typically referred to as a
"consumer") is legally entitled to treatment and
habilitation services and supports in the least restrictive
environment possible. Lanterman Act services are designed
to enable all consumers to live more independent and
productive lives in the community. The term "developmental
disability" is defined in statute as a disability that
originates before an individual attains 18 years of age,
continues, or can be expected to continue, indefinitely,
and constitutes a substantial disability for that
individual. It includes intellectual disabilities,
cerebral palsy, epilepsy, and autism spectrum disorders.
It also includes disabling conditions that are closely
related to intellectual disabilities or require treatment,
care, and management similar to what is required for
individuals with an intellectual disability. These
conditions must occur before age 18, result in a
substantial handicap, be likely to continue indefinitely,
and involve brain damage or dysfunction (conditions that
are solely psychiatric or physical in nature are excluded).
Passage of the Lanterman Act marked the beginning of
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California's shift from a model of care that relied on
institutional placement to one that focused on providing
services and supports at home or in other community-based
settings, and it was followed by a number of federal and
state legal decisions, as well as administrative and
legislative initiatives, which reinforced the new
entitlement to services. Of particular note was the 1994
settlement agreement reached in the William Coffelt et. al.
v. the California Department of Developmental Services, et.
al. class-action lawsuit to develop additional community
placement options and reduce the population of individuals
in institutions by 2,000 within five years. Five years
later, the U.S. Supreme Court ruled in Olmstead vs LC (527
U.S. 581 (1999)) that a lack of community supports was not
legal grounds for denying people with disabilities a move
from an institution into a community setting if they could
benefit from community placement. The court ruled that
such a denial constituted a violation of individual civil
rights, as well as discrimination under the Americans with
Disabilities Act. In California, 10 years after the
Olmstead decision, Capitol People First et al. v DDS, et
al. resulted in a settlement in which DDS and the regional
centers agreed to develop additional community living
options and establish new practices to ensure the Lanterman
Act's promise of services in the least-restrictive
environment would be maintained.
c) Regional Centers. Direct responsibility for
implementation of the Lanterman Act service system is
shared by DDS and 21 regional centers. Regional centers
are private nonprofit entities established pursuant to the
Lanterman Act that contract with DDS to carry out many of
the state's responsibilities under the Act. The primary
duties of regional centers include intake and assessment,
individualized program plan development, case management,
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and securing services through generic agencies (e.g.,
school districts, In-Home Supportive Services) or
purchasing services provided by vendors. Regional centers
also share responsibility with local education agencies for
the provision of early intervention services under the
California Early Intervention Services Act (e.g., Early
Start Program). In fiscal year 2015-16, funding for DDS is
$5.9 billion (General Fund/federals fund).
Regional centers contract with a network of local providers
that are authorized to receive state and federal funding by
becoming vendors of the local regional center. Prior to
being approved to receive funding from a regional center
for providing services to a consumer, a service provider
must become vendorized by the regional center that oversees
the catchment area in which the provider is located. This
"vendorization" process includes verifying that the
provider is qualified to provide the planned services and
meets all other regulatory standards and requirements. It
is important to note that vendorization makes a provider
eligible to provide services paid for by the regional
center, but does not guarantee the regional center will
refer consumers. Furthermore, there is nothing precluding
a vendor from being vendorized by more than one regional
center. There are over 45,000 vendors that provide
services paid for by regional centers in California.
Services provided to people with developmental disabilities
are determined through an individual planning process,
which is coordinated by regional center case managers.
Within this process, planning teams-which include, among
others, the consumer, his or her parent(s) or other legally
authorized representative, and one or more regional center
representatives-jointly prepare an Individual Program Plan
(IPP) based on the consumer's needs and choices. The
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Lanterman Act requires that the IPP promote community
integration and maximize opportunities for each consumer to
develop relationships, be part of community life, increase
control over his or her life, and acquire increasingly
positive roles in the community. The IPP must give the
highest preference to those services and supports that
allow minors to live with their families and adults to live
as independently as possible in the community. The
regional center caseload includes over 280,000 individuals
who receive services such as respite care, transportation,
day treatment programs, residential placements, behavioral
therapies, independent and supported living, supported
employment, and numerous other social and therapeutic
activities and services. Another 10,000 individuals are
within the "diagnosis and evaluation" phase of their
respective regional centers, half of which are children
under three years of age.
According to DDS data, 60% of the regional center
population is between 18 and 61 years of age; about
two-thirds of all consumers have an intellectual
disability, just over 30% are diagnosed with autism or a
related disorder; and nearly 18% are identified as having
severe behaviors. As of April 2015, around 77% of
consumers live in their own home with a parent or guardian,
and nearly 25,000 (8.9%) receive independent living or
supported living services. As of July 1, 2015, there are
1,077 regional center consumers who reside at one of
California's three developmental centers (Porterville,
Sonoma, and Fairview) and one state-operated, specialized
community facility (Canyon Springs). These facilities
provide 24-hour habilitation and medical and social
treatment services. While some residents in these
facilities were voluntarily placed by relatives and
conservators due to acute medical needs and other special
needs that made it unsafe for them to live in the community
at the time of placement, other residents have experienced
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involuntary placements due to court orders (e.g., forensic
placements at Porterville Developmental Center within the
secured treatment unit).
The state's regional centers vary considerably in size and
organization, from Redwood Coast Regional Center, which
serves the smallest caseload at almost 3,500 consumers all
the way to Inland Regional Center, with a caseload of
30,000. Additionally, while some regional center catchment
areas are geographically expansive, others provide services
alongside many other regional centers, often due to higher,
more concentrated populations. For example, Inland
Regional Center, with the highest caseload for a single
regional center, covers San Bernardino and Riverside
Counties, whereas neighboring Los Angeles County includes
seven regional center catchment areas, which together serve
over 87,500 consumers.
d) Regional Center Rates. Current statute and regulations
set forth rate requirements for regional centers to adhere
to when contracting with vendors to provide services to
consumers. There are different types of rates for services
provided in different settings, many of which are
negotiated between regional centers and vendors and are
subject to a cap as a result of the state's
cost-containment efforts over the past several years. July
1, 2008 marked the original implementation date for
statewide and regional center median rates, with a
requirement that regional centers do not negotiate rates
higher than the lower of the two median rates for services.
Each regional center is required to annually certify to
DDS its median rate for each negotiated rate service, which
DDS verifies during its biennial fiscal audit of the
regional center. Despite the median rate cap, a regional
center can obtain a rate increase from DDS under a "health
and safety exemption" for a particular consumer if the
regional center can demonstrate the exemption is necessary
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to maintain his or her health and safety. Most recently,
FYs 2014-15 and 2015-16 Budget trailer bill provisions
allowed for provider rate increases to address new state
minimum wage requirements and sick leave benefits.
3)Alcoholic Beverage Taxes. According to the National
Conference of State Legislatures, all 50 states, the District
of Columbia and Puerto Rico tax alcoholic beverages. Most
states have imposed excise taxes on alcoholic beverages since
the 1930s. Alaska and Oklahoma, in 1959, were the last states
to impose the tax. Excise taxes on alcohol are intended to
generate revenue and discourage consumption by increasing
prices to the consumer. Proponents argue that alcoholic
beverage excise taxes improve the efficiency of the free
market by including the social costs of drinking in the price
of the product, while opponents argue that alcoholic beverage
taxes are a highly regressive form of taxation. California,
among about two-thirds of the US states, allows licensed
private retailers to sell liquor, beer and wine. For these
states, revenues are generated through wholesale excise taxes.
4)SUPPORT. The California Medical Association (CMA) states that
alcohol abuse is an issue that puts a significant cost burden
on California's healthcare system. Alcohol-related deaths from
car accidents still make up a third of all car accident
fatalities. CMA further states that alcohol taxes reduce
excessive drinking and alcohol-related problems; one estimate
suggests that a nickel-per-drink increase in alcohol would
reduce fatal traffic accidents by 7%. The California
Supported Living Network and other supporters of this bill,
state that it will provide an important funding source to keep
individuals and families together, living independently, and
getting the services that integrate them into communities.
5)OPPOSITION. Opponents, representing makers, carriers, and
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sellers of alcohol products, assert that there are no negative
social costs associated with normal moderate consumption of
alcoholic beverages and this bill unfairly penalizes 90-95% of
responsible drinkers. They argue that this bill could make it
even more difficult for businesses that are struggling to keep
their doors open and retain employees during these difficult
economic times by disproportionately targeting a specific
category of products for fee increases. Opponents maintain
that the alcohol industry already pays more than its fair
share of revenue to the state, and that this bill would add
new costs and reporting burdens on small businesses in
California's hospitality industry.
6)PREVIOUS LEGISLATION.
a) AB 1694 (Beall) of 2010 would have established the
Alcohol-Related Services (ARS) Program within the
Department of Alcohol and Drug Programs (DADP) to mitigate
the harm of alcohol use and imposes a $0.05 mitigation fee
on beer, wine, and liquor to fund the ARS Program. AB 1694
failed passage in Assembly Health Committee with a 5-8
vote.
b) AB 1019 (Beall) of 2009, substantially similar to AB
1694, failed passage in the Assembly Health Committee by a
5-8 vote.
c) SB 558 (DeSaulnier) of 2009, would have established the
Alcohol Abuse Treatment Fund and authorized ABC to assess
and collect a fee in the maximum amount of $0.05 per drink
from every person who is engaged in business in this state
and sells alcoholic beverages for resale. SB 558 was
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referred to the Senate Governmental Organization Committee
but was never set for a hearing.
d) SB 297 (Romero) of 2007, would have authorized counties,
with voter approval, to levy a local tax on the consumption
of beer, wine, and distilled spirits consumed on the
premises of the seller of one of these products. SB 297
was referred to the Senate Governmental Organization
Committee but was never set for a hearing.
e) AB 216 (Chan) of 2004, would have required the BOE to
collect a fee from any beer manufacturer, distilled spirits
manufacturer, beer importer, and distilled spirits importer
of up to $100 million and required the DAPD to establish
youth alcohol recovery and prevention programs in every
county. AB 216 failed passage in the Assembly Health
Committee.
f) SBX1-5 (Romero) and SB 108 (Romero) of 2003, would have
imposed a $0.05 per drink fee on any wholesaler located in
this state who distributes alcoholic beverages to retailers
for consumption in the state. The fee would be based on
1.5 ounces of distilled spirits, 12 ounces of beer, and
five ounces of wine. Both bills passed out of the Senate
Health and Human Services Committee but subsequently died
in the Senate Rules Committee.
7)POLICY COMMENTS
a) Narrow tax on alcohol. Negative health effects of
excessive alcohol consumption are not limited to
spirits-based drinks. There is no health reason that
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alcohol from one source is better or worse than others.
Along the same lines, spirit alcohol consumed at home is
not necessarily less of a public health burden than spirit
alcohol consumed at a bar but the alcohol consumed at the
bar is subject to this tax. The committee may wish to
consider why beer and wine drinks are not being included in
this bill and why this tax only applies to on-premise
alcohol consumption?
b) Where are the funds going? The language in this bill
fails to specify how the funds will actually be allocated.
This bill refers broadly to "developmental disability
services" rather than specifically to the Department of
Developmental Services. The addition of "among other
health programs" could open the door to spending these
funds on any number of programs such as Medi-Cal, Alcohol
and drug abuse treatment programs, or nearly any other
health-related program.
c) Binding Future Legislatures. This bill would require
the Legislature to appropriate the funds in the Healthy
California Special Fund for the specified purposes. Of
concern is the fact that one legislative body may not limit
or restrict its own power or that of subsequent
legislatures, and the act of one Legislature may not bind
its successors [County of Los Angeles v. State of
California (1984) 153 Cal.App.3d 568, 573]. In practical
terms, it means that subsequent legislatures are under no
legal obligation to comply with the provisions of this
bill.
d) Administrative issues and burden. There are
approximately 18,000 to 20,000 licensees that would need to
register with BOE pursuant to this bill. While these
retailers are already registered for the purposes of paying
their sales and use tax, this bill would be a new and
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different type of tax. Due to substantial differences in
the tax programs, this bill may require a separate
registration, separate tax returns, and bookkeeping issues
for each retailer. In addition, retailers would have to
keep records of every mixed drink sold. Many currently do
not, leading to additional compliance burdens.
There are some hospitality industry practices that are not
clearly addressed under this bill, for example
complimentary alcoholic beverages; cash or ticket bars;
varying beverage or serving sizes; open bars; membership or
private club privileges; and others. It is unclear if
certain transactions would be subject to the surtax or if
there may be certain industry practices that the author
should address in statute. The author may wish to consider
amending the bill to resolve these issues, or
alternatively, to provide the BOE broad authority to
address surtax imposition and exemptions by regulation.
8)SUGGESTED AMENDMENTS
a) Delayed implementation: January 1, 2016 may not allow
enough time for BOE to begin collecting this tax. The
author may wish to consider delaying implementation to
January 1, 2017. In section 33002 (b), the date on which
BOE must recompute the rate should be moved forward
accordingly.
b) Technical amendment: because "board" is defined in the
bill to mean the State Board of Equalization, it is
unnecessary to use the full name elsewhere in the bill.
For consistency and clarity, all mentions of "State Board
of Equalization" should be stricken and replaced with just
"board".
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REGISTERED SUPPORT / OPPOSITION:
Support
John Gioia, Supervisor, Contra Costa County
Association of Regional Center Agencies
California Medical Association
California Society of Anesthesiologists
California Supported Living Network
East Bay Developmental Disabilities Legislative Coalition
Futures Explored
Strategies to Empower People
Opposition
California Craft Brewers Association
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California Beer and Beverage Distributors
California Manufacturers and Technology Association
California Restaurant Association
Diageo
Distilled Spirits Council of the United States
Howard Jarvis Taxpayers Association
National Federation of Independent Business
Wine Institute
Analysis Prepared by:Dharia McGrew / HEALTH / (916) 319-2097
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