BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: AB 2135 Hearing Date: 6/14/2016 ----------------------------------------------------------------- |Author: |Levine | |-----------+-----------------------------------------------------| |Version: |4/11/2016 Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Arthur Terzakis | | | | ----------------------------------------------------------------- SUBJECT: Alcoholic beverages: revenue sharing DIGEST: This bill adds a new Section of law to the Alcoholic Beverage Control (ABC) Act that allows revenue sharing agreements pursuant to a concessionaire agreement between a fair operator and a licensed retailer selling alcoholic beverages during a state or county fair, under specified circumstances. ANALYSIS: Existing law: 1)Article XX, section 22, California Constitution, provides that the State of California, subject to the internal revenue laws of the United States, shall have the exclusive right and power to license and regulate the manufacture, sale, purchase, possession and transportation of alcoholic beverages within the State, and subject to the laws of the United States regulating commerce between foreign nations and among the states shall have the exclusive right and power to regulate the importation into and exportation from the State, of alcoholic beverages. In the exercise of these rights and powers, the Legislature shall not constitute the State or any agency thereof a manufacturer or seller of alcoholic beverages. 2)Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions AB 2135 (Levine) Page 2 of ? of the ABC Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation and sale of alcoholic beverages in this state and the collection of license fees. 3)Establishes specific types of alcoholic beverage licenses and prescribes the rights and duties of the respective licensees. 4)Prohibits a person from exercising a privilege or performing any act for which a license is required, and a violation of this prohibition is a misdemeanor or a felony, as specified. 5)Defines a state-supported fair organization as any fair that conducts an annual fair and submits an annual statement of operations to the California Department of Food and Agriculture. 6)Establishes the California Exposition and State Fair (Cal Expo) as an independent entity in state government governed by its board of directors. This bill specifies that a written agreement regarding the sharing or splitting of gross revenue from the sale of alcoholic beverages between a licensee and a district agricultural association, Cal Expo, a county fair, or a citrus fruit fair, in connection with the sale of alcoholic beverages during a state or county fair is not the exercise of a license privilege or performance of an act for which a license is required, unless the agreement, or any other related agreement or understanding, results in an unlicensed person exercising control or undue influence over a licensee or the operation of a licensed business. Background Purpose of AB 2135. The author's office notes that financial pressures over the years have caused state and county fair operators to search for additional sources of revenue to support their operations. The author's office claims that it has become fairly common for fair operators to enter into revenue sharing agreements that include a sharing of revenue from the sale of alcoholic beverages. However under the state's comprehensive alcoholic beverage licensing scheme, such activities may be construed to result in the exercising of license privileges by AB 2135 (Levine) Page 3 of ? non-licensees, which is prohibited. The author's office references an Attorney General Opinion in 1966 (47 Ops. Cal. Atty. Gen. 182) that determined it would be a violation of the ABC Act for a licensee to share revenue from the sale of alcoholic beverages with a non-licensee, or otherwise allow a non-licensee to exercise control over the licensed business. Such arrangements also have the potential to violate the State Constitution with respect to an agency of the state being established as a licensed seller of alcohol. The author's office contends that this bill will clarify that the mere existence of revenue sharing agreements does not constitute the exercising of license privileges. Network of California fairs. The network of California fairs includes 78 different fairs divided into four categories: 52 District Agricultural Associations (DAA) which are state government entities governed by a board of directors appointed by the governor; 23 county fairs which are County government or not-for-profit organizations; two citrus fruit fairs (Cloverdale and San Bernardino Orange Show) which are not-for-profit organizations; and, The California Exposition and State Fair (Cal Expo), a state agency. Prior/Related Legislation AB 2678 (Gray, 2016) provides a dedicated source of funding for state fairs and expositions by requiring that 30% of the state's portion of sales and use tax revenue derived from sales on state fairgrounds be deposited into a separate account to be spent on fair-related purposes. (Pending in Senate policy committee) FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No SUPPORT: Department of Alcoholic Beverage Control Sonoma-Marin Fair Western Fairs Association AB 2135 (Levine) Page 4 of ? OPPOSITION: Alcohol Justice ARGUMENTS IN SUPPORT: Proponents point out that "most fairs have a clause in their concessionaire agreements that includes a sharing of revenue from the sale of alcoholic beverages. This has been common practice for a number of years and is vital to the sustainability of fairs. Recently, such agreements have come under scrutiny, creating confusion throughout the fair industry. AB 2135 resolves the issue by making it clear the practice is permissible at a fair." ARGUMENTS IN OPPOSITION: Alcohol Justice states that "allowing the splitting of alcohol revenue between licensees and entities that host fairs creates an incentive to increase alcohol availability at these events. The state already suffers more than $22 billion in alcohol-related harm and over 10,000 alcohol-related deaths annually. We believe AB 2135 will ultimately increase those catastrophic alcohol-related harms and costs in the state."