BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1401|
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THIRD READING
Bill No: SB 1401
Author: Block (D)
Amended: 3/26/14
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 9-0, 4/22/14
AYES: Correa, Berryhill, Cannella, De Le�n, Galgiani,
Hernandez, Lieu, Torres, Vidak
NO VOTE RECORDED: Padilla, Vacancy
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/23/14
AYES: De Le�n, Walters, Gaines, Hill, Lara, Padilla, Steinberg
SUBJECT : Alcoholic beverages
SOURCE : California Craft Brewers Association
DIGEST : This bill authorizes the Department of Alcoholic
Beverage Control (ABC) to hire six additional full-time staff to
its trade enforcement unit and makes it explicit that the ABC
has the authority to investigate violations relating to beer
price posting and marketing regulations and provisions relating
to labeling and containers.
ANALYSIS :
Existing law:
1. Establishes the ABC and grants it exclusive authority to
administer the provisions of the Alcoholic Beverage Control
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Act (ABC Act) in accordance with laws enacted by the
Legislature to ensure uniform administration and enforcement
of the laws throughout the state. 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 for this purpose.
2. Establishes the Alcoholic Beverage Control Fund (ABC Fund)
into which original and annual alcoholic beverage license
fees are deposited. Monies from the ABC Fund are allocated,
upon appropriation by the Legislature, to the ABC for the
administration and enforcement of the ABC Act. The ABC Act
also establishes various alcoholic beverage license
categories and a schedule of annual fees charged to the
alcoholic beverage licensees.
3. Separates the alcoholic beverage industry into three
component parts of manufacturer (the first tier), wholesaler
(the second tier), and retailer (the third tier). This is
known as the "tied-house" law or "three-tier" system.
This bill:
1. Makes various legislative findings and declarations relative
to the importance and necessity of maintaining a regulated
process for investigation and enforcement of violations of
the state's "tied-house" laws for the stated purpose of
preserving a fair and orderly market in the manufacture,
distribution, and retail sales of alcoholic beverages.
2. Encourages the ABC to devote the necessary resources to
adequately and aggressively enforce the state's tied-house
laws.
3. Stipulates that the ABC has the authority to investigate
violations relating to beer price posting and marketing
regulations and provisions relating to labeling and
containers.
4. Directs and authorizes the ABC to hire six, full-time
equivalent personnel, additional to the ABC's current staff,
to investigate and prosecute violations of the state's
tied-house laws.
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5. Makes minor code maintenance changes and deletes obsolete
cross-references to certain provisions of the ABC Act
relating to alcoholic beverages fair trade contracts and
price posting and wine fair trade contracts and price
posting.
Background
The state's economic downturn in the early 1990s forced the ABC
to lay off a significant number of employees. This, in turn,
prompted the Legislature in 1992 to convert the ABC from a
General Fund agency to a special fund agency supported solely
from license fees charged to holders of alcoholic beverage
licenses. This was done to provide the ABC with a dedicated and
more stable funding source so the ABC could continue to process
license applications and to enforce point of sale violations
such as sales to minors and policing disorderly premises.
(Currently, the ABC has authorization for 133 agents to police
the more than 85,000 licensed establishments in California. By
comparison, in 1965, the ABC had slightly more than 200 field
investigators to regulate about 48,000 licensed outlets.)
In the mid-1990s, the Legislature continued in its efforts to
provide the ABC with additional funding to assist the ABC in
maintaining its existing programs and services. This was
thought to be necessary given the increased costs due to
inflation and the additional enforcement activities resulting
from a significant increase in the number of establishments
licensed to sell alcohol in California.
In 1997, for example, the Legislature augmented the ABC's
1997-98 budget by $2.5 million, $2 million of which was to
provide for 18 additional field investigator positions and six
associated positions and $500,000 for additional local law
enforcement grants. The Governor did not veto the legislative
augmentation, but he noted that the augmentation could not be
sustained in subsequent years without an increase in the ABC
revenues. Budget trailer legislation that would have provided
additional revenue by utilizing the fines imposed upon the ABC
Act violators was vetoed because of the Governor's objections to
using revenues which otherwise would be deposited into the
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General Fund. However, the Governor stated in his veto message
that in order to maintain the level of enforcement, additional
revenues would be necessary. The Governor suggested he would be
amenable to support legislation that provided the ABC additional
revenues as long as it did not affect the General Fund.
Subsequently, in his 1998-99 Budget, the Governor proposed an
"enforcement surcharge" that would have been imposed on a range
of the ABC license types to provide the funding necessary for
the ABC to maintain its existing enforcement programs. However,
the alcoholic beverage industry was not willing to support a fee
increase because of the General Fund budget surplus that existed
at that time. The industry questioned how much, if any, General
Fund revenues could be used to offset the fee increase and thus
reduce the impact on the industry. The lack of consensus
regarding this matter eventually undermined the proposal.
In the Legislative Analyst's analysis of the 2001-02 Budget
Bill, the Legislative Analyst recommended that the Legislature
"enact legislation allowing the ABC to increase license fees to
sustain current enforcement levels and avoid budgetary
shortfalls." The Analyst also affirmed the fact that the ABC's
operating costs had increased because of inflation and
additional enforcement activities, but that license fees had not
kept pace with these costs.
The Analyst suggested that ideally the ABC fee structure should
generate sufficient operating revenue to fund needed the ABC
operations and establishes a reasonable reserve. In addition,
the Analyst recommended that the fees should be structured with
sufficient flexibility to periodically allow adjustments to
match enforcement activities and associated budget changes
approved by the Legislature. The Legislature heeded the
Analyst's recommendation and enacted AB 1298 (Wesson, Chapter
488, Statutes of 2001), which increased annual license fees by
specified amounts through 2004, and authorized the ABC to
annually adjust the fees charged by an amount not to exceed an
inflation factor based on the Consumer Price Index for the west
region. AB 1298 also required the ABC to publish the adjusted
fees and transmit them to the Legislature for approval as part
of the ABC's budget submission for the fiscal year in which the
adjusted fees would be implemented. AB 1389 (Assembly Budget
Committee, Chapter 751, Statutes of 2008), a Budget trailer
bill, was the most recent vehicle for increasing the ABC license
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fees that took effect beginning in January 2009.
Comments
The author's office notes that the craft beer industry has
witnessed tremendous growth over the years (currently, there are
over 430 craft breweries in California) and generates
approximately $4.7 billion in total economic impact to the
state. The author's office states that tied-house
investigations conducted by the ABC are often extremely complex,
take considerable time, and require extensive resources. Also,
alcoholic beverage industry members who comply with the
tied-house laws are generally placed at a competitive
disadvantage by those few members of the industry that choose to
violate the laws. The author's office believes that more
effective enforcement will help ensure market fairness to
protect this fast-growing segment of the economy and curb
illegal activities by bad actors.
According to the author's office, this bill is simply intended
to enable the ABC to appropriately enforce existing regulations
imposed on the alcoholic beverage industry by adding six
additional full-time equivalent staff positions to investigate
and prosecute violations of the tied-house laws. As noted
above, "tied-house" refers to laws, adopted both on the federal
level and by every state, that regulate how alcoholic beverages
are marketed and how the three tiers of the alcoholic beverage
industry interact.
The author's office contends that in the 1960s, the ABC had a
total of 200 field officers to oversee 50,000 permanent
alcoholic beverage licensees - a ratio of one agent for every
250 licenses. At the end of the 2012-13 fiscal year, the ABC
was authorized a total of 133 agents to police the activities of
approximately 85,788 permanent alcoholic beverage licensees as
well as an additional 37,427 "special event" licenses issued by
the ABC. This equates to a ratio of one agent for every 926
licensees. Furthermore, the author's office points out that at
the end of the 2012-13 fiscal year, the ABC had only two
full-time trade enforcement investigators with a backlog of
approximately 1,729 cases. The remainder of the ABC's
investigators are engaged in the investigation of direct public
safety violations, such as sales of alcohol to minors and other
licensing violations.
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The author's office emphasizes that the ABC Fund has a surplus
of $28.5 million in the 2013-14 fiscal year and that a $26.2
million surplus is projected through the 2014-15 fiscal year.
The salaries and benefits of the six new investigators, provided
by this bill, will be paid out of the ABC Fund at an estimated
cost of approximately $800,000.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, annual costs
of up to $800,000 for six investigative agents (Special Fund).
The ABC Fund had a surplus of $28.5 million in the 2013-14
fiscal year and an estimated surplus of $26.2 million through
the 2014-15 fiscal year. The six new investigators that are
being authorized by this bill will be paid out of the existing
ABC Fund.
SUPPORT : (Verified 5/23/14)
California Craft Brewers Association (source)
Alcohol Justice: The Industry Watchdog
California Beer and Beverage Distributors
San Diego Regional Chamber of Commerce
Stone Brewing Company
ARGUMENTS IN SUPPORT : Proponents state that this bill will
protect California's craft breweries by adding six additional
ABC officers to carry out trade enforcement and ensuring that
competition remains open and fair.
MW:d 5/23/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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