SACRAMENTO / BRADLEY INMAN : Spirits Industry Launches $20-million Drive Against Tax Hikes

The alcoholic beverage industry is using shrewd political maneuvers and a growing campaign kitty to fight a proposed ballot measure that would raise the tax on wine, beer and liquor.

Up against a carefully plotted campaign, the liquor lobby is priming all its guns to scuttle the Alcohol Tax Act of 1990, which is likely to be on the November ballot. An estimated $20 million will be spent to defeat the measure in what is shaping up as one of the most expensive and sophisticated campaigns in California’s 83-year initiative history.

On Thursday, the state Senate approved a liquor lobby plan to place a competing measure on the ballot that calls for more modest tax hikes. Liquor interests also are pushing an initiative that would throw out special taxes that don’t get two-thirds voter approval.

Pushing the higher tax increase is a well-organized group of activists from the mental health community, social service organizations and anti-alcohol groups. Physicians, law enforcement leaders and alcohol treatment business owners are also behind the campaign to qualify the “nickle-a-drink” tax hike for the ballot.

Last month, they turned in more than 1 million signatures to the Secretary of State, who is expected to qualify the proposition soon.

The proposition would boost the state excise tax on beer from 4 cents to 57.5 cents per gallon, on wine from 1 cent to $1.29 per gallon and on spirits from $2 to $8.40 per gallon. Proponents estimate that the cost to the consumer would be about 5 cents a drink.

The $720 million in added revenue would fund mental health services, drug and alcohol-related law enforcement activities, alcohol treatment and prevention programs and emergency services.

California has some of the lowest alcohol taxes in the nation, and even the liquor industry admits that raising the tax is good public policy. “Nobody is arguing about the need to increase taxes for alcohol, but what’s fair and what’s completely irrational?” asked Sue Thurman, a spokeswoman for Taxpayers for Common Sense, an alcohol industry group formed to fight the initiative.

Once again, an industry is confronted with an unfriendly ballot measure that has widespread popular support. Early polls show that 70% of the voters would be likely to approve the measure.

The depth of the support explains why the liquor lobby mapped out a step-by-step political strategy to stop the measure soon after the proposition was approved for petition circulation.

They learned some lessons from the “sin tax” initiative in 1988. Then, the tobacco industry and the state’s smokers got hit with a 25-cents-a-pack tax when California voters approved Proposition 99.

One lesson: “Despite the history of infighting among beer, wine and spirits (industries), they have achieved a level of unity rarely reached in past years,” according to an account of the campaign in a trade newsletter called Impact.

The publication says “industry executives will spend whatever is necessary” to beat the tax hikes.

Although the measure hasn’t qualified for the ballot yet, beer brewers alone have spent $3.9 million to fight the tax increase, according to Beer Marketer’s Insights, another industry newsletter. The latest campaign spending reports haven’t been made public, but an estimated $20 million will be spent to oppose the measure.

The industry’s campaign blueprint tries to force proponents of the alcohol tax to defend their position on several fronts. The industry argues, for example, that the liquor tax would upset the state budget process by earmarking funds for specific health programs, and therefore would deny funding to public schools that otherwise would get 40% of all state revenue.

This argument was enough to get state Superintendent of Schools Bill Honig on board as an outspoken critic of the proposed liquor tax increase. Also upset about losing control of the budget process, many legislative leaders have joined with the industry to oppose the steeper liquor tax.

If the new coalition isn’t enough to defeat the measure, the industry has a couple of fallback strategies.

Assembly Constitutional Amendment 38 is the countermeasure that was approved by the Senate last week. A different version was endorsed by the Assembly, and now both sides of the aisle must come together on the final bill. As a constitutional amendment subject to voter approval, the measure would then be put on the November ballot.

Under this scheme, beer taxes would go to 20 cents per gallon, table wine to 20 cents and spirits to $3.30. The measure would raise an estimated $200 million in new revenue without designating how it should be spent.

If this plan fails, the industry is banking on Los Angeles tax-limitation crusader Joel Fox to come to the rescue.

A disciple of Paul Gann and Howard Jarvis, Fox is leading a campaign to qualify the “Tax Payers Right to Vote” initiative. The measure would require statewide ballot measures that call for special taxes--such as the proposed liquor tax--to win two-thirds of the voters. Currently, special taxes can win with a simple majority.

The proposal doesn’t mention the liquor tax proposals, and the industry is careful to distance itself from the campaign for the Fox proposition.

But, “it’s an obvious ploy to undercut the nickel-a-drink measure,” said Timothy Howe, chief of staff for Assemblyman Lloyd Connelly (D-Sacramento), who has spearheaded the initiative.

The language of the Fox measure supports the conclusion that it is aimed at the alcohol tax increase. If passed, the proposition would become effective Nov. 6, the day of the election, and would apply to any measure approved that day, including the liquor tax hike.

Fox admits that the “alcohol industry has supported us all the way,” but he expects other business groups to get behind his measure when “they figure out they may be next for one of these special taxes.”

Concerned that voters will embrace the Fox measure, health groups that support the higher tax increase are planning to file a lawsuit that will question the constitutionality of the proposition. An announcement on the litigation is expected to be made this week.

While the campaign maneuvers have begun in earnest, there are more political salvos to be fired. “The paranoia around here is as high as it can get,” said Howe.

“We aren’t sure what to expect next, but we know it won’t stop until Nov. 6.”