Freitas, Reeves Crank It Up for Virginia Business: General Assembly 2018, Part 2

In Part 1, I looked at that tired old dog who won’t hunt, Medicaid expansion, and then some constructive legislation from Delegate Glenn Davis aimed at jump-starting Virginia business. The good news is more legislators have been busy looking at ways to do the same thing.

This week Senator Bryce Reeves (R-17), and Delegates Nick Freitas (R-30th), Matt Farris (R-59th), Chris Head (R-17th), Kathleen Murphy (D-34th), and Ben Cline (R-24th), have been at work addressing some egregious (and nanny state) Alcohol Beverage Control (ABC) laws as they relate to the Commonwealth’s growing Distillery industry.

It’s been clear for some time that the gouging laws of our state government’s favorite monopoly, the ABC Authority, discourage existing establishments as well as the opening of new ones. In the meantime, craft industries such as distilleries thrive as successful business ventures in other states while providing destination tourism. Destination tourism equals extra bucks for the smart states who have been wise enough to put the incentives in place to attract them.

Here’s a little recap on the history of Virginia’s archaic monopoly, the Virginia ABC. I’ll apologize in advance to those legislators who tried to revamp it in 2015, a result which has now made it a little empire unto itself with less accountability for most internal policy. In all reality, it is still a branch of government funded with public money. I know it’s a major cash engine for the state. I get it, but it just needs more work based on common sense and not lofty policy ideas that barely hide the fact that it’s a way to tax, tax, and tax the hell out of Virginians and small business. Can’t we strike a happy medium?

In 2009, Bob McDonnell campaigned for Governor on privatizing Virginia’s ABC. However, despite several well laid plans to do just that, legislators from both parties opposed him. While initially religious groups objected, when McDonnell’s plan called for a tax on liquor served in dining establishments to make up what was then a nearly $50 million loss in revenue, the Restaurant Lobby kicked into overdrive. In the 2011 session, legislators all but refused to even hear McDonnell’s plan which had been altered to include only the privatization of ABC stores, and not the wholesale end of the state’s operation.

In the intervening years, the stranglehold of government regulations and fees has grown exponentially worse. Last year, when I applied for an ABC license for an event hosting the GOP ticket for a Virginia Wine tasting, I found that the fee had jumped from $45.00 to $115.00, and that was just for me. The winery I used had to pay and obtain an additional special license with fee, as well.

So the redo in General Assembly (GA) legislation in 2015, which comes to fruition this year by eliminating a five-member board that was paid six figures and replacing it with three part-time board members, still hasn’t passed any favors along to small businesses or citizens. The new ABC also now has the ability to make procurement and employment policy on its own.

Former candidate for Governor and Silverback Distillery co-owner Denver Riggleman and his wife, Christine, have done much to raise awareness about the distillery issue. They actually have considered moving their operation out of the Commonwealth to a more business friendly environment. One of the worst aspects of this scenario is that in the service- and internet-driven economy of 2018, craft and cottage industries, especially those that fulfill two purposes as both a business and tourism destination, are the future of the nation’s economy with Virginia enjoying no seat at the table.

I think what bothers me most is our legislators’ disinterest or unwillingness to really take a look at that economy and put some sweat equity into figuring it out. Instead, they are busy passing the buck, creating and funding commissions and special groups like GO Virginia. GO Virginia is the GA’s Regional Economic Development boondoggle created in 2016, and the darling of both Democrats and Republicans. It has so far done nothing but spend millions on studies as well as fancy dinners down in the Fan District on your tax dollar. They want yet another $77 million upfront this year, and not a single person can tell anyone what they actually do for Virginia business.

A fraction of the dollars allotted unofficially (buried in the state budget under language like workforce development) to GO Virginia would be more than enough to offset the loss of revenue to allow distillers to keep a portion of their own profits, which is what the bills are all about, and mirror the ones already allowed to wineries and breweries. Other bills would allow distillers the same privileges that breweries and wineries now enjoy in the expansion of satellite tasting rooms.

“Industrial tourism,” which includes wineries and breweries and the growing distillery business, are industries where residents and visitors alike are willing to travel for the “cultural experience” to see how food, drink, and other goods are produced in a unique setting specific to the region and, better yet, spend money when they get there.

You cannot go online and experience a trip to the Virginia mountains and end it with a tasting of Blackback Honey Bourbon at Silverback Distillery. The icing on the cake is that these industries are very likely to buy locally to produce their product, as when a Virginia distillery buys wheat and barley from Virginia farmers. So this not only doubles the business engine, but is not such a bad niche for Virginia to be known as the up-and-coming place for one-of-a-kind spirits.

This past Tuesday, all of the bills seeking to lift restrictions from distilleries submitted from the Virginia House of Delegates died in a sub-committee of General Laws except HB 536, carried by Nick Freitas. Again, like bad déjà vu, the Restaurant Lobby was there to make sure it went down. Their objection stems from the possibility that tasting rooms will become bars without the mandatory food that restaurants are required to sell in order to include alcohol on their menus.

One of the rejected bills (Farris) would have allowed the amount of alcohol to be raised in a distillery-tasting environment from the current sample size of 0.5 ounces to one ounce, and per mixed drink to be raised from 1.5 ounces to two ounces. It also removed the limit of three ounces of alcohol per customer in a 24-hour period.

While I surmise where our legislators are coming from in not considering this, I also know that if I have an alcohol problem, no amount of oversight is going to prevent me from becoming a problem after imbibing many ounces in my own home and deciding to go for a drive.

Other bills not passed on Tuesday would have allowed distillers to make a 25 percent retail profit (currently zero percent) on bottles sold on-site, and would have added just one satellite tasting location. Each piece of legislation was clearly designed to boost sales or give a portion of profit back to the business which actually made the product or provided the venue to sell it. A novel idea, right?

The good news is the Freitas bill which did pass, HB 536, was the most comprehensive in its wording to allow the industry to keep the efforts of their hard work and was sent on Thursday to the entire General Laws Committee. It then moved to the Appropriations Committee, where it will still need considerable advocacy.

Virginia ABC’s “guy,” who was treated as an elected official giving testimony in the committee meeting, claims a $1.7 million loss if the bill should be become law. There is some evidence that those figures are inflated and it’s closer to a million. In any event, it’s a pittance compared to what has been thrown away on GO Virginia and the Virginia Economic Development Partnership, which was a joke operation for years. Appropriations can find money to fill the gap if they really want to.

HB 536 reads as follows:

Alcoholic beverage control; sales conducted at government stores established by the Alcoholic Beverage Control Board on a distiller’s licensed premises; disposition of markup profits. Provides that any reasonable markup imposed by the Alcoholic Beverage Control Board pursuant to subdivision A 2 of § 4.1-235 on spirits sold at a government store established on a distiller’s licensed premises shall be retained by such distiller.

Another opportunity to get this right and reward the businesses which help fuel Virginia’s economy will take place when Senator Bryce Reeves’s SB 484 arrives for discussion in the Finance committee.

The original version of this bill was as follows:

Alcoholic beverage control; distiller licensee; commission for sales on licensed premises. Requires the Alcoholic Beverage Control Authority to pay a licensed distiller a commission of 20 percent of the retail price of any spirits sold by the distiller at a government store on the licensed premises.

SB 484 allows distillers to make a 20 percent commission (currently 8 percent) on bottles sold at their location.

On Friday morning an amended version, which changed the process whereby receipts are funneled to ABC and eliminated the requirement that distillery owners be “pretend” ABC agents, ran the gauntlet in the Senate Rehabilitation and Social Services Committee. This exchange revealed attitudes among the members on both sides of the aisle toward Virginia business.

Senator Lionell Spruill, a Democrat from the 5th District representing parts of Chesapeake and Norfolk, said his decision to both support and forward the bill to Finance came from actually listening to those who are in the distillery business. With his vote, the bill went forward 7-6. Apparently, Senator Spruill has a keen sense of fair play and likes to connect to real people with real business issues, and is willing to give unique industries from unique parts of Virginia a chance to thrive.

Of note along the same lines, a certain supervisor from Caroline paid a visit to the General Assembly this week to advocate for these bills and was met with the same question by, not one, but two people there expressing surprise and asking, “What’s your interest in this bill?”

While the simple answer could have been “the economy, stupid,” he answered that the particular characteristics of our county would be perfect for industrial tourism like a distillery. Caroline sports large rural tracks of land located in the primary growth area with utilities that have access to Interstate 95 and rail. They admitted they had never thought of that. True story.

It’s troubling that a closer look is not taken when fairly straight-forward measures to improve business are proposed. The history of the founding of many localities in our Commonwealth is entwined with the ability to be able to ride no more than a day on horseback to the county courthouse, and is different than almost anywhere else in our country. Many of our legislators need to remember to respect this aspect of our history and need to stop trying to make us one big global region. They need to get out and see the state they represent so they can better understand how all the diverse parts can fit successfully into the whole.

On Friday, a mostly arrogant crew of opposition, including the Virginia beer wholesalers, wine industry, the Downtown Group, and a big national liquor distributor, made the same arguments that allowing a distillery to keep a larger margin and reverse the bookkeeping was “dangerous,” even though none explained why it was okay for beer and wine makers to do the same.

Here is the link to the Senate Rehabilitation and Social Services Committee where Senator Reeves makes his case for the distillery business. The bill is at the very end of the video. Note that when one attendee remarks with horror that we might actually have new business move into Virginia, Reeves essentially says, “Yes indeed please do!”

The following is a recap of other legislation on distilleries submitted by Senator Reeves which will be heard in the near future in the same committee. and was taken from the Restoring Economics Fundamentals PAC Website.

When you read, keep in mind: the Virginia distilled industries attracted 296,741 visitors who spent $46,885,039 in Virginia. It employs 513 direct employees and 1,477 indirectly, and buys $5,240,333 worth of Virginia grain and agricultural products. The total impact to the Virginia economy is $163,045,778. Presently, Virginia distillers are required to buy their own product when offering samples from the ABC, including a markup up of 69 percent and an excise tax of 20 percent. Virginia has the second highest state excise tax on spirits in the country.

SB 803 will allow distillers to keep all retail mark-up profits (currently zero percent) on bottles sold at their location (creates parity with Beer, Wine, & Cider – currently Distillers are not allowed to keep any retail profits from bottles sold at their location and all profits go to the Virginia ABC)

SB 486 Allows Distillers to make a 25 percent minimum retail mark-up profit (currently zero percent) on bottles sold at their location

SB 482 Allows Distillers to serve up to 1 oz of straight spirits (currently 0.5 oz), up to 2 oz of spirits in mixed drinks (currently 1.5 oz), and removes the limit of 3 oz of spirits per customer per 24 hour period, and removes the requirement to track the drinks of each customer for a 24 hour period of time.

SB 483 Allows Distillers to open a single remote store & tasting room for sales (currently no remote stores or tasting locations are allowed)

Moving along, there are numerous election law related bills this year. An interesting one which has surprisingly gained traction is known as “the Ranked Choice Voting Bill” or HB 553 carried by Nick Freitas.

My initial thoughts when I read the bill, having worked local elections, is that it’s hard enough to get folks to vote for one, much less three or four. More nanny state legislation came to mind, as if we are attempting to set it up so everyone’s favorite gets a place, like the multiple ribbons and trophies now for kid’s tournaments. Choosing candidates is like many scenarios in life — a tough, tough choice and there is no easy card. I was not sure I was comfortable with an easy card, however….

As I researched further and drew on my own experience, I might be selling voters short and well remember one of the most oft repeated reasons for not voting at all which is, “I don’t like anyone on the ballot.” States that have adopted this don’t seem to have experienced a subversion of the Democratic process, so I am hoping the committee will give this bill a good deal of consideration. It may be the answer to voter turn out. Here is the link to Fair Vote Virginia which explains Ranked Choice Voting

Other legislation
In other news, Senator Scott Surovell (D-36th) who represents parts of Fairfax, Stafford, and Prince William, again had a bill (SB 621) to provide driving privileges to undocumented immigrants. This was passed by in the Senate Transportation Committee Wednesday with essentially the same party line vote as last year, R-7 to D-6. He apparently was hopeful that a new design and color would make the difference in the look of the license, distinguishing between folks who obey the law and are in our country legally and can obtain drivers license, and folks who have broken the law.

Yes you read that right. He wants to give a snappy looking license to those who have broken the law. My question would be, when a policeman sees the snappy license, does he call ICE? Thanks to Republican legislators who held their ground.

Lets see, however, if they hold their ground as well on the subject of energy independence in the Agriculture Conservation and Natural Resources committee, chaired by Senator Richard Stuart, where Sourvell has HB 951, a bill to prohibit fracking in the Eastern Virginia Groundwater Management Area.

Good stuff that happened this week included bipartisan support for a plethora of bills to help stem the opioid addition. My favorite bill to date is HB 241 that passed the House unanimously on Wednesday. This one was close to my heart, having been involved in the establishment of the new foster care program here in the Caroline community for the past few years. This was carried by newly minted Delegate Emily Brewer, a Republican from Suffolk, to reduce the waiting time for forever families from three to two years. Keep up the good work, Delegate Brewer!

Until next time, over and out from your friendly General Assembly reporter….