Legislative Update
Nicole Gehl reported on the legislative highlights for the session
as detailed in the Commission packet. The two status quo budget
bills have passed the House and are in the Senate.
SF 2368 CO2 Filters – Although the language
could have been clearer according to Assistant Attorney General
John Lundquist, the legislature overwhelmingly passed this bill
and it is now awaiting the Governor’s signature.
SF 2305 High Alcoholic Content Wine – This
bill changed the definition of wine so that it is referred to by
17% alcohol by weight or 21.25 by volume.
There was a great deal of discussion regarding the issue of whether
Iowa native wine is going to allow imported California wine to be
mixed with Iowa wine and still get the advantages given to the native
wineries. There are two opposing camps in the Wine Growers Association
– one that wants to use only Iowa juice and make Iowa native
wine and the opposing camp that wants to bring in the product, bottle
it in Iowa and call it Iowa wine.
Assistant Attorney General John Lundquist added that many of the
wine bills and the native distillery bill want to enhance the benefits
that are given to the in-state manufacturers to the detriment of
out-of-state manufacturers which is arguably unconstitutional. The
challenge will be how to create a level playing field before the
state gives new benefits to in-state manufacturers.
Mr. Walding stated that the division will work with the Iowa Wine
Growers to see if they can come to some consensus. Commissioner
Doll suggested that the Wine Growers Association be invited to a
future meeting to present their views.
HF 2075 (companion bill SF 2043) – Alcohol
Employees - Commissioner Doll cautioned the Commission that although
HF 2075 and SF 2043 which allowed the spouse of an individual who
manufactured, bottled or wholesaled alcoholic beverages, wine or
beer to be employed to sell at the retail tier appeared to be a
simple process, there were underlying circumstances that were very
complicated. The beer wholesalers were successful in convincing
the legislators that this was not a good bill and both are inactive.
HF 2333 AWOL Prohibition – Although Mr.
Walding felt that the AWOL machines were a non-issue in Iowa because
there are none in Iowa and they have nothing to do with underage
drinking, the bill passed both the House and Senate and Governor
Vilsack signed the bill.
HSB 527 EAV Devices – The division was not
supportive of this bill as a result of a study done by the division
in conjunction with Brandeis University that showed the EAV devices
were ineffective. The bill proposed that if a retailer bought an
EAV device, the retailer would get credit for past violations. The
division argued that the machines should be bought prior to any
violations in order to receive credit. The bill did not pass.
HF 652 – DL Reinstatement for OWI –
In response to Commissioner Collins inquiry about why this bill
did not pass, Ms. Gehl stated that some county attorneys do not
want to process OWI cases leaving administrative revocation through
the DOT as the only recourse.
HF 2549 – Native Distillery – This
bill would have allowed native distilleries to by-pass the 3 tier
system and sell direct to market. With the recent Supreme Court
decision, this legislation would 1) probably have been unconstitutional
if passed and 2) put the 3 tier system in jeopardy. The division,
along with the Iowa Beer Wholesale Distributors, was able to stop
this legislation.
SF 2346 – Keep Young Driver’s Safe
– Ms. Gehl reported that this bill introduced by Public Safety
early in the session created criminal and civil liability for providing
alcoholic beverages to underage persons as well as creating keg
registration requirements. Due to the keg registration requirements,
the bill did not pass the funnel. The language was then tacked on
to a transportation bill without the keg registration language.
The civil liability issue does have insurance implications. The
bill also 1) increases the criminal penalties for supplying alcoholic
beverages to underage youth; 2) provides a graduated driver’s
license; and 3) limits the number of passengers for young drivers.
HF 2022 - Cigarette Tax - Although Representative
Rants is still against it, the cigarette tax bill is still alive.
HF 2662 – Effective Period of Rules –
All rules sunset after a certain time limitation. After a specific
time, the divisions would have to review the administrative rules
to make sure they are up-to-date and current.
Lynn Walding reported that although there was never a bill introduced,
Anheuser Busch wants to discontinue the use of coupons and plans
to approach the Commission to argue for an administrative rule.
Anheuser Busch argues that the rebate coupons create a 2 tier pricing
system whereby one retailer gets one price and another retailer
receives a different price. They argue the coupons never get passed
to the consumer. Commissioner Doll added that some brewers in the
market place are giving the instant rebate coupons (IRC) to some
retailers and not others creating an unfair market advantage for
some.
Tobacco Enforcement
Nicole Gehl reported the tobacco enforcement is status quo with
an 89% compliance rate. Approximately 60% of the compliance checks
have been completed for this fiscal year.
The division is still offering tobacco education classes with a
goal of at least one monthly class in all 99 counties. The intent
was that better attendance at the education programs would improve
the compliance rate; however, the retailers have not responded by
participating in the classes. The trend appears to be that retailers
wait until they get a violation before sending their employees to
the training. Unfortunately, that trend has resulted in 88% of the
seats available in the training classes are unfilled and classes
are cancelled 53% of the time. Those who do participate in the training
have a 98% passing rate.
Ms. Gehl commented the level of enforcement has backed off due
to budgetary cuts so retailers are aware that once they are checked,
they won’t be checked again during that fiscal year.
Mr. Walding relayed that the division is exploring web-based training
which is more cost effective and should result in getting more people
trained.
Electronic Licensing Update
Ms. Gehl reported that 33% of the businesses that apply or renew
their license with the division are using the e-licensing application.
Currently 11% of the local authorities (city clerks and county auditors)
have been trained. Classes are listed on the website and training
is taking place throughout the state. The goal is for licensees
to have a 24 hour turn-around once the local authority approves
the license. Some city clerks have been able to learn the system
with the instructional materials mailed and have not needed the
training class. Others are resistant to the change. Ms. Gehl commented
that the system is very user-friendly and will not let the applicant
make a mistake. Mr. Walding suggested that Ms. Gehl set up a demonstration
of the electronic licensing system at the next Commission meeting
to demonstrate to the Commission the ease of navigating the system.
Beer and Wine Wholesaler Tax Report
Ms. Gehl reported that the electronic wholesale reporting for beer
and tax collections is currently in the testing phase. IT staff
is working with manufacturers to load brand information. While 75%
of the industry likes it and has been very cooperative, 25% want
nothing to do with it. The larger beer and wine wholesalers have
all provided their information; however, some of the out-of-state
shippers have refused to send their information. Jim Kuhlman added
that there is a question whether Iowa can legally ask them for the
information. In response to Commissioner Doll’s inquiry, Ms.
Gehl stated that probably the 75% comprises 90% of the volume or
more.
Kaizen Event Update
There was a great deal of discussion regarding the Class “E”
survey, a copy of which was included in the Commission booklet.
Input from the survey provided the division with context to start
the Kaizen event held February 28, through March 3rd. Issues originally
targeted for the event were the special order program and out-of-stock
items; however, as the participants delved into the process it became
clear that the order entry and accounting sections were intertwined
and the whole process was evaluated. Ms. Gehl walked the Commissioners
through the process. As a result of the event the following initiatives
have been implemented:
1. The drivers now complete forms at the delivery site recording
inventory adjustments thus eliminating time-consuming work for the
accounting section;
2. The order entry and accounting sections, as well as the licensing
and regulations sections, have been relocated to maximize office
efficiency and work flow;
3. A standardized fax order form is available on the division’s
website to download;
4. Order entry staff is in the process of prioritizing an order
list by product to allow the purchasing assistants to proactively
seek orders from callers;
5. A computer disconnect that warns order entry staff of out-of-stock
products was discovered during Kaizen and IT staff fixed the problem;
and
6. Center tags for pallets are now printed automatically instead
of hand-written.
Future initiatives involve the following:
1. Tear down a warehouse wall in the old wine section, install
racking and bring in additional product;
2. Add the top 30 most frequently ordered special orders to the
products warehoused;
3. Pass additional expense incurred for stocking frequently ordered
special orders to the suppliers (this was proposed by supplier representation
at the Kaizen event);
4. Replace the current antiquated computer system with a new centralized
computer system whereby all sections can access core data including
modules for brokers to access their reports from a remote location;
5. Generate a monthly reporting system that would allow suppliers
to access the internet and adjust their pricing on a monthly basis
rather than the current quarterly system of sending files to ABD
staff to adjust;
6. Hook up to Hy-Vee CAR system which would reduce 25% of Order
Entry input; and
7. Although it is not on the horizon at this time, consider the
possibility of mandating an internet ordering system sometime in
the future.
Financial Report
FY 06 Financial Highlights
Sales are going up, expenses are rising and transfers to the General
Fund remain constant with last year. Expenses are up due to upgrades
in the office and warehouse expenses are slightly higher than anticipated.
Jim Kuhlman reported that 7% of the division’s gross sales
amounting to just over $10,100,000 was transferred to the General
Fund for Substance Abuse Treatment efforts per the Iowa Code. The
language in the Code states that this amount is subject to appropriation
by the legislature. In response to Commissioner Collins request
for information, Nicole Gehl will find out how much money was actually
appropriated this year for substance abuse treatment. Commissioner
Collins expressed her disappointment that the amount appropriated
for substance abuse treatment does not increase proportionately
to the increase in liquor sales.
Commissioner Clayton asked if alcohol enforcement could be funded
as an expense the same way tobacco enforcement is funded. Ms. Gehl
explained that the tobacco enforcement money does not come from
the General Fund. The funds are derived from the tobacco master
settlement fund for tobacco control initiatives.
Mr. Walding stated that he has had discussions with Senators Kibbie,
Gronstal and Iverson regarding funding appropriations for alcohol
enforcement. He pointed out to them that the liquor trend is such
that the division could fund enforcement through the extra revenue
generated. Last year the division transferred $50 million and it
is feasible that the division could transfer up to $60 million this
fiscal year. If the legislature is looking for a source of funding,
Mr. Walding suggests that the division can self-generate those funds
to pay for an enforcement program and perhaps for substance abuse
as well. The liquor trust fund would also be a source of funding
with legislative approval. Although he does not expect action this
legislation session on the issue, Mr. Walding does anticipate it
will be discussed during the next legislative session.
Mr. Walding also relayed that the directors of the National Beer
Wholesalers Association (NBWA) and Mothers Against Drunk Driving
(MADD) have met to explore common goals. One common goal that has
emerged is to protect the existing regulatory structure.
Commissioner Clayton clarified that the alcohol enforcement he
was referring to was compliance checks similar to those done for
tobacco. Mr. Walding talked with the legislators regarding funding
in the amount of approximately $617,000 for trade practice enforcement.
Liquor Sales – Wine and Beer Taxes
Wine continues to rise and beer is starting a weak rebound according
to Jim Kuhlman.
Sales Report
Sales Comparison
Sales through March are up $10.2 million and more recent figures
reflect that sales are up $10.5 million.
Product Buyouts
Year-to-date investments are $7.3 million with a dollar profit of
$641,000 reflecting a 9% return rate. Additional product buy-outs
tracked as part of the charter agency issue show that the division
is on target.
Warehouse Update
Lynn Walding reported that Crystal Distributing assumed their duties
as the warehouse contractor on January 30, 2006 without a signed
contract due to insurance issues. The contract incorporated insurance
language identical to what was required of the previous contractor
(J. A. Jones) which included a required $15 million for liquor inventory
and $10 million for the building to protect the division in the
event of negligence by the contractor. Just over a week ago Crystal
offered to withdraw their bid. They have tried to fulfill their
duties at the bid price of 48¢ per case; however, with the
insurance issues they have decided it is not financially feasible
for them to go forward. Crystal’s decision to withdraw the
bid was announced to Crystal employees and Iowa ABD staff today.
The Iowa ABD is working with Crystal Distributing to insure a smooth
withdrawal process and plans to resume responsibility for the warehouse
operation effective at the end of April.
In response to Commissioner Doll’s query, Jim Kuhlman stated
there are two problems associated with using common carriers to
deliver liquor: security and service. With regard to service the
division is required by Iowa law to treat everybody the same. The
division has always decided to leave the trucking aspect in-house
or to have a contractor who is solely dedicated to doing that type
of work. The transportation component of the bid issued last fall
stipulated that the transportation company could not back-haul or
co-mingle product. Mr. Kuhlman pointed out that Iowa is possibly
the most efficient control state system. Iowa ABD transports the
product at a cost of $1.50 whereas the state of Michigan pays over
$7.00 per case to have a transportation company deliver their liquor.
Commissioner Doll commented change is difficult and he commended
the division on the job they have done.
Mr. Walding said the division will be reviewing the use of inmate
labor and staffing requirements in the next few days. The warehouse
labor force currently consists of a minimum number of inmates, some
state employees and Merit Resource (temporary) employees. The union
members have been very good partners in this effort realizing that
jobs are at stake if the state cannot continue to run the operation
efficiently. Jim Kuhlman added there was a great deal of turnover
in the inmate workforce. In order to work offsite, the inmates have
to have a “minimum out” which means they are usually
very close to parole. It takes 3 – 4 weeks for a trained inmate
to get up to speed and within a month or two they are paroled. The
down-side is that training is an on-going process; however, the
up-side is that taxpayers receive the most value for their dollar
and it helps reduce recidivism of inmates. The division has hired
two former inmates who have proven to be very good employees. As
a result of their experience here, others have been able to obtain
jobs upon their release.
Recognition of Service
Lynn Walding presented Commissioner Dick Stoffer with a certificate
and thanked him for his 8 years of service to the Iowa ABD. A reception
in Commissioner Stoffer’s honor followed the meeting.
Upcoming Meetings
Linda Cox will call the commissioners to schedule the next commission
meeting close to the mandated July 1st date.
Adjournment
The meeting adjourned at 3:45 PM. | 
