Call to Order
Chairperson Bob Cramer called the meeting to order at 1:35 PM with a quorum present.
Minutes of Previous Meeting (Available upon request)
Chairperson Cramer asked for discussion of the July 2, 2002 Minutes. There was no discussion.
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Motion: |
Commissioner Dick Stoffer moved the Minutes of July 2, 2002 stand approved as submitted. Commissioner Shirley Daggett seconded the motion, and it passed by unanimous vote. |
Dram Shop Administrative Rule
Judy Seib and Lynn Walding attended the Administrative Rules Committee meeting held the morning of September 10th. The Rules Committee heard concerns from constituents regarding the assault and battery exclusion clause, the continuous coverage suspension and the requirement for an occurrence based rather than a claims made policy. Bob Skow, a lobbyist for the independent insurance associate agents, told the Committee that insurance companies would not write dram insurance in Iowa if the proposed rule were implemented. Mr. Walding assured the Administrative Rules Committee that the Division would review the issues, specifically the assault and battery exclusionary clause and continuous coverage during a suspension period.
The public hearing for the Administrative Rule was held at 2:00 PM on September 10th. A small but knowledgeable group of people was in attendance and the hearing evolved into a round table discussion of the issues. Insurance brokers who write more than one-third of the dramshop insurance policies in Iowa, an attorney with the American Insurance Association and members of the Iowa Hospitality Association were in attendance. Items discussed were:
- Increase the dramshop minimum coverage. A raise from $50,000 - $300,000 coverage would probably mean a 15 - 20% increase in rates according to Fred Taylor of Taylor Insurance Services. Insurance is purchased in increments so the increase would not be substantial. The consensus was that the minimum rates are too low and need to be raised.
- Continuous coverage suspension. Passage of this clause would
require insurance companies to violate an existing clause in their
policy with the client. Recommendations were made to delete this
clause.
- No exclusionary clause for assault and battery. Although some companies in Iowa exclude assault and battery claims, there are insurance companies who are writing, and will continue to write the coverage. Depending on the type of current coverage, licensees may or may not incur a rate increase.
- Clarify language. The insurance representatives offered their assistance in defining and clarifying language in the rule.
The Division will revise the proposed rule and submit an amended draft for the Commission's final approval prior to the first of the year. The rule would be implemented over a 12-month period. New requirements would be effective upon renewal of licenses beginning July 1, 2003 and all licensees would be on the new rate by June 30, 2004.
Doni DuNucci commented the hearing was very informative; however, it underscored there is a great deal of confusion regarding the rule. The Iowa Hospitality Association is not against increasing the minimum amount of insurance required; however, the Association is concerned with the possible rise in premium costs for the increased coverage. In addition, the group is concerned about the assault and battery clause and continuation of coverage. Ms. DuNucci urged the Commission to look at overall dramshop reform to make sure the victim is covered while minimizing the negative effect on the hospitality industry.
Mr. Walding conceded the Division does not know what the proposed rule will do to premium rates. Some marginal players may be forced out of business and many bars will be forced to look at server training programs to help obtain insurance discounts.
Paul Trostel suggested that liquor licenses in Iowa are too inexpensive and too easy to obtain. A more expensive license would encourage the licensee to act more responsibly with regard to server training and compliance with dramshop laws.
2002 Holiday Show
The Holiday Show was held September 8 and 9th at the West Des Moines Marriott. Attendance and sales at the show were down about 7% compared to last year. Jodi Christensen commented the lower attendance could be attributed to the closing of 12 Osco and 2 Pharmor stores. In addition, there is no incentive for licensees to attend the show because representatives and brokers can sell the same deals following the show. Overall sales for the show, which included outside orders, were $4,668,000, an increase of 15%. Ms. Christensen reported that the HyVee food chain accounted for 40% of the sales at the show. Sams Club was also a high volume buyer.
Lyle Stutzman recommended continuing the annual show and liked the new Marriott location. He said gift sets were a big draw in the past because licensees had to attend the show to obtain the limited number of gift sets available; however, gifts sets are no longer in demand due to the extra work involved in handling the gift sets. If the Division did not hold a holiday show, Mr. Stutzman's company would work independently with the stores and continue to showcase liquor specials at their company wine shows.
Approximately 20% of the Division's business is conducted in November and December so it is important to have a managed way to deal with the product. Mr. Kuhlman stated the Holiday Show helps the Jones Company organize shipments of the holiday merchandise that flows through the warehouse.
A meeting with the brokers will be held September 30th to critique the show.
Tobacco Enforcement
Gary Marker reported the new contract signed with the Department of Health in August resulted in about a 32% reduction in funds available to the Division this fiscal year. To date, 134 partners have signed contracts and Mr. Marker anticipates the number will equal the 211 partnerships of last year. Every retailer in the state will receive one compliance check and noncompliant retailers will be checked a second time. In addition, the Division is conducting the SYNAR checks that must be done between February 1st and August 1st. SYNAR is a sampling of all retailers in the state and noncompliance results must be 20% or below to maintain federal funds. Some retailers may be checked a second or third time during the year if they are one of the establishments selected for a SYNAR check.
A Conference on Tobacco Enforcement was held at the Hotel Savery August 28 and 29th with over 100 partners attending. An evening reception was held the 28th with a full day of training taking place on the 29th. Each jurisdiction received one free registration and additional attendees paid a $25 registration fee. The total cost of the conference was approximately $3600. The conference received high marks with an overall rating of 8.5 out of 10. The highlight of the conference was a presentation done by Officer Eastep from Dubuque.
Web Page Release
Nicole Gehl demonstrated the Division's new web site. She is trying to find a no-cost statistical package to track how many hits the site receives. In response to Commissioner Cramer's question, Lynn Walding said the Division's goal is for retailers to be able to apply for a license on-line. In working toward that goal, the license application has been simplified and the forms are available on-line. The next step will be to determine the flow of paperwork, how to do background checks, and finally, to determine how to handle local authority approval.
The tobacco compliance database is real-time showing the retailer their compliance rate at any time. The data cannot be downloaded and manipulated directly from the website; however, the retailer can contact the Division and the data can be provided in an Excel or similar program.
Counsel’s Report
John Lundquist reported the Department of Public Safety's compliance checks throughout the state have resulted in a large number of complaints being filed. The majority of the complaints received relate to first time violations of sales to minors. Mr. Lundquist expressed concern that a number of the same companies are being cited in different locations for alcohol violations. These companies have good tobacco compliance rates' indicating the tobacco compliance message is being delivered; however, clerks and retailers are not checking IDs for alcohol purchases.
The Division collected $86,000 in fines in FY 2001. The total for FY 2002 was $162,000 of which $60,000 came from one gaming case in Sioux City. The majority of the $13,500 collected this current fiscal year is from sales to minors' violations which is $500 each time.
Financial Report
Final figures for the end of the year were not yet available. Tourism drives alcohol consumption and tourism in Iowa is up 20% over the last four years. The statewide average for per capita sales for last year was 1.41 gallons and Dickinson County was 3.77 gallons. Mr. Kuhlman pointed out that even when gallon sales decline, the state's profits continue to increase due to the state's markup on the supplier cost.
Chairman Cramer asked if statistical information is relayed to the Division when local law enforcement officials issue tickets for over consumption or OWIs. Mr. Walding responded they have the option of filing a complaint with the Division or filing locally before the city council or board of supervisors. The Division may never know about the incidents if local authorities handle the matter. Mr. Lundquist commented that prior to their layoffs, the investigators were working on creating a better relationship with local law enforcement to get information to the Division to tie a particular retailer or licensee to a violation.
Sales Report
Sales were up 5.5% in dollars year to date through August. Sales should be up over $750,000 for the month of September according to Kuhlman. The year to date totals through September should be up $1.8 million or 6.8% for the year. Mr. Kuhlman projects that the Division will be at $116 million at the end of the year.
Product Buyout Information
The Division has implemented an inventory management program limiting inventory levels and suppliers are voluntarily watching their stock. As a result, there are fewer products available to purchase on the buyout program. If product is available and the discount is deep enough, the Division buys a 30 - 60 day supply. The Division realizes an 8.5% return on investment on product purchased on this program.
Electronic Excise Tax Report Update
Beer and wine wholesalers currently submit a taxation form by the 10th of each month. The Division has been working on creating an electronic reporting system that would allow wholesalers to send an electronic file and to use electronic funds transfers to pay the tax. Another option is to create a web-based form that can be completed on-line and submitted to the Division for the EFT transfer of the tax amount. Both systems would automatically figure the tax, record the data submitted and apply a penalty for late reporting if applicable. The majority of the wholesalers favor the first option.
About 95% of the wholesalers who currently use an electronic system, use a company called D-Bev. D-Bev has developed a system that captures the wholesaler's daily data entered and at the end of the month automatically prints the data on the Division's current tax form for mailing to the Division. The wholesalers would like to transfer that information electronically rather than printing and mailing the form to the Division. Bruce Ireland has been working with D-Bev to accomplish this goal. Developing the web-based application will be more difficult because the IT staff does not have experience in developing web-based applications.
Vintners and brewers are also required to submit a shipper's report each month. Eventually, the Division wants to create a cross-reference between the two reporting systems to verify that the numbers match.
According to Walding, $13.4 million is collected on beer excise tax annually, which represents about one-quarter of the Division's business. The Division explored the possibility of collecting the tax from the brewers; however, the beer wholesalers resisted. The wholesalers feared the brewers would tack on additional costs and the wholesalers wanted the transfers to come from them. The Division's accounting staff will do occasional financial audits to make sure the tax is being properly submitted. Additionally, the Division will no longer collect market data for the wholesalers. The wholesalers can utilize a national system that collects the information directly from the brewers.
Alcohol Enforcement Initiatives
Lynn Walding recommended the Commission consider alcohol enforcement initiatives for their next project. It is clear there will be no state funds available so Mr. Walding is working with the patrol and the federal government to obtain funding. Kevin Techau, Department of Public Safety, is trying to obtain a federal grant for alcohol enforcement at the patrol level on an annual basis. He also has a proposal to do educational training. Mr. Walding pointed out the Alcoholic Beverages Division currently has field investigators who conduct training sessions for both alcohol and tobacco compliance. In addition, the private sector offers educational training through TIPS and various other programs that already exist.
Pursuant to the Iowa Code, the Department of Public Safety is the chief liquor enforcement agency for the state of Iowa; however, Public Safety did very little enforcement until they obtained the recent federal block grant that funded alcohol compliance checks for three months. The compliance checks indicate that approximately one-third of the retailers are non-compliant. Some retailers had an unacceptable 50% non-compliance rate.
Last year $168,000 collected by the Alcoholic Beverages Division from enforcement efforts was put in the General Fund. Mr. Walding would like to see a portion of that money used to fund local law enforcement efforts to check bars and check for compliance of alcohol sales to minors. He is not comfortable with the Division doing enforcement because the Division does not have certified peace officers status. Mr. Walding will work toward obtaining a federal grant in conjunction with the Department of Public Safety to contract with local law enforcement to do alcohol compliance checks. Chairman Cramer commented the Division should try to get the civil penalty money to remain in the ABD coffers. Mr. Walding replied the Division used to be allowed to use the money for educational tools; he thinks it should be used for enforcement tools.
In response to a question by Commissioner Collins, Gary Marker stated the Alcoholic Beverages Division's tobacco investigators conducted the compliance checks on retailers selling tobacco products. The Division contracted with the Patrol to have two plain-clothes officers per day patrol at the State Fair looking for minors who were smoking. There were 87 citations issued. Commissioner Collins stated that on three consecutive days in the same establishment she observed enforcers approaching people who were obviously of age; however, the enforcers never checked the young people for tobacco. Commissioner Collins personally knew some of the minors who were smoking and the officers never approached them. The Commissioner commented the enforcement efforts were poor and suggested officers be given an incentive for those they caught rather than the number they passed.
Lynn Walding reported the Patrol filled the void created by the loss of the field investigators on RAGBRAI this year. The Division was not contacted regarding closing any establishment during RAGBRAI this year.
Paul Trostel asked if Mr. Walding anticipated civil penalties will reach the previous year's total or if he thought operators were becoming more aware. Mr. Trostel also suggested the Commission take a proactive move when doing alcohol compliance checks. He suggested the officers leave a business card with the date and a message that the establishment was checked for alcohol service to minors and did it correctly. This would provide positive reinforcement for management meetings. Managers could tell their employees they were checked and were not in violation making them feel positive about following the rules and regulations each has in their own establishment. Lynn Walding replied the tobacco program currently does this with "atta boy" and "bad boy" letters. Businesses take pride in receiving the "atta boy" letters and Lynn has seen them posted.
Doni DeNucci complimented the Division on their track record with tobacco compliance and suggested the tobacco compliance program be used as a model for the alcohol compliance program. The Iowa Hospitality Association has a very good training program available for anyone who serves on-premises alcohol. Ms. DeNucci has contacted Mr. Techau offering the Association's assistance.
When Commissioner Collins cast the dissenting vote on the ban on all-you-can-drink specials recommended in the White Paper, she commented existing laws should be enforced rather than make new ones. Mr. Walding was happy to inform the commissioners that Iowa City is now rigorously enforcing existing laws and underage minors are being cited.
Malternatives
Commissioners were shown samples of a new category defined as malternatives which are similar to wine coolers. While malternatives are malt based, some portion of the alcohol comes from distilled spirits. Iowa considers malternatives as beer and taxes the product at 19¢ a gallon. The federal government is looking at redefining malternatives and will soon have a rule that says these products can only carry ½ of 1% of the total alcohol content coming from distilled spirits.
A national storm is brewing about whether malternatives are distributed, taxed and advertised properly. While it is legal to advertise liquor, most companies do not; however, companies are advertising their malternatives. One of the most familiar malternatives is Smirnoff Ice. Smirnoff Vodka sales were up 16% in a category that is only up 3%.
Attorney General's Opinion Request
Some distributors have asked if it is a violation of Iowa Code § 123.24 (1) if they offer specials at the holiday show. The Division has requested an Attorney General's Opinion. If the answer comes back that the industry cannot offer specials, there will no longer be a holiday show. Lyle Stutzman commented the key is that it be offered to everyone if it is being done.
Coffee with the Administrator
Lynn Walding and Jim Kuhlman held "Coffee with the Administrator" meetings in seven locations throughout the state in early September. Approximately 100 Class E licensees attended the meetings and provided good feedback. The beer wholesalers hosted the division and many of them paid for the coffee and donuts. The cost to the state was under $1,000. It was a good opportunity to partner with the beer wholesalers and to learn more about the beer wholesale operation as well.
- Product Portfolio- Licensees did not indicate an interest in increasing product selection to 2,000. They were more interested in adding special order products that are consistently ordered to the regular inventory. They also do not want product selection to go below 1300. The Division will probably design the warehouse to hold 1400 - 1700 products.
- Marketing of Alcohol - The Division is considering discounting some premium brand products in an effort to get consumers to buy premium brands. Industry members indicated they would contribute to the discount if the state would also participate. The state can possibly lower the markup to 40%. This would be particularly helpful to the retailers on the borders to combat competition with the neighboring states. Implementation will probably take place in 2003. Brown Forman has offered to track product performance during the trial period if a Brown Forman product is chosen for the test.
- EFT - The benefits of using EFT were discussed with the retailers and they were told the Division will probably mandate the use of EFT in the near future. Currently, 60% of the retailers use EFT.
- Split Case - Based on input received at the meetings, the state will continue to do split case shipments and will not increase the fee at this time. Retailers indicated they would 1) pass the cost to the consumer if the split case fee was increased; 2) they would be less inclined to try high-end goods if they had to order a whole case; and 3) they were less likely to try new products. There was a great deal of discussion regarding split case with Commissioner Cramer reinforcing his argument that split case can be an inefficient system.
- Delivery Schedule - A 48-hour delivery system as opposed to the current 24-hour delivery system was discussed. The Jones Company would have to redo their routes making deliveries over a 3-day period so no Class E would have to wait for a delivery over a weekend.
- Electronic Ordering - The possibility of ordering via computer and telezon was discussed at the meetings. Hy-Vee, who makes up about one-fourth of the retailers, has a new system called Cars. The Division will try to integrate with them.
- Liquor Quarterly- Marty Deaton has prepared a draft RFP which will be submitted for bid for a quarterly publication mailed to all bars. The publication will include recipes, the entire list of products offered in the State of Iowa without the price and an article from this agency. The company interested in bidding on the publication would sell ads to cover the cost of the publication and there would be no charge to the division for the publication. A monthly publication similar to the current publication would also be distributed free of charge to the Class E's with the price list included. The goal is to have the first publication ready for distribution in January.
- Holiday Show Update & Review -Attendance and what it takes to get retailers to the show was discussed.
- Open Forum- Jim Kuhlman reported that some retailers are not happy with the service of the Vendor who picks up empty bottles on behalf of the division. ABD charges a surcharge of 2¢ a bottle to pay for the service. Steps have been taken to correct the problem.
Retailers suggested the state consider a law similar to one in Wisconsin where there is a mandatory 6% markup. Proponents say a State mandated minimum markup at the consumer level would increase the retailer's profitability. Those who oppose the plan, state it will cheapen sales all through the retail tier.
Program Elimination Commission
The Program Elimination Commission (PEC), made up of 5 voting members and 3 nonvoting members, has been given the charge to identify a 2% savings to the State General Fund or the equivalent of $100 million. The PEC was asked to look at several state operations, including the Alcoholic Beverages Division, for sale or privatization by the private sector. The Division has prepared a study in preparation for the October 7th meeting, a copy of which was given to commissioners. The study looks at the financial aspects of the state liquor system, taxes and the effects on consumer prices. Jim Kuhlman explained the taxation that would be needed to make the state revenue neutral under a private distribution system. A lengthy discussion ensued.
Privatization would have a minimal effect on the Division according to Walding because the division is essentially a private system at the present time. Liquor is sent to the warehouse on a bailment system, the Jones Co delivers it to the private Iowa businesses and finally, the retailers sell it. Very few state employees are involved in the process so it is a very efficient way of collecting the excise tax and making sure it is paid.
Paul Trostler commented the state runs a very efficient operation and he has no problem getting special products. He expressed concern that if the state were to privatize, a couple of large distributors from outside the state would become exclusive distributors and prices would increase. He also feared that a private distributor would eliminate split case ordering or increase the price creating a terrible burden on the hospitality industry.
Commissioner Collins suggested that the state could generate revenue by increasing the taxes on cigarettes. Mr. Walding said there was some debate on the issue last year and he expects the issue will be revisited this year. Currently, Iowa's tax rate is 36¢ compared to Illinois's rate of 60¢.
Other Business
Marty Deaton advised that the Division had followed up on Commissioner Collin's request regarding money transferred to the General Fund for Substance Abuse Treatment. According to the Department of Management, the Division transferred $9 million to the General Fund, of which $1.2 million actually went to Substance Abuse Treatment for their programs. For Fiscal Year 2002 Substance Abuse received $9.8 million from tobacco funds and $1.2 million from liquor funds resulting in $11 million for the same treatment programs. Although the money came from different sources, Substance Abuse actually received more money for treatment programs in FY02. Since the funding was obtained from a different source, the Division's transfers for substance abuse treatment went to the General Fund. This fiscal year Substance Abuse Treatment will receive only $5.2 million.
Meetings
The next meeting will be held in the Iowa Alcoholic Beverages Division Board Room on December 10, 2002 at 1:30 PM.
Adjournment
Gayle Collins moved the meeting adjourn. Mary Hunter seconded the motion and motion carried unanimously.
The meeting adjourned at 3:45 PM.
GAYLE COLLINS, Secretary |
