Maryland's strong alcohol lobby likely to quash tax increase

By Aaron C. Davis
Washington Post Staff Writer
Friday, March 12, 2010; A01

In recent years, Maryland has raised its sales tax, income tax, corporate tax and cigarette tax; added a surcharge called the "millionaires' tax"; and created taxes on electronic bingo, tip jars and even water and septic systems -- the "flush tax."

But lawmakers have not touched alcohol taxes. For 37 years, Maryland's levies on beer and wine have remained unchanged, and its pennies-per-drink charge on hard alcohol has not budged since 1955 -- a testament to the influence of the state's alcohol lobby.

This week, advocates for the poor and mentally ill have made hours-long pleas to powerful legislative committees in Annapolis, contending that raising alcohol taxes by a dime per serving would restore much-needed funding for health-care programs for the poor, services for the developmentally disabled, and drug and alcohol dependency programs hit hard by budget cuts.

The answer they'll get is the same as always: No.

"We're not going to consider taxes. That's the mantra this year. That's it," said Sheila E. Hixson (D-Montgomery), chairman of the House Ways and Means Committee, in an interview. She ruled out any increase in alcohol taxes.

In most states, so-called sin taxes are among the first to rise when lawmakers look for money to balance budgets. But in Maryland's General Assembly, which has been controlled by Democrats since long before the drinking age hit 21, the alcohol industry has remained impervious to nearly all changes it has opposed.

The industry's enormous success in Annapolis flows from a multi-pronged lobbying strategy that has been passed down for generations. Not only do industry leaders regularly stuff candidates' campaign accounts with cash, but they are also quick to mobilize a grass-roots network built into Maryland's heavily regulated three-tier system of wholesalers, distributors and retailers that grew out of the end of Prohibition.

In the decades since, liquor wholesalers, distributors, retailers and even county governments have carved out lucrative slices of Maryland's highly regulated booze business: No large chain stores are allowed; wholesalers can't be distributors, and vice versa; and in some counties, such as Montgomery, the local government operates its own stores.

In communities across the state, about 6,700 bar, tavern and liquor store owners, as well as union leaders for drivers and warehouse workers, sponsor little leagues and school events and are active in local chambers of commerce. When legislation starts circulating in Annapolis, lawmakers say, those people don't hesitate to call and tell them that a bill might increase competition, put small business owners out of work or send consumers across state lines.

The industry's network of political action committees, 120,000 employees, and powerful distributors and wholesalers have contributed more than $1.3 million to state lawmakers since 2000, according to campaign finance reports.

They have also spent nearly $900,000 in the past five years to maintain a stable of lobbyists and lawyers in Annapolis whose firms have represented the industry for more than three decades, according to state ethics reports.

General Assembly sessions are kicked off with a roughly $16,000-open-bar reception for lawmakers and their families, and the industry's wining and dining usually continues, such as with a $2,500 steak dinner Feb. 3 at Lewnes Steakhouse, an Annapolis institution.

Arguably, lobbyists know Maryland's hundreds of pages of arcane liquor laws better than any lawmaker or regulator. They personally know every member of the assembly's tax committees and can count as personal friends some members of the subcommittees that regulate alcohol issues.

Hixson, the Ways and Means chairman, said she has always found the industry's lobbyists trustworthy about the potential effects that legislation could have on their businesses and said their deep knowledge about the topic helps. "It's important that they know the history and how we got here," she said.

J. Steven Wise, a partner at the lobbying firm Schwartz, Metz and Wise, whose principal lobbyist is Joseph A. Schwartz III, said he has devoted nearly a decade to becoming an effective lobbyist for the industry.

"When I was just starting, [Schwartz] told me: 'There are five to seven people in the state who understand these liquor codes. If things work out, you'll be the eighth,' " Wise said.

The result of such efforts is that Maryland's $1.50-per-gallon tax on distilled spirits is tied with the District's rate as the second-lowest in the nation, according to the nonpartisan Tax Foundation in Washington. In Virginia, where lawmakers are loath to raise levies on most anything, the tax is $20.13 per gallon.

The industry's clear path to victory this year -- not only on alcohol taxes, but also in blocking bills that would have allowed direct wine shipments from out of state and watering down legislation requiring first-time convicted drunk drivers to install ignition systems that test for sobriety-- has drawn criticism of the alcohol lobby and its perceived stranglehold on Maryland politics.

In the months leading up to the legislative session, the lobby appeared to strategically sprinkle tens of thousands of dollars in contributions to key lawmakers, including leaders in both chambers, and to Del. Mary Ann Love (D-Anne Arundel), who leads the House subcommittee that deals with alcohol regulation.

"For way too long, the alcohol beverage lobby has been drunk with power in Annapolis, and this is the year we're going to sober them up!" Sen. Richard S. Madaleno Jr. (D-Montgomery) yelled last week at a rally leading up to this week's hearings.

Hixson said that testimony presented Thursday would not change the anti-tax stance of her committee, which follows public pronouncements since January by Gov. Martin O'Malley, House Speaker Michael E. Busch (D-Anne Arundel) and Senate President Thomas V. Mike Miller Jr. (D-Calvert), who have said that it's a bad year to think about tax increases with many residents still struggling through the recession.

The legislation by Madaleno and Del. William A. Bronrott (D-Montgomery) would collect an estimated $200 million or more a year, which would be used to expand Medicaid coverage to childless adults and to restore funding for services for tens of thousands of Marylanders with developmental disabilities. More than 10,000 developmentally disabled residents are eligible for state services but are on waiting lists because of inadequate funding.

"This bill addresses both sides of the crisis -- the terrible underfunding of existing services, and the thousands of people on the [wait] list -- and it raises funds without dipping into the general fund," Laura Howell, chairman of the Maryland Developmental Disabilities Coalition, testified Thursday.

To the alcohol industry, the bill is less benevolent. On a per-gallon rate, it would increase Maryland taxes from $1.50 to $10.03 on distilled spirits; from 40 cents to $2.96 on wine; and from 9 cents to $1.16 on beer. The real-world effect? About $4 more for what is now a $13 bottle of liquor, said Robert C. Douglas, a lobbyist for the Licensed Beverage Distributors of Maryland.

Douglas and others also mentioned a nonpartisan fiscal analysis of the bill as a warning for why to resist the tax.

It "would result in a decline in sales for all retailers and wholesalers of alcoholic beverages," a Department of Legislative Services analyst wrote. Businesses along the state's borders, particularly those in Montgomery and Prince George's counties, could be most adversely affected because consumers there could go to the District, "where the taxes will be considerably lower."

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