Where Do Kansas Candidates Stand On Key Industry Issues?
(Oct. 21, 2008) By the time you read this the presidential election campaign will have reached a fevered pitch and information on the candidates will be everywhere you look. But the reality is the U.S. president has little direct impact on the alcohol beverage industry in Kansas. It’s Kansas lawmakers who hold the future of your business in their hands, and information on where these candidates stand on key industry issues can be hard to come by.
The Kansas Beverage News Election Guide 2008 seeks to bridge that information gap. We mailed an eight-question survey on key industry issues to every candidate for the Kansas legislature. Not every candidate responded, but the answers of the 79 candidates who chose to participate shed some light on where they stand on the issues and how the industry might change under their leadership.
Read Your Candidates Full Responses: Senate Or House Of Representatives
Who Are My Legislators?
The 79 candidates for Kansas legislature who participated in the 2008 Kansas Beverage News Election Guide candidate survey were nearly evenly divided between Democrats and Republicans, and included 11.39 percent Libertarian candidates. Predictably, the pool of respondents included more challengers than incumbent candidates by a wide margin.
Single Strength Beer
No other single question raises more retailer concern than the question of whether grocery and convenience stores should be allowed to sell strong beer. There’s good reason for that. A 2008 study by the Distilled Spirits Council predicted that if strong beer goes to grocery and convenience stores 217 of Kansas’ 742 liquor stores will go out of business. It predicted the remaining stores would see their total revenue cut by 45 percent, due to a 75 percent drop in beer revenue and a 10 percent drop in spirits revenue.
Grocery and convenience store owners, on the other hand, have been aggressively lobbying the Legislature for the right to sell strong beer. And why not? The DISCUS study predicts beer volume would go up 60 percent. The grocery and convenience stores would be the beneficiary of that new volume along with the lost volume from the liquor stores.
Bills that would allow strong beer in grocery stores are introduced in the legislature nearly every year. Typically these bills are heard in the Federal and State Affairs Committees of the House and Senate.
Three members of the Federal and State Affairs Committees who are running for re-election participated in our survey. All three said they oppose allowing strong beer and other products in grocery stores.
That’s typical of the legislative response so far -- bills have not made it out of committee. But if the responses to our candidate survey are a general indication, legislative attitudes may be changing.
Nearly 54 percent of respondents would allow at least some liquor store products in grocery and convenience stores. More than 15 percent would allow beer, wine, and spirits in grocery stores. Just over 25 percent would allow strong beer only and nearly 14 percent would allow wine and strong beer.
On the flip side, 54.43 percent of candidates responding to our survey would keep strong beer and all other products in the liquor stores only.
“The day is coming I suppose when the grocery stores will sell everything. I would just as soon leave it as it is,” said John Grange of ElDorado, incumbent candidate for House of Representatives.
“Liquor should be available at liquor stores with attendants 21 years or older,” said Carol Stickland of Emporia, candidate for the House of Representatives. “Anything less diminishes our control and enforcement of usage and laws
“I see this as a competition issue,” said John Rubin of Shawnee, candidate for House of Representatives. “I believe that both for consumer convenience and to ensure that grocery and convenience stores in Kansas border counties such as Johnson County can fairly compete with their counterparts across state lines they should be permitted to sell 5 percent beer and wine.”
“Allowing groceries to open up their market may be good for local producers. Limiting it to wine and strong beer protects some of the interests of local liquor store owners,” said Cheryl Reynolds of Topeka, candidate for the House of Representatives. “However, I’d like an opportunity to study this question further before firmly committing to a position.”
Who Should Own Liquor Stores?
Should out-of-state owners be allowed to own liquor stores in Kansas? What about corporations? Both questions are key concerns for Kansas retailers, in that both would allow big box stores like Wal-Mart and HyVee to hold liquor licenses, which could clear the way for allowing those stores to sell strong beer and more.
On the out-of-state ownership issue, residency requirements for wholesalers fell in 2001 when the courts declared them unconstitutional. The action paved the way for the entry of Glazer’s into the Kansas market, and left retail liquor stores as the last category of license with a residency requirement. In the 2001 court decision, the judge speculated that if the residency requirement for stores were challenged it might be declared unconstitutional as well.
No one has challenged the residency requirement through the courts, and most retailers hope they never do. But the Legislature could opt to change the laws at any time.
Among the legislative candidates who responded to our survey 55.70 percent favored continuing the ban on out-of-state ownership. Nearly 28 percent favored allowing out-of-state owners and another 7.59 percent favored allowing out-of-state ownership with restrictions.
“If I own a liquor store and my kids live in Missouri, I want them to have my business when I am gone,” said Bill Otto of LeRoy, incumbent candidate for House of Representatives.
“If an owner happens to live in a cross-state border town then that owner should not be penalized for where he or she lives,” said Lynne Oharah of Uniontown, candidate for House of Representatives. “An owner could own stores in both locations.”
“I, like many Kansans, like to patronize local businesses. However, I’m reluctant to over-regulate businesses,” said Reynolds. “I’d prefer the marketplace be left to function as free markets do. However, I don’t believe it’s unreasonable to look at incentives that encourage the development of Kansas-owned businesses.”
“A lawful entity should be allowed to pursue a business in Kansas as long as it meets state requirements,” said Carolyn Weinhold of Topeka, candidate for Kansas Senate. “We need to open up Kansas business opportunities, not restrict them.”
“Absentee ownership only makes for tax enforcement and ignorance of state law that may differ from the home state,” said Strickland.
“Regulation being what it is for the liquor industry keeping the litigation possibilities within the state make more sense,” said Jeffrey Locke of Arma, candidate for House of Representatives. “I’m free-market but regulation complicates the idea.”
“We should take care of our own,” said Rusty Wilson of Manhattan, candidate for Kansas Senate.
“I feel our in-state owners must be protected from over-saturation, said Ed Trimmer of Winfield, incumbent candidate for House of Representatives.
The question of corporate ownership follows a similar path. Retailers typically oppose the idea because if corporations are allowed to own liquor stores it would pave the way for big box stores, grocery stores, and convenience stores to hold liquor licenses and sell strong beer, wine, and even spirits in the future.
But retailers, like many other business owners, like the tax advantages of corporate ownership. In 2005, ABC ruled that liquor stores registered as limited liability corporations could be taxed as S-Corporations. That meant big tax savings for the retailers who took advantage of it. But those retailers contend that allowing full corporations -- including big box stores and grocery chains -- to own liquor stores is a different matter.
Candidates responding to our survey tended to agree. Nearly 56 percent of respondents were against corporate ownership. But more than 43 percent favored corporate ownership either outright or with restrictions.
“Corporations formed to allow for multiple owners of a single store or limited liability corporations to help limit personal liability for a single owner should be allowed,” said Marci Francisco of Lawrence, incumbent candidate for Kansas Senate.
“There is no public advantage to corporations shielding individuals from responsibility,” said Abner Perney of Salina, candidate for Kansas Senate.
“We need full disclosure of ownership,” said Pete Roman of Lenexa, candidate for Kansas Senate.
“Corporations should be allowed to own stores in a free market system. They should not receive special treatment i.e. tax abatements, etc,” said Patrick Wilbur of Lawrence, candidate for Kansas Senate.
“Since small business owners might be pushed out of business by over-saturation, I feel they should be protected,” said Trimmer. “I do favor strong beer and wine sales at convenience stores.”
Dram Shop Liability
In Kansas, if a licensee sells to a minor or to an intoxicated person, the licensee can be subject to criminal penalties and ABC can take administrative action. If that minor or intoxicated person then ultimately injures himself or others, the licensee who sold the alcohol illegally can in some cases be subject to further criminal prosecution. But they can’t be held civilly liable.
That kind of civil liability -- dram shop liability -- is recognized in all but eight states in the U.S. In some states it was enacted through legislation. In many states it’s come as a result of court decisions.
In Kansas the courts have stopped short of recognizing dram shop liability, but have expressly urged the Legislature to establish it in law.
If the Legislature or the courts establish dram shop liability in Kansas the implications for Kansas licensees are obvious. Exposure to a new area of liability carries its own risks. Smart business people protect against risk with liability insurance -- a large added expense.
Since the court’s plea for Legislative action, dram shop liability has garnered some support and several bills have been introduced. From 2003 to 2006, the Legislature took up dram shop liability every year. The most serious threat came in 2005 when the measure was defeated 70-52 on the floor of the House.
There were no bills in 2007- 2008, but the issue is still on the minds of legislators. When dram shop bills are taken up by the Legislature, they’re typically heard by the Judiciary Committee. Six members of the House Judiciary Committee responded to our survey. Of those, four said they oppose dram shop liability, one supports it, and one remains undecided.
Michael O’Neal of Hutchinson, Chairman of the House Judiciary Committee and candidate for re-election, has lead the efforts in the House to pass a dram shop liability law. He responded “no” to our survey question regarding dram shop liability.
“Not for the customer’s negligence and never for package sales,” said O’Neal.
“I supported the bill voted on in the House in 2005,” said Lance Kinzer, vice-chairman of the House Judiciary Committee and candidate for re-election. He supports dram shop liability with restrictions.
“I am undecided about this issue. I am not in favor of liability to the minor or intoxicated consumer who is served, but to the third person injured,” said Judiciary Committee member Marti Crow of Leavenworth, candidate for re-election.
Overall, responses from candidates participating in our survey indicate opposition to dram shop liability is still strong -- 86.08 percent of respondents said they oppose it. Yet in the candidates comments there are distinct notes of resignation and inevitability.
“Modified dram shop legislation will likely be reconsidered - I’ll oppose it unless a ‘safe harbor’ clause is included,” said Mike Kiegerl of Olathe, incumbent candidate for the House of Representatives. Safe harbor refers to specific exceptions that might protect a licensee from civil liability. It could require that the licensee be convicted criminally before civil liability kicks in. It could require a licensee to take preventive action before the fact with things like employee policies and responsible alcohol training for employees.
“We would probably lose many Kansas owners if stricter penalties were imposed on them when a customer is at fault,” said Strickland.
“Like the firearms industry, the dealer that sells the gun is not responsible for the actions of the customer as a civil matter,” said Locke.
“Yes to minor sales. No to all of the rest,” said Otto.
Tax Hike Ahead?
The U.S. economy is in the most serious trouble it’s seen since the Great Depression. As the economy slows, and consumers spend less, governments collect less tax revenue. Budget tightening is an obvious reaction to the shortfall -- the Kansas Department of Revenue has already seen its budget cut by 2 percent, though it hasn’t yet impacted ABC directly. More cuts are sure to follow.
But sooner or later, the cry goes out for more revenue and the alcoholic beverage industry can become a likely target for a tax hike.
Are legislators likely to increase liquor tax? Or might they cut taxes to make it easier for businesses to prosper?
Nearly 57 percent of candidates responding to our survey said they’d leave alcohol taxes just the way they are. Just over 6 percent would increase gallonage tax. Surprisingly, more than 34 percent of respondents would reduce enforcement and drink taxes.
“Our local owners indicate that local residents travel to Kansas City often and buy liquor at lower prices in the Missouri stores,” said Strickland. “We lose the dollars that could be spent locally if we were competitive.”
“More taxes push productivity to a standstill,” said Locke. “Reduce, reform and return is a motto I’ve adopted from a great Senator of Kansas.”
“Kansas business owners should be able to depend on their officials to work hard to be sure we are competitive,” said Reynolds.
Direct Shipping
Should consumers be able to order wine directly from any winery they want anywhere in the world and have it delivered to their homes, as they do with other products?
Wineries say yes -- they love the idea of being able to bypass the Kansas wholesaler and retailer and keep those profit margins for themselves. Consumers like the idea for the convenience and variety.
Retailers and wholesalers see problems with direct shipping. There’s no good way to be sure the consumer is old enough to buy. It’s much harder -- nearly impossible -- to collect gallonage and enforcement tax owed to the state. And they see direct shipping as unfair competition -- out-of-state wineries don’t pay license fees and aren’t subject to the day-to-day regulation of Kansas liquor stores.
So two years ago the legislature came up with a compromise. Consumers can order wine from out-of-state for shipment to the local liquor store they designate. The consumer picks up the shipment at the liquor store where he verifies that he’s at least 21 years old and pays the taxes. Everybody’s happy.
Or are they? As of press time, 52 out-of-state wineries held permits to legally ship wines to Kansas customers. Shipments are less than anticipated but continue to grow. The suspicion is that most wine shipments to consumers still go on illegally outside the system.
So does that mean we should change the direct shipping system? Nearly 60 percent of respondents to our survey believe the current system is adequate. Almost 36 percent would allow shipments directly to consumers’ homes. Two respondents would restrict the system further.
“The wine industry is important to Kansas. We need to remove barriers to their ability to do business,” said Reynolds.
Deena Horst of Salina opposes allowing product shipments directly to consumers’ homes “until a fool-proof system is developed to ensure the under aged can’t order wine.”
“We should expand the number of wines, beers, alcohol products that can be sold in Kansas and make it easier to order small quantities to satisfy customer demands,” said Tom Sloan of Lawrence, incumbent candidate for House of Representatives.
“Regulation of the sort that is minimal and at the local level is best. Regulation and tax costs are always passed on to the consumer so limitation of regulation benefits market price,” said Locke.
“We can currently collect Kansas sales tax and utilize the local liquor stores for delivery,” said Strickland. “Shipping directly to homes would be disadvantageous to all concerned.”
Underage Drinking
If you sell alcohol, you know the drill. Minors under the age of 21 try every trick in the book in their never ending attempts to buy alcohol illegally.
It’s the licensee’s job to see through their schemes and block the sales. And for the most part Kansas licensees do a pretty good job. Last year ABC conducted 549 controlled buy attempts in Kansas liquor stores and on-premise establishments. Of those, 438 refused the sale for a compliance rate of 80 percent.
But what about those 111 licensees who sold to minors? What about the licensees who routinely sell to minors? What about the minors who try relentlessly to get their hands on the product illegally?
Our survey asked what, if any, changes the candidates would make in the penalties imposed on licensees and in the penalties imposed on minors attempting to buy illegally.
On the licensee side, nearly 71 percent of candidates said current penalties are adequate. Nearly 27 percent said they’d require responsible server training for everyone who sells alcohol to the public. Nearly 8 percent said they’d increase financial penalties on licensees and an equal number would increase administrative penalties.
“Discussion on dram shop laws centered around training of employees as an absolute defense against liability,” said Kiegerl. “Unless such a clause is included I will oppose any change in the present law.”
“Harsh, unnecessary legislation will reduce our number of credible, law-abiding licensees,” said Strickland. “There can be too much government intervention into business operations.”
“Regulations and taxes are always embedded in the market price and paid by the consumer,” said Locke.
“I view employee education as having two benefits. It increases employee knowledge of legal and appropriate behavior and it provides owners public relations credits,” said Sloan.
When it comes to penalizing the minor who knowingly attempts to buy illegally, candidates responding to our survey favored a variety of penalties. More than 44 percent would increase drivers license-related penalties, Nearly 37 percent would impose greater community service penalties. About 30 percent favored more mandatory alcohol awareness classes. About 24 percent would increase monetary penalties. More than 39 percent of respondents said current penalties are adequate. Two respondents said minors should not be subject to prosecution for this crime.
“Put the penalties on purchasers not on beverage store owners, unless they sell knowingly to minors,” said Jerry Williams of Chanute, incumbent candidate for the House of Representatives.
Trimmer favored increasing driver license penalties, community service, and alcohol awareness classes. “I would not increase all three at the same time. I think these are acceptable methods to deter underage drinking,” said Trimmer.
“I have ridden with ABC agents and observed retail store employees refuse to sell to persons with suspect IDs,” said Sloan.
“This should include the parents of minors,” said Weinhold.
“We should consider several potential options as a way to put some responsibility on those who would break the law,” said Roman.