WORK SESSION HB 2182, HB 2837  

 

TAPE 230, 231 AB; 232 A

 

HOUSE REVENUE COMMITTEE

JULY 29, 2003   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams                                               

 

Members Excused:                      Representative Lane Shetterly, Chair

 

Witnesses Present:                        Joe Schweinhart, Associated Oregon Industries

                                                John Blatt, Association of Oregon Community Development Organizations

                                                Jack Kenny, Oregon Housing and Community Services

                                                Lynn Partin, Oregon Housing and Community Services

                                                Phyllis Rand, Governor’s Commission on Senior Services

                                                Peter Hainley, CASA of Oregon

                                                Paul Romain, Oregon Beer and Wine Distributors Association

                                                Gary Fish, Deschutes Brewery Company

                                                Kurt Widmer, Widmer Brothers Brewing Company

                                                Fred Bowman, Portland Brewing Company

                                                John Harris, Full Sail Brewing Company

                                                Jim Bernau, Oregon Wine Growers Association

                                                            Willamette Valley Vineyards

                                                John Powell, Miller Brewing Company

                                                Richard Kosesan, Coors Brewing Company

                                                Mark Nelson, Anheuser Brewing Company

                                                            Linn and Deschutes Counties

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Richard Yates, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 230, SIDE A

 

004

Vice Chair Scott

Calls meeting to order at  8:35 a.m.

 

OPENED WORK SESSION ON HB 2182

 

018

Paul Warner

Provided distributional analysis of itemized deductions for 2001 Full Year Returns and the personal exemption credit, (Exhibit 1).

 

040

 

Questions and discussion regarding the breakdown of the first quintile and second quintile.

 

058

Rep. Barnhart

Is the average the right number to use as a measuring device for this, are these numbers relatively unskewed?

 

065

Warner

The average is useful to look at in terms of the exemption credit amount, in terms of income it is skewed toward the higher end.

 

069

Rep. Barnhart

The median is probably lower than on the income piece, is that a fair guess?

 

070

Warner

Answered affirmatively.

 

080

Joe Schweinhart

Said it is difficult for AOI to support revenue increases in this bill, as tax increases at this time would be damaging to the economy.  Discussed need for agreements to help grow the economy with efforts to balance the budget.  Discussed forecasts for declines in semi-conductor, transportation, construction and manufacturing, with little growth projected for non-manufacturing and the timber industry. To promote recovery, the Legislature should take action on the removal of disincentives on business such as the high capital gains tax; and increase incentives for the R&D tax credits to keep and increase business.

 

131

John Blatt

Testified in opposition to a 20% reduction in the Oregon Affordable Housing Tax Credit.  Said banks would reduce the relief given by 20%; resulting in an estimated rent increase of $200 a year significantly affecting low income families, (Exhibit 2).

 

161

Jack Kenny

Concurred with Blatt in opposition to reduction of the Oregon Affordable Housing Tax Credit, but supported the three year deferral.  This reduction in the affordable housing credit could result in an increased cost to the state that could offset the savings.  Bankers get the credit, but it results in a rent reduction to low income housing, the tenants in many cases are developmentally disabled and cannot sustain a $200 rent increase.  Bankers could raise the interest rates which would result in increased rents; deferral would make the credit difficult for banks to administer.

 

218

Lynn Partin

Spoke in opposition to a reduction in the Farm Worker Housing Tax Credit Program.  Concerned regarding retroactive aspect of the proposal. Taking 20% out of a project that was barely viable puts the project at risk.  Heartened by the -3 amendments which exempts the Farm Worker Housing Tax Credit from the overall reduction; however, in the -12 amendments that is not the case.

 

255

Rep. Verger

The -12 amendments in HB 2182?

 

255

Warner

-3 amendments refer to certified programs only which can be carried forward after the 3 year suspension; the -12 amendments look at expanding that to all credits, but have not been considered by the Committee yet.

 

268

Rep. Farr

For clarification, the provider cannot take the credits so they sell them to lending institutions?

 

270

Partin

True, for the bulk of the credits. In order to get equity into the project; individual for profit farmers with on-farm housing can take the credit directly for themselves.

 

278

Rep. Farr

Noted retroactive sale of credits problematic.

 

283

Partin

Concurred.  Said one of two parties loses depending on the contract.

 

298

Rep. Farr

The amount is $7.25 million?

 

300

Partin

It was reduced to $7.25 million from $7.5 million in HB 2166 which the Governor has signed.

 

313

Phyllis Rand

Concerned about across the board deductions as it impacts low income families struggling to make ends meet.

 

324

Peter Hainley

Discussed need for certainty, and 10-year struggle to get investors and keep them interested.  Noted federal money is allocated to these projects through the use of tax credits; discussed competitive nature of these funds.

 

350

 

Discussion regarding characteristics of investors in farm worker credits.

 

372

Vice Chair Scott

Closed Work Session on HB 2182.

 

 

OPENED WORK SESSION ON HB 2837

 

386

Vice Chair Scott

Recessed meeting at approximately 9:05.

 

388

Vice Chair Scott

Reconvened work session on HB 2837 at approximately 9:10.

 

393

Richard Yates

Provided description of HB 2837-1 amendment (Exhibit 3), which replaces the bill; Staff Measure Summary HB 2837-1 (Exhibit 4); Revenue Impact HB 2837-1, (Exhibit 5); and “HB 2837 Analysis of Distribution”, (Exhibit 6).

 

480

 

Questions and discussion regarding monthly rates per barrel of beer.

 

 

TAPE 231, SIDE A

 

035

 

Questions and discussion regarding number of distributors that will be paying the increased tax.

 

057

 

Questions and discussion regarding seasonal variation in production and distribution monthly.

 

065

Rep. Barnhart

Is there a section that refers to what happens in the event the matter is referred by petition, or a law that applies that would set any date other than the November 2004 election?

 

072

Yates

No, there is nothing in the bill that addresses that question.  Were it referred it would be suspended until the election in November 2004.

 

076

Rep. Williams

Your analysis of the distribution, is it to the -1 amendment or the original version of the bill?

 

077

Yates

Discussed proceeds of the tax.

 

083

 

Questions and discussion regarding the per drink number.

 

092

Rep. Williams

The current -1 amendment does not impact the current tax on wine?

 

093

Yates

Answered affirmatively.

 

099

Paul Romain

Spoke in opposition to HB 2837. Said the proposed increase would take up a beer distributor’s net profit.  The tax would increase from $2.60 to $12.52 a barrel, the highest tax rate in the Western United States. By formulating the tax on a monthly basis, it will include a number of Oregon micro breweries for half the year resulting in a competitive disadvantage. Described complicated taxation process.  Described affects of recession on beer purchases.  The purpose of the exemption is to protect Oregon’s thriving beer industry.  Warned the Committee of a severe constitutional problem with trying to limit the impact on the Oregon beer industry. Clarified this is not a drink tax or a sales tax; it is a wholesale or producer tax. The affect of the excise tax would be to markup the price 10-15 cents in order to achieve a price point.  Oregon Beer and Wine distributors have supported a sales tax, as being part of the total solution; said singling out the beer drinker is horrible tax policy, and advised the Committee the tax would be referred to the voters.

 

243

Rep. Barnhart

Asked for description of why the bill would be considered unconstitutional.

 

247

Romain

Provided two U.S. Supreme Court cases that provide the basis for his argument; and discussed the Commerce Clause.

 

304

Rep. Farr

Question regarding the number of people employed in the state in brewing and distribution.

 

306

Romain

Approximately 3000 in the wholesale industry; including brewing and restaurants will grow the number dramatically.

 

324

Gary Fish

Imposition of this tax could not come at a worse time as Deschutes Brewery is in the throes of expansion. Compared tax credits for bringing film to Oregon for limited duration jobs vs. long term nature of brewery jobs.  Described excise tax as regressive and not a 2 cent a drink consumption tax as suggested. Described wholesale/distributorship price structure. The tax would hurt the Oregon beer industry with or without an exemption for small brewers.  The constitutional challenge to an exemption would, if overturned  leave the small brewing industry vulnerable; said it is wrong to damage one of the few parts of Oregon’s economy that is working.

 

 

TAPE 230, SIDE B

 

024

Fred Bowman

Discussed community involvement surrounding each brewery, and positive affects on tourism from brew festival.  Concerned that the exemption would not stand and that brewers would be saddled with a large tax increase.

 

075

Kurt Widmer

Discussed number of people directly and indirectly employed by brewing industry.  Provided examples of the affects of potential increase on wages and employment.

 

124

John Harris

Full Sail Brewing started from a grant from the Lottery, and one of two companies to pay the grant back.  Described growth of organization into one which provides family wage jobs. Emphasized that the tax proposed is actually a production tax levied, not a per drink tax.  Called singling out one industry and taxing it as unfair and irresponsible.  Described positive affects on tourism. Explained beer pricing set with distributors not at retail.

 

189

Rep. Barnhart

To what extent do your business plans include increased sales in other states of beer brewed in Oregon?

 

199

Harris

Full Sail is in about 14 states; nearly one-third of beer is sold in Oregon.

 

204

Widmer

Widmer Brewing sells nearly one-third of its beer in Oregon.  Rate of growth outside the state of Oregon exceeds growth in Oregon and comparable to the rate of unemployment.  Said beer drinkers will drink less and trade down, if people choose to drink less they can drink less expensively, negatively impacting their business.

 

220

Rep. Barnhart

Do your business plans have you continuing to produce primarily or exclusively in Oregon?

 

225

Widmer

Discussed a licensing arrangement with brewery on the east coast.  Said the family brewing business has no plans to construct breweries else where.

 

233

 

Question and discussion regarding Full Sail annual and monthly production.

 

259

Jim Bernau

Spoke regarding previous and possible future wine tax proposals. The Legislature should find revenues without taking them from consumers, risk takers or entrepreneurs. Winemakers have converted undeveloped marginal land into highly valued farm production.  Described community service provided by wine growers and beer brewers. A tax increase on wine production would be damaging at this time, based on costs; drop in sales and inability to raise prices based on competition with large wineries.

 

 

TAPE 231, SIDE B

 

060

John Powell

Testified in opposition to the tax increase.  Discussed “Oregon’s Beer Tax in Perspective”, (Exhibit 7) which describes where Oregon is in relationship to other beer producing states and beer producing/high tax states.

 

117

Richard Kosesan

Provided overview of tax rate increase, reiterated that the tax was not a two or five cent tax on a drink, called the tax regressive and hard to absorb.

 

138

Mark Nelson

Described polls done over the years and defeat of 1 cent tax by voters.  Described negative impacts on growth for the micro-brewing industry. Discussed how tax money would be used. The industry has supported enhancement of general fund dollars to alcohol and mental health. Described industry concerns about where existing beer, wine and liquor markup taxes are spent.  Although did not support the bill, if it went forward urged the Committee to add a “Maintenance of Effort” clause.

 

223

Powell

Said to make charts in (Exhibit 7) more realistic, it should add $18 a barrel to every line to indicate the Federal tax on beer.

 

226

Rep. Williams

Question regarding moneys generated by the beer and wine tax that isn’t being directed to treatment and mental health addiction-related programs.  Do you believe that should be the sole purpose of any money raised by the beer tax?

 

238

Nelson

Opposed a beer tax because of its regressivity.  There is a substantial tax already paid in beer, wine and in liquor markup and those dollars should be looked to first.

 

250

Rep. Williams

Moneys given to cities and counties often go to their general funds and budgeted law enforcement and public safety responsibilities.  Most law enforcement responses to domestic violence calls, or other altercations, is due to the result of using alcohol in an irresponsible manner.  Is it your belief that revenues generated off the beer tax be used to offset the costs of the product that the city, county and public has to deal with as a result of misuse of the product?

 

277

Nelson

Do not believe in regressive taxation, or excise taxes.  Nexus can be made, but do not agree to the strength of the nexus.  Those services should be paid for out of across the board taxes and not picking on one industry or product.  Many products cause a social ill and are not taxed.

 

294

Rep. Williams

As one looks at total costs of funding city and county law enforcement, is it your belief that the state is not spending that amount of money statewide for those programs?  In fact, the general tax burden of citizens is paying for the substantial part of providing law enforcement, safety and security.  The amount currently used for general funds is pretty small, would you agree?

 

311

Nelson

Did not know what the amount is associated with abuse of the product.  Clearly general fund dollars are being used for those purposes and there should be more.  If the programs are that important, should look at how tax dollars are used now.  The industry has said it would go to Ways and Means and advocate for removal of general fund dollars to those programs.

 

335

Rep. Williams

Your analysis seems to suggest that there is zero sum gain; if that $100 million was put into treatment it would solve our problem.  That $100 million through its current allocations is already going to meet the struggling demand to address public safety issues and doesn’t begin to scratch the surface of the problems of addiction, treatment and prevention. Those costs are more expensive than what is allocated to treatment.  Is it appropriate to say as a privilege of having this product, there is a social cost to level a responsible and adequate tax to help make up some of those social costs?

 

366

Nelson

Felt it is inappropriate, but believed the programs to be valuable.  There are resources that are not used when going after more revenue.

 

396

Powell

Also represents the Oregon State Sherriff’s Association, but not aware of its position on the tax.  Would make them aware.

 

401

 

Questions and discussion regarding last election held on the tax increase.

 

414

Rep. Barnhart

The $100 million from beer, wine taxes and liquor markup, what are the proportions that makes up that money?

 

 

TAPE 232, SIDE A

 

002

Kosesan

The vast majority is attributed to distilled spirit markup, $6 million from the beer; a similar amount from dessert and table wines.

 

005

Rep. Barnhart

That’s about $87 million dollars out of the $100 million?

 

008

Kosesan

Answered affirmatively.

 

020

Vice Chair Scott

Meeting adjourned at 10:35 a.m.

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant

 

Exhibit Summary:

1.       Warner, “Total Itemized Deductions + Personal Exemption Credit 2001 Full-Year Returns”, 1 page

2.       Blatt, “Rough Estimate of Impact of 20% Reductions in Oregon Affordable Housing Tax Credit (OAHTC)”, 1 page

3.       Yates, “HB 2837-1 Amendment”, 11 pages

4.       Yates, “Staff Measure Summary HB 2837-1” 1 page

5.       Yates, “Revenue Impact HB 2837-1”, 1 page

6.       Yates, “HB 2837 Analysis of Distribution”, 1 page

7.       Powell, “Oregon’s Beer Tax in Perspective”, 4 pages

8.       Cooper, “House Bill 2182, dash-6 amendments”, 3 pages