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SF leaders float drink fee to help balance budget

The Public Press
 — Sep 18 2009 - 10:22am

San Francisco Supervisor John Avalos is crafting a proposal that would place a fee on alcohol sold in the city, potentially raising $25 million to $35 million annually to help pay for alcohol-related public health and criminal justice costs.

Avalos says the proposal, in its early stages and being reviewed by multiple city agencies, would provide another “source of revenue to help deal with the deficit and economic crisis.”

The idea of taxing alcohol consumption is gaining momentum: Los Angeles, Santa Clara, Ventura and San Diego counties are considering similar measures. But there is stiff opposition from restaurant and alcohol industry groups, which argue that a fee will raise prices and slow sales.

An alcohol fee would “add one more straw to the back of the industry,” said Kevin Westlye, executive director of the Golden Gate Restaurant Association. “Restaurants would be forced to raise prices yet again for the newest government mandate. Obviously raising prices during a recession is a bad business practice.”

Unlike a tax, which adds revenue to the general fund, a fee goes toward a specific area of the budget -- such as defraying the costs of alcohol use. Excessive alcohol consumption is the third leading cause of preventable death in the United States.

According to the Marin Institute -- an alcohol industry watchdog group that first proposed the fee to Avalos -- in 2001, “the cost of alcohol abuse in California totaled $17.8 billion for health services, substance abuse treatment and prevention, lost productivity from premature deaths and justice system costs.”

Avalos’ office has convened a team of city officials to determine whether the city can legally collect the fee and to measure the city’s public health and criminal justice costs related to alcohol sales. Avalos said he would consider legislation “that works with the budget deficit and is not cost-prohibitive for business."

"Ideally I'd like it applied on the wholesale level,” said Avalos. He said he wants to avoid a burden on “mom and pop” businesses.

Avalos said he couldn’t give an estimate of the fee amount until the study is completed, but a similar proposal on the state level calls for a 10-cent-per-drink fee. Avalos said he is pushing to complete the study by the end of the year, and hopes to "roll out legislation in January to March next year."

The study team is made up of the city controller, the public health director, the police chief, the city attorney and representatives from the mayor's office. The mayor’s office did not respond to requests for a comment on the alcohol fee.

Avalos said he wants the study to be conducted by an outside firm to ensure independence and withstand legal challenges from the alcohol industry.

Weighing alcohol’s costs

Several city departments handle the effects of alcohol-related incidents, but there is no clear accounting of how much time or money this costs.

The Department of Public Health's drug and alcohol prevention and treatment section provides funding and services to city agencies that treat people with drug and alcohol problems. After reimbursement by insurance companies and programs like Medi-Cal, the department still spends $20.5 million a year on alcohol treatment. This money comes directly out of the city's general fund.

San Francisco General Hospital in 2003 spent nearly $14.4 million on “treating alcohol symptoms.” After reimbursement by insurance companies and programs like Medi-Cal, there is still an unfunded cost of $8.8 million. 

This number does not include costs to other health care facilities or providers of emergency services.

The San Francisco Fire Department dispatches its emergency services unit to all 911 calls, including incidents connected to alcohol. Fire Department officials did not offer an opinion on the alcohol fee, but spokeswoman Mindy Talmadge said, “the fire department, on the medical end, responds to numerous alcohol related incidents per day, from people being passed out to alcohol-related injuries.”

The fire department was not able to give an estimate of how many incidents per day are alcohol-related because dispatch records don’t necessarily state if alcohol was involved.

The police department, which also deals with alcohol-related incidents, declined to make an official statement because the alcohol mitigation fee proposal is still in its infancy, said Sergeant Lyn Tomioka.

Although the total local cost burden from alcohol-related incidents is unknown, city emergency, health and social service departments and agencies have been hit by budget cuts as the city faces a $438 million budget deficit.

“Cities and counties are rightfully looking at how to replace funding streams,” said Michael Scippa, advocacy director at the Marin Institute. The organization, based in San Rafael, has worked on similar legislative proposals in other states, as well as on anti-alcohol media campaigns.

Alcohol is a big part of San Francisco’s lucrative wine-and-dine industry, and some are concerned that a fee will hinder sales. According to a 2005 study by the Golden Gate Restaurant Association, 20 to 25 percent of revenue for the city’s sit-down restaurants comes from alcohol sales. Fifty-five percent of restaurants in the study had full liquor licenses while 33 percent sold beer and wine only.

“A dime a drink would cost my business, one of the smallest breweries in the city, in the neighborhood of $20,000 a year,” said Dave McLean, brewmaster and owner of Magnolia Pub & Brewery on Haight Street. “In a business that has already been required to pay a variety of additional fees, taxes and other voter-mandated expenses in recent years, that amount would be impossible to absorb without passing the cost on to the consumer.”

McLean added, “Millions of Americans and thousands of San Franciscans enjoy beer, wine, cocktails and distilled spirits daily to no ill effect and certainly no drain on civic resources.”

The Marin Institute’s Scippa countered that, “alcohol producers are prospering and never hesitate to raise their own prices periodically to maximize their own profits.”

“Economic research shows that if the industry pays the fee they pass on more than 100 percent of the increase to consumers,” Scippa added. “This additional rise in retail price more than compensates for lost revenue and enables industry to maintain pre-fee profit levels.”

Scippa said that most of the alcohol industry’s revenue comes from price-insensitive heavy drinkers -- the top 20 percent of drinkers who consume 85 percent of all alcoholic beverages.

“Therefore, the remaining 80 percent, moderate drinkers, consume relatively little alcohol and pay a negligible amount of alcohol taxes,” he said. “If the fee is assessed at the retail level, it will fall appropriately on heavy drinkers who will assume a greater share of the cost of problems caused by their drinking.”

Jim Stillwell from the Department of Public Health's drug and alcohol section said he thinks an alcohol fee is a “great idea.’’ He said he believes the fee would cut down on underage drinking by making it cost prohibitive for young people

“When we look at people who drink as adults to the point where they need professional intervention, the vast majority drank heavily as teenagers. Very few people who started drinking after age 21 become addicted,’’ he said.

Calls for a state tax

While a liquor fee can be imposed locally, in California, alcohol taxes are handled solely by the state. The last statewide increase in the alcohol excise tax was 1 cent in 1991. Any new tax requires a two-thirds majority vote by the legislature.

An alcohol fee on the state level might be easier to pass than a tax, or so hope proponents of such a proposal in the state Assembly.

Assembly Member Jim Beall, D-San Jose, introduced a bill in March calling for a 10-cent-per-drink fee on the wholesale level, potentially raising $1.4 billion annually.

Beall’s measure creates a statewide alcohol fee program to fund five areas of alcohol harm: treatment and recovery; emergency and trauma; hospitalization and rehabilitation; criminal justice and enforcement; and prevention, education and research. The state Assembly is expected to vote on the bill in January.


Reach the reporters at bfleishman[AT]public-press.org and mpistorio[AT]public-press.org.