HOUSE BILL REPORT

HB 569

BYRepresentatives Rayburn, Baugher, Hankins, Jesernig, Brooks, Day, Sayan, Moyer, Grant, Dellwo, Silver, K. Wilson, Doty, Lewis, P. King, Schmidt, Holm, Betrozoff, May, C. Smith and Haugen

Establishing the Washington wine commission.

House Committe on Agriculture & Rural Development

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (13)

     Signed by Representatives Rayburn, Chair; Kremen, Vice Chair; Baugher, Bristow, Brooks, Chandler, Doty, Grant, Holm, McLean, Moyer, Nealey and Rasmussen.

House Staff:Kenneth Hirst (786-7105)

Rereferred House Committee on Ways & Means

Majority Report:     The second substitute bill be substituted therefor and the second substitute bill do pass.  (29)

     Signed by Representatives Grimm, Chair; Bristow, Vice Chair; Allen, Appelwick, Basich, Belcher, Braddock, Brekke, Ebersole, Fuhrman, Grant, Hine, Holland, Locke, Madsen, McLean, McMullen, Nealey, Niemi, Peery, Rust, Sayan, Silver, H. Sommers, Sprenkle, Taylor, Valle, B. Williams and Winsley.

House Staff:    Susan Kavanaugh (786-7145)

AS REPORTED BY COMMITTEE ON WAYS & MEANS MARCH 9, 1987

BACKGROUND:

Agricultural commodity commissions may be created directly by statute or by referenda conducted under the 1955 or 1961 Agricultural Enabling Acts.  Wine-grape growing and wine production is a new and expanding industry in the state.  Currently a 20 and 1/4 cent per liter tax is levied on wine sold to wholesalers and the state Liquor Control Board.

SUMMARY:

SECOND SUBSTITUTE:  The Washington Wine Commission is created.  The commission consists of eleven voting members, of whom five shall be growers of vinifera grapes, five shall be producers of wine from vinifera wine grapes, and one shall be appointed at large. One commission member shall be non-voting and shall be a wine producer in this state whose principal wine or wines are produced from fruit other than vinifera grapes.  If on July 1, 1989 there is not in effect an assessment of vinifera grape producers, to cover the same share of funding the commission that the producers pay (see below), the commission positions filled by wine grape growers shall cease to exist.  In such an event, the commission will be composed of six voting and one non-voting members.

Commission members are appointed by the director of the Department of Agriculture.  He or she shall take into account the recommendation of the wine growers' association and wine institute regarding the voting members and seek to secure representation on the commission that reflects the composition of the the industry throughout the state with regard to size of operation.

One of the commission positions shall be designated position one and shall be filled by a person who produces at least one million gallons of wine a year.  When the commission members vote on transaction of commission business after July 1, 1989, the vote shall be weighted. The votes of the person holding position one shall be equal to one half the total number of voting members (i.e. five and one-half if the commission consists of eleven voting members and three if there are six voting members) or the proportion of all wine produced in the state that is made by the person holding position one, whichever is smaller.  The rest of the votes shall be divided equally among the remaining members.  This means that, as long as the biggest wine producer in the state makes at least half the wine made in the state, votes on the commission will be evenly balanced between the biggest producer and all others.

To provide for temporary funding for the commission, in addition to the 20 1/4 cents per liter tax on wine, a 3/4 cent per liter tax is levied during the 1987-1989 biennium.  During the 1989- 1991 biennium this additional tax is 1/2 cent per liter.  During the 1991-1993 biennium the additional tax is 1/4 cent per liter. Beginning July 1, 1993, no additional tax is levied.  Revenues from the additional tax are disbursed each quarter to the Washington Wine Commission for the purpose of carrying out its mission.  On July 1, 1987, the Liquor Control Board shall disburse $110,000 to the commission to start up operations.  This amount shall be reduced from the quarterly distribution in 4 equal amounts.

To provide for permanent funding of the commission, an assessment shall be levied on producers and growers beginning July 1, 1989. The assessment on wine producers will be 2 cents per gallon of packaged Washington wine sold in the state.  The assessment on wine growers will be at a rate that will raise an amount equal to what producers pay.  During the 1988 legislative session, the legislature will determine the base on which growers will be assessed and the method of collecting the assessment.

After July 1, 1993, the commission may change its assessments, subject to the approval of wine producers and growers.  The votes of wine producers shall be weighted by the proportion each represented of total wine production in the state in the prior year. The votes of wine growers shall be weighted by the proportion each represented of total vinifera wine grape sales in the state in the prior year.

The commission shall create and conduct a comprehensive research, promotional, and educational campaign.  It shall ascertain the needs of producers, market conditions, and other factors.  Among the major objective of the commission are efforts to: establish Washington wine as a major factor in markets everywhere; promote state wineries as tourist attractions; and advance the knowledge and practice of producing and processing wine grapes in this state.

The commission may purchase or receive donations of wine from wineries or wine wholesalers and may use the wine for promotional purposes.  No license, permit, or bond is required of the Commission under the state's liquor control laws for these activities.  Wine sold or donated to the commission which is used in the state is subject to the state wine tax.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Added by the the substitute bill are the provisions:  exempting the commission from licensure under the state's liquor control laws for certain activities but requiring the payment of certain taxes; adding a nonvoting member to the commission; prescribing certain qualifications of members of the commission; authorizing the filling of vacancies; and providing for reimbursement for the travel expenses of members. Administrative provisions relating to the use of wine tax revenues are modified.

SECOND SUBSTITUTE COMPARED TO FIRST SUBSTITUTE:  Under the substitute bill, the commission was funded from 1 1/2 cents of the regular 20 1/4 cent per liter tax.  Under the second substitute, temporary funding comes from a smaller additional wine liter tax that phases out and expires July 1, 1993. Permanent funding comes from an assessment on wine producers and growers beginning July 1, 1989.  Provision is made for removing growers from the commission if they are not being assessed to pay a share of commission funding by July 1, 1989.

A weighted voting procedure for commission members is created, such that votes are evenly balanced between the largest wine producer and all other members.

The requirement that at least one-third of wine commission spending be for research and at least another one-third for marketing is eliminated, as is the mandate that the wine commission report to the legislature on a self-assessment plan.

Various language changes are made to increase clarity.

CHANGES PROPOSED BY COMMITTEE ON WAYS & MEANS:  Second substitute proposed.

Fiscal Note:    Requested March 9, 1987.

Effective Date:The bill contains an emergency clause and takes effect on July 1, 1987.

House Committee ‑ Testified For:     (Agriculture & Rural Development) Carter Mitchell, Liquor Control Board; Carol Bryan, Champs de Brionne; Wistar Burgess, Maury Balcom, Bob Fay, and Roger Gamache, Washington Association of Wine Grape Growers; Joel Klein, Snoqualmie Winery; Simon Siegel, Washington Wine Institute; Dick Ducharme, Beer and Wine Wholesaler's Association; and Russ Wohlers, Ray's Boathouse.

(Ways & Means) Jim Halstrom, Washington Wine Institute; Kay Simon, Chinook Wines; Dan Baty, Columbia Winery; Mike Hogue, Hogue Cellars; Maury Balcom, Washington Association of Wine Grape Growers; Stan Finkelstein, Association of Washington Cities (no longer opposes, given new funding source).

House Committee - Testified Against: (Agriculture & Rural Development) Gary Lowe, Washington State Association of Counties; and Stan Finkelstein, Association of Washington Cities.

(Ways & Means) Sydney Abrams, Wine Institute.

House Committee - Testimony For:     (Agriculture & Rural Development) (1) This state ranks second behind California in national vinifera grape production and now has 66 wineries.  Monies for marketing the wine are needed to avoid costly surpluses and to permit the industry to expand to its potential.  (2) California spends a great deal for generic marketing of its wines and its wine tax is very small.  This state's wine tax rate is one of the highest in the nation; promotion should not be funded by assessments levied in addition to the tax, but from revenues derived from the existing tax.  (3) The revenues diverted by the bill will be replaced by increased sales. (4) Wine promotion also promotes tourism. (5) Washington wines are virtually unknown east of the Rockies.  Some of the state's monies from its very high wine tax should be used to get recognition of our wines in the East.  (6) Additional research monies are needed to adjust practices to the state's unique growing conditions.

(Ways & Means) The wine industry benefits the state.  It is a tourist attraction as well as an agricultural industry.  The state wine industry is in its infancy and faces stiff competition and high taxes, and is therefore unable to self-assess at this time.  An expected surplus next season makes aggressive marketing essential now.

House Committee - Testimony Against: (Agriculture & Rural Development) (1) The $100,000 per year lost by the counties to fund the commission under the bill would be better spent for the prosecution of drunk drivers. (2) The bill would cause a $400,000 per year revenue loss for cities.  The cities generating the greatest share of the wine tax revenues are far removed from the areas of the state that would be the primary beneficiaries of the bill. (3) The bill would fund the commission in a manner unlike any other commodity commission in the state.

(Ways & Means) Other commodity commissions in this state, as well as wine commissions in Oregon and California, self-assess.  It is unfair to tax all, including out of state, wines to pay for the promotion of Washington wine.