Staff photo by DARWIN WEIGEL
Commissioner Steve Weems (R), general manager of his family's Wemyss Liquors in St. Leonard, arranges beer in a cooler at the store.
During a recession, people are forced to make tough decisions with their money.
Skip the morning Starbucks. Cut back on the cable bill and turn up the thermostat. Detour a family vacation in Florida to Ocean City. Squeeze a little more life out of that 1990s sedan.
And rather than pony up for a handle of Jack Daniel’s, more are settling for a bottle of a Evan Williams.
“I’ve noticed that in the last eight months people are buying down,” said Calvert County Commissioner Steve Weems (R), whose family opened Wemyss Liquors in St. Leonard in 1948. “Individuals that were buying Grey Goose are now buying Smirnoff, and from Smirnoff to Burnett’s. Basically they’re just buying down and in less quantities.”
Like many other businesspeople across the nation, Weems is trying to outlast the ongoing economic downturn. In February he was down 25 percent from the year prior. “You hear the statement that liquor stores are recession-proof, but trust me, that’s a fallacy,” he said.
Weems and others in the liquor industry are due for a boost this weekend, as people plan to complement their Fourth of July barbecues and fireworks displays with a few cold brews and maybe a daiquiri or two.
“The July Fourth weekend is one of the money weekends,” said David Dent, who owns WJ Dent & Sons in Tall Timbers and is the St. Mary’s County co-director for the Maryland State Licensed Beverage Association.
But starting today, they also will have to deal with another unknown, one that does not necessarily spell doom for their livelihood but nonetheless adds to mounting uncertainty at a time when they can handle little more.
Same song, different ending
In recent years it had become something of an annual ritual for Maryland lawmakers and a strong liquor lobby to shoot down campaigns to increase the tax on alcohol.
But after Democrats gained two members in the Senate in the 2010 election, advocates had newfound hope during the 2011 legislative session of boosting the liquor levy for the first time since 1972 for beer and wine and 1950 for spirits.
The initial proposal, coined the Lorraine Sheehan Health and Community Services Act, would have hiked the existing excise taxes on a gallon of alcohol currently 9 cents for beer, 40 cents for wine and $1.50 for spirits to rates of $1.16, $2.96 and $10.03, respectively, and directed an expected $200 million in revenues toward various health programs.
Known as the “dime-a-drink” tax, the legislation received significant pushback from a number of prominent lawmakers, including Senate President Thomas V. Mike Miller Jr. (D-Calvert, Prince George’s). The “dime-a-drink” tax was eventually shelved in lieu of a more palatable sales tax increase on alcohol, a proposal favored by Miller, whose family owns a liquor store in Clinton.
The Senate passed a bill that would have increased the sales tax by 1 percent annually over the next three years. Of the expected $29 million generated in the first year, $21 million would have filled funding gaps in Prince George’s County and Baltimore city public schools and another $5 million would have gone toward those on the Developmental Disabilities Administration’s waiting list. In the second and third years, funding for the waiting list would have increased to $10 million and $15 million, respectively.
But days before the end of session, Democrats in the House of Delegates opted to raise the sales tax by 3 percent all at once, immediately directing $15 million to the waiting list and another $47.5 million to statewide public school construction in fiscal 2012. Southern Maryland will split $1.25 million while Montgomery and Prince George’s counties and Baltimore city each will receive $9 million.
The sudden change infuriated House Republicans and sparked on the last day of session what was arguably its most heated debate. Nevertheless, the bill passed both chambers before the final gavel fell. The tax increase goes into effect today, July 1.
“We’re supposed to be pro-business right now, and it just seems that the things that are coming out of the legislature these days are hurting us,” Dent said.
And yet, Southern Maryland retailers are unsure of what, if any, effect the tax will actually have on their business. Though there is a “very good possibility” the increase could drive down sales, Calvert County Commissioner Gerald “Jerry” W. Clark (R) expects his customers will bear the cost more than he will.
“It’s just another tax on the people, another tax on the consumers,” said Clark, who owns Port of Call Wine and Spirits in Solomons. “I assume that food will probably be next.”
“This is going to hurt the guy who comes into our store, works all day and wants to get a six-pack of beer, go home and relax,” Dent said. “That is the guy this is hurting the most.”
The largest initial concern for those in the industry has been updating their computers to charge 9 percent sales tax for alcoholic products versus the standard 6 percent rate for everything else, said Jack Milani, legislative co-chairman for the MSLBA and a partner at Monaghan’s Pub in Baltimore.
Longer term, the association is worried about the effect the tax could have on retailers near the border of Delaware, where there is no sales tax, Milani said. There is also worry that the increase could eat into the competitive advantage Maryland enjoys over neighboring Pennsylvania, which has higher excise taxes, and Washington, D.C., where the sales tax on alcohol sold off premises is 9 percent and on-premises sales are taxed 10 percent.
“One of the reasons that we were able to compete against the other states is because their tax was higher, so it will definitely have some effect with tourists passing through and taking stuff back to their homes,” Clark said.
“It’s no secret” that Pennsylvanians living near the Maryland border often would cross over to avoid higher taxes on liquor, Milani said. “We like being competitive in spirits where people would come to Maryland to buy,” he added.
‘Perception plays a huge role’
Dent said that retailers like himself, Clark and Weems rely on the summer holidays to get them through the slower winter months of January and February. Though not as busy as Christmas, the Fourth of July traditionally marks one of the busier times of year for the industry.
But instead of prepping his store for the weekend rush, Dent spent a recent night going through his inventory, item by item, and updating his computers. “That’s one of the busiest weekends out of the entire year,” he said. “It’s not well conceived, I think, and it’s not fair to our entire industry.”
Weems said he isn’t sure how many costumers will even notice the increase when they check out this weekend.
“I almost feel like in our fast-paced world, most people are not even going to realize it’s gone up to 9 percent during the Fourth,” Weems said. “You’re going to find people shocked, but I think they’ll pull back on their purchases after the holiday. I don’t think its going to affect this holiday season. I think there will be anger and discontent after the fact.”
For Paul Bales, who owns Casey Jones bar and restaurant in La Plata, the tax will come at the most inopportune time.
Unlike for liquor retailers, this time of year is one of the slowest for Bales as locals begin spending more of their time vacationing and their money at outdoor and waterfront restaurants.
“It hits us harder when our revenue is the hardest,” Bales said. “So it’s probably the least favorable time to have it imposed on us because our revenues are already cut.”
Bales, a member of Restaurant Association of Maryland, said the impact to his establishment is exacerbated by recent record increases to the cost of food. In the last 18 months restaurants have faced 3 to 4 percent increases on staples like flour, sugar and salt, items whose prices were historically “rock solid and would go up marginally,” he said.
A weakened dollar also has driven overseas investment in and the prices up on American commodities like corn and wheat. Add in the high costs to fuel delivery trucks, and restaurants are shelling out more cash than ever to just stay open and serve food, Bales said.
Unsure whether the tax hike will have a considerable effect on his customers’ wallets, he does expect it to weigh heavily on their psyche. “I think fixed-income people, they constantly have to watch what they’re doing. So anybody on fixed income or limited income or anybody affected by fuel prices, they scrutinize things and it’s a perception thing,” Bales said. “It’s just the fact that they’re having to pay more. Perception plays a huge role in people’s decision-making process.”
Weems estimated that about a third of his customers will care about the tax enough for it to affect their purchases. Though he doesn’t think the increase will be so burdensome that it will keep people from buying alcohol, some might be so annoyed with the government that they could take it out on the industry.
“I think there’s going to be a short-term downturn of people being put off by it and it will come back slowly,” Weems said. “People are basically going to probably verbally lash the retailers, but it’s almost a situation where if they want it, they’re going to buy it.”
Clark said some of his longtime customers have begun stocking up buying two months worth of hooch instead of one month’s supply in an effort to avoid the tax hike for as long as possible. “Anytime you raise a sales tax, the tax hurts the people that have the least ability pay it,” he said.
In fact, Clark suggested the state may have been too quick to count on the additional revenue when it committed the revenue to school construction and the developmentally disabled. After all, if the tax increase drives down consumption, revenue from the sales tax will fall also.
“I think that the state needs to take a look and get their fiscal house straight instead of just raising revenue like that and spending it on new projects,” Clark said. “Who knows, when the tax goes up, revenues might go down.”
A worthy cause
While those in the industry may not know what to expect beginning today, supporters of the tax increase anticipate it will drive down liquor consumption “amongst people who shouldn’t be drinking as much,” like those who are underage or abuse alcohol, said Vinny DeMarco, president of the Maryland Citizens’ Health Initiative and one of the most consistent, vocal advocates for increasing the tax on alcohol.
“I don’t think it’s going to hurt small businesses in Maryland, but I think it will keep kids from drinking as much,” he said. “Evidence shows it can keep people from getting their fourth or fifth drink when they really shouldn’t be. Most people that drink moderately really won’t be affected at all, but it will reduce alcohol abuse.”
The Lorraine Sheehan Alcohol Tax Coalition held a celebration yesterday morning in Annapolis to mark the tax increase.
The Lorraine Sheehan Health and Community Services Act and coalition got their names from the former Maryland secretary of state, who died in December 2009. The mother of an autistic son, Sheehan was a hearty advocate for the developmentally disabled during her tenure as a Prince George's County state delegate from 1974 to 1983 and among the first to try and address the growing waiting list.
DeMarco said he and other members of the coalition have been working alongside the Developmental Disabilities Administration and state legislature to ensure the extra revenue goes where intended. They also have notified other states of their success in getting the legislation passed and its benefits, he added.
“It’s going to save lives by reducing underage drinking and alcohol abuse,” DeMarco said.
The administration has spent recent weeks gearing up to reach as quickly as possible the roughly 120 people on the waiting list in “crisis resolution,” said coalition member Laura Howell, executive director of the Maryland Association of Community Services.
The administration also has been trying to identify providers who can expand their services to accommodate those coming off the waiting list and examining ways to streamline its own administrative procedures, Howell said.
“It’s a big process, and to the administration’s credit, they’re very focused on trying to make that work as soon as possible,” she added.
The increase is expected to fully fund all of the people in the “crisis resolution” category, which includes those who are at immediate risk of harm or becoming homeless or have caregivers who are very ill. Nearly everyone in “crisis” is available for a Medicaid waiver and will have his funding matched by the federal government if his needs are met fully.
A step down the list, there are about 1,100 people in the “crisis prevention” category who are also in urgent need of care but not facing immediate harm, homelessness or loss of funding, Howell said.
The $15 million is expected to provide those in “crisis prevention” some support. The administration has drafted a plan that includes funding for counseling, day care and other “short duration” services, or quick fixes, like making bathroom modifications for a child who uses a wheelchair, Howell said.
jnewman@somdnews.com