RD473 - Virginia Alcoholic Beverage Control Licensing Fee Study - November 8, 2017

Executive Summary:

Paragraph D. of Item 386 of Chapter 836 of the 2017 Budget Bill (HB 1500) stipulates:

“The Department of Alcoholic Beverage Control shall conduct a review of its current application and licensing fees as established in the Code of Virginia, with regard to the adequacy of the current fee structure in covering the actual cost of regulating the alcoholic beverage industry in the Commonwealth. In conducting its review, the department shall consider the actual costs involved in issuing a license, regulating that license, and adjudicating violations against a license, as well as the actual cost of collecting all fees. The department shall provide its findings and any recommendations to the Secretary of Public Safety and Homeland Security, the Chairmen of the House Committees on General Laws and Appropriations, and the Chairmen of the Senate Committees on Rehabilitation and Social Services and Finance by November 1, 2017.”

As required by this budgetary language, the Virginia Department of Alcoholic Beverage Control (Virginia ABC) reviewed previous efforts to increase Virginia ABC license and permit revenue, previous General Assembly actions, financial data, other Virginia state agencies’ treatment of licenses and permits, determined the actual costs for the issuance of licenses and the regulation of licenses by the Virginia ABC’s Enforcement division, the actual costs of adjudicating violations against a license by the Hearings & Appeals division, and the costs of compliance activities performed by the agency’s Tax Management and Education programs. The report also examines the costs of fee collections. This information is discussed in the sections that follow this report summary.

Analysis of information collected indicates that $14.5 million in revenue is generated by financial penalties and licensing, application and permit fees. The current amount of enterprise funds provided in the Appropriations Act for enforcement activities is $18 million. Virginia ABC also determined that the operating costs for Virginia ABC’s existing law enforcement, hearings, and compliance activities is approximately $22.6 million. Based on Virginia ABC calculations, fee revenues fall short of operating expenses by roughly $8.1 million and fall short of funding the appropriations amount by $3.5 million. It is important to note that the total operating expenditures do not include indirect costs or the items for which Virginia ABC collects no revenue (e.g. grain alcohol permit issuance and maintenance).

In developing the recommendations contained in this report, Virginia ABC solicited input from various industry stakeholders to determine their views on current enforcement levels, fees and how any additional revenues should be utilized in the agency. Stakeholders are of the opinion that additional enforcement resources, specifically more special agents, are a benefit to the alcohol beverage industry. The alcohol beverage industry has seen explosive growth in recent years in regard to the number of licenses being issued and new participants in its various tiers. Additional licensees and more complex enforcement situations are straining existing resources, making it more difficult to have access to special agents. Additionally, the overall number of special agents at Virginia ABC has decreased over the years due to budget reductions.

Stakeholders were open to a discussion about fee adjustments, but expressed a strong and unified voice that revenues should be utilized to fund Virginia ABC enforcement efforts. Stakeholders recommended that Virginia ABC consider adjusting the agency’s application fees to a rate more reflective of the amount of work involved in an application investigation as well as taking an incremental approach to adjusting licensing fees, first adjusting those licenses that generate the greatest work for enforcement agents and then reviewing other licenses for future adjustments. Adjusting application fees from $65 to $195 and other application fees charged by Virginia ABC from $15 to $45, and increasing the Wine Shipper’s, Beer Shipper’s, and Wine and Beer Shipper’s Licenses from $95 to $230 is anticipated to produce an additional $1.9 million in revenue. This additional revenue coupled with an increase in Enforcement’s appropriation amount will greatly improve Virginia ABC’s enforcement capabilities. Virginia ABC’s stakeholders have also recommended that other fees be reviewed over the coming year.