SUPERMARKETS BATTLE LOCAL PROPOSALS AIMED AT SOLVING BUDGET WOES

Mark Hamstra / David Ghitelman / Christina Veiders

The big concern among executives of state grocery associations is how legislators are going to address huge budget deficits that plague states around the country, according to those surveyed by SN.

The combined state deficits this year are expected to be $30 billion, and soar to $80 billion in 2004, according to the National Governors Association, Washington. "Financially, this is probably the toughest time for states since World War II," said Dirk Kempthorne, Idaho's Republican governor and NGA vice chairman, during the NGA's winter meeting early this year.

Jim Smotherman, president, Alabama Grocers Association, Birmingham, said his state's $500 million deficit was the largest that he had ever seen. "There are 43 states out of 50 having a budget crisis right now. Anytime you have a budget crisis, people have to be watchful of new taxes," he said.

The situation remains dire as many state legislatures, still in session around the country, are struggling to meet shortfalls through revenue-enhancing measures that include increases in sales taxes or business fees that would be detrimental to food retailers.

SN contacted the heads of associations around the country to find out what issues they faced on their state's legislative agenda, and what their prospects were for future action on issues impacting grocery retailers.

Some associations were battling increases in bottle bill fees and levies on such commodities as cigarettes, beverages and snacks.

For example, West Virginia passed a 55-cent tax on a pack of cigarettes, effective May 1. In New York, a proposal would expand the state's 5-cent bottle deposit to include all beverages, including bottled water and fruit juices. The measure is referred to as the "Children's Beverage Tax." In Kentucky, the country's second-largest tobacco grower, grocers won a victory over a proposal that would have retailers pay taxes on vendor allowances given by tobacco companies.

Not all issues had to do with raising taxes, however. In Maine, a proposal for a three-year moratorium on genetically engineered plants and seeds is favored by farmers but opposed by food retailers. The bill would give the government time to test the safety of genetically modified organisms and for Maine's Department of Agriculture to come up with a marketing plan that uses the moratorium as a promotional tool for Maine's agricultural products.

What follows is part one of a two-part series that polls state associations on the most important issues affecting food retailers in their respective states. Presented here is a summary of issues being watched and fought by grocery associations in Northeastern and Southeastern states. Part two will be published in a future issue and will include associations in Midwestern and Western states.

NORTHEASTERN STATES

DELAWARE

The Delaware Food Industry Council, Dover, is initiating legislation that will update the First State's current bad-check law. Mark Kleinschmidt, executive director, said the current statute is out of sync with neighboring states. Additionally, DFIC members are seeking to codify civil recovery for bad checks.

Like many states, Delaware also is exploring legislation related to workers' compensation reform. The DFIC is advocating employer-directed care for the first 60 to 90 days of disability. "Although many of the changes will help businesses save money while still protecting workers' rights, implementing employer-directed care will prove to be a great benefit to council members," Kleinschmidt said.

Also, the DFIC has formed a pharmacy subcommittee to work on issues such as changes to Medicaid reimbursement and other regulatory and legislative initiatives that will impact the pharmacy industry.

MAINE

Maine's food retailers are facing numerous proposals that could economically impact their businesses, said Chris Burke, executive director, Maine Grocers Association, Hallowell. One issue, under Maine's "The Better Program," is repeal of the rebate on property taxes paid on business equipment.

There is also a bill proposing a three-year moratorium on genetically engineered plants and seeds. "That means, for example, tomatoes that have any GMOs in them that are now sold in stores may no longer be sold in stores," said Burke.

Other bills would increase the handling fee on bottles from 3 cents to 5 cents, increase taxes above the $1 tax already charged on a pack of cigarettes and place a 32-cent tax on a gallon of milk to create a fund to provide relief for struggling dairy farmers.

"I am hopeful we can hold the line on increasing handling fees on returnable containers and preserve the rebate in The Better Program. I don't know what will happen to milk. That one will be tough," she said.

MASSACHUSETTS

Item pricing and bottle-refund laws are two legislative issues on the agenda in Massachusetts, where the prospect of a $2 billion to $3 billion deficit looms over all decision making.

"We really think we're going to be busy from a whole host of issues," said Chris Flynn, president, Massachusetts Food Association, Boston. "We think there are 400 to 500 pieces of legislation that could have some effect on our industry."

H1, the governor's budget proposal, includes several items that could impact food retailers, including placing a bottle deposit on all beverages, "from baby formula to Scotch," Flynn said.

On the positive side, the MFA supports item-pricing relief, which would allow supermarkets to use electronic or other shelf-based pricing so each item doesn't have to have a price sticker.

NEW HAMPSHIRE

The New Hampshire Grocers Association, Manchester, like its counterparts in other New England states, is battling proposals to restrict the retail price of milk as legislators seek to alleviate the disparity between retail prices and the prices paid to dairy farmers. One proposal, HB481, would limit the retail price to 150% of the price paid to the farmer.

"There is no good counterproposal," said John Dumais, president and chief executive officer, NHGA. He suggested that federal laws need to be changed to protect farmers and that dairy groups should promote milk more to drive sales.

Another proposal would raise the tax on cigarettes by $1, to $1.52, which would still give the state the lowest tax rate on cigarettes in the region. That measure is included in HB760.

Another proposal that Dumais favors is HB819, which calls for under-21 driver's license photos to be taken in profile so they can be more easily identified by clerks. That bill, HB819, has passed the House and was expected to pass the Senate.

NEW JERSEY

Labor issues loom large in the Garden State, where legislative proposals that are potentially unfriendly to businesses include efforts to increase paid family medical leave and levy a $3-per-employee fee to pay for medical malpractice costs.

In addition, the New Jersey Food Council, Trenton, is fighting a bill -- introduced in both Senate and Assembly versions (S665 and A1320) -- that would make it easier for unions to organize through the use of a check card rather than by election.

Another labor-related bill, A212, would create a "living wage" by increasing the minimum wage in each of the next three years, to $5.65 in the first year, $6.20 in the second year and afterward would increase according to the U.S. Consumer Price Index.

Like most states, New Jersey is battling a serious budget deficit, and it is considering raising the tax on cigarettes to raise revenue.

"That's a serious problem for stores near the borders of Pennsylvania and Delaware," said Jim Morford, president, New Jersey Food Council.

NEW YORK

Like many other states around the country, New York faces a serious budget deficit and is exploring several ways to make up the shortfall. One method, which the Food Industry Alliance of New York, Albany, refers to as the "Children's Beverage Tax," would expand the state's current 5-cent bottle deposit to cover all beverages, including bottled water and fruit juices. The deposit law currently covers only beer and soft drinks.

The measure "seems to be gaining some traction," said Jim Rogers, alliance president. He said the government estimates it could raise $130 million to $160 million from bottles that are discarded instead of returned for a refund.

Rogers said the food retailing industry has its own solution to raise money: allowing supermarkets to add wine to their offerings, which he said would raise about $133 million through increased sales and a one-time franchise fee for the right to sell wine. New York is one of a handful of states that does not allow supermarkets to sell wine.

"We think it will be one of those last-minute decisions that gets made in the final hours before the budget gets passed," Rogers said.

PENNSYLVANIA

The Keystone State's legislature has several proposals that could affect supermarkets with pharmacies, including HB888, which would require patients to use mail-order service for drugs after the first 60 days of using the medication. It would also impose upper limits on pharmacies for generic-drug reimbursements.

Gasoline retailing also is under legislative scrutiny in Pennsylvania. Among the issues supermarkets and convenience stores face are the coming enforcement of new regulations meant to curb drive-offs. Officials also have been concerned about price gouging, and two new bills -- SB40 and SB120 -- were introduced to review pricing practices. The Pennsylvania Food Marketing Association, Harrisburg, is working with legislators to help clarify gasoline pricing structures.

Another measure, House Resolution 13, calls for an investigation into the lack of supermarkets in urban markets and other underserved areas. The House unanimously approved the resolution in February and has begun discussions with industry leaders. The PFMA has formed a task force in partnership Philadelphia-area United Way organizations to assess the needs of communities in southeast Pennsylvania.

RHODE ISLAND

In Rhode Island, gift certificate bills are a big issue, according to Anita San Antonio, president and chief executive officer, Rhode Island Food Dealers Association, East Providence. HB5086 calls for expiration dates to be eliminated from all gift certificates, but the RIFDA is seeking changes to make the legislation friendlier to businesses to ease record-keeping burdens, San Antonio said.

A bill to increase the minimum wage by 60 cents, to $6.75, also was recently introduced in the Senate. The bill, S0204, also calls for the rate to be indexed to cost-of-living increases.

"We haven't had an increase in three years," she said. "I'd give it a 50-50 chance this year."

Other issues that could affect supermarket operators include bills that regulate workers' compensation and health care benefits, and a proposal by the governor to increase the state cigarette tax by 26 cents.

VERMONT

The Vermont Grocers Association supports legislation to join a multi-state Powerball-type lottery system.

"We have customers leaving to go to other states to buy their tickets," said Jim Harrison, president of Rutland-based VGA.

Meanwhile, the state Legislature is considering several ideas to increase funding to reduce the state's budget deficit, including tax increases on snacks, beer and soda. There also has been some discussion about a milk tax, Harrison said.

Measures in both houses of the Legislature to raise the minimum wage have been gaining momentum, he said. SB178, which calls for raising the hourly rate by 50 cents, to $6.75, already cleared the Senate General Committee and is "probably likely to pass" the Senate, Harrison said.

One bill the VGA supports is H209, a proposal to allow supermarkets to sell fortified wine. Such spirits currently are available only in state liquor stores. Another bill, H378, would allow wine-tasting in supermarkets.

SOUTHEASTERN STATES

ALABAMA

Republican Gov. Jim Riley, who began his term in office in January, was trying to figure out how to solve the state's $500 million budget deficit, the largest that Jim Smotherman, president of the Birmingham-based Alabama Grocers Association, could ever recall. Although no specific issues had yet surfaced that would affect food retailers, Smotherman was monitoring several ways the state might increase revenues -- property and business taxes and regulatory fees.

"Yes, I expect tax increases," Smotherman said, "but I expect them to be fair and equitable among everybody. Our governor says he is committed to not just single out or target certain people. He wants [tax increases] to be across the board and be equitable." Smotherman would fight commodity taxes, and any bottle bill legislation, he said. At present, the state has no bottle laws.

FLORIDA

One anticipated bill would propose doubling the inspection fees of the state's food-safety program, administered by the state Department of Agriculture, according to Scott Dick, vice president of government affairs, Florida Retail Federation, Tallahassee. Inspections currently cost grocery store operators $500, he said.

Another issue is a proposed registration fee of $17 per device on scales and scanners. There is presently no such fee.

GEORGIA

The state's focus is on revenue-enhancing measures to offset a budget shortfall of between $620 million to $1 billion. Sin taxes on tobacco and alcohol, HB378 and HB379, were being favored by the governor. The measures would increase taxes on cigarettes by 46 cents per pack and raise the tax on cigars from 13% of the wholesale cost to 36%. The bills also would create an excise tax on smokeless tobacco.

One issue of major concern for the Georgia Food Industry Association, Smyrna, was a floor stock tax, which was eliminated in committee. Tort reform, an effort to limit damage awards in medical liability lawsuits, SB133, was favored by the association, but the measure failed to pass the Senate. On a positive note, the association did see bills SB104 and SB105, which would raise the fee a retailer could charge for bad checks to $30, pass the Senate.

Kathy Kuzava, GFIA president, said she expects either a sin tax, a sales tax on food or a temporary 1% across-the-board sales tax eventually will be passed to offset the state's deficit. She said there are 25 bills that the association finds problematic. However, with a contentious legislature made up of a Republican-controlled House and Democrat-controlled Senate many measures have been difficult to pass, she said.

KENTUCKY

In Kentucky, which is the country's second largest tobacco grower after North Carolina, the major issue the Kentucky Grocers Association, Louisville, dealt with in the state's legislative session was whether vendor allowances on cigarettes should be taxed.

As Pat Hicks, the KGA's president, explained, the vendor allowance -- known in Kentucky as a "tobacco buydown" -- was usually $6 a carton, an amount retailers generally passed along directly to consumers and had traditionally not been subject to state sales tax. Then, last year, the state started auditing retailers and saying the $6-per-carton allowance was subject to sales tax, Hicks noted, adding that the state wanted the tax paid on all allowances for the past four years.

The first store that was audited was a small retailer, a convenience store, Hicks recalled. The store was assessed $32,000, the owner told Hicks. Other, larger operations, he added, were assessed back taxes in the millions of dollars. "We were very successful," Hicks said. "The exemption has been restored. If you pass through the entire $6, you do not pay tax. It's really a promotional allowance, and in Kentucky we do not tax promotions."

NORTH CAROLINA

Still early in a long 135-day legislative session, Everett Suddreth, executive vice president, North Carolina Food Dealers Association, Charlotte, said his main concern was how to meet a $1.62 billion shortfall in the state budget.

Suddreth expected the General Assembly would vote to extend a 0.5-cent sales tax that generates $370 million a year. The tax, introduced in 2001, is scheduled to sunset on June 30. He is also monitoring two bills introduced to raise the 5-cent tax per pack of cigarettes by as much as 75 cents. The national average tax on cigarettes is 52 cents, according to Suddreth.

"I do have concern about the budget and being asked to pony up additional fees for various things like licenses and annual permits." Suddreth also was on the lookout for any bottle bill proposals during the session.

TENNESSEE

The General Assembly, irked by the alleged misdeeds of some east Tennessee retailers, is looking to have everyone involved in the beer trade undergo, at their own expense, a $56 Federal Bureau of Investigation background check, according to Wesley Ball, director of government affairs at the Tennessee Grocers Association, Nashville.

"With 22 new members of the Tennessee House and five new members of the Tennessee Senate, there isn't any problem out there for which there's not an obvious, easy, wrong solution," Ball said. He said the TGA is working to cut back on background checks so that only the holders of beer licenses, and not every employee, will have to be screened by the FBI.

Other issues the association is working on include: limiting the ban on over-the-counter items with pseudophedrine to cover only those products whose principal ingredient is pseudophedrine; preventing the passage of a state bottle bill because that would end the nearly 20-year-old practice of using a 1-cent fee per six-pack to fund litter collection by prison inmates; and trying to get retailers a 6.5% fee (as opposed to an already legislated "no less than 5%") for the sale of tickets for the state's lottery, which is still in the planning stage.

VIRGINIA

The 2003 legislative session ended in February without an increase in the cigarette tax, despite proposals calling for increases of up to 60 cents per pack.

One favorable bill that did pass was HB1403, which made it a crime for underage consumers to attempt to buy alcohol, according to Michael O'Connor, president of the Virginia Petroleum Convenience Store and Grocers Association, Richmond.

On the negative side, the state adopted a new $9 tax on every meter, which includes every scale and measuring device in every grocery store, to help pay for inspections of these devices.

"One thing we were able to do was eliminate the registration component, which would have been an additional charge," O'Connor said.

WEST VIRGINIA

The state's legislative session has been extended to resolve the $3.04 billion budget. One measure that passed during the regular session that does affect grocers was SB105, a 55-cent increase in the cigarette tax per pack. It becomes effective May 1.

"We worked hard to keep this tax from passing at $1," said Jan Vineyard, executive director, West Virginia Oil Marketers and Grocers Association, Charleston.