After Nearly 40 Years on the Wagon, the Oregon Health Authority Is Turning to Alcohol for Revenue

This year, both tobacco and alcohol tax hikes are being discussed—thanks in part to a pandemic-related economic downturn that has left state agencies scrambling for new revenue.

Advocates and the Oregon Health Authority will have to overcome powerful lobbying interests to hike alcohol taxes. (Brian Burk)

In November, Oregonians will vote on Measure 108, which would raise the tax on a pack of cigarettes from $1.33 to $3.33, moving the state's tobacco tax from 32nd-highest in the country to sixth.

Not among the many tax measures on the ballot: new taxes on beer and wine, which have not risen in nearly 40 years and are among the nation's lowest.

Oregon Recovers, a nonprofit that is an emerging power in the state, thinks it's time the state raised taxes on drinking as well. State health officials are listening.

On Aug. 27, Mike Marshall, executive director of Oregon Recovers, outlined a plan to raise new money for the Oregon Alcohol and Drug Policy Commission, a once moribund panel that has become a player in the Capitol under Gov. Kate Brown.

Like a revival preacher, Marshall was in front of the commission to describe the dangers of the demon rum, which he notes is a pandemic that never goes away.

"It's more deadly than COVID and worse than the worst year of the AIDS crisis," Marshall says.

His presentation drew separate and sharp responses from the Oregon Beer & Wine Distributors Association and several leading players in the state's alcohol industry.

"We urge you to support and protect jobs and the economic viability of this critical industry by opposing additional beer, wine and spirits taxes," they wrote in a letter to Brown and her commission.

But on Aug. 31, the Oregon Health Authority released its budget proposal for 2021-23. In that proposal is what Marshall is seeking: a nearly $150 million annual increase in taxes on alcoholic beverages.

"Oregon faces a great unmet need for behavioral health services," the OHA budget proposal says. "At the same time, alcohol imposes large and avoidable costs on the health of all people in Oregon, and on Oregon's economy, communities and health care systems."

As COVID-19 lays waste to Oregon's economy, OHA is looking ahead nervously to next year, when the state will face crushing budget deficits—and a highly addicted populace that lacks access to treatment.

Marshall's plan offers a partial solution.

Mike Marshall

Mike Marshall rattles off stats like a play-by-play announcer: Oregon ranks third in the nation in untreated addiction. Some 2,000 Oregonians a year die alcohol-related deaths. By comparison, COVID-19 has claimed 465 in 2020.

One statistic, in some ways, troubles him the most: The state has not raised taxes on beer since 1977 or wine since 1983. The last time Oregon significantly raised the tax on a pack of cigarettes was a 60-cent increase in 2002.

This year, both tobacco and alcohol tax hikes are being discussed—thanks in part to a pandemic-related economic downturn that has left state agencies scrambling for new revenue.

The hefty $2-a-pack increase on cigarette taxes, which would put Oregon in line with Washington state, is on the November ballot. And on Aug. 31, OHA quietly indicated it wanted to harness Oregon Recovers' energy.

At WW's request, the agency released a draft of its 2021-23 budget that shows it will seek alcohol taxes that would bring in nearly $150 million in new revenue next year.

Marshall knows his plan faces a harder road than the tobacco-taxing measure.

He watched a similar proposal to raise taxes on alcohol disappear without a trace in the 2019 legislative session. Meanwhile, bipartisan votes in both chambers referred the $2-a-pack cigarette tax increase and a first-ever tax on vaping supplies.

Those taxes are both part of Measure 108, which would raise $165 million a year starting in 2021.

The last time voters considered raising a tax on cigarettes, in 2007, the tobacco industry outspent proponents 3 to 1, stubbing out the tax by 59% to 41%.

The world looks a lot different today. So far, Big Tobacco's reaction to what would amount to a 150% tax increase on a pack of smokes is nonexistent. "We still expect them to spend big," says Stephanie Vandehey, a spokeswoman for the Yes on 108 campaign.

But nobody has established a campaign to defeat the tobacco and vaping tax, with just two months until Election Day. Lobbyists for the companies who killed the 2007 tax—Philip Morris and Reynolds American—didn't respond to requests for comment or even bother placing statements of opposition in the Oregon Voters' Pamphlet.

Marshall and OHA, however, face one of the most formidable lobbying forces in Salem.

Unlike the tobacco and vaping companies, the alcohol industry features homegrown farmers, brewers, vintners and distillers, who are popular in every legislative district and have enhanced Oregon's reputation as a drinker's paradise. On the issue of taxes, it also aligns with the state's restaurant and hospitality industry.

"Beer, wine and spirits are an essential part of Oregon's economy and identity, producing billions in revenue, tourism and jobs," says Danelle Romain, a lobbyist for the Oregon Beer & Wine Distributors Association.

Romain says the industry she represents should not be compared to the tobacco industry.

"These are local businesses, supporting local jobs—that's why it's different," she says. "Prior to the COVID-19 pandemic, Oregon was home to 800 wineries, 1,144 vineyards, 73 distributors, nearly 400 breweries, more than 50 distilleries and more than 10,000 restaurants, creating thousands of family-wage jobs." (It's also worth noting that more than 75% of adult Oregonians drink while fewer than 20% use tobacco.)

Romain's arguments have been successful in the past, easily defeating a 2009 attempt to raise beer taxes. (Oregon's excise taxes on beer and wine, which are paid by manufacturers, are among the nation's lowest. Romain notes that retail prices, however, are relatively high, which she says means new taxes would punish consumers as well as the state's alcohol industry.)

Some observers say Marshall's group brings a level of sophistication to the alcohol tax discussion that the industry here hasn't encountered before. Over the past three years, he has systematically tapped into the prevalence of substance abuse disorder, capitalizing on the fact that few families are untouched by it.

"Mike is building a very potent organizational force around recovery," says Dwight Holton, executive director of Lines for Life, which works on mental health and addiction issues. "What Oregon Recovers brings to the table is the ability to mobilize hundreds of people at any time."

Holton, who sits on the Alcohol and Drug Policy Commission, says Marshall has correctly identified the problem with Oregon's addiction treatment services. "It's a failure of revenue," Holton says.

Romain disagrees. She notes that alcohol sales and taxes already constitute Oregon's third-largest source of revenue (after income taxes and the Oregon Lottery). The problem, she says, is that nearly all of that cash is diverted to unrelated expenses.

"Less than 3% of alcohol revenue is currently dedicated to these [behavioral health] programs," Romain says. "It is inconsistent to talk about new taxes on Oregon's vital, homegrown beer, wine and spirits without a thorough examination of why 97% of current funds are not being spent on these programs."

Neither the lawmakers who enthusiastically voted to raise tobacco taxes last year nor Gov. Kate Brown has weighed in on the alcohol tax yet.

Romain thinks the governor will side with the alcohol industry.
"Gov. Brown has been a great friend to Oregon's beer, wine, spirits and hospitality sector," Romain says. "We are confident that she is fully aware Oregonians overwhelmingly reject the idea of increasing [alcohol] taxes."

Marshall disagrees. "The governor declared addiction a public health crisis earlier this year," he says. "It's time to act on that."

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