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Free Beer

Is beer’s new tax break an economic silver bullet?

April 16, 2013, 12:00 am

 Chris Goblet is wearing a dark suit with a black-and-white striped button-down—unusually formal attire for a man whose business is beer. Goblet (pronounced go-BLAY), who often wears a smirk resembling that of slacker comedian Will Arnett, is the executive director of the New Mexico Brewers Guild, but he prefers to call himself a “beer ambassador.”

Specifically, he advocates for New Mexico’s 20 locally owned craft beer companies, which produce higher-quality beer designed to massage the taste buds and fill the belly rather than intoxicate the brain and douse the liver.

“Cheap beers are served as cold as you can possibly get them, and the colder it is, the less you can taste it,” Goblet says. “Craft beer is higher-quality ingredients. It’s served at a warmer temperature so you can taste those ingredients.”

In addition, he says, craft beers offer the locavore appeal of a farmers market.

“With cheap beer, there’s no personality, but you know who Rod Tweet is, and Rod cares about beer,” he says, referring to the owner of Santa Fe’s Second Street Brewery.

It helps that this type of beer has undergone a recent renaissance. Over the past three decades, the number of domestic breweries has grown by a whopping 5,000 percent. Currently, 2,360 microbreweries, brewpubs and large-scale craft breweries operate in the US, vastly outnumbering the country’s 23 large-scale industrial breweries. Last year, craft beer sales grew nationally by 17 percent; locally, the industry grew 16 percent by volume, according to the state’s Taxation and Revenue Department.

While New Mexico has comparatively fewer microbreweries than, say, Oregon, many are well-known regional brands. Over the years, New Mexico’s beers have won 37 medals at the Great American Beer Festival, including La Cumbre Brewing Co.’s coveted gold medal in the American-style India Pale Ale category.

“We’re blessed with a lot of quality craft brewers around here,” Goblet says. “It’s one thing to have 180 breweries, but if half of them suck, that’s not much of a calling card.”

On this particular March afternoon, Goblet is dressed up because he’s been lobbying state politicians for a bill that would significantly cut the state excise tax for most local brewers. There’s a sense of urgency: With less than 24 hours remaining in the 2013 legislative session, the microbrewery bill still hasn’t passed the state House of Representatives.

With the help of a new tax break for microbrewers, Rio Grande & Sierra Blanca Brewing Company plans to increase its beer production to 7,500 barrels this year.
Joey Peters

Even so, its prospects look rosy. It is, after all, a tax break designed to help small, local businesses—a concept any politician can get behind—that produce a highly popular beverage.

But any tax break means a loss of revenue to the state, and the steady growth of the microbrew industry—during a recession, no less—suggests that brewers may be the last ones who need one. By 2015, New Mexico will lose half a million in tax revenue due to this change. At less than 1 percent of the state’s projected budget, it’s a tiny hit, but still a hit.

“Even though this incentive seems like a small amount, add up the hundreds of incentives that currently exist in New Mexico, and [they make up] a significant part of the New Mexico budget,” says Elisa Walker-Moran, a chief economist at the Legislative Finance Committee.

At 5 pm, just before the House adjourns for a brief recess, Goblet walks next door to Rio Chama Steakhouse. It’s owned by local art magnate Gerald Peters—who also happens to own three local breweries, Santa Fe’s Blue Corn Brewery and Albuquerque’s Marble Brewery and Chama River Brewing Company. Predictably, the bar has a selection of beers from Marble—along with Santa Fe Brewing Company, one of the state’s two largest breweries. He orders a pilsner, a German-style pale lager with a golden color and a malty, citrusy taste, and settles in for a much-needed beer break.

American craft beer’s modern rebirth began in the late ’70s, when President Jimmy Carter legalized homebrewing.

At the time, Prohibition-era laws gave large-scale, industrial breweries the edge—as of 1979, just 44 breweries were operating in the country.

“Most people drank domestics like [Pabst Blue Ribbon] and Schlitz,” Goblet says. “My uncle would drink nothing but Budweiser and Budweiser alone. And vodka.”

But pockets of Americans were also being exposed to overseas beers, whether through traveling to historic, beer-rich countries like Belgium and Germany or buying imported beer at home, shipments of which grew tenfold between the early ’70s and the late ’80s. Still others began brewing their own. In 1978, then-Sen. Alan Cranston, D-Calif., sought to legally recognize the homebrewing movement emerging in basements and garages across the country.

“Homebrewers brew home beer because domestic beer lacks the rich, malty taste they like,” Cranston told reporters after Carter signed his bill into law.

While it may have been aimed at homebrewers, the new law affected the entire industry. The 1980s saw the first wave of microbreweries, marking the debut of famous craft beers like Sierra Nevada and Samuel Adams (today, both are far too successful to be considered microbreweries). Locally, Santa Fe Brewing Company set up shop, becoming the state’s first microbrewery. Momentum continued well into the next decade, and by the 2000s, several events brought the industry to a head.

First, after two decades of experience, small brewers were now better acquainted with the industry and could brew better-quality beer. Second, foreign companies began buying out longtime American large-scale breweries like Anheuser-Busch Companies and the Miller Brewing Company, marking a creeping globalization in American beers.

For those wanting to buy American, microbrews offered a fine alternative.

For some trendwatchers, the budding industry offered wider economic opportunities. Community beer events like the Oregon Brewers Festival, which in 2011 generated more than $23 million, are now held in every state. Locally, Albuquerque Beer Week, a 10-day festival culminating in a “Blues and Brews” event, kicks off April 25.

To Goblet, such developments confirm craft beer’s value as an economic development tool. But even after homebrewing was legalized, he says, the tax system surrounding small-scale brewing remained antiquated.

“The industry has changed so dramatically since those days,” Goblet writes in an email. “The taxes have not.”

Both nationally and in New Mexico, breweries pay excise taxes—an indirect tax that the producer pays up front and tries to recover in the sale of a product. Excise taxes are tied to products like alcohol, tobacco and fuel.

The instant a New Mexico brewery sells more than 5,000 barrels of beer within state boundaries each year, its state excise tax quintuples from 8 cents to 41 cents per gallon. That’s a stark contrast from neighboring Colorado, where brewers are taxed 8 cents per gallon no matter how much beer they sell.

Last December, Rio Grande & Sierra Blanca Brewing Company was on the verge of selling 5,000 barrels for the year. Owner Rich Weber had two options: continue selling beer for the month and pay extra in taxes, or stop working and store beer for the rest of the year to avoid the fine.

Weber, a lanky man with a laid-back demeanor, would have had to pay thousands of dollars in tax increases if he’d kept the brewery operating normally. He decided to put his surplus beer in storage until January.

“The reality is, for a company like us to have $5,000-$6,000 laying around to send in to the state extra—it’s not really there,” he says. “It would have been my largest bill, bottom line.”

Weber’s brewery is located in Moriarty, a small town situated just east of the Sandia Mountains on Route 66. The city, which has less than 2,000 inhabitants, is dotted with truck stops, motels and fuel stations and serves as an anchor for three major state highways.


At the Monastery of Christ in the Desert, brewing beer is considered “a form of prayer.”
Abbey Beverage Company

After last year’s redistricting, Moriarty fell under the jurisdiction of state Sen. Sue Wilson Beffort, R-Bernalillo, who, as a legislator, has been involved in efforts to redevelop tourism along Route 66. She sees Weber’s brewery, which in 2012 experienced its biggest sales year to date, as a focal point in revitalizing communities along the famed highway.

“Microbreweries are really anchor tenants for small towns,” Beffort says.

Weber’s brewery produces nine different types of beer, the most famous of which is Alien Amber Ale, a malty, full-bodied beer with minimal hops that was originally brewed for the 50th anniversary of Roswell’s infamous UFO crash landing. Its next biggest item is Pancho Verde Green Chile Cerveza, a local favorite that Weber says “has the fall aroma of New Mexico.”

Just before the 2013 legislative session began, Weber met with Beffort and suggested she carry a bill lowering microbreweries’ excise tax rate. Beffort, who in the past carried similar bills for the state’s wine industry, was receptive.  

Her microbrewery bill effectively extends the state’s 8 cents-per-gallon excise tax rate for local breweries that sell up to 10,000 barrels a year within state boundaries. (Exports outside New Mexico are not taxed by the state.) Under the bill, breweries selling between 10,000 and 15,000 barrels are taxed at a rate of 28 cents per gallon. Every brewery selling more than 15,000 barrels pays 41 cents per gallon.

“This, to me, made major sense in terms of really allowing these microbreweries to grow,” Beffort tells SFR.

Weber says Beffort’s bill will help him increase his production rate up to 7,500 barrels this year, creating more business and potentially more jobs in his brewery. Locally, Santa Fe Brewing Company General Manager Alana Jones says her plan to add two full-time staffers would probably “not be feasible” without the change.

Still, there’s an upper limit to how much beer sparsely populated New Mexico can drink. The state already ranks 13th in the nation for breweries per capita, and even Weber admits that while he plans to hire a ninth employee, he’s doing so in order to increase his exports to other states.

In addition to what may eventually become a saturated market, would-be brewers face high startup costs, limiting the number of new businesses the tax break may stimulate. Weber, for instance, raised $700,000 and had to wait three years before his company was profitable. He puts in 11-hour days during the week to maintain his brewery, which he calls a “labor of love.”

And not all existing local breweries will immediately benefit from the change. In a quiet community tucked in the red hills near Georgia O’Keeffe’s famous Ghost Ranch, the monks of Monastery of Christ in the Desert consider brewing beer a religious exercise.

Their venture began in 2003, when New Mexico-based master brewer Brad Kraus got a call from a Benedictine monk named Brother William, who was looking for new ways to raise revenue for his monastery.
William’s Polish roots had made him aware of an ancient tradition among Catholic monasteries: brewing beer.

“It intrigued me greatly,” Kraus says in a soft, gruff voice.

With closely cropped gray hair and the figure of a military man recessing into middle age, Kraus is a legend among the state’s brewers. As a master brewer, he develops recipes for up-and-coming breweries, guiding them through their early years.

Growing up in Las Cruces, Kraus recalls his dad drinking beer only during deep-sea fishing trips, when he would buy large quantities of the cheapest beer possible. Though he’s developed a reputation as a craft beer wizard, Kraus praises cheap, domestic beers like Miller and Budweiser, pointing out the hard work that goes into making so much beer so identical.

“For what they are, they’re phenomenal,” Kraus says. “To make them that consistent is really, truly amazing.”

Maybe he’s just being polite.

Though his background is in chemistry, Kraus studied enough philosophy and history in college to know that beer’s early history was tied to monasteries like Christ in the Desert and monks like Brother William.

The practice goes back to the sixth century, when Western civilization lived in the ashes of a fallen Roman Empire. Benedictine Catholic orders, the first of their kind, began popping up. Their daily routine emphasized the dignity of work and prayer, and how the two were interconnected.

“If there’s time for prayer, there’s time for work,” Brother Christian, who’s been a monk at Christ in the Desert for 36 years, tells SFR.

Another monastic tenet is hospitality. The monks guaranteed visitors three things: safety, a place to sleep, and food and drink. Back then, water was sometimes contaminated, so monks opted for the next best thing: beer, which goes through a sterilization process during brewing.

“People somehow knew that, if you made beer, you could safely consume it and the water that was in it,” Berkeley Merchant, the general manager of Christ in the Desert’s Abbey Beverage Company, tells SFR. “So beer became something safe to drink.”

Throughout the centuries, many religious orders across Europe brewed rich, robust beers full of calories, serving them to the many guests who traveled through.

“It made it a lot easier to fast if you had a strong beer in front of you,” Goblet quips.

In 2005, the monks at Christ in the Desert, with Kraus’ guidance, formed Abbey Beverage. Today, their most popular product is Monks’ Ale, a style of beer known as an enkel, or single, derived from a traditional Belgian brew recipe.

To date, Christ in the Desert is the only religious monastery in the US that brews and sells beer. As much as any other work they do, brewing plays a big role in helping the monks keep up with their daily routines.

“It keeps them in the community and is, in fact, a form of prayer,” Merchant says. “Work is a form of prayer.”

Last year, the monks started selling beer styles known as “reserves,” which are brewed with native New Mexico hops grown on a field at their monastery. While the beer recipes are traditional, the local hops create what Goblet describes as “a flavor profile unlike anything else, because these hops are unique to New Mexico.”

To Goblet, it’s America’s promise—drawing inspiration from traditional culture and infusing it with something bold and new—in beer form.

“You could totally create a whole new beer category that we can say is 100 percent American,” Goblet says of brewing with local ingredients. “Apple pie, baseball, ‘X’ style of beer—that is who we are as a country.”

On a typical weekday evening at Santa Fe’s Second Street Brewery, the atmosphere inside the brewpub is lively, with middle-aged men sitting at the bar and young professionals and families with children gathered at the surrounding tables. The setting, with animated conversation drowning out the background music, suggests a flourishing local business.

While more brewpubs and microbreweries are operating in the US than ever before, they still barely crack 5 percent of the country’s beer consumption. In New Mexico, microbrewery consumption lags behind even that paltry average at 3 percent, according to Goblet.

Nationally, the craft beer industry employs just 108,000 people—making up just a fraction of a percent of the country’s job force. And brewpubs, many of which depend on staying small enough to maintain their community feel, can only expand so far.

Jordan Weissmann, an associate editor at The Atlantic magazine, who frequently writes about economic indicators, argues that craft beer is growing “fine as it is” and that any proposed tax break should have a “compelling reason.”

“Are we suffering from a strategic lack of beer?” Weissmann asks. “No.”

But while a casual observer might conclude that New Mexico’s breweries are doing well—tax break or no tax break—LFC's Walker-Moran notes that such measures are sometimes meant to keep existing businesses from moving outside the state.

Indeed, central New Mexico’s Socorro Springs Brewing Co. is already taking advantage of Colorado’s uncapped excise tax rate of 8 cents per gallon.

“Socorro Springs makes all its beer in Colorado and ships it back to New Mexico,” Goblet says, “so that’s what we don’t want.”

But a developing mobilization of craft brewers, represented locally by people like Goblet and nationally by organizations like the Brewers’ Association, is helping small brewers’ voices be heard.

Last month, hundreds of small brewers marched in Washington, DC, in support of the Small BREW Act, which would reduce federal excise taxes on brewers from $7 to $3.50 per barrel for the first 60,000 barrels.
For every additional barrel produced and sold, the tax rate would drop from $18 to $16.

Nationwide, the Small BREW Act is expected to cost the federal government $67 million per year in lost revenue—chump change compared to a federal yearly budget in the trillions. Proponents often cite a familiar refrain: that the tax break will help stimulate growth, ultimately helping the economy, and generate even more tax revenue through increased sales and production. The Brewers Association, through Harvard economist John Friedman, estimates the tax cut would generate $10 for every $1 lost.

But that projected payoff may be optimistic at best. 

Weissmann calls Friedman’s estimate “drunk math,” noting that the calculation assumes that the demand for beer will continue to grow just as rapidly as the supply does.

Ironically, the Small BREW Act would also directly help Boston Beer Company, the country’s fifth-largest brewery. For perspective, Boston Beer, which brews Samuel Adams, dumps out 60,000 barrels a year for quality purposes—just 1 percent of its production, but more beer than all of New Mexico’s breweries produce in a year.

Goblet concedes that Sam Adams doesn’t need a federal tax break, but he adds that less than 100 large-scale breweries will benefit from the legislation at a lower level than the smaller, “mom and pop” microbreweries.

“It’s the 2,400 small brewers, really, that I think are the compelling reason for excise tax breaks,” he says.

As long as small brewers stay in business, beer drinkers will always have a wide variety to choose from, and plenty of places to enjoy them. At Second Street, nine beers are currently on tap, seven of them seasonal specials. The clientele is sophisticated yet unpretentious; it’s easy to sit down and engage in a conversation with the bar patrons—not uncommon in a local brewpub.

“Even if you’re out of town, you feel like home because you end up in a discussion with the brewer or the people,” says Ken Carson, the owner of Albuquerque’s Nexus Brewery.

After finishing his beer at Rio Chama, Goblet heads back to the Roundhouse to track the progress of his bill during the hectic final hours of the evening. The next day, after the midday adjournment of the legislative session, Goblet sends a text message updating SFR on the developments. It’s good news for him and his industry: the House passed the bill almost unanimously. Two weeks later, Gov. Susana Martinez would sign it into law.

After the uncertainty of the night before, Goblet is understandably giddy.

“A great day for beer,” his message reads. 


The Final Four

In case you haven’t heard, after March Madness, we at SFR found ourselves yearning for a little more friendly competition. So we decided to craft our own Sweet 16 bracket, in which we pitted beers from 16 of New Mexico’s small breweries against each other in randomly selected matchups.

After nearly a week’s worth of voting, we tallied the results. Votes were totaled for the winners of each head-to-head contest in order to select which winner would advance to the Final Four. In some cases, there were heartbreakers: La Cumbre’s Elevated IPA lost by a hair to Marble’s popular IPA, as did Chama River’s Jackalope IPA to Rio Grande & Sierra Blanca Brewing Company’s Alien Amber. Voting continues through next week; the winner will be published in SFR’s April 24 Bar Guide. If you’ve already voted, yes, you can (and should!) vote again. Ten lucky voters will be selected to receive tickets for two to Tedeschi Trucks Band at Sandia Casino on June 14. Go here to cast your vote.


IPA Nation

First established in the 1700s when British troops stationed in India craved beer from their home, India Pale Ales have anchored the US microbrew industry’s recent expansion. IPAs are characterized by their unusually large amounts of hops, which British brewmasters had to pack into their beers to ensure that they wouldn’t spoil on the long journey to India.

While hops and yeast give IPA its characteristic bitterness, barley is added to sweeten the ale. The result is a beer with a heavy aroma and a pronounced taste, with a bitter ring at the end. The density of ingredients required to brew an IPA, as well as American beers’ freedom from ancient recipes still used in Europe, has made room for experimentation.

“You’ve seen this real explosion in the creativity and in the variety of ingredients that are being incorporated,” Goblet says. “American beers are by far the hoppiest and most bitter beers.”

Now, even European brewers are producing and serving American-style IPAs.


A Job, or Fun?

Goblet says many aspiring craft-beer entrepreneurs get into the business for job satisfaction.

“They’re disenchanted with traditional jobs,” he says. “They’re looking for a real job that they’ll know and enjoy.”

Weber, for instance, used to make his living by designing power systems for military aircraft. Eventually, he put his knowledge of electro-mechanical technologies to a different use and founded Sierra Blanca Brewing Company.

“I wanted to manufacture something,” he says. “I wanted to make something, and I figured, why not beer?”

Similarly, Nexus Brewery owner Ken Carson founded his brewpub after a long career in banking. The name, Nexus, is after a heavenly interdimensional realm from the Star Trek universe “where everything’s right,” Carson says.


CORRECTION: A previous version of this story identified Elisa Walker-Moran as an economist at the University of New Mexico's Bureau of Business and Economic Research. Walker-Moran is in fact an economist at the Legislative Finance Committee. We regret the error.

 

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