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Section 38 provides that alcoholic beverages shall be sold, in the case of sales from wholesaler to retailer, at invoice cost or replacement cost, whichever is lower, plus freight charges and cartage under certain conditions; while sales from retailer to consumer shall be at invoice cost or replacement cost, whichever is lower, plus freight charges and cartage, plus a markup to cover the cost of doing business.

The Commissioners recognize that the effect of section 38 is to prohibit the use of the "loss leader” at the retail level, and to prohibit sales below cost at the wholesale level. However, they question whether any such prohibition is in the best interests of the public. The Commissioners believe it to be general knowl. edge that the “loss leader" is widely used in the merchandising field to attract customers. They see no reason why a particular group of merchandisers should be prohibited from using such a merchandising technique. Accordingly, the Commissioners object to section 38 as discriminating against persons engaging in the retail and wholesale merchandising of alcoholic beverages, and as operating to deprive the general public of an opportunity to secure alcoholic beverages at bargain rates from those retailers whose merchandising practices allow them to give the general public this opportunity.

Finally, the Commissioners must object once again in the strongest possible terms to section 2 of the bill, appearing in lines 11 through 22 on page 69. This sectio nhas the effect, insofar as the Alcoholic Beverage Control Board is concerned, of completely vitiating Reorganization Plan No. 5 of 1952 (66 Stat. 824) which, in connection with reorganizing the government of the District of Columbia, abolished the District of Columbia Alcoholic Beverage Control Board created by section 4 of the act approved January 24, 1934, and vested in the Commissioners of the District of Columbia the functions required to be performed under such act. The Commissioners believe that they, as the responsible executives of the municipal government of the District of Columbia, should be charged with the function of administering the alcoholic beverage control laws applicable in such District, and that the Congress should avoid establishing an independent, statutory Board for such purpose, as being contrary to the philosophy and intent of Reorganization Plan No. 5 of 1952.

In summation, and balancing the provisions of H.R. 2036 which they consider desirable as against those which they consider undesirable, the Commissioners are of the view thta the undesirable qualities of the bill are so many in number and are so sweeping in their adverse effect as to require the Commissioners to object to the enactment of the bill, notwithstanding that such enactment might improve the existing Alcoholic Beverage Control Act in cetrain respects. In lieu of the enactment of H.R. 2036, the Commissioners strongly urge the enactment of legislation they have proposed be enacted by the Congress for the purpose of making a number of improvements in the existing law.

The Commissioners have been advised by the Bureau of the Budget that, from the standpoint of the administration's program, there is no objection to the submission of this report to the Congress. Very sincerely yours,

WALTER N. TOBRINER, President, Board of Commissioners, District of Columbia. Mr. MULTER. You may proceed.

You might also indicate which, if any, of these sections of S. 852 are in H.R. 2036.

Mr. KNEIPP. All right, I will try to do that, Mr. Chairman, as I go along.

The first section of the draft bill which was presented to this committee this morning strikes the ", other than champagne” in subsection (c) of the ABC Act. This has the effect of treating champagne as if it were any other light wine, instead of being singled out for special treatment in the act allowing its sale.

Mr. MULTER. Presently the act treats champagne differently?

Mr. KNEIPP. Yes, sir. There is a phrase "other than champagne” that takes it out of the category of light wines.

Mr. MULTER. Do you know of any reason for originally treating champagne differently than light wine?

Mr. KNEIPP. I would have to put myself back into the thinking of those in 1933 and 1934. And I rather imagine it was some puritanical reason. Champagne had a bad name in those days, I think-drinking out of slippers and that sort of thing. And so they just took it out of the category of light wines and prohibited its sale on Sunday, in effect.

Mr. MULTER. Is it safe to say that, ignoring the argument of those who think we ought to have prohibition, that there is no reason to treat champagne differently than any other alcoholic beverage ?

Mr. KNEIPP. No reason at all, Mr. Chairman.

Mr. MULTER. And do you think that is the feeling of both the consumer and the industry?

Mr. KNEIPP. It is certainly the feeling of this consumer, if I may speak personally; but I cannot speak for other consumers or the industry, Mr. Chairman.

Mr. MULTER. Very good.

Mr. KNEIPP. The second section of the bill strikes the phrase "the chief source of revenue” in subsections (i) and (n) of the act—that relates to hotels and restaurants and inserts in lieu thereof "a substantial source of the revenue.”

Now, H.R. 2036 does somewhat the same thing. In the definition of "club, hotel, restaurant and tavern,” H.R. 2036 changes the existing requirement that the sale of food shall constitute a chief source of the revenue, or the chief source of the revenue of an establishment; changes that requirement to "a reasonable amount of revenue."

The Commissioners considered that language and decided to substitute for it, or recommend that there be substituted for it the phrase “substantial source of the revenue shall be from the sale of food."

They felt that "substantial" might be easier of interpretation and understanding than the term "reasonable,” which is somewhat of a subjective term. So that there has to be some substance to "substantial.”

I might mention that in line 21 on page 5 of H.R. 2036 and in line 20 on page 6, there is the phrase "and not from the sale of alcoholic beverages."

The Commissioners in their report on the bill recommend that that language be stricken as not being appropriate to the sense of the definition.

Reading the last few lines in the definition of "hotel”—I have to go back a few words:

* * being provided with such adequate kitchen and dining room equipment and capacity and having employed therein such number and kinds of employees for preparing, cooking, and serving meals for its guests as shall satisfy the Board that such dining room is intended for use primarily as a place for preparing, cooking, and serving meals, and that a reasonable amount of the revenue to be derived from the operation of such dining room shall be from the preparation, cooking, and serving of meals and not from the sale of alcoholic beverages.

When you substitute “reasonable amount of the revenue” for the present language, “chief source of revenue," then the language "and not from the sale of alcoholic beverages," appearing in line 21 on page 5 and line 20 on page 6 is no longer appropriate to the sense of the definitions.

In effect, you are saying that a reasonable amount of revenue shall not be from the sale of alcoholic beverages.

Mr. MULTER. In other words, the draftsman has simply changed he words, taken out the words "chief source of revenue” and put in “reasonable amount of revenue"?

Mr. KNEIPP. And failed to

Mr. MULTER. And failed to take out the last clause in that section of the act ?

Mr. KNEIPP. It is very easily overlooked, I might say, Mr. Chairman, because I did the same thing myself. And it was brought to my attention by Mr. Cockrell of the restaurant association. Whether he is here today and will speak on that, I do not know.

Mr. MULTER. Let us address ourselves at the moment to what we are trying to accomplish.

I think the Commissioners and the ABC Board are in agreement that the use of the words "chief source of revenue” is not a good standard.

Mr. KNEIPP. It is virtually impossible of administration, because it is in effect saying that the licensee, the Class C licensee or the Class D licensee must cram food down the throats of his customers.

Well, it seems to me that no licensee can do that. He can offer it. He can offer the food for consumption by his customers, but he cannot guarantee that they will buy it.

And so the sense of the change Mr. MULTER. You mean his records may show they bought and disposed of a very substantial amount of food, yet he may not have sold it; he may have had to discard it or throw it away? And because the customers would not buy it, his records will show that part of his expense of operation is a very large sum for food.

Mr. KNEIPP. Yes. In his operation he was ready, willing, and able to supply food if the patrons wished to buy it. And this would indicate that this establishment that has the nature of a restaurant or has the nature of a hotel is just not a place for the purpose of selling alcoholic beverages only.

Mr. MULTER. Wll, now do we accomplish the purpose that should be accomplished when we substitute "substantial amount of revenue" rather than "reasonable amount of revenue" for the words "chief source of revenue”?

Mr. KNEIPP. I think it furnishes a more objective standard than the use of the word "reasonable," Mr. Chairman.

Mr. MULTER. Does “substantial” not mean more than “reasonable," however! Is "reasonable" not the more flexible of the two words, while “substantial” would require, if not a chief source of revenue, a major source of revenue?

Mr. KNEIPP. Not necessarily, no, sir. But "reasonable" could be one thing to one man and another one to another.

Now, I grant you "substantial" could be the same thing. But it seems to me that it is more of an objective standard than the word “reasonable.” And so for that reason the Commissioners had recommended that that word be employed in place of the word "reasonable."

Mr. MULTER. I think we would like to hear the ABC Board with reference to that and other items concerned with this bill. It is a technical matter of operation and administration.

I notice that they have not been listed as a witness, but I wish you would communicate to them the fact that this committee would like to hear at least the Chairman of the ABC Board.

Mr. KNEIPP. Mr. Chairman, Mr. Weakly, I understand, is on leave for 2 weeks. I do not know when he will be back.

Mr. MULTER. Mr. Weakly has indicated that to us in his letter of May 23, that he will be back; he has prior commitments that will take him out of the city on June 11, making it impossible for him to attend. He does say he has transmitted to the Board of Commissioners his views on the two bills in question, with a request that they be incorporated with his report to the subcommittee.

Now, have his views or those of the ABC Board been incorporated in the report of the Commissioners!

Mr. KNEIPP. Not all of them, Mr. Chairman. Mr. MULTER. Well, then will you make available to the committee, please, the complete report or views as expressed by Mr. Weakly or any other members of the ABC Board to the Commissioners, so that we may incorporate them in this record!

Mr. KNEIPP. All right, Mr. Chairman.

Now, I might mention in this connection that Mr. Weakly's views on H.R. 2036 are very brief and cover only those points that he did not cover in connection with his comments on H.R. 9808 of the 87th Congress. So this will involve, I think, my procuring his comments on #.R. 9808 of the 87th Congress, and then his comments supplementing

those earlier comments. Mr. MULTER. Well, we need not do that, because we have a printed record on H.R. 9808 which we will make a part of these hearings by reference. We are not going to reprint the 241 pages that we printed in the last session. But they will be available to anyone and everyone who desires to use them, and they will be incorporated in this record by reference.

So we have that before us, and all we need are the supplemental or additional views.

Mr. KNEIPP. Yes, sir. And they are quite brief in their nature, Mr. Chairman.

Shall I proceed?
Mr. MULTER. Please.

Mr. KNEIPP. The next section of the draft bill submitted this morning amends section 7 of the Alcoholic Beverage Control Act so as to authorize the Commissioners to prescribe the hours during which alcoholic beverages may be sold and to prohibit the sale of any or all alcoholic beverages on such days as the Commissioners determine necessary in the public interest.

Now, H.R. 2036 does the same thing, in substance. It authorizes the Commissioners or, rather, the Board, to prescribe the hours during which alcoholic beverages may be sold. That appears on page 12 in lines 5, 6, and 7. And so that to that extent the Commissioners and H.R. 2036 are in agreement.

Except overriding their approval of this point is their objection to the establishment of a statutory board and authority in that board to make regulations.

Mr. MULTER. But whether the Board is continued as it is now or is an independent board, they are still in favor of the principle that the Board should fix the hours?

Mr. KNEIPP. That the administrative authority, whatever that is

Mr. MULTER. Yes.

Mr. KNEIPP (continuing). Whether the Commissioners or the Board should fix the hours rather than have them fixed by statute. It permits of some degree of flexibility. It permits them to take care of special situations, such as New Years falling on Sunday and that sort of thing.

Mr. MULTER. Do they indicate that they would rather the Commissioners as such have this authority to fix the hours rather than a board ?

Mr. KNEIPP. Yes, Mr. Chairman. All the way through their report they emphasize that all of this authority, regulation-making authority, administrative authority, should be placed in the Commissioners, with authority to delegate to their agent, just as they have done right now. The Alcoholic Beverage Control Board is their creature. They established it 11 years ago, and delegated the necessity authority to that Board. And they desire to continue that relationship.

Mr. MULTER. This, then, requires a matter of determination by the Congress of the principle. If the principle should be continued that it be a subservient Board and the Commissioners have the full authority, then, of course, they should have the full right to do this.

On the other hand, if we determine it should be an independent Board, then, of course, it cannot be independent if somebody else is going to make the rules and regulations for them.

Mr. KNEIPP. The section 4 of the Commissioners' bill offered today amends subsection (g) of section 11 of the Alcoholic Beverages Control Act so as to provide for service of alcoholic beverages. It is a restatement of existing law insofar as the service of alcoholic beverages at food counters and public tables is concerned.

The purpose of section 4 of the bill offered by the Commissioners is to restore the situation to what it was prior to the recent amendment of the act in the course of which there was an inadvertent change in the law that had the effect of precluding restaurants from serving alcoholic beverages to assemblages of more than six individuals in a private room. The hotels continue to have that, but the restaurants inadvertently were adversely affected by the recent amendment in subsection (g) of section 11.

The language in H.R. 2036 is somewhat different from that offered by the Commissioners. It appears in the print beginning in line 6 and running down through about line 18.

Mr. MULTER. On what page ?
Mr. KNEIPP. On page 22.

I think the sense of both the Commissioners' language and the language in lines 6 through 18 on page 22 of the bill is substantially the same. If I am in error, I will probably be corrected before the hearing is over.

But I think both of them do about the same thing, and that is restore the situation, as far as the private room is concerned, to what it was prior to the amendment in the last session of that Congress.

Mr. MULTER. It puts the restaurants and hotels in the same category.

Mr. KNEIPP. Yes. It treats them exactly alike; whereas, now there are some differences in the treatment afforded restaurants and hotels.

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