Tax breaks are causing craft beer to boom

At North Baltimore County’s Black Locust Hops, over 5000 lime-green hop vines cling to rows of towering poles. For over a decade, the husband-and-wife hop farm team of Che’ and Lisa Carton has grown and supplied hop varieties like citrusy Cascade and pinecone-reminiscent Chinook to local breweries, including Maryland’s Flying Dog. In 2010, however, the couple began drafting plans to transition toward farm brewing.

Just two years later, the Maryland General Assembly, likely attracted by the prospect of tax revenue from increasingly popular agri-tourism, passed legislation that created a farm brewer’s license, which would allow folks like the Cartons to brew and serve their beer on site. At the state and then municipal levels, the Cartons heard nothing but resounding “yeas” in approval of the legislation.

“I thought it was surprising they’d pass unanimously,” Che Carton said about the decision. “I wasn’t surprised that it passed, though.”

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With craft beer’s growth in consumption over the past decade, a jaw-dropping number of microbreweries have popped up around the country. Setting up shop everywhere from old dusty barns to long-deserted factories, the Brewer’s Association says most people are just 10 miles away from a local brewery. Considering politicians’ tendencies to boost their own egos by taking care of the local communities they represent, legislators in a number of states have turned soft toward the craft beer industry. Hoping that microbreweries might provide for their states and cities the same way the tech geeks have done for Silicon Valley, the suits upstairs have begun sipping Long Trail’s Kool Aid IPA and approving legislation to both retain and attract microbreweries.

“Support for small breweries is bipartisan,” said Bart Watson, chief economist for the American Brewer’s Association. “Economic job creation is something everyone can get behind. People are gonna drink beer, and if they drink beer locally, that’s better for the local economy than beer that’s not made locally.”

One of the stronger arguments justifying politicians’ thirst for attracting microbreweries is the fact that they are essentially employment catalysts. Mike Halker, the owner of Due South Brewery, the first microbrewery in Boynton Beach, Florida, said his brewery currently employs 25 people and expects to doubling in size by next year. To further stoke craft breweries’ utilitarian appeal, Halker humbly boasted that a number of companies have “chosen to come into Boynton because I’m here.”

“Across the street, there’s a smaller warehouse office space,” Halker said. The employees, many of whom are in the younger drinking age crowd and wind up popping in at the taproom after hours, are “drawn to the company, saying ‘we’ve got a brewery across the street,’” he added.

This labor growth, along with tax revenue from the brewery, makes it no surprise that when Halker has needed help from the city he has gotten it. When Due South first came to Boynton with hopes of setting up its brewery, the city council made amendments to the official code to allow for a brewery in the industrial space. Just a few years later, Halker was looking for a way to cut costs by storing hops and grains in the brewery. Recently, the city unanimously passed legislation that would allow breweries to house their own silos and hoppers. Halker’s push for legislative changes has paved the way for more breweries hoping to set up shop in the area.

“The mayor is looking to put a newer kind of face on Boynton and bring in that 21-35 year old,” Halker said. “But out west of here, there are a lot of retirees, and I think he wants to make eastern Boynton, by the ocean, a younger, hipper destination. And this fits right in with what he’s talking about.”

Passing infrastructure-related legislative changes that make it easier for breweries to set up shop is not the only method cities have used to attract potential craft brewers. Representatives along the East Coast, salivating at the possibility of local job growth and tax revenue through the beer community, have coaxed newcomers with big tax benefits.

In 2012, the New York State Senate passed a trio of bills, among others that provided financial incentives to establish breweries in the state. This included a tax benefit for craft brewers in New York, the creation of a farm brewery license, and exemption from paying the annual State Liquor Authority fee.

Paul Leone, president of the New York State Brewers Association, said the economic impact of New York’s wine industry set the precedent for passing legislation to financially support the craft beer community. From extravagant beer tours to sales of local craft beers in bars, Leone explained, craft beer has pumped a significant chunk of revenue into the state economy.

“The brewing industry is a $4 billion economic impact on this state,” he said, adding that “$500 million is just from tourism alone. If you look at it, new jobs mean new taxes funneled into the system. If a brewery opens up in a small town, other businesses will move in around it because they’re a gathering scene.”

Leone said the experience of Livingston, New York, highlights the state’s thirst for establishing craft beer tourism trails. The town recently developed a Brew in Livingston business plan with a 200,000 state grant. The development plan would provide microbrewers $150,000 each to set up their new breweries within the city limits. “This is the length you see to get some breweries in town,” Leone said.

Beyond trying to incentivize craft breweries, cities are also hoping to woo well-established breweries into setting up branch plants. In the East Coast craft beer mecca of Asheville, North Carollina, local and state governments have provided industry powerhouses like New Belgium and Sierra Nevada grants and tax incentives in exchange for constructing their breweries in the area. Out-of-state companies have received approximately $18 million.

Of course, like free lunches, breweries being treated as a silver bullet for local economies might be too good to be true. Jason Childs, an economics professor at the University of Regina in Saskatchewan, Canada who specializes in the beer business, explained that the government is essentially putting its hops in one basket. Citing cases in which local governments provided tax incentives to build call centers and tech hubs, he said tax revenue might not offset the incentives used to attract them.

“Once you get a business like brewing established and set up, where there’s a fair bit of infrastructure involved, they’re not gonna leave when you crank up the taxes,” Childs said. “You might kill some of them, but how long are you prepared to leave [the taxes low]? Is there sufficient spillover to make up for the lost tax revenue? The evidence on that is really weak. ”

Putting his bias toward all things beer-related aside, Childs said there was a silver lining to governments sucking up to the craft beer industry, one that was missing with the call centers and tech hubs. With craft beer, he said, there is the benefit of eventual socioeconomic change.

“Hipsters move in, the music scene perks up, and all this spillover pops up,” he said. “It’s a catalyst for this nucleus of really interesting social-scene happenings. It’s a better place for the community to be, all else equal.”

Che and Lisa Carton, at the moment, are still in the process of setting up their new business, having just received a green light for the architecture drawings and are waiting for business permit. The process has been slow, but given the industry they’re in, they aren’t too worried.

“We had no pushback at all, of any kind, during the whole process,” Che Carton said. “Our neighbors don’t mind us — that’s the good thing.”

Antonia Noori Farzan contributed reporting.