SYVERTSEN: Mr. Dailey, can you tell me about the origin of the KDA, I know fromour conversation a moment ago, it goes back almost 100 years ago.
DAILEY: Well, we discovered at the George T. Staggs Distillery here in Frankfortseveral years ago, the constitution by-laws of the formation of the Kentucky Distillers Association dated November 1, 1880. And the by-laws enumerated and listed the names of the board of directors who were the old time distillers that we talk about today. The Association existed until prohibition in 1921 and then was re-established after prohibition with all the existing operating distilleries in the state joining. And Millard Cox was the Director of the 1:00Association from that time until 1967. And he retired in 1967 and I succeeded him. So there's only been two of us since prohibition, in these some fifty years.
SYVERTSEN: Have there been some prominent people on the board prior to your two terms.
DAILEY: I am sure that back in the early days the original constitution andby-laws enumerated the names of all of the big distillers that were in existence in the state at that time. And I am sure that what we call now the CEO's of these companies were the mainsprings of the Association until prohibition. And then after prohibition the same thing occurred again, the CEO's of the companies 2:00rejoined the Association, reconstituted the Association and the Association was reconstituted with the principles of the distilleries joining and serving as their officers.
SYVERTSEN: In 1933, I believe, Al C. Brown, Sr. formed the Distilled SpiritsCouncil what was the
DAILEY: Not the Distilled, the Distilled Spirits Institute. DSI.
SYVERTSEN: Excuse me, I get those two confused. What was the initialrelationship between the Institute and the KDA?
DAILEY: I don't know. I don't have any personal knowledge of this, but it is myunderstanding that it was an interlocking directory situation, just like it is 3:00now with the KDA and the Distilled Spirits Council of the United States. Because most of all of our members, board members serve in a position on the board of the DSCUS. Now DSCUS was the outgrowth of DSI, the Bourbon Institute, and the Licensed Beverage Industry. They consolidated I guess about 19,
DAILEY: '73. Ben Morris from Brown Foreman was one of the instigators of theconsolidation and it has been a very good thing for the industry.
SYVERTSEN: What about Lou Rosenstiel and the initial development of KDA? Haveyou heard any comments about Rosenstiel and what he thought of KDA when it was re-established in 1933?
DAILEY: No, I never personally knew Mr. Rosenstiel. And, I know that he was very4:00interested in the Association in its early stages, but what part he played, I don't know. I know he, from the old minutes of the Association, he has been present on several occasions to express his point of view about various matters of interest to him.
SYVERTSEN: What were the initial interests of KDA in the 1930's and what exactlywas accomplished?
DAILEY: The same interests I think that we have currently. Let me see if I canput your coat on the rack. Perhaps I can best express to you the purposes of the Association by reading from the Articles Incorporation where it says:
"The business and purpose of the corporation shall be to keep the members of thecorporation informed on matters of general interest to the industry; to act for 5:00and on behalf of the membership where necessary with respect to such matters as affect the Kentucky distilling industry as a whole; to foster and promote the sale of Kentucky bourbon whiskey and other distilled beverages made in Kentucky; to help maintain the distilling industry in Kentucky in accordance with the best traditions of the industry; to foster compliance with all state and federal laws and regulations; to make and enforce such rules and regulations for the general conduct of the membership as the governing body of the corporation may deem proper."
That was the purpose then, that is the purpose now.
SYVERTSEN: From what you have heard was it difficult to get the large distillerslike Seagram's and Schenley's in the 30's to work together through the KDA along with some of the very small producers that produced about 10 or 15 barrels a day?
DAILEY: No, no. All of the distillers recognized then as they do now, that they6:00must have some unity of purpose, in order to survive. And the nice thing about the Association was that the vote of Seagram's was the same as the vote of the small distiller. Each company had one vote, and that's the way it is now.
SYVERTSEN: And the simple majority prevails?
DAILEY: The simple majority prevailed. As a practical matter while that was therule, the majority, if there was any real controversy between the members they would, they would compromise to some degree. It was never a black and a white situation, it will or it won't. Usually the industry members cooperated very helpfully with each other and they still do.
SYVERTSEN: Did each company pay dues of a certain sort?7:00
SYVERTSEN: Or were they proportioned, apportioned, or?
DAILEY: Each company paid dues to the Association, as they do now, and that isallocated on the basis of the number of barrels they have in storage. This is assessment per barrel of the number of barrels in storage each year. And that's the due structure of the Association and has been since prohibition.
SYVERTSEN: Did the KDA initially take out advertisements in newspapers or magazines?
SYVERTSEN: Or did the KDA primarily work on legislative matters?
DAILEY: Probably their, their principle activities initially were legislativematters almost exclusively.
SYVERTSEN: Would the chief legislative matter at that time to your knowledgehave been Fair Trade?
DAILEY: No. Fair Trade is something that varied with each state. Now Kentucky8:00had a Fair Trade Law, but there were many states who didn't have a Fair Trade Law. And the industry, the Association never was involved in any kind of a Trade Practice as such. Of course, it was against the anti-trust laws to begin with, so we didn't get involved in that and don't now.
SYVERTSEN: What can you tell me from your knowledge about the actual origin ofKentucky's Fair Trade Law, the people involved, the law that came out versus what industry leaders wanted perhaps, can you tell me anything along those lines?
DAILEY: I can only tell you that when prohibition was repealed back in the 30's,1933, Kentucky in 1936 enacted first of all a local option law which gave the 9:00counties the right to accept or reject the legal sales of beverage alcohol. And most all of the counties with the exception of the metropolitan areas; the first, second, and third-class cities, all chose to go the prohibition route. The legislature then, in order to promote moderation and to keep price cutting practices from encouraging drinking, passed the Fair Trade statute. Now I don't think the distillers were ever really too concerned with that, because these people were selling their product nationally and the State of Kentucky was just 10:00a very small portion of their market. And whether they had Fair Trade or no Fair Trade they were still going to sell approximately the same amount of the product. So I don't believe that we can say that the distillers had any particular interest at that time. This was a great transition period in the history of our state. It came upon us at a time when there was a great depression in this country, a great depression in Kentucky. And the only real industry that Kentucky had was the distilling industry and it was now coming 11:00into full bloom with the reconstruction of the distilleries and the reconstruction of the distilling industry. Kentucky was in debt. Excuse me, let me get a drink.
DAILEY: The state at the time of the repeal of prohibition was in substantialdebt. And it had no industry as such. Agriculture was the only industry. Now the small family distiller that had existed prior to prohibition were waiting to get back into business. But they had no money. So they had to go out and get capital from other sources. This is when people start letting the local people who 12:00wanted to get back into business come in with their capital and form public corporations. They absorbed a lot of these small family operations. And the state government recognized that now this new industry was going to produce a lot of money, a good tax base. And Mr. Chandler, who was governor was a bone-dry governor, thought it would be helpful to the state and no hurtful to the industry if they put a five-cent production tax per gallon on each gallon of whiskey produced. That money would go into the state treasure general fund. Well this was the beginning of the end of the distilling industry in Kentucky. It 13:00took it sometime to manifest itself. But Kentucky was famous for bourbon whiskey, but there were other products, there was gin and other distilled products that didn't need to have the name "Kentucky." Now those products would have all been made here in our own distilleries had not the tax been levied. But since it put the Kentucky distiller at a disadvantage against producers in other states, the bigger companies who had the option began locating plants in Indiana, Ohio, Pennsylvania, Illinois and other places to produce products other than Kentucky bourbon. So as time went along we, they continued to operate here, and there was quite a proliferation of distilleries. Back in, I guess in the 14:00forties, there were probably 120 distilleries scattered around the state. In 1959, there were 45. And today there are 15. So a lot of things have changed. Now the five-cent production tax remained until Mr. Chandler was re-elected in 1956.
DAILEY: No, '56.
SYVERTSEN: He took as, if I recall right, he was elected in November of '54 andtook office in '55. Weatherby
DAILEY: Took office after Weatherby.
SYVERTSEN: Yeah, took office after Weatherby. In '55 I believe the ten-centproduction tax went in, right, the doubling of the production tax from five to ten cents.
DAILEY: Might have been and see Bert Combs came in after that.
SYVERTSEN: It was
DAILEY: When Martha Layne elected? Last, she was elected this year? '84?15:00
SYVERTSEN: November of '83.
DAILEY: Maybe that is right, makes it '55, okay. You are right, '55. The taxstayed on and in 1955, Mr. Chandler was re-elected governor. And there was a vendetta between Mr. Chandler and his administrative assistant and one of the big distillers.
**Tape 1 Side 2**
DAILEY: During the course of that campaign in 1954, Chandler needed somesupport, money for his campaign. He contacted one of the CEO's of one of the larger distillers who happened to be in New York and asked him for a substantial 16:00amount of campaign contributions.
SYVERTSEN: Despite being a dry, what about a dry?
DAILEY: That hasn't anything to do with it. Money is the question, not dry; notprinciple, money. The distiller called a friend of his in Kentucky and said what kind of a chance does Mr. Chandler have against this fellow Combs? His friend says, "He doesn't have much of a chance. And I wouldn't recommend you give him any money, 'cause he's not going to win. Well he did win. And the first thing he did was to introduce a bill in the legislature to increase the tax from five cents to twenty cents per gallon. And after a lot of maneuvering, and a lot of 17:00protesting by the distillers, it was finally agreed that the tax would only be raised to ten cents. But in the final vote, between the ten and the twenty-cent amendment, it was just carried by one or two votes. So when this occurred, in 1955, all of the larger companies that had an option to leave Kentucky began to leave. And a lot of the smaller distilleries went out of business. A lot of the larger a lot of the larger companies started building bigger plants outside the state. Until 1966, at that time I was 18:00
SYVERTSEN: The Breathitt administration.
DAILEY: The Breathitt administration. At that time, I was the attorney for theAlcohol Beverage Control Board. And the distillers came to the Board during that period and pleaded their case about the degeneration of the industry, and how this tax was putting them out of business, because it gave them a, it gave out-of-state companies a financial edge over Kentucky companies. How many distillers had gone out of business, how the industry had deteriorated to the extent that the legislature saw fit to reduce the tax in two-cent increments beginning in 1967 for a period of five years and eliminated it in 1971. This 19:00legislative action passed by one vote in the House and one vote in the Senate, but it did tend to give the industry considerable relief. It was at this point that I became, was the successor to Millard Cox who had been the Director of the Association from prohibition up until that time. And the purpose, and the problem then was to maintain this tax deceleration, so that the legislature wouldn't put it back on and the industry could get itself back together. As a result of that, we were able to convince the legislature not to put the tax back 20:00on. And the way the law was written, the money that was paid in this two-cent increment and the money that was paid to the counties and the local government units had to go into capital improvements. And many of the counties where there was a distillery, they received new buildings, new courthouses and a lot of new capital improvements. For example, about the time this law was repealed, the courthouse in Versailles burned. And it was replaced by a gorgeous colonial-type 21:00building that was every bit financed, to the last nail, by the distillery tax dollar which went into the capital improvement as provided by the repeal law of the ten-cent production tax. Then, of course, the industry did spend a lot of money in capital improvements of their own grounds and buildings or whatever. And they did actually increase production until about 1970 at which time the industry underwent a considerable public acceptance change. That is from bourbon, a darker product as we call it, to a lighter tasting product. And at 22:00this same time there was a public sentiment about drinking and driving and all sorts of health incidents that had some peripheral effect on the industry, to the extent that since that time, there was has been a gradual decline in the production and a gradual decline in the number of producers in the state. Now in the Brown administration, the industry had always been peaked by state ad valorem tax on distilled spirits. And this was creating a situation where a lot 23:00of the companies were building storage warehouses outside the state, particularly in Indiana and Ohio, and sometimes in Pennsylvania. And the whiskey that was being produced here in Kentucky was being stored outside the state so it wouldn't be subject to the ad valorem tax and then brought back into the state for bottling. This was hurting the industry. It was costing money. It was costing the state money. And we, in the industry, felt like it was a punitive tax just as the production tax was. We prevailed upon Governor Brown to see if we could get some relief from this. He was very sympathetic with our cause. And he only promised us that if we could get the bill through the legislature he wouldn't veto it. Well that was more help than we had gotten from anybody else, 24:00because they not only wouldn't help us get it through the legislature, they would try to keep us from getting it through the legislature, and would veto it if we did. So we felt like that was a plus even though it didn't sound like much. So the Association prevailed upon the legislature in 1980 to repeal the forty-five-cent per hundred-dollar assessed value of distilled spirits in storage. This bill was passed on the last day of the last night of the session at 2:00 in the morning.
SYVERTSEN: They stopped the clock to get it
DAILEY: They stopped the clock and it repealed the forty-five-cent state advalorem tax in increments of one-half the first year, from forty-five cents to 25:00twenty-two cents, then in the year 1983, from twenty-two cents to eleven cents, and in the year 1984 to one-hundredth of one percent at which rate it remains today. So that, these two tax measures passed by the Kentucky General Assembly have substantially assisted the industry. But the industry has got a lot of problems, had a lot of problems. And production is now leveled off at about 50 million gallons a year when in 1968 it was a 106 million gallons. So you can see 26:00how much
SYVERTSEN: What a difference.
DAILEY: What a difference there is. And the other problem with the industry is,of course, different from anything else. The product we make today can't be sold for four years. And that's a pretty risky business and a pretty expensive business, particularly when we are competing with products such as vodka, which can be made today and sold tomorrow. They don't have to put it in a $70 barrel and pay taxes on it for four years and that sort of thing.
SYVERTSEN: Do you still pay interest on the barrel?
DAILEY: We still pay local taxes you see.
DAILEY: The taxes
SYVERTSEN: But the federal tax, you still don't pay six percent. You used to paysix percent, right, interest for each unit in storage, is that correct?
DAILEY: No. You had to pay, you had to pay taxes which resulted in about a six27:00percent cost. There was no six percent interest.
SYVERTSEN: I thought for each year that you delayed the payment of the tax while in
DAILEY: Oh, well, that was back years ago.
SYVERTSEN: That no longer applies?
DAILEY: No, no, no. That no longer applies.
SYVERTSEN: Okay. When was that ended, that practice?
DAILEY: That was ended back in the fifties, yeah, where if you didn't take itout of storage within a certain time you had to pay. . . Yeah, that has been changed.
SYVERTSEN: The tax policy here is complex.
DAILEY: The tax policy is not only complex, it is almost confiscatory. The taxburden on a bottle of whiskey is about forty-seven percent of the purchase price, which is an unbearable burden on a commercial product. Now that tax is 28:00going to be increased further. It is going up from $10.50 now to, it will be $12.50 federal tax per gallon, beginning in September, 1985. So
SYVERTSEN: And you all felt fortunate to have that small of an increase.
DAILEY: Right. When it was only a two dollar increase instead of a $10.50increase, you know. They were beating the drums for doubling it and when you got off with two dollars why we just felt like, you know instead of being killed, you just had your leg broken. You know. But it is going to have a very bad impact on marketing when it does become effective. It has to have. So I guess we just have to wait and see what really, what is going to happen, because the industry now is trying to get the proof lowered. Eighty-proof is the lowest you can go currently and they are trying to get the proof lowered without having the 29:00word "diluted" on it which is required now. And there are a lot of moves being made to try to counter the increase in the tax which of course will increase the cost, not only increase the tax cost, but the wholesaler and retailer, they'll take a piece of the action as it goes by them you know. So they expect the price to be substantially increased and as the product, the bourbon, Kentucky bourbon whiskey hasn't gone up anywhere near the price of comparable, other consumer products over the years. Although in the last two or three years it necessarily had to go up and its going up more. There's no question whether it will. And that is going to have some effect on overall sales. It has to. But we in the Association, we try to keep a steady hand on the legislation to see that there is nothing particularly punitive that comes through, and try to get relief as we 30:00go along little by little. And we have, these two tax policy bills that the state has passed has resulted in millions of dollars in savings to the industry over the years and will in the future of course.
SYVERTSEN: One of the people I interviewed said that it was their belief that inthe 19th century the typical bourbon produced in Kentucky, particularly the bourbon produced on the state's plantations or larger farms, was a low-proof bourbon. That the bourbon at that point tended to be between 25, 35, 45, 50 percent on the proof side, whereas the bourbon produced in the 20th century and the late 19th century tended to be on the very high side, 100-proof, 90-proof. 31:00
DAILEY: I don't have any information about it. The only thing I could tell youis that probably the farmer still was the pot still, what they call a pot still, and it wasn't a very sophisticated operation.
DAILEY: Was it ______ distillation, maybe?
SYVERTSEN: Single distillation.
**Tape 2, Side 1**
DAILEY: I am not familiar with your statement about the low-proof, but I suspectfrom what I know about it, if it is anything like the moonshine made back in the prohibition days, it was pretty high price, high-proof and pretty bad.
SYVERTSEN: Well, what I was told was that if the statement regarding thelow-proof in the 19th century is true, then the country's drinking habits today, to a certain extent have come back to that idea of drinking a lower proof. And 32:00perhaps that if the industry had stayed with the lower proof, assuming that was what once had been common in the 19th century, that the industry would have been on a continuous course. Does that make any sense to you?
DAILEY: No, it doesn't. Simply because bonded in bond which has been with us formany, many years, back before the 19th century, bonded bond was a 100-proof, which means 50 percent alcohol and 50 percent water, but it was 100-proof. And it was from bonded in bond that the proof came down to where it is now, 80-proof. So I don't believe that the, from the time of the Civil War when the tax went back, the excise tax went back on, the regulations I am sure at that time specified the proof, it had the minimum proof. And I don't believe that, 33:00and I know that record is available someplace, but I just don't believe that, I don't believe that could be true.
SYVERTSEN: You have told me a wealth of information in the last ten or fifteenminutes, and I would like to look at a few points that you alluded to. If I understand you correctly, you said that the production, the first production tax went on during the Chandler administration, the first Chandler administration at five cents. And that it was this tax which largely prevented the development of other distilling operations of a non-whiskey, non-bourbon nature in Kentucky.
SYVERTSEN: Now Kentucky in your view today perhaps would have had a leg up on34:00many of the others
DAILEY: We would have had it all. We would have had it all, because Kentucky wasthe only state that had an in-place industry ready to go. Now Pennsylvania had some distilling involved and Illinois had some, but Kentucky had ninety percent of the industry ready to produce. And when they put the tax on, then is when they started looking at these other places for development of products other than bourbon.
SYVERTSEN: This is difficult and it is somewhat of a philosophical question, butlooking back what kind of tax do you believe the industry could have effectively taken in the 1930's without having operations for non-whiskey production go elsewhere.
DAILEY: Well I think the industry should have been treated like the industrieswere everyplace else where they didn't have a production tax. If there was no production tax, if the five-cent production tax hadn't been imposed, I don't 35:00think we would have had a problem. I think the thing, the industry would have developed with all of the production developing in the state, rather than being dispersed by people who look at the bottom line then like they do now. You know, you can go over to Lawrenceburg, Indiana and northern Cincinnati, Ohio and you will see some of the biggest distilleries in the country right this very day. And, unfortunately, or fortunately, however you wish to put it, as far as Kentucky is concerned, in the last ten years most all of the bourbon producers outside of Kentucky have gone out of business. American Distilling, Republic, or 36:00Schenley in Pennsylvania. The only people I know who are producing bourbon now are the Seagram's distilleries one in Lawrenceburg and one in Baltimore producing bourbon for blending where they don't have to use the word "Kentucky." But
SYVERTSEN: There is a small operation, I have been told, in Virginia as well.
DAILEY: Oh, yes, that's right. Virginia Gentlemen has a small operation inReston, Virginia and a very good operation. Equivalent in size to perhaps, oh I guess, the Wild Turkey distillery here in Lawrenceburg, Kentucky. It is a family 37:00owned operation. And a good product. And they do make bourbon, Virginia Gentlemen Bourbon. And of course, Secrum makes a large amount of bourbon to blend with their Seven Crown, where they don't have to use the word "Kentucky." Those two, those three operations, I had forgotten about Smith Golder's place over there, but that is exactly right.
SYVERTSEN: I have been told and I have picked up references saying that for awhile at least, Kentucky was the only state which had the production tax.
SYVERTSEN: Did that notion change over time? Did other states then put onproduction taxes?
DAILEY: No, no. No other state ever put a production tax on, to my knowledge.
SYVERTSEN: To your knowledge also was there a serious move in any other state to38:00do so, or did it come close to being put on in any other state?
DAILEY: Not to my knowledge. Not to my knowledge. The only thing that I can tellyou is that other states wooed the industry such as Indiana by reducing their ad valorem tax to the point that a lot of the Kentucky distilleries moved from Kentucky, their storage, to Indiana to avoid the tax. And since the state has repealed its ad valorem tax, these people are all moving back to Kentucky now. So we don't have any out-of-state movement for storage. And this of course been beneficial to the industry and to the state.
SYVERTSEN: Today, where does Kentucky rank among the distilling states in thetax situation? Are we on the high side, or are we on the low side?
DAILEY: We're on the low side. The per gallon tax in Kentucky is on the low39:00side. We have a $1.92, what they call consumption tax. But, and then we've got a fourteen percent, well it is called a wholesalers tax, but it actually in effect is sales tax. They moved the sales tax back from the retailer to the wholesaler and they added four per, added nine percent to it. And let me get you a book here. Someplace, I have got a book that has got a lot of that information in it, if I can find it. I'm sure I can. What was your question?
SYVERTSEN: I was asking you regarding whether Kentucky was on the high side orthe low side in terms of total taxes.
DAILEY: It is on the low side at this time. Now.
** Telephone rings. Pause. **
DAILEY: Taxes, yes Kentucky probably is one of the lower now, one of the lower40:00states, as far as the revenues to the state and the local taxing districts.
SYVERTSEN: While you are on this issue, can you tell me, does bourbon today sellat a lower price in any other state than in comparison with Kentucky?
DAILEY: Now I can't tell you that. There was a law called Affirmation where theproducer, that is the distiller, had to certify when he sold whiskey to 41:00California, New York, particularly New York, that he wasn't selling whiskey to any other state at a cheaper price than he was selling it to the State of New York, in the state of New York. Kentucky had an Affirmation Law which required the Kentucky distillers to say that they were not selling whiskey at, in Kentucky to a wholesaler, at a price greater than they were selling it to anyone else. That law was repealed a couple of years ago and the general affirmation laws have just kind of gone by the way side. Although the Supreme Court approved the New York Affirmation Law, the marketing practices I believe currently have very well judiciated the whole system, because the price now, the fair trade laws have all been knocked out and
SYVERTSEN: So there are no fair trade laws in any state?
SYVERTSEN: I know in Kentucky, I believe it was '82, that the courts knocked it out.
DAILEY: Right. No, well the Supreme Court in a California case voided all state42:00fair trade laws. So they set the pattern. When Kentucky's Fair Trade Law was challenged the Kentucky Supreme Court had to follow the United States Supreme Court.
SYVERTSEN: So every bit of the law
DAILEY: There is no fair trade law in the United States.
SYVERTSEN: The whole thing scuttled? Okay.
DAILEY: No, it is all gone, gone. And general marketing practices prevail in theindustry just like they do in the shoe business, you sell it for what you can get, where you can get it. That is the practice now, I think.
SYVERTSEN: What has been the impact of the scuttling of the Fair Trade nationwide?
DAILEY: As far as distilling sales is concerned, its had very little if any. Theper capita consumption of beverage alcohol, particularly whiskey, is 43:00substantially less than it was a 100 years ago. And it is probably declining now slightly each year. This is just the way, this is just the way it is at the present time. Now whether that will change, next year or the year after, we don't know of course. We don't know.
SYVERTSEN: Are you saying the total amount of alcohol consumed, whether it be inwine or whiskey or whatever, is less today than it was ten, twenty years ago. I know bourbon sales are down, and I have noticed that over the last few years
DAILEY: I think, I think we've got a
SYVERTSEN: They have been going down about one and a half percent or so.
DAILEY: Alright, wait a minute, the average, here we are, right here. What I44:00know about that question is what I read in the book and I am trying to find it.
SYVERTSEN: Okay. I didn't mean to put you on the spot.
DAILEY: Yeah, you see that we don't, here in the Association, we don't collectmarketing information persae.
SYVERTSEN: That is more of a DSCUS function?
DAILEY: Well, even that, they don't do too much of it.
SYVERTSEN: Who collects for the Liquor Handbook, whose work is that?
DAILEY: Ben Corrado, who is a fellow that lives in Poppinoe Beach, Florida. BenCorrado publishes that.
SYVERTSEN: Are those statistics pretty accurate?
DAILEY: Yeah, yeah that is his business. He gets his statistics from the federalgovernment and from the various associations like the importers and DSCUS and 45:00NOBBY, all of the trade associations. Of course we don't do any statistical work and don't get any marketing statistics. And I will just have to pass on your question about it, whether or not, I don't know. I don't, personally I believe it is less, but I am not sure. Not sure. So you will have to find that out from somebody more knowledgeable than me.
SYVERTSEN: We talked about the termination of the production tax. In looking atsome of the newspaper clips, I noticed that Spindletop Research came up with an important report in 1963. How important was that report on the dismantling of the production tax in '66?
DAILEY: Well, let me tell you about that.
DAILEY: Here's the report.
SYVERTSEN: Okay. Just happened to have it in your desk, huh?
DAILEY: Yeah, just happened to have a copy.
SYVERTSEN: I have not seen it. I have just read newspaper clips on it.46:00
DAILEY: "Impact of the Distilled Spirits Production Tax on Kentucky's Economy."
SYVERTSEN: Sizable report.
DAILEY: Yeah, this report was prepared at the Spindletop Research and paid forby the distillers in order to back up the argument that the tax was hurting the distilling industry. Now the book says that it was prepared for the Kentucky Chamber of Commerce and, of course, they were the contracting party with Spindletop, but the Kentucky Distillers paid for the production of this.
SYVERTSEN: Was it, the report, to your knowledge, was the idea of the report,did it come from the Chamber or did it come
DAILEY: The idea of the report came from an independent research group. At therequest of the Kentucky Chamber of Commerce to support the argument of the 47:00distillers that the production tax was crippling the distilling industry in Kentucky and
SYVERTSEN: Was this report critical to the termination of the production tax orwas the KDA role far more important?
DAILEY: I don't think so. Politics was the critical point. This might have_______ some, but, and it was a beautiful looking paper with a lot of charts and graphs and whatever and a lot of statistics. But when you try to convince a legislator from a dry county that the tax on spirits is too high, you have got to have more than a paper from Spindletop. I'll tell you that right now.
SYVERTSEN: May I ask you what more you need?48:00
DAILEY: You have got to have a better argument than a Spindletop document.
SYVERTSEN: Okay. We were talking a while earlier back about the KDA and itsearly development. I would like to ask you whether the KDA during its initial period, did it approach some of the county courthouses directly to try to prevail upon them to change from being dry counties? In other words, was part of the function of the KDA to go to, what almost 100 counties, and or at least some of them and say you know we think your policy is wrong. We think perhaps that if you re-evaluate you may get tax monies by changing from dry to wet and that these might help your schools or anything of that sort? 49:00
DAILEY: Back in the fifties, the Kentucky Wholesalers and some distillers, notthe Association, but some of the distillers independently with the Wholesalers formed sort of an ad-hoc organization under some fancy name. And they for a while supported the efforts of the wet forces to get dry counties to approve the local option. This was a very loose organization and it was very ineffective.
SYVERTSEN: Did it have a name?
DAILEY: It did. I am trying to think of it, I can't, Skipper Triplett who liveshere was the head of the thing. The fellow was Lesley Triplett and Jimmy O'Rear 50:00who had an office next to mine down on the fifth floor back in those days.
SYVERTSEN: The Judge James O'Rear?
DAILEY: The judge's son, well it is Judge James, Jimmy was not a lawyer, he wasthe Vice President of Schenley.
DAILEY: And Jimmy was kind of the bird dog of the thing. And factually, whathappened was that, they didn't have a tremendous lot of money to put up in each of these counties. And the wet factions always broke up right at the last minute, because these were the people who wanted the licenses, if and when it voted wet. And these people always broke up into fragments just prior to the election almost every time, to the point that, 51:00
SYVERTSEN: Which is every year practically or election?
DAILEY: Yeah, to the point that the whole thing was so damned futile that to myknowledge in the last twenty years neither the distillers nor wholesalers have taken any part in any of these local option elections. Just cleaned their hands of the whole thing. We have never, we as an Association have never taken any part in a local option election. And the Wholesalers did take a part with some of the distillers back in the fifties, but since that time they take no part in it whatsoever.
SYVERTSEN: They decided, I presume that it was simply useless.
DAILEY: Absolutely useless. Absolutely useless. The things are so fragmented youcan't get a handle on it and what little money you have to spend is just wasted.
SYVERTSEN: And you may create as many enemies as friends.52:00
DAILEY: You do. If, consider the circumstances, _______ does exactly whatever.Useless thing. So to answer your question, no.
SYVERTSEN: Okay. We had touched upon several governors and you have made someclear comments regarding Governor Brown and Governor Chandler. The other governors along the way, can you tell me anything about their relationship to the industry, positive or negative, and the relationship with the KDA.
DAILEY: Well, lets go back from Brown to Carroll. He was very antagonistic tothe administration, to the industry. The reason was that the industry wasn't a large contributor to his causes. To the extent that, during one session of the 53:00legislature, we had a legislative bill. It was on Affirmation which Governor Carroll actually had put in the legislature, a punitive measure against us, saying he didn't want whiskey to cost any more in Kentucky than it did in Indiana. That was his reason, but his reason went deeper than that. And when we tried to get an audience with him to discuss it with him, he said, "Hell, these people never, they don't contribute anything to us." And in consequence, we got Affirmation. But then later on in the Brown administration we got it appealed. 54:00And behind Breathitt was the governor of course when the repeal of the ten cent-tax went off, although Bert Combs wanted to repeal the tax during his administration, but and had agreed to do so. But that was the administration in which the sales tax was enacted and there wasn't anyway, even a man with Bert Combs' guts, could pass a sales tax on food and take a tax off whiskey. So we had to wait until the next administration. And then of course Louis Nunn followed Breathitt. And Nunn was very knowledgeable about the industry, and I 55:00don't say he was particularly helpful to the industry, but he wasn't hurtful. So we had a good relationship with him and with Wendell Ford.
SYVERTSEN: Could you tell me something ways in which he, they may have beenhelpful or not hurtful?
DAILEY: Well, they didn't sponsor any punitive legislation. And if we had aproblem with legislation, we could go to them and talk to them about it, and ask that they not stuff it through the legislature. And we never did have, we didn't have an incident where we felt like we were put upon, except in the Chandler administration and of course in the Carroll administration which wasn't nearly as bad as what we had experienced in the other.
SYVERTSEN: Did Chandler have a beef against Brown Foreman persae?56:00
DAILEY: No, Chandler had a fellow by the name of Al Portwood who was the ABCCommissioner and Al was a hard-nosed guy.
SYVERTSEN: I think he was on the list I showed you.
DAILEY: Yeah, he was, he was on the list. Yeah, he was a hard-nosed fellow. AndI think you are talking about the time they fined Brown Foreman for ten thousand dollars for having a, the bar set up. Well, of course, its against the law, against the statutory laws for a distiller to give away any of his product period.
SYVERTSEN: I thought that was an unclear judicial issue at that point, becausethe tax had been paid. And of course in the '59 decision, when the brewers came up against the same issue, it was decided that the brewers could give away free beer. No?
DAILEY: Yeah, they can. They can. But Portwood, he just had a, he just took theposition that whether the tax was paid or not paid the the distiller couldn't give away the product on his premises and he fined Brown Foreman ten thousand dollars. 57:00
SYVERTSEN: That's one man's law.
DAILEY: That's one man's law.
DAILEY: You see, the problem is with any industry, when these administrators getafter you, you can fight them, but you always lose. Because they will do something to you later on. I will give an example, I represented a big contractor, we had a road contract here. And the Highway Department was taking the position on some, I have even forgotten the facts of the thing now, but he was, the Highway Department was taking the position that the contractor could not do something that he was doing. We got the Highway Department Regulation Book out and we took it down to the Commissioner of Highways. And we said, "Mr. Commissioner, you are dead wrong. These people are doing exactly what they can 58:00do and what they are legally entitled to do." The Commissioner said, "I don't give a damn what that book says, we're not going to do it." Okay, we go back to the contractor. We say, "You're being screwed. You've got a law suit and you can do what you are doing." "Well, we don't want to file a lawsuit. We'll quit doing what we are doing and do it the way the Commissioner says. Because when the next _____ comes along, we want to be in a position to bid on the contract." And that is the same way it is with a lot of
SYVERTSEN: Particulary maybe with non-bid contracts.
DAILEY: Right, so you can win, but lose you know? And Brown Foreman in alllikelihood could have won an appeal in that situation. After that incident occurred, the ABC Board relaxed that rule, and put in writing a rule that a distiller could on his premises give away small amounts of his product to 59:00guests. And that rule has been in effect ever since, ever since the Portwood case.
SYVERTSEN: Yeah, I believe Brown Foreman gave, provided some of the beverage forour Oral History Association annual meeting in Lexington in September.
SYVERTSEN: Its a practice that the distillers are very careful about. Which theyshould be, but that was just arbitrary. That Portwood thing was absolutely arbitrary. And it scared the hell out of everybody you know. But it was, after it became so obvious that it was so arbitrary is when the Board released, put out an order that it could be done. So we haven't had any trouble again.
SYVERTSEN: The KDA though I gather and the industry as a whole did not really60:00attempt to change the existing law.
SYVERTSEN: Even after the '59 brewers' case, right?
DAILEY: Tom, when you try to change any law in the legislature dealing with ourproduct, you just open a can of worms. It just gets to be a terrible situation. I could give you a lot of examples, I won't bore you.
SYVERTSEN: No, no that is alright. You are not boring me one bit. I would liketo hear about some of those. In fact that is one of the questions I was going to ask you later about some of the significant legislation covered.
DAILEY: Well, in the Carroll administration, the ABC Board wanted to reviselittle housekeeping laws, needed to be changed. Out of date, antiquated, completely off base. So I went to the Commissioner and I said, "For God's sake, don't do that." I said, "If you put this bill in, it'll come out some way that 61:00you will never know, you will never recognize it." Well, I didn't prevail. They put in, it was House Bill 1 in 1976, I guess session. Innocuous bill, innocuous. But it contained about twenty different statutory changes. That was the first bill, House Bill 1. House Bill 1 was the last bill passed in the 1976 session of the General Assembly.
SYVERTSEN: The first bill is usually a critical bill.
DAILEY: Right. 19 and it passed last on the last night. It had 42 amendments toit, including Affirmation. You wouldn't recognize anything. So the bill came out last minute and it was, had some punitive things for everybody in the industry, the wholesalers, retailers, and distillers. And this has been the history over 62:00the years that when a bill comes in they demagogue the hell out of it no matter how meritorious it is. Because a guy who is from a dry county and, at that point in time there were about 26 wet counties and 84 dry counties, and a fellow can't very well from a dry county vote for a whiskey bill. You know. And the governors are very sensitive to this. All previous governors generally have been sensitive to it. Except Brown, he was not sensitive to it. He took the position that if it had merit I would be for it. 63:00
SYVERTSEN: Have all governors since the first Chandler administration and allwould-be governors basically taken the position of the local option?
DAILEY: Well maybe, I don't think, I don't think we have got that in focus. Theconstitution of the United, of the state, you know provides for local option. And the only people who can change the local option situation are, is by referendum, so.
SYVERTSEN: I mean basically no governor or no would-be governor has campaigned,or raised the issue during the campaign?
DAILEY: They don't want to touch it, because it is a losing game, there is toomuch opposition to it out in the dry counties, too much opposition. Even though half the county is wet and half dry generally, probably more than that now. Its probably, 55 percent wet and 45 percent dry, but that is too red hot an issue and
SYVERTSEN: You could not conceive of anybody running on, as a wet in Kentucky?
DAILEY: Oh, Martha Layne, Martha Layne wouldn't touch it with a ten foot,anything that has to do with the industry, with a ten foot pole. Just absolutely won't touch it. And these are the kinds of things that have over the years have kept the industry back to some extent.
SYVERTSEN: From your perspective, local option, if you had to grade it foreffectiveness, what kind of grade would you put on it?
DAILEY: You mean whether its good or bad?
SYVERTSEN: No, whether it works, you know in practice.
DAILEY: Oh, it doesn't work at all. Its a demagogue situation, hypocritical. Youcan, I don't think it is any secret that you can go to any dry county in the state today and buy as much whiskey as you want. It is a demagogue situation between the bone-drys and the bootleggers against the people who want law and order is really what it amounts to. Because once they get legal sales, they can control it. And more and more this is happening, the people are beginning to see the light. That these illegal sales are disruptive, create all sorts of criminal elements, whereas the legal sales give the law enforcement people substantial control over legal sales.
SYVERTSEN: So you cannot think of one county where it actually works?
DAILEY: Where local option works? Absolutely not. There isn't a county in thestate where it works or in the world. It is just like sex. I can't think of a county where sex is outlawed, or it might be outlawed, but where it isn't performed.
DAILEY: Yeah, I think that is a good analogy, because as long as people who canmake it in their back yard actually, you are not going to, you're never going to get rid of it. You're going to have to control it. And the only way you are going to control it is to have it legal.
SYVERTSEN: According to the Liquor Handbook statistics, the amount of moonshinebeing made drastically declined between '71 and the '80's.
DAILEY: Oh, yeah.
SYVERTSEN: Yet from what you say I gather bootlegging has increased and hasperhaps taken up all that slack?
DAILEY: Well, we're talking about two different things. Moonshine is the illegalproduction of illegal whiskey. And that has decreased substantially for two reasons. One of which, law enforcement is getting better and secondly, the cost of materials are getting higher. Where it doesn't have too much of a monetary advantage over the legal, the legal product. The bootlegging that I am talking about in the dry counties is the sale of legal whiskey illegally. Where a fellow will come into Lexington or Winchester and load up the back of his car with 10 or 12 cases of whiskey, take them to his basement, and you come by on Sunday afternoon and buy a bottle or two. That's the bootlegging that is going on today.
SYVERTSEN: Yeah. I realize that. Did the KEA have any, KEA, KDA at any pointwork with either the federal or the state authorities in trying to suppress actual moonshine?
SYVERTSEN: Okay. They stayed away from that issue entirely?
DAILEY: Absolutely. Never touched it.
SYVERTSEN: Before I get too far afield here, we have talked about several of thegovernors and their, you have been commenting on them, and I think we stopped with Breathitt and Carroll. Could you carry that discussion a little further?
DAILEY: Well, after Breathitt, there was Nunn and Ford and Carroll. Ourrelationship with Ford was always good, always good. I think after, after the industry came to Combs and Breathitt administrations educated the legislature to the problems that the industry was having. That, it also educated the prospective governors, to the point that they weren't coming in breathing hell, fire, and damnation to do something to us. And the Carroll thing, that was just oh, political. You scratch my back and I'll scratch yours. And apparently, we didn't scratch his back and he didn't scratch ours. So, but the Brown administration was a all together different situation than we have ever experienced in this state. Brown didn't care anything about politics, he didn't care anything about the organization of politics. He looked at things, well is it good or bad, is it right or wrong, is it to our benefit or not. And that was the way the decisions were made. And this was an altogether different ball game than we had every experienced in the state before. He was beyond corruptibility, 'cause he didn't need the money and he didn't want it. And he was divorced from politics, he had no background in politics. He had no background in the roots of the county politicians. And he was a different situation that was very unusual for the state. Very unusual, probably never will occur again, unless he comes back as governor. But I think in my opinion, having lived in this town all my life, I can't think of a better administration. Not only from an attitude of the people in the administration, but from the state itself during that administration. Very, there was no corruption, there was no kick backs, there was no bribery in any departments. And that is unusual, very unusual, given the past history of our politics.
SYVERTSEN: Yes, Kentucky is noted for certain problems. On the Senatorial side,are there, since 1935 are there any particular Senators that you can think of, or that you have heard about, who have done anything very distinctive for the industry? I know for instance
DAILEY: You're talking about U.S. Senator?
SYVERTSEN: U.S. Senators. Thurston Morton, of course as I understand it, wasinvolved in the joint Congressional resolution in '63, '64 making bourbon a distinctive product of the U.S.
DAILEY: Right, absolutely was.
SYVERTSEN: Could you discuss that development, and is there anybody on the U.S.Senatorial level who made a major contribution to the industry?
DAILEY: Ford and Huddleston have made substantial contributions. Both of them.And they are the people with whom I have been more closely associated.
SYVERTSEN: Can you give me some examples?
DAILEY: Yeah, I can give you probably a lot. Primarily the excise tax increase,only two dollars could very easily have been double, twenty-one dollars, had it not been for their efforts. But we call upon them frequently for help. And over the past ten or twelve years, they have always come forth, and they have been our spokesmen in many issues. Some of which we have lost, but many we have won. An important issue we lost was the taxing of wine gallon, proof gallon, imports. Which was a big issue in the industry a few years ago. They fought like the dickens for us, did everything they could, but the cards were stacked against them. We lost that. But we have gotten many assists from them and the problems that come up that haven't occurred, such as health warnings on bottling and regulations that the ATF is proposing that we don't particularly want or like.
SYVERTSEN: Like the labeling of all ingredients on the bottle?
DAILEY: Right, ingredient labeling. All of these problems that continuouslyarise, they have been of immeasurable help and the, we just hope that Senator McConnell will take up the ________ force where Huddleston left off. But its like everything else, he has got to be educated and it takes time. And we will be lenient on Senator Ford, who has been very receptive to us in his term, tenure. But now going back beyond that, I didn't have any real close association with Senator Martin, although I knew him. But, during the early period of my service with the Association, I didn't deal with him.
SYVERTSEN: Do you know anything about his joint Congressional resolution and howhe was able to
DAILEY: Let me get a drink.
SYVERTSEN: I don't have any knowledge about that, that would be of any help toyou at all, except he was the sponsor and the main advocate on our behalf in getting that through the Congress which
SYVERTSEN: Was that a KDA idea or was it a certain people in the industry comeup with it?
DAILEY: It was a KDA idea along with the Bourbon Institute to do this. And whatit did in effect was prohibit a product called bourbon from being produced in Mexico, or France or England and being imported into this country. It was just like we have recognized Scotch as being the state's product company. It has been very helpful to the industry over the years. And we have tried to get other countries to recognize bourbon as a distinctive product of the United States, particularly Canada, but we haven't been successful. We are now initiating steps with the feds to get some movement on that thing right now.
SYVERTSEN: What other major states recognize bourbon as a distinctive product ofthe U.S.? By states, I mean nations, yeah. I used it in a historical
DAILEY: I don't know. I know there are some, but I can't, and I don't know wherethat information would be. Would it be in the Liquor Handbook?
SYVERTSEN: I didn't see it in there.
SYVERTSEN: I went through it and I missed it if it was in there.
DAILEY: Well, I doubt if it would be here. This is an old book. This is an old,old book. I don't know where in the world I got it, but maybe it has got an index. I don't know there are several countries who have adopted a similar resolution, its sort of a __________ thing.
SYVERTSEN: But this would be very important for the industry, I gather, if therewas a generally pervasive recognition of bourbon
DAILEY: Actually, actually for example, France they don't produce anything, Idon't, any distilled spirits product from grain. They are everything is from a grape. And in Germany, I think perhaps West Germany is, but I can't say certainly, can't say for certain.
DAILEY: I don't know.
SYVERTSEN: The Bourbon Institute, can you tell me about its initial development?And I gather there was several different organizations that in effect were representing the distilled spirits at one time. There seems to have been some rivalry. Can you fill me in on what was happening?
DAILEY: I can only tell you what I observed. I wasn't in the industry at the time.
**Tape 2, Side 2**
DAILEY: Who was a member of DSI, the Distilled Spirits Institute, which was aconglomeration of all distilled spirits producers. Now this takes in vodka and gin and bourbon and the blends, the whole conglomerate, just like DSCUS does today. And bourbon was the principle distilled spirits product at that time. Vodka, and gin and blends hadn't made the inroad into the bourbon market that they have at this date. So Rosenstiel thought that the bourbon people ought to speak for themselves. And he got Beavell Lant and Pappy VanWinkle, and a lot of the Kentucky bourbon producers, Colonel Thompson. And I don't know whether Bill Samuels was in it or not, I think he was, Bill, Sr. And they had a small organization called the Bourbon Institute and they hired Vice Samuel, William Marshall, William J. Marshall, a hell of guy to head the thing up. And
SYVERTSEN: Why Vice Marshall, you know, Vice Samuels, why? I mean what
DAILEY: He, I don't know. I don't know why they employed him except they did adamned good, they made a wise choice. He was a hell of a fellow. And they through the efforts of Rosenstiel particularly and Marshall in general did a hell of a job promoting bourbon. And they had a, well, when that organization continued into being, being diluted all the time from its inception up until 1975, I believe is when DSCUS was formed out of the LBI, Licensed Beverage Industry, the DSI, and the Bourbon Institute. Now what it was incorporated in the Bourbon Institute, it lost its identity. Because the vodka people and the gin people said, "To hell with the bourbon, we are not going to have a sell of, people promoting bourbon in our organization." So the thing was diluted to, until it lost its entire identity.
SYVERTSEN: Has this hurt the industry in Kentucky, in particular, this change?
DAILEY: I think it has to have hurt it, has to have hurt it. Because the KDA,while we promote bourbon to the best we can, the best way we can with the limited funds that we have, it just hasn't been able to duplicate what they were doing. They had a small group with the Chief Executive Officers involved. And they were not afraid to put up money for whatever they wanted to do. And yes, it has had some effect on bourbon. Has to have had. It has taken the emphasis away from the promotion of bourbon to, from a trade association. We are not geared up to do that here. And the people in the Association aren't geared up for it. We don't have the means or the staff to do it. But the answer is yes, it has hurt. It has to have hurt.
SYVERTSEN: Was, what I presume to be, some rivalry between the LBI, the DSC andthe BI, did that hurt the industry as a whole? I know it is difficult to, it is in fact a historical question.
DAILEY: No, really. Each one asserted to have a separate role. The BourbonInstitute was to promote bourbon. LBI, the Licensed Beverage Institute, had a whole conglomeration of people most of whom were in DSI, but they were the public relations arm. And DSI was a conglomeration of these, virtually the same people in LBI, but they were primarily legislative watch dogs, regulatory watch dogs on the federal level. They monitored the Congress. They monitored the regulatory agencies, such as the Food and Drug Administration and the IRS and whatever to try to keep things on a, in some perspective. The problem with these associations now is that you don't have one big company that is a bourbon company. You have got a lot of little companies that are bourbon, but the big companies, they are everything. They are in the china business, they are in the wine business. Each one is in itself a conglomerate, whereas that wasn't true before. So they have lost their interest in bourbon. They take the overall picture which just whenever we can sell, whatever we can sell as a distilled spirits product that we produce, we are not going to separate bourbon from our gin or our vodka or whatever else. We'll put it all on the same plate and you can pick, take your choice. And that has of course hurt the bourbon. It has lost its emphasis with the larger companies. Where, that is where the nut is. Where they can advertise and promote and that sort of thing. And there is no feeling on their part to change this organization to a Bourbon Institute organization. We could do that if they were inclined to do it. But a lot of these companies, the bigger companies have sort of lost interest in bourbon. Well you take Seagram's. Hell, they, their Seven Crown, they have got two good products. They have got Eagle Rare and they have got Benchmark, they've got Ol' McKenna, all of which are good products. But hell, they don't spend any more promoting them than you do on this project right here, you know. They spend their money promoting Seven Crown. And other companies do the same thing. They are so diversified, and they are so diluted with their promotion, and the promotions are so costly that they just don't pick out one product. Now we have got a few companies that are strictly bourbon producers. But they are small. Old Fitzgerald, which is part of a conglomerate.
SYVERTSEN: Maker's Mark.
DAILEY: Maker's Mark. I have got some small companies. Wild Turkey, but theirportion of the market is minuscule compared to the National Distillers and Seagram's and whatever. Bill Samuels probably sells 150,000 cases and Seagram's sells 40,000, you know. You can see the difference and this is the reason the Bourbon Institute went out of business. And they are not anxious now to re-establish it.
SYVERTSEN: Your organization, to your knowledge, did it have closer connectionswith the LBI, the DSC, or the BI? Or did it change over time?
DAILEY: Well I can't say anything for my predecessors, but since I have beeninvolved in the Association, I have tried to maintain a very close working relationship with those organizations when they were in existence. And since they were merged into DSCUS, I work very closely, we work very closely together. And we have a lot of interlocking directors.
SYVERTSEN: Between DSCUS and the Kentucky Distillers.
DAILEY: Yeah, yeah. So I maintain a very close working relationship with thesepeople, have to. Because we are all riding the same boat. Yeah, I go to all the meetings. And I am friendly to all of their correspondents or whatever and they are here.
SYVERTSEN: Your predecessor, Millard Cox, I came across quite a few newspaperclips on Millard Cox in the early sixties. What can you tell me about his running of the KDA? Basic operations, basic plans, accomplishments, failures?
DAILEY: Can't tell you anything. I only knew Millard Cox casually when I firstwas approached about this job. What he did before I don't have any knowledge. And when I took the job, he wouldn't turn his files over to me, so I don't know what he did.
SYVERTSEN: Oh. That is unusual.
SYVERTSEN: Made it rough to start, I should say.
DAILEY: Yeah. He said if you want anything out of my files, you tell me what youwant, and I will give it to you. Well of course I didn't, that was a pretty hard way to start, so I don't know anything he did.
SYVERTSEN: What do you think happened to his files? I ask that as a researcher,you know, archivist.
DAILEY: What happened to them, he burned them.
SYVERTSEN: That's a great loss to Kentucky history then. The reason I say thatis, I think his wife wanted to do some research on some of the KDA. And she went to one of the former directors of the board and, or he went to her someway, and they had been destroyed. This is hearsay knowledge, but I have never seen the files. I don't know where they are except that is what I heard.
SYVERTSEN: If they have been burned that is certainly a great loss. As anoutsider, a non-Kentuckian and as somebody who had no prior knowledge of this industry, I find it interesting that there has apparently not been a close connection between the brewers and the distillers.
DAILEY: The brewers?
SYVERTSEN: The brewers, the, Brown Foreman for example had a brief acquisitionin operation of Oertel's and it wasn't very successful. And in the time of great merges in the 70's, it was groups like the Phillip Morris taking over Millers Beer. Why do you believe that the distillers have not gotten into the brewing business very much? I mean, it's the one area of alcohol beverages where there seems to be very little interest. Is it just that there is too little profit in beer and beers are produced local?
DAILEY: I just don't, I really don't have any knowledge about that. I just knowthey haven't done it and what their marketing or business reason is, I don't know.
SYVERTSEN: Do you know anything about the failure of Oertel's?
DAILEY: Well, I know Brown Foreman took it over and tried to run it for a while.And it was sick when they got it, and it just got sicker, and it just went out of business after a couple of years. What their real problems were I never did know. I never did inquire. It was the only incident as you stated where a distiller endeavored to take over a brewery. But why no others have ever done it, I guess they knew what was going to happen to Brown Foreman.
SYVERTSEN: If I read the financial pages right, Phillip Morris did okay withMiller Beer.
DAILEY: Perhaps he did. Its, I don't have any knowledge about that at all. Butit's always a question, the brewery business is like the distilling business. The bigger guys get bigger and the little guys go out of business. So finally, you have pretty big guys and no little guys. And that's what's happening. It's happening in the automobile business, shoe business, the distilling business, the whole bunch. And that's what's going to happen continuously. It certainly happened to the distilling business. I know we had 59 distilleries here a few years ago, 45 anyway in '59. And we have got 15 now. And Beam, Seagram, and National and Schenley haven't gotten any smaller. So that's just the way business is I guess.
SYVERTSEN: I gather there is a certain tension between the, most of the Kentuckydistillers, and Schenley and Seagram's on the other hand.
DAILEY: No, I think that is a fiction really of. I think it is just the otherway around. I think that Schenley and Seagram's and National look upon the local guys as the ones that are doing them in, rather than just the other way around. They seem to feel, because they are generally out of state operators, you know, that we gang up on them occasionally. Well, we don't. And they don't gang up on the little guy. And the little guys certainly don't gang up on them.
SYVERTSEN: Okay, so that is a fiction?
DAILEY: That's a fiction, because in our organization, as I told you initially,every member has got one vote. And Samuels' vote is as good of vote as Seagram's' vote. And that is the way we are running. And that is the way they conform. But in certain cases, yeah, some of the bigger guys say, "Well, the little fellows are doing us in, in Kentucky, but that is ______. Hell, they couldn't do them in if they wanted to.
SYVERTSEN: The move of Seagram's out of Kentucky, what can you tell me about that?
DAILEY: Well, it was very unfortunately, I can tell you to begin with. AndSeagram's really never had a need for bourbon operation in Kentucky, 'cause they never, they had several distilleries capable of making all the bourbon they could sell - "Kentucky bourbon." But they needed bourbon for their mixture of Seven Crown and lots of it. And they made it here. And they had a change in their management about ten years ago, in their production management. The fellow 64:00who was the head of the production had been in Indiana, where he had finagled a tax break from the state of Indiana on their ad valorem tax. And when he came into the production department he looked at Kentucky, and said, "Hell, we are paying more local taxes than we do in Indiana." And he was taking all the whiskey over in Indiana and storing it. And then finally, even though we got the production tax off, even though we got the ad valorem tax off, moved it out. He moved it out, the Production Manager. And said he was going to and did, simple as that. He just didn't like the tax structure. And doesn't like it now, even though by God, there is no tax ______. It just, wasn't a vendetta, he just, I 65:00talked to the guy and tried to reason with him. And he wanted whiskey to be taxed the same as Catholic church property. And I told him we were never to be able to do that as much as we would like to. That was an impossible situation and an unreasonable position for him to take. And if we had to do that, he just well move. And he did. That's what happened. They got their production in Maryland, where they can produce a good deal of bourbon, and not use the word "Kentucky." They can do it in Lawrenceburg and not use the word "Kentucky." They have got a 35-acre plant down there for sale right now. A hell of an operation, beautiful plant. One of the real show places in the industry. Gone, never'll come back. They'll tear that thing down and build, make a subdivision there in my view. 66:00
SYVERTSEN: Are you referring to
DAILEY: On Seventh Street.
SYVERTSEN: The Shively operation?
DAILEY: Yeah, beautiful plant.
SYVERTSEN: It's not likely that any other distiller, either domestic or foreignto your knowledge would come in to operate that plant? You just don't see much possibility?
DAILEY: The only people looking at that plant, are the people that want to tearit down and level it off. Make a subdivision. Hell, of a buy at five million dollars.
SYVERTSEN: Hm. It's an enormous plant.
DAILEY: Oh, yeah. Thirty-five acres right down ____ there. No, that will neverbe another distillery. The office building may be retained. It's a beautiful building. God, they have got some of the most gorgeous woodwork in that building you'd ever find any place. Wilkie's office, for example, beautiful. But they've got an R & D lab down there and they are going to close it. And it is for sale. 67:00Got the sign on the front door. For Sale, five mill.
SYVERTSEN: There is no way, you believe of keeping any of that operation, here?
DAILEY: None, I talked to them today. No, that is gone. And nobody is going to,nobody has got enough money. It is just like you and I, if we had the best idea in the world for an automobile, we couldn't produce an automobile. We just couldn't get that much capital together. And here, if you started that distillery from Zilch you would have to borrow money from God knows whoever for the next four years, before you could ever sell a penny's worth. And people just don't do that in business anymore. It's not practical. So they have gone. They've got a couple of little operations, they have got a little operation over in Lawrenceburg, Kentucky and they've a little operation down in Meade County, 68:00but the Seagram's for all purposes has left Kentucky.
SYVERTSEN: The Tobacco Institute, I believe back in the early 70's, I think itwas '70 or '71, was founded and was placed eventually on the campus at UK. And it was funded under a half-penny tax per pack, and it was, the idea was to set up a research facility to investigate tobacco and its various properties, and perhaps find other uses, alternative uses for tobacco. Has the distilling industry had similar thoughts of doing something of that sort at any point, and do you see this as likely? Now as I understand it, from alcohol you can also produce not only fuel products, but you can produce certain types of plastics, a 69:00certain rubber, there are cattle feeds. And I gather from the stillage you can actually produce a cracker, you know,
DAILEY: Well, they produced, they can produce dry grain feed fortified withproteins and vitamins and carbohydrates that is really a hell of a product, you could do a lot with it.
SYVERTSEN: Do you _______ start any kind of a research facility of the sort coming?
DAILEY: No, no. The tobacco people have just got a different problem than we doin that respect. And the only thing that the State of Kentucky could do is do what Puerto Rico has done. And that will never happen either and I don't want to bore you with that story.
SYVERTSEN: No, no that's alright. Tell me, I would be happy to hear it.
DAILEY: Well, you know, rum in the early fifties and so on was, everybody wasrum-dumb, you know, rummy, drunk. And rum was the worst product that you could find on the market. That story has changed. Rum is the biggest selling distilled 70:00spirits product in the United States.
SYVERTSEN: As it was in colonial times.
DAILEY: Yeah, because they had to make it with sugar then. But during the war,as my son said it, "Daddy, you mean the big one." And I said, "Yeah, the big one." The distilleries were closed down. I guess you know that.
SYVERTSEN: Yeah, sure.
DAILEY: And they were making alcohol for use as ammunition.
SYVERTSEN: Smokeless powder.
DAILEY: And some whiskeys were made with potatoes, limited basics. And if youwanted to go to the liquor store to buy a bottle of whiskey, potato whiskey, you would have to buy a bottle of rum. That was about the only distilled spirits 71:00product that was available. And so they tied in rum sales with whiskey sales during the war. And finally, they ran out of the good rum, the aged rum. And they'd started making bad rum and selling it. Because it was all a fellow could get you know. So it ruined the reputation of rum, to the point where after World War II, no one would drink rum, because it was bad. They had had no matured rum. So the government of Puerto Rico agreed by law to set up a pilot rum plant which would give information, R & D information to anybody who wanted to distill rum 72:00in Puerto Rico. That they would not permit any rum to be sold unless it had been aged at least one year. And two or three that they would take various sums of money from the state treasury matched by the distilling, by the rum industry to advertise rum in the United States, institutional advertising, "Rums of Puerto Rico." So that was what happened around 1949, 1950. They kept advertising "Rums of Puerto Rico," what a great product it was. Beautiful scenery, all this business, you know, you've seen it. But what it did, it brought the rum, that terrible product that no one would drink from the very gutter really, to the most prestigious product now in the United States. It's an amazing story, how 73:00that occurred. Now in connection with that, some of the rum distilleries in Puerto Rico have been more aggressive than others and have been more up to date than others and controlled more of the market than others, particularly Bacardi. But what it has done, it has established that product as a quality product, made by quality people, at a quality price. I have tried to advocate that in my tenure in this office from the day I first came in, but I have never been able to sell that. I wanted the distillers to put up so much money per case of bourbon, nickel a case maybe, ten cents. And we would take that money and do what the Bourbon Institute did, but they won't do that. And they never will do 74:00it. And so we just kind of limp along and do the best we can in connection with promotion, that is the Association. Each company takes a position that that is a mistake. That if we are going to spend money promoting bourbon, we are going to spend money promoting our brand, our brand. Which is what they are doing. I advocate, well that is fine, but you have got to establish the product. Once you establish the product, then you can establish the brand. But in this country since prohibition it has just been backwards of that. They have been establishing brands and not the product. And as a consequence, you have got so many splintered activities going on, in so many directions that the industry is just not in unison in that regard. I obviously am wrong, because I have never 75:00been able to sell that. But when I look at, and see what rum has done, see how that has progressed over the last thirty years, I think it's a pretty good case for point.
SYVERTSEN: From the gutter to the top.
DAILEY: Yeah, that's exactly what's happened and no dispute about it. And it hasbeen because, well primarily the government, we were talking about Kentucky getting into this. Kentucky probably if they had any vision, and if the producers had any vision, they could have done that initially. They may not be able to do it now. But if they, I don't say any vision, let me just say if they had the same vision that Puerto Rico had, I think the situation would be a lot different. And this is one of our problems as I see it, that we do not have a 76:00unified institutional bourbon promotion program that has some real oomph behind it. The Bourbon Institute was getting into this, never really got the, never really got the suit on. But they were into it until the time they were absorbed and then it was disbanded. But our guys will not do it, and I cannot persuade them to do it, to despite the fact that we keep nibbling at it, but we never can get it done. But I think it is a irrefutable argument in view of the Puerto Rican situation.
SYVERTSEN: As you know, many large industries have their, have their own77:00combined research facilities that they sponsor. And I alluded to this with tobacco, because it is another product of Kentucky. But you could take the same position with automobiles for instance and appliances and so forth. But I gather from what you have told me and what other people have told me that in this industry in Kentucky there has not been apparently over the, since the thirty, or even today, any real interest in establishing some kind of research and development institute. Or some kind of facility of that sort, which would look at not only the current products, but also alternative uses and so forth. You have certain splinter groups,
DAILEY: Everyone has got their own lab now.
SYVERTSEN: The Feed Council kind of thing, but you don't have an overall78:00umbrella type agency. Is this kind of unusual?
DAILEY: Yeah, the Feed Council of course does not, that is just a littledifferent situation also. Where they can all say, well we have got this distillers' slop, we have got to do something with it. This is a product that we have all got that we've got to get rid. So if we can get everybody together, but bourbon is different because every bourbon is made differently. The formula is different. Its supposed to be at least 51 percent corn. Well, its usually about 80 percent, but in some cases it is 70 percent. In some cases, it is rye, and in some cases, wheat, and some cases, wheat and rye and so on. So when you take ten bottles of bourbon, the best bourbon you can buy on the market and put them all on this desk, every one will have a different taste. Every one will have a distinctive, different taste. Which is another complication in the process. You 79:00take ten bottles of Scotch and if they have got a different taste, I can't discern it. Its virtually the same. You take ten bottles of Irish whiskey and its virtually the same, but not so with bourbon. And
SYVERTSEN: What about Canadian Whiskey?
DAILEY: Canadian is a very bland whiskey.
SYVERTSEN: But can you discern the difference?
DAILEY: No, no.
SYVERTSEN: 'Cause Canadian Whiskey is not really defined is it?
DAILEY: What Canadian Whiskey is, is bourbon and, it is just a blended whiskey.It is mostly grain alcohol with just a little flavoring in it, you know. And most of that flavoring is bourbon. So, but this complicates the overall picture. If it was all one kind, just one kind of thing. Now Scotch and Canadian Association, they are pretty, they are pretty much together on institutional 80:00advertising. We have just never done it. The thing on, that ad there is the closest we have ever come to it. And it was in Fortune Magazine years ago when Louie Nunn was governor. And this is what I thought we should be doing and I was able to get them to pay for that. That's the last one that has ever run. But that is just one of the problems of the industry that
SYVERTSEN: But even DSCUS often, largely does statistical trend type things. Itdoesn't do what one might call pure research.
DAILEY: It is too fractured, it is too fractured.
SYVERTSEN: Or you know, advanced research.
DAILEY: Its too fractured. They have got people from too many different, too81:00many different facets of the industry in one place, to where they can't do a lot of things that need to be done. There is just, if you want to get anything done, you have got to have the bourbon guys in this pot and the blend guys in this pot and the other over here. And then we pick out objectives and go for them, because we don't have the same objectives as the vodka people. There is no way we can get the same ______, but the fact that each of these companies generally have vodka and bourbon, that splinters it again. That divides it by the square root once more.
SYVERTSEN: We had started off earlier talking about Rosenstiel, do you have someRosenstiel stories and Schenley stories?
DAILEY: No, I, the only fellow that can give you any Rosenstiel stories is Ed Dorch.82:00
DAILEY: He's the only survivor, current living survivor, I guess of theRosenstiel era. All the rest of the four guys have, there is a fellow here used to work for Rosenstiel, you don't have on your list. A man by the name of Orville Shupp. He was a distiller for Rosenstiel for many years. Orville Shupp.
DAILEY: S-h-u-pp, S-c-h-u-pp. He lives here in Frankfort and he is listed in thetelephone book, nice guy. He knows Dorch, he knows Rosenstiel, and he can tell 83:00you about him. But all those older fellows unfortunately, tales like Pappy, Pappy VanWinkle, whom I never knew, apparently was the greatest story teller of the whole bunch and the most colorful of all these people. And maybe young VanWinkle can tell you something about him. Norman Haddin probably could tell you something about that. Norman was a young man, but he worked for VanWinkle, for Pappy. And he can _______ you with some of the stories from Pappy anyway, who was a very colorful fellow and of course Colonel Thompson, he is the dimmest guy that ever was. The story they tell about him is that he went to Europe on some kind of a trip and a fellow over there was outfitting a sail boat to take a 84:00trip around the world. And Thompson said, "Hell, I'll go with you." He got on the damned boat and didn't come back for a year. And here Colonel Thompson must be 85 years old or 86 goes down to the YMCA and stands on his head for about ten minutes. Do you know him? Did you ever see him?
SYVERTSEN: I heard of him and know of him, but I have not met him.
DAILEY: Wearing GI boots, wears GI boots. He enlisted in the PRIZE, a private inWorld War II and was discharged a Colonel. And here not long ago, not too many years ago, maybe like five, he and some other guys bought a, I don't know whether it was a Mine Sweeper, it was some kind of an obsolete Naval boat, had 85:00it down in a port in South Carolina. And they were outfitting it to take it around the world. Going to sail around the world. And Colonel Thompson went down there to see how they were getting along and he slipped on the deck and broke his hip. And of course that canceled the trip for him. But he was a hell of a guy.
SYVERTSEN: I hope he will talk with us.
DAILEY: Buddy, Buddy Thompson can tell you all about him. Buddy and Bob Nash,his son Buddy. He had another son Frank who died. And, but Rosenstiel, Schupp can tell you a lot about Rosenstiel. And Dorch of course can tell you all about him.
DAILEY: If you can get him to do it.
SYVERTSEN: Okay, if you help and some others help, maybe he will. Leon Shaikun,I know he has been a tremendous factor at least for the retail end of the 86:00industry. Shaikun served in the State Senate back in the forties and later I believe in the House. Is there anyone else on the state level in the State House, the State Senate who has had as much impact upon the industry as Shaikun since the thirties, forties?
DAILEY: No, I don't think anyone living has. Oh, there have been some otherfellows who were important in that era. A fellow by the name of John Marcum, who was later the head of the Wholesalers who is now deceased. But Shaikun for the long haul, he has probably been more influential, and worked at the problem closer and better than anybody in the industry, in the legislative field. He, Shaikun has been up here every session of the legislature, since I have known 87:00him in the forties. And everything that goes on in the industry, he is present. And he comes up here and he is very effective and he represents various interests at various times. And I remember one time, a few years ago, Shaikun was representing the beauty operators. And he had some kind of a damned bill in the legislature that effected the operation of the beauty parlors. So Shaikun brings up about 20 gals from Louisville and brings them out to the Holiday Inn where all the legislators are and has a big party. And he knows by God that he 88:00is going to kill the bill with all this entertainment. So the day after the party, they vote on the bill. And they passed it and ol' Shaikun comes up and I said, "Shake, what happened?" And he stutters and he says, "Th, th, those bastards," said, "they drank my whiskey, they screwed my girls and then they voted against my bill." He has been very effective and he is a hell of a nice guy, a nice fellow.
SYVERTSEN: If you had to _______ the key areas that Shaikun has had an impact onthe industry through the state legislature what would you say?
DAILEY: I would say the biggest impact he had was maintaining the Fair Trade Lawas long as he did. Yeah, he, his people were all for the Fair Trade Law. And 89:00wanted, every session of the legislature there was a bill introduced to repeal it, you know. And hell, it lasted 20 years. But Shaikun was always to block it. Simply because, of two things. He, the ministers associations were opposed to it and the dries generally were opposed to it, because they figured if the law was repealed, it would reduce the price and people would drink more. So they were opposed. And of course, the bootleggers were opposed to it, because it kept the price high and they could sell lower, so they weren't for it. So he had a lot of things going in his favor, to the extent that he manipulated it so well, that for 20 years it never got out of committee. 90:00
SYVERTSEN: I didn't know that.
DAILEY: Yeah, never got out of committee. No, hell if it had ever gotten out ofcommittee on the floor it probably would have been defeated, I mean been repealed. It never got out of committee, that bill was never voted on in my observance of the legislature since it was passed. Although there was a bill introduced each year to repeal it. So Shaikun did that service for us certainly and others. He has been very effective in legislation relating to retailers, relating to retailers. He is an honorable guy and a bright, hardworking fellow.
SYVERTSEN: Have you had contact with priests who have been supporting dryforces? I mean one always hears about the Baptist ministers and some fundamentalists.
DAILEY: Priests? Catholic priests?
SYVERTSEN: Yeah, some of the fundamentalist ministers, you know, who arecampaigning for the drys, but what about you know, from the Catholic or the 91:00Jewish side, do you?
DAILEY: No, of course this is not an area that I deal with at all. The onlystory I can tell you about that is when I was on the Board, as the attorney. There was a Catholic church up in Northern Kentucky applying for a retail beer license to use in conjunction with the bingo game. And there were two Baptist preachers who had churches on either side of the church were down opposing it, so.
DAILEY: I don't know any more about it than that.
SYVERTSEN: No, what I was trying to get at, of course is you know, the religiousdelineation on the wet-dry issue.
DAILEY: I don't, in my experience at the ABC Board where we had hundreds ofthose cases, where the ministers would come in and protest the issuance of 92:00licenses in wet territory, I can't recall ever seeing a priest appear. I have seen many, many, Baptist ministers appear and primarily Baptist, but I have never seen a priest appear, in hundreds of cases.
SYVERTSEN: When did you serve on the Board?
DAILEY: Sixty, I served through Bert Combs' administration and Breathitt'sadministration. I guess there was from '59 probably to '67. Went from there to this job.
SYVERTSEN: Is there somebody who served on the Board that you believe we shouldcommunicate with on this research? That would have a long perspective on the industry?
DAILEY: No, I tell you the reason, you got Portwood on there who is a verycontroversial fellow, but these jobs change every four, now Guy Sherrard served a long time. Now I think Guy is dead, but Guy, these people deal primarily with 93:00retailer and wholesaler problems, not much with distiller's problems at all. Occasionally there is a distiller problem, but not very often. I can't think that any of those people would be helpful to what you're looking for.
SYVERTSEN: Okay. The health issue, how much of a problem has that been forbourbon sales? One hears so much in the newspapers and in talking with people about the proof issue and the light whiskey issue and so forth. And the health issue has been raised from time to time going back to you know way back before 94:00the turn of the 20th century, what is the situation today? What has it been over the last 30 years? Do you see any trends?
DAILEY: Well, I observe, of course, medical science proclaims that the moderateuse of alcohol is not harmful. Immoderate use of alcohol obviously is harmful. The immoderate use of many products is harmful. The problem we have is the problem of alcoholism. That is the problem created by the minority who are addicted to the use of alcohol, because of, the scientists say it is a physiological problem rather than a product problem. But, if it weren't for 95:00alcohol, it would be something else. It would be drugs, cocaine,
**Tape 3, Side**
DAILEY: This is an issue of course that plagues the industry. And the industryis quite aware of it. And the DSCUS has a research group that works with them trying to find an answer to the alcoholism problem. How and when they'll do it I don't know. But I do know that, I guess it was last year, that the companies belonging to DSCUS raised $250,000 to give to Doctor Mendleson at Harvard 96:00University to make a continuing study of this problem. And when you get into this kind of an issue in order to get some real solid answers you have got to talk to Paul Ga_____ at DSCUS who is in charge of this area. And he works with it every day. The industry has spent millions of dollars in research in this area. And it has been an ongoing thing for many years. Trying to find a solution to this perplexing, plaguing problem. And unfortunately, there is no easy answer to it. And no one has really come up with a definitive solution. Whether they will is, it's sort of like the common cold, they haven't found an answer yet for it. But it now is a problem to the industry, always has been, but there is a, I 97:00think a more growing neo-prohibitionist feeling in the country today than there ever has been since the prohibition. I don't think we will ever have prohibition again, but the neo-prohibitionists are making it as hard as they can for you to get a drink, you know. And it's those people who support these silly laws about you can't drink on election day and you can't drink on Sunday and all these things are just a conglomeration of little needling things, that you have got to close this door at eight o'clock. I know down in South Carolina, we went down on 98:00vacation, and I went to get a bottle, I guess it was seven-thirty in the evening, and they closed at six o'clock. They close at sun down and open at sun rise. These are the things that keep imposing these little needling things on the industry and have for years and are getting worse. And I think people are becoming a lot more conscious of the causes and effects of alcohol and tobacco and drugs and other things to the point that the usage is diminishing throughout the population. How long, but there are a lot of people who could and should enjoy our product moderately who don't drink at all. And they are the people that we want to get, you know. We don't want any drunks, we don't want any alcoholics, we want them to quit and go away. We want a fellow who will take one 99:00or two drinks and enjoy it in a social way and that be the end of it, which is what most people do. But there are a lot of people out there that could drink moderately and enjoy it who don't drink at all.
SYVERTSEN: What about the role of the congeners in the, carcinogens, or am Ipronouncing that right?
SYVERTSEN: Congeners, excuse me. I mean, what is the latest on that?
DAILEY: I don't know you are getting into a chemical analysis. They say that thehigher the proof of distillation, the less congeners you have. And that is the reason vodka has no taste, character, or aroma, which is the federal definition of the product, because the congeners have been, have been boiled out of it, so to speak. But it is the congeners that give brown whiskey, bourbon, Scotch, Canadian, whatever its particular taste and character. And as far as those 100:00things being harmful, I don't think they are any more harmful than the other substances of the product if it's used moderately. I think anything that's used immoderately is just ______. Particularly when you are talking about alcoholic beverages, immoderate use is harmful. And there is no way around it. There is no excuse for it, but that is the only explanation there is. The hell of it is, we get blamed for it all, and this is our fault. Everything that happens, it's not beer, it's not wine, it's alcohol. What is alcohol? Alcohol is whiskey. You never hear of a person getting drunk on beer. He got drunk on alcohol. Our 101:00industry is trying to educate the public that one can of beer, and one one-and-a-half ounce of 80 proof whiskey, and one five-ounce glass of wine all has the same alcoholic content. The public will never get that perception. They never will get it.
SYVERTSEN: Why? 'Cause you can't use TV?
DAILEY: Well we can, but we don't. There is no prohibition against us advertising.
SYVERTSEN: Well, I mean, yeah, but you have self-regulated yourself from the,would that be the problem there?
DAILEY: Tom, I don't know. When this increase, I think I have got the figurescorrect, a gallon of whiskey is taxed, federally taxed at $10.50, a gallon of 102:00wine is taxed at seventeen cents, and a gallon of beer is taxed at twenty-nine cents, now.
DAILEY: Well, it is not a tax on alcohol. It's just a tax on a beverage. Beerbeverage gets one tax, wine beverage gets one tax, whiskey barrel. Now the perception in the country and in the Congress is that wine is a sophisticated drink. You drink it in circumstances that are elegant and it is proper to do it. And it is not intoxicating. Now we go to beer. It's a working man. The poor guy gets off work from the factory, he goes in and drinks a Miller or a Budweiser, and if you don't believe it, you watch the television and you will see eight hundred commercials. It's the working man, it's a little relaxation. Whiskey, 103:00don't drink whiskey, it'll make you drunk, its alcohol. It's the devil's brew. And the industry is trying to work itself out of this. DSCUS had a, they have spent millions of dollars in trying to break this. But they made a terrible mistake, here a few years ago, they ran an ad, one of these NFL ads, you'll see it on the promo. Well, this is all generated through DSCUS. And the first one that they got and agreed to do was one where the two young people, high school or college were leaving home. And the mother and father, don't take more than two drinks when you go out, you're going to a party. Don't take more than two drinks, two drinks, two drinks bound to be whiskey. Can't be two beers or two 104:00wines, two drinks. I saw the thing and hit the damned ceiling. And I went to the DSCUS and I said, "Look, if we are going to do this, let's put it so that we are on the same basis as wine and beer. And that we don't get the blame for everything. We are advertising against ourselves." So now they have changed it to where don't drink alcohol. I really can't remember precisely what the ad, we've got two or three, but they are all the same. They don't drink, they put it on beer, wine and whiskey to let the public at least have some conception that they're all contain alcohol.
**There was a power break for a couple of seconds while I was reading this overand running the tape. I believe that is why the tape appears to have lost some of this material. However, here is what I had transcribed while typing the rough draft. **
DAILEY: But whenever you see these ads, these reports in the newspaper and byaccidents and all this business, every damned bit contains whiskey, every bit of it. Alcohol and whiskey. Never beer, hell that won't make you drunk. I just happened to see, you ever read Dear Abby? Just happened to pick it up at noon 105:00today when I was home, and there was a letter in there from some gal writing Dear Abby about her husband, drinks eight to ten cans of beer a night. And she says he's not only getting out of shape, but he says it's okay, because it is not intoxicating. And her question is Dear Abby is beer intoxicating? And she goes into this and beer and twelve ounces of beer, and one-and-a-half ounces of 80 proof whiskey, and five pints of wine all have the same alcohol content. It maybe will help some I don't know.
SYVERTSEN: I don't want to get into your trade secrets.
DAILEY: I don't have any trade secrets.
SYVERTSEN: But I ask this question. The seventeen cents tax federal tax on wine106:00versus the $10.50, plus the additional that will come on that one, and then you contrast that against the beer tax being in the middle. There, has the Distillers Association or DSCUS, or the KDA ever attempted to somehow push for a reduction of the FET on bourbon and on whiskey, and a slight increase on the other and on wine and beer?
DAILEY: We tried to equalize it, this last
SYVERTSEN: Did you do that with Reagan as well?
**This is where the tape returns to the transcription. **
DAILEY: Yeah, Bush, this when this last push came aboard this is was the effortwe made was to try to get the tax, the alcohol tax equalized. To tax the alcohol content in each product the same. So that the tax on the alcohol in beer would be taxed the same as the alcohol, one ounce of beer, alcohol and one ounce of 107:00beer would be taxed the same as the alcohol in one ounce of whiskey.
SYVERTSEN: So you pushed for that?
DAILEY: Oh, yeah.
SYVERTSEN: In most of the, I mean the Kentucky Distillers pushed for that?
DAILEY: Well, not so much the Distillers, because we weren't really integratedinto that operation that was a DSCUS thing, up there in Washington. We did what we could, but really, they are the ones that, I certainly can't take any credit or blame either one.
SYVERTSEN: What happened, that would seem to have
DAILEY: No, because it would substantially increase the tax on beer and wine.And would substantially increase the price on beer and wine. And it would substantially affect the working man. You know, the working man drinks beer, can't do that. And there is more of them than there is of us and that is another thing see. We are pretty nearly outnumbered every time, because we are such a small group. And the wine people, good God almighty, they damned near tore the capitol dome off, because there are so many of them in California and New York. 108:00That, they just, a fellow named Cowello in California, he almost had a stroke to think that they would increase the tax on wine. God, it would just kill California.
SYVERTSEN: Wine sales are way up, though, so it would almost make sense tooffset the deficit.
DAILEY: Or course, it makes sense. It makes sense to you and me, but it doesn'tmake sense politically and there is a difference. And sometimes that difference is so irreconcilable. It doesn't make any sense. But that is the problem we have got and it won't be solved in my life time or yours. It's just a social problem that people are unwilling to recognize. And we are getting the blunt of it and we are responsible for it to a large degree for not having the foresight to envision what was going to happen to us and try to do something about it. A lot 109:00of people envisioned what would happen, but nobody had the ability to put a force together to stop it.
SYVERTSEN: Are, there were probably some things I should have asked you thatwould have fallen in with the other questions I have asked you. Are there a couple of things that you would like to comment on that I did not ask you about?
DAILEY: Oh, I don't think so. I think we have pretty near talked abouteverything I know.
SYVERTSEN: Okay, do you have any favorite antidotes?
DAILEY: No. I don't think so, I. No, I don't have any stories to tell you. It isa very interesting business, it's a very interesting industry. It has a lot of problems, a lot of interesting problems. There are a lot of difficult solutions. And they're never going to go away. The problems of this industry are never 110:00going to be solved to the satisfaction of the industry or the public in my opinion in a life time, yours or mine, or a generation afterwards. It's just a difficult social situation. But the product is here, it has been with us for centuries. And people are going to use it forever. And we have just got to try to come to grips with some kind of reasonable solution that will be to the benefit of everybody. But we are a long way from that now. But it's something that can be produced with the least possible trouble, with the least possible equipment on a small scale anyway, and it is never going to eradicated and prohibition proved that. It is never going to be, it's never going to go away. 111:00It's just like sex is never going to go away. I don't believe you are ever going to get rid of ______. It's hard for someone to try to do it. I think it is a pretty good analogy.
SYVERTSEN: You are looking down a pike for the next three, four, five years orup to 1990 say, you don't see any other Kentucky counties changing from dry to wet or wet to dry do you?
DAILEY: Well surprisingly enough, they're always voting.
SYVERTSEN: Yeah. But it tends to be the urban areas within the counties that
DAILEY: I don't know. I got a newsletter from one of these outfits the otherday. Its amazing how many areas have changed from dry to wet. There is a case in the court where they're passing, I think the Supreme Court is going to pass on it, where a magisterial district voted from dry to wet up here in Eastern 112:00Kentucky someplace. And the courts have upheld it so far. Its now up to the Supreme Court. If that case is upheld, it will change this whole local option thing. And there are a lot, there's a lot of talk in the legislature about amending the local option laws, to permit the sale of beer by the package or whiskey by the package. The current law doesn't make any distinction between package beer and saloon beer on the premises. A law was passed in 1943 during the Willis administration that separated the two that gave the local option a choice to have beer by package or by package and on premises. And for some 113:00reason, Governor Willis vetoed that bill. Why I don't know. But since that time, it has never gotten any place in the legislature. That was in the 40's. But each session there is some discussion by members of the ABC Board and others, not by the distillers, this is not one of our interests, to changing the antiquated local option laws. But the thing never gets anyplace and probably never will.
SYVERTSEN: From a legal perspective, this high tax that distillers pay, I gatherthat this is the highest taxed industry or product of any product in the United States.
DAILEY: Oh Yeah. Absolutely
SYVERTSEN: Has there, have there been significant court challenges to this tax114:00as being
DAILEY: Confiscatory. No.
SYVERTSEN: Do you have any idea why or why not?
DAILEY: I don't think there has ever been a direct challenge against the rate oftax, that is what you are talking about, the rate of tax? No, I don't, I don't believe there is any legal grounds to attack it. Higher taxes are power to destroy that is the old song,
SYVERTSEN: But there have been tax cases.
DAILEY: Oh yeah, but they haven't
SYVERTSEN: Of a confiscatory nature and weren't terribly successful, you know.115:00
DAILEY: It's not confiscatory, because they haven't confiscated the industry.That is you know. They have come back with that, selling fifty million gallons of bourbon a year that is pretty good you know, plus all the others they sell. I don't, to my knowledge it has never been contested.
SYVERTSEN: You don't think it would have any possibility?
DAILEY: No, no. I can't think of a, if a tax is too high. I don't remember everseeing a confiscatory tax case in my experience. Not that, that's no reason to believe there never has been, but in my--
SYVERTSEN: Well, certainly the tie in here, that I was thinking about is notonly the federal tax, but you take certain states, I believe Oregon is one, where you have the enormous state tax.
DAILEY: Per gallon consumption tax.116:00
SYVERTSEN: Yeah, on top of that where it would seem that if you could carry thattheory a little further, you know, you would reach a point if you could graph it which your curves would be directly down. And I should think that you would have a legal argument of the confiscatory policy. I'm not a lawyer, I was just speculating.
DAILEY: When you have got three branches of government, I guess they could saythat the tax was confiscatory, therefore, and the legislature would have to re-assess its tax policy. I, its just something I have never considered.
SYVERTSEN: I thought about that as I was looking at the DSCUS, I had access tothe three DSCUS FET packets which you may have seen, in the very early, say '83 or '84, I forget. As I went through some of those state by state charts that 117:00thought came to my mind.
DAILEY: Yeah. Well of course the state taxes are, this is a problem that theindustry has every year. And we get, whenever these legislatures meet, most of them meet annually, hundreds of tax bills, everything you can imagine. I don't know, of course, this has nothing to do with what we are talking about, but if the federals, Reagan, Ed Al, take any kind of position on this deficit and tax restructuring bill, it's going to just knock the hell out of this economy from now on. People are so used to getting so much for so little that when the change 118:00starts to come about, it is going to be a catastrophic situation for this country. I don't know what is going to happen to us. And it has to happen. We cannot absorb such deficits as we are piling up annually forever. Maybe for another year or two, but some day we have got to pay the man, you know. And that is when the struggle is going to come and since Roosevelt's time, we have tried to create a suitable welfare state to where that people who get it think they are entitled to it forever. Maybe they are, I don't know, but something is going to have to give. Something is going, and I think. 119:00
SYVERTSEN: Do you expect another attack in terms of another tax on top of thisnew tax? Are the forces out there?
DAILEY: No, I don't really think we are going to get another strike on thefederal excise tax, although it is possible, always possible. I think the beer and wine people are going to get a substantial increase. I hope they get an adjustment where we are all put on the same level. I don't think that is going to happen. It is going to come better. It's going to be better, but the states are sure in need of money, badly in need of money. And it is awfully easy to, cigarettes and whiskey, that is the first thing they think about. And then they go from there, you know. That is the first item on the agenda every time, in every state, federal and state. Tax whiskey and then we'll see cigarettes and see what else we can put in on them. Before we get it on me, you know, before they put it on me. Automobile, Gods knows what. Okay, I know I can't think of 120:00anything else, I can tell you.
SYVERTSEN: Okay, I want to thank you very much,
DAILEY: I think I have told you all I know, probably a lot more.
SYVERTSEN: I have really enjoyed it. Thank you.
SYVERTSEN: Could you tell me something about the tax situation on the countylevel and the contributions to the various counties within Kentucky?
DAILEY: Well the tax contribution is effective primarily in the counties wherethe distilleries are located, because it is in those counties that the county government and the local school districts and the special voted taxes like the library tax, sewer taxes, they levy on the distillery property and the whiskey in storage. And in the counties like Franklin where we are now, a few years ago, my recollection is it was forty percent of the total local tax income. In Nelson 121:00County, it was more than fifty percent, and the other counties of similar size, Woodford, about forty percent. Louisville where there is a large tax base, not that high, perhaps five percent. But you take the counties of Daviess County, Woodford County, Franklin County, Nelson County
DAILEY: And Anderson County, if the distilleries were out of business, thewhiskey was removed, the tax would almost double, both for the school and the local county government and for the special taxes. So, we make a rather substantial contribution. It is never really appreciated. Really it is never 122:00known, in fact the reason it is not appreciated is probably our fault for not telling the people so that they will appreciate it. But that is a fact that has existed in this state since the repeal and probably before, I don't have any information on before. That's it.
SYVERTSEN: I appreciate that. Thanks again.
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