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Thursday, September 16, 2010

Should Virginia Privatize Liquor Sales?

The following article appeared in the Mount Vernon Gazette on September 16, 2010:

Last week, Governor McDonnell proposed to privatize Virginia’s Alcohol, Beverage Control (ABC) stores and is expected to call a special session of the state legislature on this issue. Senator Puller and I are hosting a town meeting on Monday, Sept. 27, 7-8:30 p.m. to hear constituents’ views and suggestions. Here is some preliminary information to think about before the meeting.

Every drop of hard liquor sold in Virginia, including liquor sold at restaurants, must be sold through a Virginia (ABC) store. ABC stores currently generate about $324 million in taxes and profits for taxpayers, funds that go into the state treasury for providing state services.

Four of Virginia’s 332 ABC stores are in or near my district: Penn Daw, Belleview, Engleside and Hybla Valley. The Governor proposes to close the current 332 stores and create 1,000 new distribution points by auctioning licenses to 600 big box and grocery stores, 150 small liquor stores and 250 convenience or retail stores.

I have several questions for which I am seeking answers. I’m sure you do too.

First, the plan will generate recurring revenues primarily with new taxes – a $17.50 per gallon of alcohol and a 2.5% "convenience fee" for on-premises sales including beer and wine. Beer and wine will cost more due to the tax. It is not clear whether a bottle of liquor will cost less after all the fees and taxes. Should people pay new alcohol taxes solely to help large retailers gain new profits, funds that formerly went to taxpayers?

Second, this plan is projected to net taxpayers at least $20 million less per year to pay for schools, mental health and prisons and other services. Is this cut acceptable or what is the Governor’s plan to make up for these lost revenues? We need better data to more thoroughly analyze the Governor’s revenue models, assumptions, and understand the true impact on the state budget and state services.

Third, how will license distribution work? U.S. 1 currently has 14 7-11’s, almost two Walmarts, a Target, perhaps a Costco coming, dozens of grocery stores, and over a dozen drug stores. That’s at least 40 possible new distribution points between Alexandria and Woodlawn. There appears to be no proposed restrictions on the number of licenses that could be concentrated in a specific area of a county. Are more liquor stores or sales on U. S. 1 desirable or an effective way to upgrade and help revitalize the corridor?

Fourth, the Governor says this plan is part of his solution to our transportation problems, but his calculations predict a $450 million one-time payment. The state only owns 19 retail locations and a warehouse to sell, and several, such as U.S. Sen. Mark Warner, caution that those numbers are overly optimistic. The bulk of the projected transportation money would come from license auctions.

If this is one answer to our short-changed transportation system, the Governor should acknowledge that $450 million is only enough to pay for about one-half mile of Metro or to widen U.S. 1 from Woodlawn to around the old Multiplex theater. Is this how we want to fund transportation needs?

Fifth, ABC Stores have contributed $1.5 billion to the state treasury’s general fund in the last five years. Should something generating $114 million of annual profits be sold for $450 million?

Sixth, what are the regulatory and enforcement costs of opening up 1,000 private alcohol sales outlets? Regulating needs for the existing 332 state stores is minimal. The Governor’s projections contemplate some increased enforcement costs, but are they accurate and are taxpayers are better served by increasing regulatory needs and swapping ABC agents for retail employees?

Finally, there’s the issue of priorities. When I talk to voters, most are worried about the economy and jobs, our inadequate transportation network and improving our public schools. I have not had a single constituent complain about the quality, selection, convenience or pricing of alcohol in Virginia. Is this our most pressing issue?

Senator Puller and I are having a town hall meeting on Monday, Sept. 27 from 7-8:30 p.m. at the Mount Vernon Government Center, 2511 Parker’s Lane. We would appreciate your feedback at the meeting or by a call, letter or e-mail. My contact information is on my website at http://www.scottsurovell.org/.
Governor McDonnell has unveiled his proposal to privatize the state's ABC stores. The Governor's Plan can be found on his Government Reform Commission Website here:

The Governor's presentations and summaries of the plan can be found under the September 8, 2010 commission meeting.

7 comments:

  1. The state should not be in the retail business. It is not a core competency or function of government. Privatization is the ONLY way to go.

    Not sure the plan is what I would like, but if it gets the government out of where it doesn't belong, it's a step in the right direction.

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  2. Perhaps AMCIT would like to privatize DMV, law enforcement, and education as well. What exactly does AMCIT believe the core competency or function of the government is?

    The government exists to provide public safety and order required for a functioning society. It does that through policy and law as well as offering services to the citizens. These functions of government have to be paid for and one way they're paid for in Virginia is through the ABC stores. Those stores offer a dual-purpose of low cost enforcement of alcohol policy and generation of revenue generation that funds other functions of the government.

    Any alternative to the ABC store must be evaluated on those terms. Whether AMCIT believes a retail store is a core competency of government is irrelevant. Scott Surovell has pointed out many valid questions that must be answered in evaluating privatization of liquor sales.

    Without further proof to the contrary, it appears that privatization will only take money away from government services and give it to corporatations and make enforcement of alcohol policy more difficult and expensive. That makes the current ABC store system more attractive than the Governor's proposal, regardless of the dogmatic beliefs of AMCIT and other small government proponents.

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  3. Hold on, lemme get this straight. In a severe recession marked by both a state revenue crisis and high unemployment, Virginia’s new anti-tax, neo-banana-republican (that’s with a small “r”) governor would like to give away a continuing $300 million annual revenue stream to a very willing coalition of golf buddies in return for a one-time guesstimated profit of $400 million that makes him look better at the expense of generations of non-golf-buddies to come.

    But that’s OK because he’s going to replace the lost revenue with—wait for it—a TAX that will, alas, cost a few thousand jobs in the hospitality industry.

    If we eliminate the impossible, Sherlock-Holmes style, eventually we’re left with the real purpose of the plan: converting public resources that serve the state’s citizens every day into bankable private wealth.

    This is following the standard privatization-scam life cycle: sell the deal in advance on the sanctity of “free enterprise,” then Lucy jerks away the football, the neo-banana-republican (that’s with a small “r”) privatists shoot out the lights and split with the profits, and the net effect after the dust settles is a de-funding of the state and a transfer of wealth to the wealthy, paid for by what’s left of the middle class.

    Does this sound familiar? Carry this to its logical endpoint, what will you see in fifteen years? Thriving small business or just another conduit out of state that carries profits to Wal-Mart, Target, and the supermarket chains, plus fairly regressive taxes that deliver half the public services you have now. I.e., more banana republic.

    I’ve been in retail for thirty years, more than half of that in restaurants and beverage retail. I certainly support the idea of private enterprise, although the path to the greatest profit isn’t always the path to the commonweal.

    Want to test Governor Mc Donnell’s dedication to the American dream? Introduce a rider that parallels that of the state of Maryland: enforced mom-and-pop; no one entity, proprietor or corporation—since corporations are really just humble citizens anyway—can own more than one license in the state. Heck, make it three licenses. Let the people who dispense this controlled substance be the people who live and work in the community where it’s dispensed, who put in the 12-hour days to send their kids to college. As Governor McDonnell sees big Wal-Mart contributions to privatist candidates slipping away, will he still embrace the American dream?

    I have an even less-wasteful, eat-the-poor-style proposal: pass the tax, then just give the proceeds to the anti-tax, pro-free-market privatists (don’t worry, they’ll take it). You’d be creating a system that would not only be more transparent, but far cheaper to undo if we should accidentally elect a rational executive branch at some future time.

    Peter W

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  4. JoshB - not sure where you live, but where I live, DMV, law enforcement, and education are not retail. Functions cannot be assigned to the government just because they'll provide a revenue stream for legislators to spend. If you read the entire comment, you'll note I'm not thrilled with the plan, but I believe it's a step in the right direction.

    Peter - I'd really like to read your comments without the emotional rhetoric. They might make sense, but it's hard to tell. Until then, I'll simply continue to buy liquor in DC where it's 1/3 to 1/2 the price, and then no one in Virginia gets the revenue.

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  5. My understanding is that there have been very few arrest of state liquor store personnel for selling to minors. How many hundreds of citations of private stores and personnel have there been at current wine and beer sellers? As a former school teacher I know too many students who found it easy to purchase beer. Do we really need hundreds of new sites putting kids on the road with illegal sales?

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  6. I'm not a McDonnell supporter, but the ABC plan has some merit. It could open new channels into the market for distributors (is anyone happy with the lack of choice in VA's ABC stores?), and there is no reason why stores selling wine and beer are any less capable of policing distribution of hard alcohol to minors. Perhaps the $450M is shortchanging the value of the business, but annual tax revenues will likely be the same... is consumption going to decrease?

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  7. State ownership of liquor stores is a Prohibition holdover that has no place in modern society. Period.

    Obviously the loss of the recurring revenue from the stores has to be made up, but please keep in mind that private stores will do a much better job selling than the grim, boring ABC stores do, thus increasing liquor sales and contributing more in sales and excise tax revenue than the state-run system currently does.

    As for that "mom-and-pop" ownership idea, that's really just protectionism and an invitation to fraud. You might be sentimental about small-time liquor stores, or just resentful that a company from another state might make money selling liquor here, but I'm not. I just want to have better selection, better prices and more convenient stores in Virginia where I live and shop.

    Virginia's wine industry, you might be interested to know, also supports Gov. McDonnell's plan. Why? Because their market research suggests that wine sells better in liquor stores than in grocery stores. They know that better stocked, more efficiently run private stores will boost their sales as well.

    Enforcement? Same as it is now. No change. Any store caught selling to minors is in trouble, whether you're talking about beer and wine or hard liquor. Nothing changes, except that the privately run stores selling liquor will have more "skin in the game" of preventing underage sales than a state store would.

    The Governor's plan as I understand it involves auctioning a fixed number of licenses for selling liquor around the state. I have questions about how the licenses will be distributed, whether by county, district, town or something else. I'd like to have some sense of how that will affect how many outlets we will get in Northern Virginia. I worry that a strictly geographic quota of licenses would underestimate the demand in the denser NoVa counties. But the free market should be able to meet demand if allowed to do so.

    On behalf of single-malt Scotch Whisky lovers across Virginia, I say "Go Bob!"

    ReplyDelete

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