Time to privatize liquor sales
Published 10:19 pm Saturday, September 11, 2010
We must improve transportation infrastructure in Virginia. However, in this tough economy finding new funding for any initiative is not easy. That is why I have proposed injecting at least half a billion dollars in new funding for transportation, not by raising taxes, but by ending Virginia’s outdated government monopoly on the sale of distilled spirits. State government should focus on its core functions; selling alcohol isn’t one of them.
Today residents of Tennessee, Maryland and 30 other states buy distilled spirits from private retailers, just like Virginians already do with beer and wine. Reliable studies consistently show no significant differences in crime or societal factors between monopoly and privatized states. Every recent governor, including Democrats Mark Warner, Tim Kaine, and Doug Wilder, has said the state should not be in the liquor business.
There are currently 332 government ABC stores, 6,657 licensed beer and wine retail stores, and 4,555 restaurants that are licensed to sell mixed-beverages by the drink. Under last week’s staff privatization proposal, which can be expected to be amended through the legislative process, we will permit 1,000 off-premise distilled spirits licenses, to be purchased at auction. A large amount of the 1,000 licenses will likely be purchased by stores that already sell beer and wine. In most cases, you won’t see a new store in your city; you’ll just notice a new shelf on an existing aisle at a local store.
There will be three levels of licenses offered, based on the square footage and shelf-space of the store. This will mean maximum private competition for retailers of all sizes, including small, women and minority-owned businesses. This licensing structure will keep Virginia well below the average number of stores in private distribution states.
The minimum bids in each license tier will be set by the Commonwealth, will differ by locality to reflect the likely profitability of the store, and will vary based on the level of the license to ensure opportunities for both small and large retailers. Retail outlets will be geographically distributed around the state. No one company will be able to obtain more than 25 percent of the licenses within each level, preventing the possibility of a private monopoly. ABC will now be focused on regulation and law enforcement, instead of competing with private sector business owners.
The sale of retail and wholesale licenses will bring in at least $400-500 million to the state, and likely more, for transportation projects around the Commonwealth. The combined upfront revenue from the retail license auction, sale of wholesale licenses and sale of ABC property assets will be placed into a Virginia transportation infrastructure bank that the state will operate. This bank will loan and grant crucial funding to localities to get long overdue projects underway, with the criteria being congestion relief and economic development.
Thus, this will be a creative plan that puts major new funding into transportation without tax increases. Alcohol sales are projected to generate $324.2 million in FY 2011 for the general fund: $200.4 million from excise and sales taxes, and another $123.8 million from ABC store profits.
This staff proposal keeps the same revenue coming into the general fund. The general fund revenues will be recouped for the state by simply reworking the markup, fee and tax structure in place under the current monopoly system. There is no tax increase in the plan.
Virginia will also realize additional one-time revenue of an estimated $33 million by selling the ABC warehouse near the Diamond in Richmond, as well as the 19 ABC stores currently owned by the Commonwealth.
Market competition will bring more choices and an efficient private distribution system. The convenience created by privatization should help to stem the loss of distilled spirit sales to the District of Columbia and Maryland. Thus, there may be an increase in local sales and the revenue the state derives, but this plan does not rely on increased consumption.
I’ve spent the past month traveling Virginia, listening to your thoughts about this idea. Your insight has been invaluable in putting together the staff plan. While studies show no difference between monopoly states and private states when it comes to crime and societal impacts, we know many would still like to see increased enforcement be a part of privatization. To accomplish this, we will add 22 new enforcement agents, for a 25% increase in alcohol enforcement in the state.
Virginia has a real opportunity. We can gain half a billion dollars or more for transportation projects by eliminating an outdated government monopoly. Improving our transportation system will help reduce the time you spend stuck in traffic and facilitate economic growth and job creation.
After privatization, the state will continue to receive revenue equivalent to our current system, without running a business best done by the private sector, and we will still have far fewer outlets selling distilled spirits than the average of the other 32 privatized states.
This proposal is one part of our overall transportation plan, and will help to improve our job-creation climate. I will be working in bipartisan fashion with the General Assembly to pass this proposal, and many other commonsense government reforms. I look forward to advancing this important effort to make government more efficient and reduce traffic congestion in Virginia.
Bob McDonnell is the 71st Governor of the Commonwealth of Virginia. Email him at Robert.F.McDonnell@governor.virginia.gov.