Robert F. McDonnell has so far had a shaky tenure as governor. His plans for offshore oil development sank with the Deepwater Horizon rig in the Gulf of Mexico, he just can’t seem to remember there were slaves in Virginia and his much-touted erasure of the state’s $2 billion budget deficit was marred by smoke-and- mirrors maneuvers such as deferring payments to the state pension fund.
Taking a script from other Republican governors, McDonnell wants to make a name for himself by limiting government by streamlining or privatizing. His big goal is to sell off the state’s more than 300 ABC stores in a scheme that he claims will net the state and extra $300 million to $500 million in a one-time hit and somehow generate more revenue after that.
He’s now on the road touting the plan that still has a lot of unanswered questions. First, there’s nothing wrong with privatizing alcohol sales. Only about 18 states still maintain the post-Prohibition Era state control on alcohol sales. Virginians do pay more for booze and selections are often sparse. Plus, privatizing probably won’t do much to generate more alcoholics, or so the conventional wisdom goes.
But as The Washington Post points out in an article today, Virginia makes an awful lot of money in the booze business and McDonnell could be giving that away. For instance, a bottle of Jack Daniel’s Tennessee whiskey costs the state about $11.48 when it buys it from the distiller. After all the taxes and fees are added, including one of the highest excise taxes in the country, that bottle retails for $24.68 (including state sales tax). How much does the state get? A lot.
In the District of Columbia, not a control area, the same bottle retails for $22.90 or $25.06 with DC sales tax. In cheap-o and private Maryland, the same bottle would retail for $20.02, including sales tax.
What this means is that Virginia gets a lot more dough for its booze — $248 million to precise — in 2009. Maryland and DC get tens of millions, not hundreds. So, it will be giving up a lot with privatization.
There are some other questions with McDonnell’s plan:
- Even if he privatizes, someone is going to have to keep an eye on those retail outlets. Only about 300 or so exist now in the controlled system, but McDonnell envisions about 1,000 liquor stores statewide. The ABC now has only about 130 special agents with are armed law officers to enforce law at not just ABC stores but at up to 15,000 bars and restaurants. Robert Grey, a Richmond lawyer and former ABC chairman, told me in a piece I did for Style Weekly that privatizing liquor stores will increase ABC enforcement responsibilities by up to 40 percent. How does McDonnell intend to handle the extra staffing, assuming he doesn’t turn the function over to local or state police? And if he does that, are they up to the task budget-wise? Do they want the extra responsibility?
- How much tax money will the scheme really generate? This is something of a mystery since McDonnell has said that it will depend on the kind of licensing deals the state arranges. For instance, a big box Wal-Mart might get a liquor store. It may pay more for it as opposed to a mom and pop store.
- I’m still not clear what happens to wholesaling. Under the current system, the ABC board controls both retail and wholesale, doing the latter through a big warehouse in Richmond. McDonnell wants to sell the facility. Will private wholesalers suddenly swoop in? Maybe this is why lobbyists are thicker than fleas at the state capital this summer.
- Will private stores mean better choice and prices. Obviously prices will improve, but maybe not so choice. If you live in an urban area with sophisticated tipplers, sure, you’ll see a lot of new stuff. Northern Virginians may stop their weekend drives to cheaper booze across the Potomac. But private stores in the outback probably will not carry a big inventory because they won’t be able to afford it.
McDonnell wants a special General Assembly session to consider the issue. But there’s a lot more explaining to do. Democratic legislators have slammed McDonnell’s revenue estimates about privatizing alcohol. In any event, there’s a lot of dough at risk, which a governor who portends to be so fiscally-minded ought to realize.
Peter Galuszka
