Privatizing ABC Keeps Getting Stranger

The plan to privatize ABC stores gets stranger as the days pass.
Gov. Robert F. McDonnell is facing criticism that his plan unfairly puts a 2.5 percent optional tax on alcohol sales in bars and restaurants and ledgers that show that the plan still won’t raise as much money annually than keeping ABC stores in state hands.
So, the governor is considering making the plan go down a little easier by eliminating the 2,5 percent tax and helping small retailers deal with the cost of buying licenses by offering state financing.
Bids for small retailers in rural areas would be at least $102,844 and $154,266 for convenience stores. The plan now is to auction 1,000 licenses with 600 going to big retailers such as Wal-Mart and Costco, 250 for convenience stores and 150 for smaller retailers. Currently, the state ABC operates 332 liquor stores.
To help the little guys, the governor might let them pay for their licenses over a two to four year period, which is much like a state loan.
But that kind of messes up the whole idea of privatization. Advocates, notably Republicans like McDonnell, aspire to dogma that wants to get to limit government and get it out of the booze business, which pays the state more than $200 million each year. The current ABC plan, however, is becoming so unwieldy that the state may end up as a lender, which is so far from the original intent of privatization that it approaches the realm of the absurd.
Numbers for the plan don’t add up, which is a more fundamental flaw. It is still $20 million short of providing what state-owned ABC stores do. McDonnell could raise the excise tax on distilled spirits to $22.50 a gallon from $17.50 a gallon proposed now. As noteworthy a no-tax advocate as Grover Norquist, founder of Americans for Tax Reform and infamous for his K Street project of Republican-only lobbyists, says the idea is to lower taxes, not raise them.
Another problem is that McDonnell says he wants to use the proceeds from selling off ABC stores to give more funding to the Virginia Department of Transportation which is shy about $20 billion to meet coming road needs. VDOT, however, has already shed thousands of positions under previous, Democratic governors. A recent McDonnell audit of VDOT has found about $1 billion in its budget that had been squirreled away for maintenance.
That, again, raises questions about why McDonnell’s making the state go through this ABC exercise. If VDOT is so drastically short of funds, how does he explain the billion dollar windfall?
As McDonnell stumbles from one idea to the other, it is clear who is really calling the plays on this one — the liquor, beer and wine industry. Virginia Public Access Project files show that the Association of Distributors gave McDonnell $38,600 for his inauguration. The Virginia Beer Wholesalers chucked in $15,000 and the wine lobby put in $10,000. Anheuser Busch opened its taps by $20,000 for the governor’s inaugural soiree.
Bob, this Bud’s for you.
Peter Galuszka

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22 responses to “Privatizing ABC Keeps Getting Stranger”

  1. I think a far better approach is to put out a RFP for a 5 or 10 year concessionaire agreement and turn this over to a private sector company (with strings) and see how it goes.

    McD got this tangled up by trying to say that it would generate transportation revenues.

    Worse than that – the man under-funded the state pension plan by $600 million dollars ….pretended it was a "surplus" and now is not figuring out how to repay that debt.

    so …so far.. he's put the state in debt … proposed new stealth taxes … not done anything meaningful about transportation other than proving that the district VDOT folks are hunkered down on their funds not knowing if more cuts are on the way.

    Give me an honest Democrat who will tell the truth about transportation – PLEASE!

    Why do we have to put up with more "Gilmoring" or "Allening" of Va when it come to taxes and spending?

  2. " Richmond's financial "newspeak" now calls debt "thrift" and claims we have a $400 million "budget surplus."

    But wait! The General Assembly "borrowed" $620 million from the state employees' retirement systems, omitted a $200 million payment in a self-funded insurance program, put 13 months of sales tax revenue into a 12-month budget, and reduced local government contributions to state retirement for teachers by $182 million! How is there a "surplus" if bills remain unpaid?

    A number of "yes" votes on the budget came from lawmakers who had signed "no new tax" pledges. Richmond should not imitate Washington's secretive and deceitful debt and deficit spending practices, which have placed America on the road to financial Hell.",0,7800977.story

    This are Delegate Bob Marshall's words on his Governors performance of late.

    Look what has happened to the Republicans … whoever heard of these kinds of shenanigans coming from the Republican Party?

    No wonder the Tea Pots want to throw them overboard along with the Dems!

    and to think.. this is the guy that Groveton picked over Deeds!

    At least Deeds was TRUTHFUL and in this case "not as smart" would be a thankful thing compared to the "smart" stuff McDonnell is up to.

    I feel sorry for you Republican supporters. Ya'll have hit a real rough patch on true fiscal conservatives.

  3. " According to the numbers McDonnell's plan would raise liquor taxes 42.5 percent and that means customers would pay as much as 16.5 percent more at the retail level for liquor. Here's the full slideshow. Download Privatization_Presentation_final_9.28.10[1]

    And here's a full county by county mathematical breakdown that shows how the privatization would play out around the state. Download RegressionChart(1)"

    if you look at the slide show it becomes painfully apparent that the ABC is being handed over to the private sector – including the profits – and the lost profits to the state are being made up with new taxes.

    I cannot believe that a Republican is doing this.

    We are told that this is the kind of smoke & mirrors to expect from the likes of Warner and Kaine.

    Well. this makes them look amateurs…

    Have we become SO PARTISAN that we cannot honestly recognize what a fundamentally dishonest approach this is to state budgeting?

    He's doing all of this stuff to "prove" that he can generate revenues without having to raise taxes – except …the man is raising taxes…

    Come on Bacon.. get in THIS GAME!

    You and Groveton… OWE an opinion on this … to us "liberals".

  4. "As McDonnell stumbles from one idea to the other, it is clear who is really calling the plays on this one — the liquor, beer and wine industry."

    Exactly. And it's been that way all along. The distributors are the real winners in all of this if you ask me.


    You have a distribution system in VA that is basically a Capitalist Cartel.

    Retailers MUST buy product from a distributor – they CAN'T buy it directly from a manufacturer.

    The reason these groups are lining the pockets of elected officials is because they don't want any (more) competition as far as distributors go….they want the right(s) to distribute liquor in territories where they are already distributing beer & wine.

  5. Gooze Views Avatar
    Gooze Views

    Hear, Hear!

    Groveton! Bacon! Don't be such woosies!

    Peter Galuszka

  6. James A. Bacon Avatar
    James A. Bacon

    I haven't studied the ABC privatization proposal, so I don't have an informed opinion.

    In the abstract, I don't think the state should be in the liquor business, and I think privatization is a good idea. But the devil is in the details. We want to make sure (a) we don't raise fees and taxes on the public, and (b) we get the best possible deal for the assets that we can. Does the McDonnell proposal accomplish those aims? I don't

    Assuming we *do* privatize ABC, then I think the idea of applying the proceeds to transportation is silly. The sum is a drop in the bucket compared to putative needs. We need a comprehensive re-think of transportation funding, not a Band-Aid. I would be much more inclined to use the proceeds to improve the financial strength of the Virginia Retirement System. Half a billion dollars would make a meaningful difference.

  7. Anonymous Avatar

    How are we going to pay for all the new bureaucracy that this is creating: Additional tax monitoring and collection; additional inspectors for a tripling of sales venues; and now a state run loan program?

    Think of all the new ways this can allow corruption.

    And, as a republican, why isn't he just proposing to cut revenue (no new alcohol taxes) and cut spending to match? So much for less government, less taxes and less spending. This is a mess.

  8. well.. Bacon just got drummed out of the true believers party…

    note this: " … According to the numbers McDonnell's plan would raise liquor taxes 42.5 percent and that means customers would pay as much as 16.5 percent more at the retail level for liquor."

    let me see if I got this straight.

    we want the state out of the ABC businesses and by privatizing it – we'll get competition and lower prices?

    wow…… if this guy were selling cars.. I'd hold on to my wallet…

  9. Groveton worries about our "part time" legislature and here we have a full-time gov who apparently thinks a majority of Virginians are dumb as stumps.

  10. Gooze Views Avatar
    Gooze Views

    "I haven't studied ABC privatization. I have been too busy wonking about federal debt obligations in 2041."

    James A. Bacon.


    Peter Galuszka

  11. Mr. Fiscal Conservative has not "studied" the situation?


    no matter…

    News Flash:

    " Liquor plan scraps 2 taxes, leaves $47 million hole"

    so now.. we need to find $47 more in cuts?

    do you think he'll take them out of VDOT's budget?

    ha ha ha

  12. "I think a far better approach is to put out a RFP for a 5 or 10 year concessionaire agreement and turn this over to a private sector company (with strings) and see how it goes."


    Sort of what Maine did and they raised five times as much money on a much smaller population.

  13. Anonymous Avatar

    Isn't it amazing how liberal democrats, like Peter Galuszka, are so opposed to "change" and "hope" unless it is about government taking over private sector responsibilities?

  14. Larry G Avatar

    well…no..not really….

    Obama promised to do specific things – and he has done some of them and is pursuing the others.

    In fact, these are the things the right wing cites as the reason why they want him out – not because he hasn't accomplished anything but the opposite – he has.

    Unlike the Republicans who in 16 years did absolutely nothing about health care but blather, started two wars and refused to pay for them, dismantled paygo, gave tax cuts that added even more to the deficit and passed a subsidized handout to Big Pharma.

    Now.. if someone wants to call this the Republican version of change and hope – because – folks – the Pledge they just announced basically advocates what they did before… then

    go for it…

    All Peter is doing is pointing out these simple realities.

    The right wing blather machine specializes in putting lipstick on a PIG – which is essentially what the Republican party looks like these days.

    that kind of "hope and change" we've already had a century share of …..

  15. Gooze Views Avatar
    Gooze Views

    You are putting words in my mouth. Since when did selling booze become a private sector "responsibility?" Something like 18 states are "control" states when it comes to alcohol.

    And, personally, I don't care if ABC stores are private or public. My point is that McDonnell's plan raises some very big questions about providing the same level of revenues to the state that state stores do.

    And, in Iowa and West Virginia, two states that switched from state stores to private, the promised returns never materialized.

    I am just curious that when Virginia faces huge problems with jobs creation and needs to come up with alternatives for federal and military spending, our governor is spending his time on a highly questionable plan to privatize ABC that could very well provide the state with LESS money than before.

    Wal-Mart, Costco, Target and big grocery chains will be laughing all the way to the bank.

    Peter Galuszka

  16. Larry G Avatar

    the really bad part about the ABC issue is that he has made this much more complicated than it needed to be.

    He even admits this..

    He could have done what Maine did with a 10-year turn-key concession agreement and kept transportation out of it but

    nope.. he involved so many things in so many different ways that it walks and talks …no …it OOZES… smoke & mirrors.

    Why not put out an RFP – PROPOSALS for a public-private enterprise and stipulate a bottom line for the profits and the state share and see what gets proposed?

    McDonnell is doing the VERY THING he and his conservative friends say is what the govt should NOT be doing – and that is involving itself in what is essentially a private-sector business issue.

    The public-private approach is not unusual and it balances the interests of the private sector with the government if done carefully.

    McDonnell and his team should not be involved at the level that they are – to begin with in my view – and ESPECIALLY SO given their self-proclaimed Conservative principles.

  17. Bills to privatize VA ABC have been introduced in the General Assembly every year for the past several years. They usually die without much discussion, because the revenue from the excise taxes on liquor are the crack cocaine our legislators have become addicted to.

    Governor McDonnell's advertising campaign has managed to push this discussion further than ever by 1) convincing many citizens that the government should not be stocking shelves and working cash registers for profit (easy sell) and 2) claiming that he can somehow keep the revenue flowing into the General Fund without raising taxes or introducing higher social costs. The ideological argument against government involvement in the liquor business, particularly in the wholesale and retail aspects, is easily made. For that reason, this argument is in the forefront of the Governor's media blitz. His claims of sustaining the revenue stream have been more difficult to make, and are increasingly coming under fire on both sides of the aisle.

    Democrats, even aside from resisting his proposals on principle, will never agree to privatize ABC if any revenue will be lost. Republicans are split between fiscal conservatives who will not vote to raise taxes, and social conservatives who do not wish to see an increase the volume of alcohol consumed in the Commonwealth. Then there are "We, the People", whose biggest concerns are the end results at the cash register and the quality of life in the communities surrounding these businesses. Unfortunately for Governor McDonnell, anyone with even a rudimentary grasp of economics can see that someone will be disappointed under his proposal, but he doggedly maintains his Utopian vision of privatization.

    The current tax structure includes a 20% excise tax, and a mark-up percentage tax set by the ABC Board which varies based on product type and container volume (69% for a fifth of Jack Daniel's). Governor McDonnell's plan would leave the mark-up to store owners, but levy an excise tax of $17.50 per gallon. Several of the fees and taxes proposed in the original plan have been dropped to appease anti-tax Republicans, and now even the Governor's sunny day scenarios for revenue after privatization are showing a $47M deficit compared to today's system. The high starting bids for retail liquor licenses (minimum bids starting at $102,844 for small specialty stores and $154,266 for convenience stores in rural areas) indicate upward pressure on price from businesses that will be waiting years to recoup those costs. Either businesses will be losing money, or consumers will be paying more. With such tight margins, the only way anyone will see a significant profit is a significant increase in consumption. (More details on the proposal here)

    Truth is not good politics, but the truth is that you cannot pry the wholesale and retail liquor business away from the Commonwealth's control without losing money. The prudent (even "conservative") approach would be to honestly assess those losses, then eliminate expenditures to cover the projected loss of revenue before taking that step. Imagine your family has two working parents, and they decide it is in the best interest of the children if Mom quits her job. If they throw away that income before tightening their budget, then they go hungry or live on credit. If you want to be an idealist, pull out your wallet or get out of line, because There Ain't No Such Thing As A Free Lunch!

  18. Larry G Avatar

    I don't disagree with a word of the previous but would ask if McDonnell's original premise was to demonstrate that transportation in Va can be better funded without raising taxes for transportation.

    The Dems have pretty consistently said that they do not believe anything short of increased taxes will do the trick.

    The Republicans, including McDonnell, have resolutely and emphatically stated that increased taxes in not necessary just better ..more efficient.. more innovative government.

    So what does all of this prove?

    Well.. it proves for one thing that you can take something not that simple to start with and muck it up worse… all in an effort to "prove" that transportation can be better funded without tax increases.

    It doesn't help to have an audit done that shows that VDOT is basically not wasting money and has assumed a conservative fiscal position, perhaps too much – but understandable given the anticipated funding shortfalls.

    so the bottom line is that VDOT is not wasting money and it has, according to the audit a significant downsizing that started with Kaine, so further downsizing is not an option and in fact the audit identified a few places where muscle was cut.

    So… "no-tax" McDonnell and the Republicans are back to square one on funding for VDOT even after they manage to extricate themselves from the ABC conundrum.

    The areas where McDonnell could have had an impact would have been fundamental reform of VDOT's mission but that will require some courageous and leadership to tell the people of Virginia that taxpayers are not responsible for subdivision or secondary roads and that Va ought to do what most states do and focus the mission of the DOT on roads of statewide significance and let the 98 counties do what Henrico and Alexandria and 33 cities and towns already do in Va and that is be responsible for heir jurisdictional roads.

    McDonnell also could have the GA give the MPO regions the ability to hold regional referenda on transportation and/or some legally permissible way for regions to ask their citizens for approval for regionally-needed projects.

    He could also tell the citizens of Va that transportation funding does not come "from the state" but instead it comes from local taxes on gasoline, new cars and retail sales (1/2%) – that the state does not have a "money tree" nor is it really hoarding money (the held-back money was in the regional district offices – not Richmond).

    So McDonnell tells the truth to the citizens of Va on Transportation and tells them that it boils down to tolls or taxes – pick your poison.

    This is enormously more important than the ABC kerfuffle which is just a distraction in my view and I haven't decided if the distraction is a strategy or a mistake.

  19. Larry G Avatar

    Let be clarify the statement about subdivision roads….

    taxpayers of Virginia …paying for subdivision roads in the counties that are growing.

    that amount to people's gas taxes in rural areas and people's gas taxes who live in apartments and townhouses being shifted to pay for people who live in subdivisions.

    This is essentially a subsidy that shifts money away from roads that serve everyone to roads that are essentially private amenities since most folks who live in subdivisions do not want those streets to be part of the public street network.

    This would be an honest, fiscally conservative approach to a more fair and equitable approach to taxing & spending and to let those who want amenities – to pay user fees.

  20. "taxpayers of Virginia …paying for subdivision roads in the counties that are growing.

    that amount to people's gas taxes in rural areas and people's gas taxes who live in apartments and townhouses being shifted to pay for people who live in subdivisions."


    This is complete and utter nonsense. Good roads make homes worth more and then they pay more taxes.

    In Arizona, there seems to be much more aof a live and let live attitude: as long as you don't actually hurt someone, let them do as they please. If they do hurt someone, then throw th ebook at them.

    On the East coast "actually hurting someone" seems to have been taken to ridiculous extremes amounting to a couple of mills on the tax rate, based on some supposed slight or temporal inequality.

  21. So McDonnell tells the truth to the citizens of Va on Transportation and tells them that it boils down to tolls or taxes – pick your poison.


    And if it is tolls, it only affects a few people and affects them disproportionaltly because the costs will be much higher AND more concentrated.

    Tell it like it reallyt is, Bob.

  22. Larry G Avatar

    "making homes worth more"

    is not the job of other taxpayers.

    using your logic we could use taxpayers money to build garages and add granite counter tops because it would make the houses more valuable and generate more taxes.

    So .. why not give the folks who don't live in subdivisions the same "free" deal so they can buy things that also generate taxes?

    46 other states tell the subdivision folks to form an HOA or they decide at the county level which roads the country will assume responsibility for.

    Anyone who lives in a subdivision needs to ask themselves what it would cost if they had to pay for their internal roads.

    We you pay your gas taxes which about to a couple hundred dollars a year for most people – that money either goes to improve public roads that everyone pays the gas tax for – and uses….

    or.. in the case of those who live in subdivisions – your gas tax goes to pay for your subdivision roads but $200 a year is not usually enough.. and the remaining costs are supported by other taxpayers who don't live in subdivisions – which in turn – diverts money away from truly public roads.

    which in turn – contributes to the bankrupting of VDOT – and the reason why they have no money for anything other than maintenance.

    Like I said, 46 other states, every city and town and 2 counties in Va take this responsibility so it's not wrong.

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