08/18/10: Hardly as clear as A-B-C

This op-ed appeared in The Virginian-Pilot on the date shown.

GOV. BOB MCDONNELL came to Norfolk last week to start the discussion on the privatization of Virginia’s liquor stores. The governor would like to use the resources from such a move to provide money for transportation.

Virginia is one of 18 control states, in which the sale of distilled spirits remains completely in the hands of the state. Currently, there are 332 stores across the commonwealth. The stores generated about $248 million in general fund revenue last year from profits, excise taxes and sales taxes.

The governor believes the sale of licenses would result in a one-time cash influx to the state of $300 million to $500 million. He has also said that the ongoing operations after the sale will result in more than $100 million in annual revenue.

What was clear from the governor’s presentation is that the number of stores selling liquor would increase. Just how many would be necessary to generate the $300 million to $500 million is unclear — estimates range from 800 to 3,000.

In his presentation, the governor pointed out that an increase to 800 stores would still keep Virginia below the average, per capita, of other states, including the other control states.

According to McDonnell, an increase in the number of stores will not increase crime, binge drinking or any of the other social problems one would normally expect from an increase in alcohol availability. He also said localities would retain the same rights they have now to control the location of stores. Norfolk, for example, has a special exception process for retailers who wish to sell beer and wine.

Support for the theory of privatization has come from all quarters. The genesis for the latest push is a campaign promise by McDonnell, which was based on a 2002 report issued by former Gov. Mark Warner’s reform commission.  That commission, chaired by former Gov. Doug Wilder, proposed to “streamline/ consolidate/outsource and eliminate approximately 15 percent of existing state agencies,” including the privatization of ABC. The commission estimated savings of $500 million could be achieved for all of these activities combined.

Like everything else, though, the devil is in the details. So far, we’ve not gotten many of those.

The biggest concern is how to replace the $248 million in general fund revenues given that the proposal is to redirect the funds to transportation. The general fund is used to pay for the core services of government, including education and public safety.

Even the $100 million in annual revenue is suspect. A recent editorial in the Roanoke Times noted Maryland collects $24.7 million in excise and sales taxes, while Washington, D.C., collects just $10.8 million. To get to $100 million, Virginia may have to increase its liquor tax and/or take the lion’s share of the retailers’ profits.

That raises the question of   what would be the incentive, then, for the retailers to purchase those licenses? Is the $300 million to $500 million “wildly optimistic,” as Warner has said?

The lack of details has even those who are inclined to support privatization concerned. Del. Tom Gear, a Republican from Hampton who chairs the ABC subcommittee of the House General Law committee, has expressed concerns about the general fund, and he and others are worried that small operators will not be able to compete. Sen. Emmett Hanger (R-Augusta) believes that the system we have is well-managed, and selling it wouldn’t be much of a moneymaker for the state.

Virginia has long neglected its transportation needs — on that, we all agree. A dedicated source of revenue to address this is an imperative. I’m not convinced, though, that the privatization of liquor sales is the answer.