Proposal would privatize state liquor stores
January 26, 2010 by Christian Wright
It could be last call for Virginia’s state-owned liquor stores if a bill proposed by Sen. Mark Obenshain passes.
Senate Bill 443 would force the Virginia Department of Alcohol Beverage Control to close its retail operations. The ABC would auction off “package store” licenses to vendors that wish to sell liquor and other alcoholic beverages for consumption off premises.
“My goal with the bill is to get the state out of the retail business,” said Obenshain, R-Harrisonburg.
The ABC contributed $322 million to Virginia’s general fund last year and $1.5 billion over the past five years. Of last year’s $322 million, about $75 million went to the Virginia Department of Behavioral Health and Developmental Services, which helps people with substance abuse and other health issues.
Under SB 443, which was referred Friday to the Senate Finance Committee, the state would continue to tax liquor sales. Obenshain said the sales of the liquor licenses by the ABC should make up for lost revenue.
“Licenses will be paid annually, based on whatever market price ABC determines,” Obenshain said.
Closure of the ABC stores would eliminate about 600 full-time jobs and 1,500 part-time jobs.
But, Obenshain said, “Unemployment will not occur through this bill.” Adult education classes and workforce training would be available for laid-off workers, and some might take early retirement.
The ABC has 334 stores; 315 of them are in locations that are leased by the agency.
The bill would allow grocery stores and other independent retailers to compete for and bid on liquor licenses.
“It’s not the intention of this bill to go from the government monopolizing the liquor industry to one store monopolizing it,” Obenshain said. “We’re trying to create competition.”
He said his bill would restrict the location of liquor stores, keeping them a certain distance from churches and schools. Every Virginia locality would have at least one licensed liquor store, but a locality could not have more than one license for every 10,000 residents.
ABC representatives said they do not comment on pending legislation.
Gov. Bob McDonnell made privatization of ABC stores a campaign promise during his campaign.
“I didn’t run into anybody who thought selling Jack Daniels whiskey or Grey Goose vodka was a core function of government,” McDonnell said in his state of the commonwealth speech last week.
Official Summary of SB 443:
According to the Legislative Information Service, SB 443 “provides for the auction of ‘package store’ licenses to authorize the retail sale of alcoholic beverages for off-premises consumption. The bill also requires the ABC Board to sell or transfer all interest in real property utilized in the wholesale and retail sale of alcoholic beverages.”
“The bill requires the ABC Board to set a fixed number of licenses for all localities, which shall be at a minimum one license for each locality of the Commonwealth and shall not exceed one license per 10,000 residents of the locality. The initial issuance of licenses by the Board would be through regional auctions beginning July 1, 2011, which may also be conducted through the Department’s publicly accessible website,” the summary says.
“The annual state license tax on package store licenses would be the initial purchase price at auction plus an annual inflation adjustment based on the Consumer Price Index. The tax levied on spirits sold in package stores would be 25 percent of the price charged.”
You can track and discuss SB 443 here.
The stores aren’t the problem with ABC. It’s all the stupid laws and rules that are truly stifling business
This is a great way to start the recovery of this Commonwealth. It really make no practical sense for the government to be in the sale of liquor and not other products in business. Open up the market for completion and the Commonwealth will derive more revenue, because there will be more money spent in Virginia that is now going across the border for cheaper priced items for sale in other states. I agree to charge a heavy license fee for each location selling these items. I do not agree there should be a limit on the number of locations based on the population because there are some counties that don’t have a population of 10,000 people and now have two or three ABC stores presently. If you are going to open it up to business owners to run, OPEN It UP. Restrictions limit business, jobs and revenue. Thanks for getting some sense! THIS SOUNDS GREAT.
If you look at the numbers, you’ll see that this is a bad idea, a net loss at best. Each state-run ABC store is averaging a million dollar contribution to the state bottomline… how are you going to make that up with privatization? No one is going to pay the state a million dollars to run a liquor store. So where does the money come from? Higher taxes on alcohol? Wouldn’t that defeat the purpose of allowing market forces to dictate the price of goods?
I agree w/ Les about regulations that are archaic and need updating. I disagree w/ Robert that there are a great deal of sales lost because people are crossing the state border in search of cheaper booze. But if you tax it in the way that you’ll have to in order to make up for the shortfall, you might create that very problem.
Saying “government doesn’t belong in the retail business” is nice for campaigns and bumper stickers and sound bites, but its a red herring. The fact of the matter is, in times like this, you should expect government to find a way to fund its own programs to alleviate the burden on the people and the revenue generated through alcohol control has long been a boon to the state coffers. Its removal will be a mistake.
Thomas- I think you need to take another look at the numbers, because contrast to your argument, they are favorable. States that have privatized liquor sales increase revenue due to licensing and tax monies. Government has never been good at supply and demand, and this will definitely be a boost for VA residents, both economically and personally.
Check out this video about the impending legislation: http://www.youtube.com/watch?v=ZFevY0y4v8c
Two issues have had little discussion.
The wholesale distribution of the spirits.
The monitoring of the retailers to insure that the 25% tax is remitted to the State.
Jaycee,
I’ve seen that video. Its very one-sided and addresses ‘problems’ in state-run enterprise that I, for one, have not experienced in VA ABC stores, notably lack of supply or variety or poor service. There is no evidence that the examples shown in the video have any similarity to the situation in Virginia. The real savings for the state comes from taking 2100 employees off the payroll, despite the sponsor’s claim that “unemployment will not occur through this bill”. Really? Not sure that’s platform that will get you re-elected…
I do not disagree that a government, almost by definition, should not be involved in retail enterprise. Government’s role in the control of alcohol distribution however does represent a public concern and, as a corollary, the retail enterprise has developed into a cash cow. It is not only self-supporting, it also funds many other programs that would otherwise increase the tax burden on the citizens of the Commonwealth. Is now really a good time to throw that away a successful, job-providing, economic anomaly on the grounds of philosophical opposition to government roles?
You say I need to take a look at the numbers, but you didn’t show me anything new. Show me how each privatized store can contribute $1 million dollars to the tax base (thru licensing and tax monies) as well as employing 7 of the people displaced by the process and I’ll come around to your side.
The private sector does not do everything better then the public sector. Just look at the current mess with state’s billion dollar computer problems.
The same logic could apply to selling the state lottery, state parks, state universites, state prisons, state police, etc.
Ok, so now someone wants to sell the golden goose and give away the golden eggs, at a time when the state is having a $4 Billion hole in the budget. Hello, anybody home?
On top of that, the bill would throw 2100 people out of their jobs? Sure, some of them might be picked up by the new owners, but a lot of them probably will not be picked up, and will have to go on unemployment until that runs out. Let’s be frank, a retailer picks up the cheapest labor it can, so why would they pick up any of the current folks, many of whom have been there for years? Ever hear of WalMart?
On top of that, retailers haven’t done such a great job keeping beer and wine out of the hands of underage drinkers. Privatizing liquor sales opens up another avenue for teens to score another bottle. When profit is the goal, liquor flows….
So, the question you really need to ask is this – who is really behind this bill? Who stands to benefit from the state giving up the money generated all these years? Who’s pockets have been lined to get this idea going anyways? That’s the question that should be answered. Follow the money….
Speaking of which, there is no way the numbers will add up on this – you’ll still get the tax revenue, but you simply can’t charge enough on license fees to make up for the lost profit. Think it through people – if you open it up to more competition, you can’t control pricing and profit levels. Sure it’s great for consumers to buy cheap liquor, but that drives down profit levels, making a license having to be cheaper as well… The numbers just don’t add up…
Oh… and that video – so one sided it’s not even worth looking at.
Too many people have been drinking the kool-aid on this trip…. follow the money….
[...] BizSense has info on a proposal to privatize ABC sales in Virginia: Senate Bill 443 would force the Virginia Department of Alcohol Beverage Control to close its [...]
Thomas, here are some numbers. There is also a similar study for Iowa if you do some searching: http://oldfraser.lexi.net/publications/pps/5/s1_abstract.html
“government liquor revenues have not been adversely affected by privatization”
“full-time equivalent employment in liquor stores is estimated to have approximately tripled under privatization”
It also says that job offers were extended to 80% of the ABC staff from private store owners.
“This analysis has important policy implications, because it dispels the myth that privatization of liquor businesses has increased the rate of crime. It reveals that privatization has not altered the amount of crime at the locations over the past 2 years.”
It is not the government’s responsibility to create employment for the sake of employment. That makes as much sense as “the bridge to nowhere.” I think what is lost in these discussions is really what is government’s role? Defense, protection of personal rights, property and bodily harm, and liquor sales? Where is that in the Constitution? And the list of services that taxpayers pay for goes on and on (whether they use them or not). You want to help people help themselves, half the income tax and let people pay for the services/products they actually use and value.