The California alcohol watchdog - the Marin Institute - has released a new report on efforts to privatize liquor distribution and sales in Virginia and Washington are being pushed by the "Big Alcohol" and "misguided politicians."
Here's the top of the summary, which doesn't do any favors to Gov. Bob McDonnell's effort to push for a private system ABC system.
With Big Alcohol seeking to increase profit margins, across the U.S. powerful corporations and misguided politicians are promoting plans to eliminate state control of alcohol sales, promising better prices and selection in return for less alcohol regulation. As states become more desperate for revenue, a booming alcohol business could overshadow the protection of public health and economic stability.
The full 20-page report is much more detailed - here's the full section about Virginia - which says that the privatization could lead to 220 more deaths a year and $200 to $300 million less in revenue a year.
In Virginia, attempts to privatize the state alcohol control system date back at least forty years and have been almost constant since the 1980s. The last five governors have either suggested privatization or indicated they would sign into law a bill from the legislature, but nothing ever came to fruition. Now the rhetoric has become more heated.
While running for governor in 2009, Governor Bob McDonnell pledged to privatize the system and use the funds to improve the state’s transportation network. He said he hasn’t met anyone who thinks selling Jack Daniels whiskey or Grey Goose vodka is a core function of government.42 This year he put privatization plans on a fast track.
After months of special interest and town hall meetings, the governor’s office unveiled his proposal in early September. McDonnell’s privatization plan predicts a one-time windfall of $458 million that would be deposited in a new “infrastructure bank” to fund grants and loans for transportation projects. The singular influx of cash would be a combination of $33 million from selling off liquor store properties; $160 million from wholesale license fees; and $265 million (minimum) from auctioning retail licenses. The proposal also includes $229 million in annual revenue from license renewals and taxes for core services such as education, with some money earmarked for substance abuse prevention and 22 new Alcoholic Beverage Control enforcement officers.
Under McDonnell’s proposal, the number of stores selling spirits would more than triple from 322 to 1,000. Licenses would be auctioned to the highest bidders from 600 big-box and grocery stores; 250 convenience and drug stores; and 150 package stores. Annual license renewal would cost between $500 and $2,000, depending on store size. A company would be limited to holding 25 percent of the licenses in any one tier.
Although McDonnell presented the plan as a way to find money for transportation without raising taxes, three types of new taxes are included in the proposal: a 2.5 percent tax on restaurants and bars that choose to buy spirits directly from wholesalers instead of retailers; a $17.50/gallon excise tax charged at the wholesaler level; and a one percent tax on gross receipts charged to wholesalers.43 Despite the Republican governor’s optimistic forecasts, Democratic leaders oppose the plan, saying it won’t yield nearly as much as McDonnell promises and will cut off a steady source of income in the process.44 Some Republican legislators are not convinced either. Delegate Brenda L. Pogge (R-York) opposes the plan, saying that it will be a hard sell to the public: “There’s three things that are called taxes in the plan, but they’re going to say it doesn’t raise taxes?”45
Del. Lacey E. Putney (I-Bedford), head of the powerful House Appropriations Committee and a McDonnell ally, has indicated that he thinks the current alcohol control system in Virginia works well. Putney, an Independent who sits in the House Republican majority, is the latest member of the GOP caucus to express doubts about McDonnell’s plan. Putney described the amount of revenue McDonnell promises to direct to transportation from his privatization plan as “pocket change.”46 The same day that McDonnell’s privatization plan was unveiled, the Washington Post ran an editorial posing serious questions about the plan’s long-term viability. While the Virginia Department of Alcoholic Beverage Control currently nets $324 million annually from alcohol taxes and profits, McDonnell’s plan is vague about whether the proposed alcohol taxes will completely replace the amount of annual revenue lost, and whether the new tax income would grow over time, as the current system’s revenue is projected to do. In addition, the one-time $458 million windfall is not enough to match the annual transportation needs in Virginia—it would not come close to the amount needed to maintain current Virginia roads for even six months.47
McDonnell’s opponents point out that privatization would eliminate thousands of state jobs, with no guarantee those employees would be hired by new private stores.48 Loss of those state jobs would also add up in pension payouts, costing the state millions more in the process.
Local law enforcement officials also worry that they will not be given adequate zoning authority, and will end up with a liquor store on every corner and less ability to protect public safety in their communities. The Virginia Association of Chiefs of Police acknowledged that private liquor interests want to increase consumption, but hope that an increase in consumption doesn’t equal an increase in alcohol-related violations. An attorney representing retailers recently inexplicably denied there would be any increase in outlets: “It’s not like it’s going to be 800 new buildings selling liquor.”49 Yet privatization will mean 1000 locations selling liquor that were not doing so before.
A 1993 study by Price Waterhouse demonstrated that if the Virginia alcohol control system were privatized, the price of liquor would have to increase in order for the privatized system to be revenueneutral. The state would also have to add as many as 46 more regulatory agents to handle increased tasks of licensing, regulation, and enforcement of alcohol sales. The ABC accounting department would also need to add another 16 staff positions to ensure adequate collection of state taxes that are currently included in the state’s price markup. Robert Colvin, a previous ABC commissioner, expressed a significant concern that the resources would not be adequate to properly address the increased workload in a privatized system.50 So much for smaller government.
Also, and most significantly, somehow the governor is choosing to ignore estimates that if Virginia privatizes its system, 220 more alcohol-related deaths would occur each year.51 Moreover, estimates point to spirits sales rising by 21 percent and total alcohol consumption increasing by as much as 7 percent. Increased consumption will cause an estimated $50 million per year in harm paid from state coffers (mostly criminal justice costs), and $1 billion per year in total harm costs. Privatization is also likely to decrease annual state alcohol revenue by $200-$300 million.
Various corporations and trade groups with an interest in the sale of alcohol are influencing the governor’s inner circle. For example, Costco and Wal-Mart, along with Kroger, Safeway, and Food Lion, are among the major retail chains that formed an alliance called the “ABC Privatization Coalition” to support deregulation efforts.
In addition, five lobbyists from the lobbying firm Eckert Seamans are working on the campaign. Since July 2010, Eckert Seamans has made three $10,000 political contributions to the Republicans’ Virginia House Campaign Committee, the Democrats’ Commonwealth Victory Fund, and the governor’s Opportunity Virginia political action committee.
Large alcoholic beverage producers also have an interest in bolstering their bottom lines through deregulation. Though suppliers and trade organizations officially profess neutrality on privatization, the governor’s office has met numerous times with powerful industry players such as Diageo, MillerCoors, and the Distilled Spirits Council of the United States (DISCUS), the lobbying arm of the spirits industry.55 Big Alcohol is a constant presence in Virginia state politics, spending thousands of dollars lobbying the state General Assembly.56 During 2008-2010, McDonnell received $448,407 from alcohol producers and wholesalers including Anheuser-Busch InBev, Diageo, and Associated Distributors.
Meanwhile, smaller retailers from the Virginia Retail Federation and the Virginia Petroleum, Convenience, and Grocery Association have expressed their concern to Governor McDonnell and urged him to request the assembly’s investigative arm to conduct a study of the financial assumptions behind his proposal. These groups worry that spirits licenses would fall mostly to the biggest retail corporations—the ones pushing for privatization at the same time that they contribute large amounts to the governor’s campaign.58 Also, recently a religious coalition has formed to oppose privatization.59 McDonnell’s staff proposes a quick transition to a private system. They say licenses could be auctioned in a year and new stores could start to stock their shelves in September 2011.60 A vote on the proposal from McDonnell’s own 31-member government reform commission is scheduled for the first week of October. Then McDonnell will call a special session of the General Assembly to consider the privatization question in November.