Virginia ABC Store Privatization: Improving Plan, Dimming Political Support

When Virginia’s governor Bob McDonnell’s unveiled his plans for privatizing the state-run liquor sales system nobody was terribly thrilled. The plan’s basic outline (as I have written about before) is that the state’s 332 state-owned stores and auction off 1,000 licenses. The plan included some new fees on wholesalers, restaurants, distributors, and slightly reduced the per gallon excise tax on spirits.

The Proposed Privatization Plan:

1,000 Retail Licenses Up for Auction

600 Tier 1 licenses (i.e. grocery stores) cost=  min. bid + $2000/year

150 Tier 2 licenses (i.e. specialty stores) cost = min. bid + $1000/year

250 Tier 3 licenses (i.e. convenience stores) cost = the min. bid + $500/year

Wholesaler Fees: Licensing fee= 2.5x profits of spirits lines to be distributed

Excise tax: $17.50 per gallon

Previously, the plan had included a 2.5 percent tax on restaurants’ sales of liquor. This “fee” would give restaurants the privilege of buying liquor at wholesale prices and have the goods delivered to their business; this was one of the gripes smaller businesses had with plan, saying that it would negatively impact “Mom & Pop” businesses. Their complaints were apparently taken into account by the McDonnell team which announced changes to the plan on Thursday, including the deletion of this 2.5 percent tax.  They also eliminated the 1 percent annual tax on wholesalers’ gross receipts.

As this article in The Washington Post notes, the changes are likely to garner support from businesses as well as fiscally conservative legislators, but it will only increase the displeasure of those skeptical about the financial implications of privatization.

…the revision will probably deepen concerns of lawmakers who think privatization will be a bad deal for the state over time. McDonnell’s projections show that with the modifications, his plan would result in $47 million less each year to fund such state services as schools and police.

The revisions highlight a central conundrum McDonnell faces as he attempts to sell his complex proposal: Changes he might make to satisfy the concerns of some lawmakers are likely to cost the support of others.

While politicians are understandably concerned about the financial state of the Commonwealth, loss of tax revenue is no justification for doing away with a government service that they have admitted does no good for the people of Virginia and in fact impedes sales of and access to liquor. Additionally, legislators do not seem to understand that once liquor is widely available in Virginia and comparably priced to other states, the sales of other types of alcohol will also increase. About 70 percent of wine drinkers also drink spirits, and research by DISCUS (the Distilled Spirits Council of the United States) shows that in Washington, D.C., there is a ratio of about 3 cases of wine for every 1 case of spirits sold. Their research clearly shows that Virginia residents are primarily purchasing their liquor in the District.

On that note, here is a sample of statistics about the current sad state of liquor sales in Virginia as compared to the U.S. on average and neighboring states:

Outlet Density in Virginia: Density of liquor store outlets in Virginia is 0.6 per 10,000 adults

Outlet Density in the U.S.: Density in the U.S. on average is 3.2 per 10,000 adults

Sales in Virginia: Liquor sales rate is 1.62 gallons per adult

Sales in the U.S.: 2.04 gallons per adult

Sales in D.C.: 4.46 gallons per adult

Excise Tax on Liquor in MD/D.C.: $1.570 per gallon

Excise Tax on Liquor in Virginia: $20.13 per gallon

It is time to set aside fears and get government out of the business of selling liquor. Loss of general fund revenue is a bogus reason to oppose the plan: government shouldn’t be griping about losing money it had no right to it in the first place. They have admitted that the government monopoly on sales provides zero benefit for Virginians, so it’s time to get rid of it and find money somewhere else (maybe cutting programs?). The fear that privatization will result in 1,000 new liquor stores is unfounded as most of the licenses will be sold to stores already selling wine and beer, actually decreasing liquor stores. Finally, fears about crime and traffic fatalities are unfounded, as case studies of other states that have undergone privatization show no rise in these ills.

Though the privatization plan may not be perfect, if it gets the government out of the sale of liquor, it is a step in the right direction.