Don’t ‘fix’ state liquor monopoly — get rid of it

If you believe in limited government and free enterprise, ending a state-run liquor monopoly should seem like a no-brainer. So why is a Virginia Republican trying to further entrench the Old Dominion’s system of state liquor stores? Rather than working to shrink the size of government, Del. Dave Albo, R-Fairfax, is advancing a plan to make the state-run enterprise even more profitable to increase state revenues. This will make this outmoded system even harder to get rid of in the future.
In his 2009 run for governor, Republican Bob McDonnell made privatization of Virginia’s 332 state-owned liquor stores (aka ABC stores) a feature of his successful campaign. However, some members of his own party expressed skepticism, opposed the plan and ultimately killed it. While some of their concerns were valid, such as the $17.50 per gallon liquor excise tax the McDonnell’s plan would have imposed, it was clear that for many opposing privatization the main concern was with the loss of revenue, estimated around $47 million a year. Now Albo, one of those objecting Republicans, wants to try to make the Department of Alcoholic Beverage Control, which currently has a budget of more than $560 million, more profitable by requiring board members to have a business background.
Currently, the Alcoholic Beverage Control Board is composed of three gubernatorial appointees. Albo would replace them with a “citizen authority” consisting of five residents, nominated by the governor and approved by both houses of the General Assembly. Albo’s proposal would get rid of the board members’ six-figure salaries, giving them instead $50 each day they work, and require potential members to hold a baccalaureate degree in business or a related field as well as having at least five years of business experience.

Albo, who claims to support the concept of privatization, was critical of McDonnell’s privatization plans because, as he said “the numbers just don’t work” — and made it clear that any plan that reduced the state’s general fund wasn’t worth considering. “I was never for the governor’s privatization bill because we could never make the money work,” Albo said. “It’s hard to beat a monopoly.” And while it’s true that Virginia’s Alcoholic Beverage Control Department has contributed about $340 million to the state each year, other states that have privatized liquor sales have seen increases in sales and tax revenue.

Washington state residents voted to end their state’s monopoly on liquor sales in November 2011, and despite fears that tax revenue would fall, between July and December 2012 the state collected almost $13 million more in taxes than during the same period the year before — a 13 percent increase — despite the fact that liquor prices rose an estimated 11.6 percent due to increased taxes. One explanation is that prior to privatization, Washington residents had been crossing the state line to make their liquor purchases and that the increased availability and variety after privatization prompted them to stay in-state for their liquor purchases. Indeed, liquor sales in Washington increased by 3.1 percent in the first five months of privatization.

Pennsylvania, which has a state monopoly on the sales of both liquor and wine, and like Virginia has large population centers near its borders, is estimated to lose about a $180 million in sales and $40 million in state tax revenue every year due to the residents in a few border counties purchasing alcohol outside of Pennsylvania.

While there are no hard numbers on how much Virginia residents spend on alcohol across state lines, it’s likely quite significant, considering it has large population centers only a short drive from North Carolina, which has a slightly lower liquor tax, but also the District of Columbia and Maryland — both of which have smaller liquor taxes and higher outlet density. For example, the national average for liquor purchases is 2.04 gallons per adult. Virginians purchase less — just 1.62 gallons a year, while in nearby D.C. the average annual purchase per adult is an astounding 4.46 gallons!

Rearranging the Alcoholic Beverage Control Board will do nothing to improve its performance. The appointees will still be political animals and the $50-a-day salary won’t woo any effective business leader away from the private sector. If commonwealth lawmakers want to defend free enterprise and limited government and increase tax revenue by boosting private business, they ought to stop looking for ways to reorganize a failed system and get the government out of the business of selling liquor.