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McDonnell looks for Va.’s way out of liquor business
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the General Assembly and Vir- ginia. “It’s going to be a big deal if it happens,” Albo said. “We’ve been doing it the same way since Prohibition.”
But making it happen will be
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anything but easy. Alcohol sales bring in about $220 million a year, and many lawmakers — particularly the Democrats who hold a majority in the state Sen- ate — are unwilling to support privatization unless it generates much more than that. Many oth- ers, including some religious conservatives in McDonnell’s party, are fearful that privatizing alcohol sales will lead to a glut of liquor stores and a rise in drunk- en driving and other alcohol- related problems. It will also be a tough sell. Al- though many may support the idea in principle, there is no great push from the public or ei- ther party to privatize liquor stores. Two recent governors have raised the idea, only to see it go nowhere. Also, the money gen- erated by alcohol sales goes toward schools, public safety and other core services, and many Virginians are likely to balk at the idea of taking money away from those areas to fund trans- portation projects. McDonnell’s staff will unveil proposals in the first week of Au- gust. His government reform commission is likely to approve one of them Aug. 26, after which McDonnell expects to call legisla- tors back to Richmond for a spe- cial session on privatization and other cost-cutting issues. Staff members are considering four approaches, all of which have serious downsides, accord- ing to sources familiar with the process. The options are: selling all of the state’s alcohol assets to a single outfit; offering licenses to the 3,000 businesses that sell beer and wine; having firms take over the state’s 332 existing stores; and auctioning an un- determined number of licenses to the highest bidder. Many of those who have at- tended recent meetings at the
governor’s office say the plan to auction licenses has received the most support. The proposal would probably come with an in- crease in the number of stores, perhaps to as many as 800. Com- panies would be limited in the number of licenses they could buy, and some would be set aside for small, women-owned or mi- nority-owned businesses. That would mean Virginians could be able to shop for liquor at grocery and convenience stores, as well as big outlets such as Costco. “For 70 years, we’ve distribut- ed beer and wine in every 7- Eleven, every Food Lion. But we’ve controlled the distribution of spirits,” McDonnell said re- cently. “From a free-market standpoint, it doesn’t make sense to continue to control only one part of the distribution.”
Dollars and sense After Prohibition ended in the
1930s, 32 states, including Mary- land and the District, allowed private companies to sell alcohol. But worries remained about the effect of alcohol sales on the pub- lic, and 18 states, including Vir- ginia, decided to take matters into their own hands. Virginia allowed private com- panies to sell beer and wine but kept control of distilled spirits. Liquor was sold then, as now, in what are known as ABC stores, run by the Department of Alco- holic Beverage Control. Virginia is one of several
states, including Pennsylvania and North Carolina, that are con- sidering privatizing liquor sales to help balance their battered budgets. Voters in Washington will have a referendum on the is- sue later this year. In Virginia, McDonnell’s staff members estimate that privatiz- ing the stores could bring in a one-time windfall of $300 mil- lion to $800 million, although they would not document how they arrived at those numbers. They did say a 2002 report
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written for then-Gov. Mark R. Warner (D), who also considered privatizing the stores, indicated that the state could make $500 million. But a copy of that report — prepared by a commis- sion chaired by former governor L. Douglas Wilder (D) —does not show specific figures for ABC pri- vatization. It estimates that elim- inating about 15 percent of state agencies, including the ABC, could save the state more than $500 million.
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complex business, and a variety of factors could dramatically cut into any profits. For instance, the state may have to pay up to $40 million in severance to 2,600 employees and millions more to get out of contracts, including a $15 million trucking contract, ac- cording to sources in the gover- nor’s office. The state also rents
more than 300 of its stores, and officials would have to find a way out of the leases. “They ain’t got the foggiest idea how much money they’d get,” said Senate Majority Leader Richard L. Saslaw (D-Fairfax), who opposes privatization. Saslaw predicted that the pro- posal will fail in the Senate be- cause Democrats remain con- cerned that the state will no lon- ger be able to collect the $220 million in taxes and profits ABC stores contribute annually to the general fund. Sources said McDonnell will proceed with a proposal only if it includes at least $150 million a year in recurring money — an amount that could be generated by a new or reconfigured tax on wholesalers or on retailers. Laura Aldrich, president of the Virginia Retail Merchants Asso- ciation, which has long support- ed privatization, said she does not think that the state will make as much money as McDonnell es- timates without opening hun- dreds more liquor stores, a prop- osition that she thinks would be rejected. “That’s not the Virginia way,” she said. Sen. Mark D. Obenshain (R-
Harrisonburg), who in the past two years has unsuccessfully in- troduced legislation that would allow 800 private liquor stores to operate in the state, said studies show that having more liquor stores does not necessarily trans- late into more drunken-driving arrests or alcohol-related driving fatalities. Virginia’s 332 stores are far
fewer than in most other places. The District, which has less than one-tenth the population of Vir- ginia, has more than 500 liquor stores.
Virginia officials said the rela- tively small number of stores causes them to lose 15 to 20 per- cent of alcohol sales to neigh- boring jurisdictions, including Maryland and the District, where prices are lower and locations more convenient. Ross Mattis and Ned Wheeler, who own a pair of wine shops in Richmond, said they would be thrilled to get into the liquor business. “I want to be the first in line,” Mattis said as he sat next to a rack of wines from Australia and New Zealand in one of his Barrel Thief stores. Mattis took a break from refill- ing the glasses of two customers on a recent afternoon to describe the liquor store he would like to buy down the street from one of his shops. He would offer a better selection and better service, he said, and would do some cross promotion with his other busi- ness.
“If they wanted to give me that ABC store, there’s a lot of things I could do better,” he said.
kumaranita@washpost.com
Staff researcher Meg Smith contributed to this report.
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