Booze Money Part 2

Good evening/morning everyone.

A little while ago I posted about Senator Obenshain’s bill that would privatize the state’s liquor sales.  Well, yesterday that bill died in committee.  For some of my conservative friends out there (especially the socially conservative ones), I think it is important for you to know more about this effort, especially as it will likely be returning in a future session of the General Assembly.  As most of you don’t live in the 26th Senate District of Virginia, I wanted to share Senator Obenshain’s thoughts on this subject in his own words so here they are, hot and fresh from my inbox.

“This morning, the Senate Committee on Rehabilitation and Social Services killed my bill calling for the privatization of the Commonwealth’s ABC Stores. This is a setback, of course, but not wholly unexpected. Moreover, I have no intention of letting this issue drop. Instead, this an opportunity – a chance to work with interested parties across the Commonwealth to improve upon this legislation and continue the fight in the 2010 session.

It will not come as a surprise to any of you that government programs tend to be inefficient and often long outlast their reasons for being. Take, for instance, a federal excise tax on long-distance telephone calls, abolished in 2006. Its purpose: to help fund the Spanish-American War. Virginia’s ABC Stores fall into this category as well. They are a holdover from the early days after the end of Prohibition, when John D. Rockefeller successfully campaigned for state control of liquor sales in an attempt to prevent moral decay.

Fast-forward seventy-five years. Control states don’t seem to be in a greater state of decay than their thirty-two non-control counterparts. In fact, the opposite is true, at least when underage drinking, driving under the influence, and alcoholism are your metrics. To many of us, moreover, it is far from clear why government should be in the liquor business, especially with the $115 million in operating and administrative costs incurred in the last fiscal year and the surprisingly low profits achieved in what should be an extremely lucrative business. On gross sales of $641 million, the state netted $103 million in store profits compared to a further $179 million it raised in liquor taxes.

My bill would have required the Commonwealth to divest its distilled spirits stores and to get out of the retail business. Government should focus on core competencies, not make forays into retail. Done correctly, divestiture can increase state revenue and allow Virginians to enjoy the benefits of free enterprise in a sector of the economy that currently languishes under state control. Privatization tends to offer such benefits as greater convenience, better hours, wider selections, lower prices, and the innovation inherent in competition-driven systems.

Divesting Virginia’s ABC Stores isn’t a new idea. It was a recommendation of the Wilder Commission – convened by one Democrat, then-Gov. Mark Warner, and chaired by another, former Gov. Doug Wilder, and several members of the General Assembly, including former Del. Allen Louderback of Luray, have sought to divest these operations in the past. With Virginia’s current budget shortfall – an issue I suspect we will be forced to address again in 2010 – the issue has increased urgency, as the Commonwealth could profit by licensing rights to private establishments. This would also help localities at a time when their resources are stretched thin, as ABC Stores do not pay local taxes, whereas private retailers would be subject to the taxes required of any other business.

Virginia’s ABC Stores do not pay local income or real estate taxes, and although an attempt is made to counteract this shortcoming by making transfers to local government, the current system continues to shortchange our localities at a particularly difficult time. Private operations would, of course, be subject to these taxes.

In other states, privatization has lead to an increase in annualized receipts. The most recent cases of privatization, Iowa and West Virginia, both resulted in increased state revenues, and in the Canadian province of Alberta, the province’s legislative assembly has been forced to lower taxes four times to comply with a revenue-neutral provision in the original privatization legislation. Impressively, the crime rate at liquor stores also dropped 32% in the years following privatization.

The current system is uncompetitive and outmoded. Whereas entrepreneurs set prices and make purchasing decisions based on local factors, the ABC Store model has only a tenuous relationship with the laws of supply and demand. Restaurants, moreover, are forced to purchase all alcohol from state-run wholesale operations, limiting their selection and driving up prices.

The ABC Stores are a relic of a failed experiment, and I say we should pull the plug. Under the proposal I put forward, the ABC Board would have auctioned off “package store licenses,” which would authorize the retail sale of alcoholic beverages. No more than one licensee per 10,000 residents of any city or county would be permitted, and no package store could locate within a one mile radius of any existing licensee, making the first license auctioned off in any locality the most valuable. The purchase price at auction would determine the licensee’s annual fees, and that amount would be adjusted annually for inflation. As now, taxes would be levied on the sale of spirits.

The details, however, are not what matters most at present. In fact, in the next year, I hope to hear from constituents and other interested parties to come up with the best possible way to return Virginia’s distilled spirits stores to the private sector, where they belong.

In pursuing this, I’m not asking the Commonwealth to be a trailblazer. I just want us to join the thirty-two other states that are already enjoying the benefits – to taxpayers and consumers – of private industry. And although we lost a skirmish today, this fight is not over. This proposal is resonating with people across the Commonwealth; Democrats and Republicans alike know that this is not a legitimate role for state government. I look forward to coming back next year with a bill strengthened by input from around my district and around the Commonwealth.

Mark Obenshain
Virginia State Senator

P.S. I’m not giving up, and I hope you won’t, either! Forward this email to your friends, share it on Facebook, and join my Virginians for ABC Store Privatization on Facebook as well!”

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