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Posted at 7:47 AM ET, 06/29/2010

Selling Va.'s ABC stores: The details are everything

By Peter Galuszka

As with with several other of his initiatives, Virginia Gov. Robert F. McDonnell has been big on ideas and short on details when it comes to privatizing the state's 330 Alcoholic Beverage Control stores.

He wants to sell off the stores, hoping for a one-time pop of somewhere between $300 million and $500 million that he would use to help address the state's transportation issues. But there are many questions remaining, such as how much revenue the state would get annually from the sell-off and what type of system McDonnell embraces.

He's already facing stern criticism from Senate Majority Leader Richard L. Saslaw and Senate Finance Committee Chairman Charles J. Colgan, both Democrats, who say that selling the stores may be bring in only around $150 million, far less than the Republican governor envisions.

Robert Grey, a lawyer at the Hunton & Williams law firm in Richmond and ABC chairman from 1983 to 1985, told me that the critical feature is what kind of arrangement McDonnell wants the selling of distilled spirits to take. "You don't know the model," he said, "so how much you generate is a guess."

Only 18 states have the type of ABC control that Virginia does. Maryland, for instance, does not, and liquor is cheaper there. While the state charges excise taxes and other fees, both wholesale and retail sales are handled privately in most places.

The tendency in those cases is that the state generally gets less revenue per bottle of booze while the consumer gets a break on prices, Grey says. The state can't really predict or bank on any particular amount of revenue per year, he adds.

Grey says that perhaps the best model for Virginia to follow would be Ohio's, where a state liquor agency controls wholesale operations but retail is private. That way, the state has more control and information about how much liquor is being distributed.

McDonnell says he'll issue a privatization plan later this summer. He hopes to generate $179 million a year in fees after selling the stores.

The governor seems to be taking a page from the playbook of a fellow Republican, John Engler, Michigan's governor in the 1990s. Like Engler, McDonnell wants to be noted as one who streamlined and cut government and privatized state operations.

The devil, however, is in the details, which clearly isn't McDonnell's strong suit. When he pushed his now-shelved plan to drill for oil off the Virginia coast, he cited the economic benefits described in a report put together by an economist at Old Dominion University. That man later discounted his own report, saying that it was a quickie job and that offshore drilling needs a lot more study.

As for tipplers, industry observers say that privatized distribution may not necessarily lead to lower prices and greater selection. Rural stores could end up carrying fewer varieties and brands because they wouldn't want to risk being stuck with much unsold inventory.

McDonnell has a lot of questions to answer.

Peter Galuszka blogs at Bacon's Rebellion. The Local Blog Network is a group of bloggers from around the D.C. region who have agreed to make regular contributions to All Opinions Are Local.

By Peter Galuszka  | June 29, 2010; 7:47 AM ET
Categories:  HotTopic, Local blog network, Va. Politics, Virginia, economy, public health, taxes, traffic, transportation  
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