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McDonnell promises his ABC privatization plan will keep nearly $250 million flowing to general fund

Anita Kumar

Gov. Bob McDonnell (R) said this week that his yet-to-be-released proposal for privatizing Virginia's 332 liquor stores will include nearly $250 million in recurring money each year to the state.

In an interview with The Washington Post, McDonnell said that any plan that he introduces in the coming weeks will include the same amount of money in profit and taxes that is currently being spent on education, public safety and other core services. Virginia's Alcoholic Beverage Control board deposited $248 million in liquor profits, as well as excise and sales taxes, into the general fund during fiscal 2009.

The governor's staff said McDonnell was considering proceeding with a proposal that included at least $150 million a year in recurring money, but Democrats who hold a majority in the state Senate balked at supporting privatization unless it generated more than that.

"We're first of all going to make sure we don't lose money out of the general fund,'' McDonnell said. "That's some of the concerns of the legislators. That's an argument that they've got. They're concerned about losing general fund money out of this plan and I'm saying the final plan that we propose will not have that in it. One more argument to take off the table. That's their main opposition right now."

In addition, McDonnell estimates that his proposal could bring in $300 million to $800 million in upfront money for transportation -- but most likely that number will end up being around $500 million.

"It depends on the market value that the licenses bring in,'' he said.

McDonnell's staff has unveiled four options for privatizing the state's liquor stores: selling all of the state's alcohol assets to a single company; having firms take over the state's existing stores; offering licenses to the 3,000 businesses that sell beer and wine; and auctioning an undetermined number of licenses to the highest bidder.

The last option one -- auctioning the licenses -- is the one drawing the most attention, perhaps with an increase of the number of stores to about 800. Companies would be limited in the number of licenses they could buy, and some would be set aside for small, women-owned or minority-owned businesses.

McDonnell said he expects to reveal a specific proposal in the next few weeks.

"We haven't finalized every detail yet,'' he said. "We are talking to countless legislators, business people, looking at other states models to come out with what our internal staff thinks is the best approach for Virginia."

McDonnell's staff has spoken to 30 to 40 of the 140 legislators.

His government reform commission is likely to approve a proposal at its final meeting Sept. 13, after which McDonnell expects to call legislators back to Richmond for a special session on privatization and other cost-cutting issues.

McDonnell said he does not see the need for a referendum on the issue of privatization even though most other major ABC decisons over the last 75 years have been decided that way.

"That's not part of our proposal,'' he said. "If the General Assembly insisted on a referendum then it's something certainly I'd consider...I think we already have pretty good sentiment from the public that it's something they would support. I want to make sure that we have money dropping in the bottom line on all our government reform issues as fast as possible."

--Anita Kumar

By Anita Kumar  |  August 6, 2010; 8:45 AM ET
Categories:  Anita Kumar , General Assembly 2010 , House of Delegates , Robert F. McDonnell , State Senate  
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Bob McDonnell's next campaign slogan: "I'll put a liquor store on every corner...."

Posted by: B-rod | August 6, 2010 9:32 AM | Report abuse

talk about fuzzy math.
how is it possible for the state to continue to receive $250 million each year when all of those sellers of alcohol will now be collecting the retail revenue?

is it going to cost $100 for a bottle of whiskey?

Mcdonnells numbers don't add up.

those 3,000 beer and wine stores that will get liquor licenses will drive down the value of those ABC stores.

and those additional licenses they plan on auctioning off will have little value considering there will already be over 3,000 liscenses granted in a state that previously got by with only 332 ABC stores.

Mcdonnell is an idiot.

Posted by: MarilynManson | August 6, 2010 9:37 AM | Report abuse

How does McDonnell know what the people would support when he hasn't even revealed a specific proposal? This guy is totally disingenuous. What a disaster of a governor.

Posted by: sonny2 | August 6, 2010 9:55 AM | Report abuse

Also missing from McDonnells plan; what to do about underaged drinking?

with the 332 state controled ABC stores, underaged drinkers need the help of 21 and older friends and relatives to aquire alcohol.
with over 4,000 private businesses that have 16 yr old employees and that are typically burdened with stock losses due to theft now stocking liquor, it will be a lot easier for underaged drinkers to get alcohol.

Access to alcohol is a primary factor in underaged drinking.

The state will need to spend millions more on educational and preventitive programs to combat underaged drinking or suffer the consequences.

If the assembly aproves mcdonnells plan, they should add a requirement that the governor has to attend the funerals for all teenagers who are killed in drunk driving accidents.

Posted by: MarilynManson | August 6, 2010 9:59 AM | Report abuse

Have Virginia's conservative religious values on alcohol consumption changed so much since 1934?

In its decision regarding the U.S. Constitution's 21st amendment, repealing the 18th prohibition amendment, the Commonwealth held a special statewide election on October 3, 1933 and the people voted 99,640 to 58,518 to ratify the 21st amendment and 100,445 to 57,873 to devise a plan of liquor control to supersede State Prohibition.

On March 7, 1934, the Virginia Assembly created the current system of alcohol control after an exhaustive committee study of ways ro allow but constrain the sale of alcoholic beverages.

The ABC system that Gov. McDonnell wants to abolish was based on eight principles that were felt indispensable for the efficient functioning of a LIQUOR CONTROL plan. Among these, they wrote "The first objectives of the plan should be TEMPERANCE, social betterment and respect for law. The need for revenue should NEVER be allowed to take top priority." Also, "The private profit motive, with its incentive to encourage sale and consumption of alcoholic beverage, should be minimized," and, "In order to encourage temperance, the plan should discourage use of hard liquor and give relative encouragement to use of lighter alcoholic beverages." [Source: Senate Document 5 - January 1934]

Gov. McDonnell and his party are proposing to replace these principles for a one-time profit from the sale of the ABC stores to private industry, with the goal of increasing liquor sales!

Posted by: BTMPost | August 6, 2010 11:40 AM | Report abuse

Has the governor cleared his plan with Pat Robertson?

Posted by: kinkysr | August 6, 2010 3:51 PM | Report abuse

Remember that the state has to run the stores now. Sell off the licenses and the state doesn't have the expense of running the operations... only the sales tax revenue that comes from private stores selling booze.

Private stores will do a much better job of selling booze than the state does, and you can safely say a few things...

. More liquor will be sold in Virginia.
. Prices will be lower
. Selection will be better.

That adds up to an increase in the tax revenue from liquor sales. Is it enough to replace the current amount they get from their own sales? I don't know. It would take some marketing surveys to get a handle on that, but it certainly will be somewhat more.

This whole "temperance" thing from 1934 is nothing but a quaint anachronism, since wine and beer are already available through private sales anyway. Folks, we haven't had Prohibition in SEVENTY YEARS. I think we can safely discount fears of bootleggers and moonshiners corrupting the people.

Also, there's no reason to think that as a result of private liquor sales there will be any more underage drinking in Virginia than there is already. In fact, private stores will have greater incentive to prevent sales to minors than they do now.

This is a small, but good idea whose time has come. Gov. McDonnell is doing the right thing.

Posted by: joeduffus | August 6, 2010 5:57 PM | Report abuse

Why does the Governor waste his time talking to the Compost? The National Enquirer is more reputable..

Posted by: wewintheylose | August 6, 2010 8:22 PM | Report abuse

You made me laugh out loud.

Has he cleared this with Thomas Road Baptist Church in Lynchburg.

I'm a Baptist! the by...Include the Independent Green Party of Virginia over there on the left of the screen with Virginia's two larger parties.

Posted by: CareyCampbell | August 6, 2010 10:58 PM | Report abuse

McDonnell's math is full of fail, which is precisely why he isn't bothering to support his claims. He knows they simply cannot be substantiated.

Privatizing the ABC stores for a one-time major cash influx is the epitome of irresponsible financial policy, especially when that one-time influx will barely pay for a few percent of the needed transportation fixes.

The simple fact is that by making the ABC stores private competition happens, and prices lower. Lower prices equals lower tax revenue per sale. To hope you get the same amount of revenue per year is folly because that means you're ACTUALLY hoping Virginians spend more time getting buzzed or drunk than they do now.

I happen to enjoy the occasional top shelf tequila from time to time. Under a private plan, my consumption has not increased, but prices will decrease due to competition. For my purchases, Virginia will see far less tax revenue under a privatized ABC plan. Unless private sellers collude to keep prices artificially high, I would likely need to buy two or three times the tequila I buy now for the State to see an equal amount of tax revenue as they currently enjoy.

Let's not forget that the ABC also has to investigate and approve each and every new license, so privatizing sales and allowing other stores to sell liquor means an increase in ABC duties for licensing. All of which costs state money.

There is no amount of economics that can support McDonnell's statements. If privatization happens (which I highly doubt it will), after a few years, tax revenue will be a drop in the bucket compared to what the ABC pulls in now, roads will still be in shambles, and there will be an even BIGGER revenue deficit.

Typical Republican mentality: Sell for a short term gain NOW, screw the long term effects.

Posted by: Captiosus77 | August 10, 2010 3:39 AM | Report abuse

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