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Other states did not make money on ABC privatization

Anita Kumar

As we reported over the weekend, Virginia probably should not expect expect either a financial windfall or a level of income that matches what state-run liquor stores currently add to Richmond's bottom line, according to a Washington Post analysis of other states that have privatized at least part of their alcohol sales.

Gov. Bob McDonnell (R) said he expects to make $500 million upfront while retaining nearly $250 million in taxes and profits to the state each year by doing what no control state has done -- privatizing the wholesale, distribution and retail. He will announce his proposal Wednesday.

Iowa and West Virginia, the only two states that have fully privatized their retail stores in the last two decades, each made less than $20 million upfront when they privatized. Officials there say the change helped them become more efficient and saved overhead costs, but never produced the anticipated windfall.

In West Virginia, during fiscal year 1990, the last full year before privatization, $9.7 million was sent to the state after expenses, according to Kimberly Osborne, a spokeswoman for West Virginia Department of Revenue relying on prior year's records. In fiscal year 1992, the first full year after privatization, $6.6 million was sent to the state after expenses, according to Osborne.

Maine, which leased out its wholesale operation to help close a $1 billion shortfall in the $5 billion budget, received $125 million upfront, but continues to collect less money each year than it would have had it stayed in the business.

The state receives about $6 million a year, officials said. It was receiving $28 million to $30 million each year before privatization.

See a full list of 18 control states and what systems they use now.

In Iowa, Senate Republican Leader Mike Gronstal, who helped push privatization through the Senate, said legislators constantly touted the possibility of a massive windfall.

"If you wanted to sell off everything, there was a potential for millions,'' he said. "But there was some real fear about losing the annual money."

Sixteen years went by before Iowa's tax and fee receipts from liquor sales -- which fund substance abuse treatment and prevention, aid to localities and the state's general fund -- reached the level that alcohol had brought in when Iowa ran its own stores, according to the state's Alcoholic Beverages Division.

Iowa chose not to privatize the wholesale portion of the liquor pipeline because the state stood to lose $60 million to $70 million each year if it did, said former House Speaker Don Avenson, a Democrat who strongly supported the bill. Instead, Iowa privatized only its retail operation, and now has about 800 private stores selling liquor.

The first year the state saved $3.7 million dollars and took in an additional $9-million -- primarily from selling off its liquor inventory -- though it had expected $17-million, according to interviews and news reports.

During the last fiscal year, Iowa made nearly $3.7 million in license fees -- a figure that has gradually increased since 1987, state figures show. Each license costs $750 to $7,500.

But the money from liquor sales to the state for the general fund, substance abuse treatment and prevention, marketing and aid to localities dropped considerably after privatization.

In fiscal year 1986, the last full year before privatization, $71.6 million was sent to the state after expenses, according to Tonya Dusold, a spokeswoman for the Iowa Alcoholic Beverages Division relying on prior year's records. In fiscal year 1988, the first full year after privatization, $46.3 million was sent to the state, according to Dusold. It took Iowa until 2004 to reach pre-privation levels.

By Anita Kumar  |  September 7, 2010; 1:50 PM ET
Categories:  Anita Kumar , Liquor privatization , Robert F. McDonnell  
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Comments

Why does it matter if the government would turn a profit or not? The government shouldn't be in the wholesale or retail business; period. Oversite of an idustry is one thing. A monopoly is quite another.

Posted by: joemdavis55 | September 7, 2010 3:13 PM | Report abuse

Wow. This is terribly sloppy 'journalism' and I use that term loosely.

Comparing money Virginia would get from this process --- to the $Dollars 2 states got in 1986 and 1990 is not even close to being a comparison that should be taken at face value.

THEN throw in the fact that Virginia has almost 8 million people --- Iowa only 3 million people and West Virginia 1.8 million people and Maine has like 139 people....and you can safely see the writer did no analysis at all.

The simple fact that Virginia is sooo much larger in population, plus the non-accurate value of the old vs current $ figures..... and you see the 'comparison' examples in Iowa, WV, and Maine would have much larger upfront money and revenue. I have no side in this issue till I look at it in more detail, but this article is useless and a poor piece of analysis

Posted by: bamboon1 | September 7, 2010 3:54 PM | Report abuse

This article has some clearly weak analysis and reads more like a blog than a journalistic piece that should be in the printed media. Clearly the lack of accounting for current dollars, and comparing actual money earned to "estimated figures," which it would be a nice touch to know where these "estimates" came from. I also dont think that the primary issue here is raising funds for the state, but trimming the size of the government and putting private ownership in control of the wholesale and retail business. The benefits of privatization, beyond just the government's bottom line, provides for private companies to run their businesses with leaner budgets and the ability to adjust costs with the revenue, to expand profits and build capital. The government control over alcohol distribution may be earning the state money, but the Governnor is seeing, that in private hands the industry may be more profitable and provide a greater benefit to the state and local communities by allowing private owners to determine "Best use" of the money that the stores generate, through investments in employees, other companies, homes, etc... instead of funding bloated government pensions, or other government spending to be determined by legislatures and bureaucrats.

Posted by: Maryland82 | September 7, 2010 5:45 PM | Report abuse

This article has some clearly weak analysis and reads more like a blog than a journalistic piece that should be in the printed media. Clearly the lack of accounting for current dollars, and comparing actual money earned to "estimated figures," which it would be a nice touch to know where these "estimates" came from. I also dont think that the primary issue here is raising funds for the state, but trimming the size of the government and putting private ownership in control of the wholesale and retail business. The benefits of privatization, beyond just the government's bottom line, provides for private companies to run their businesses with leaner budgets and the ability to adjust costs with the revenue, to expand profits and build capital. The government control over alcohol distribution may be earning the state money, but the Governnor is seeing, that in private hands the industry may be more profitable and provide a greater benefit to the state and local communities by allowing private owners to determine "Best use" of the money that the stores generate, through investments in employees, other companies, homes, etc... instead of funding bloated government pensions, or other government spending to be determined by legislatures and bureaucrats.

Posted by: Maryland82 | September 7, 2010 5:46 PM | Report abuse

"As we reported over the weekend, Virginia probably should not expect expect either a financial windfall or a level of income that matches what state-run liquor stores currently add to Richmond's bottom line"
---


GOOD. Because the Government shouldn't be in the business of running a business to profit off its citizens.

Government can regulate, but it should not run anything. When the Government runs a business, it creates a monopoly which leads to higher prices and fewer choices. I don't care if the government only gets a buck fifty off the sale. We need to let the free market reign supreme.

Posted by: AlbyVA | September 7, 2010 5:48 PM | Report abuse

Comparing the dollar amounts of other states' experience with Virginia misses the point. So does the argument that the state government shouldn't be in the liquor biz. The reason McDonnald has proposed this bit of creative financing is to raise money for a short-term budget shortfall. It seems clear from this report and others that it won't work as advertised. Why give up a $100 million annual revenue stream in the midst the worst financial crisis in generations, especially since the one time windfall is likely to be so much less than expected and there are other secondary impacts that need to be considered. This is half-baked proposal that should be shelved until a more suitable time (that is, a time when the state can afford to 'reform' its liquor sales regime).

Posted by: jubao | September 7, 2010 8:11 PM | Report abuse

Just curious- will the supporters of this measure be as cheerful in their approval of the taxes that will be raised if getting rid of one of the few certain sources of revenue during a terrible economy turns out to be a bad idea?

Posted by: trurate | September 7, 2010 9:44 PM | Report abuse

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