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UPDATED: Looking for support, McDonnell drops restaurant fee from ABC plan

Rosalind Helderman

Gov. Bob McDonnell (R) is offering significant modifications to his plan to privatize the state's liquor monopoly, including dropping a controversial fee for restaurants and a 1 percent tax on liquor wholesaler's annual sales.

The revisions come as McDonnell faces skepticism from legislators about his plan to sell off the state's wholesale and retail distilled spirits monopoly, which he says would bring in about $450 million for the state's ailing transportation network.

McDonnell has proposed closing the state's 332 state-owned Alcohol Beverage Control stores and auctioning spirits licenses to 1,000 private retailers, including grocery and convenience stores.

Dropping the two annual fees could bolster support for the plan from restaurateurs, the liquor industry and conservatives who have expressed reservations about backing a plan with hefty new fees.

But it will also mean McDonnell's plan would produce $46.5 million less in annual revenue for the state in fiscal 2011 than Virginia's current ABC system. His previous plan had shorted state coffers by $20.5 million. The changes will deepen concern from lawmakers who believe that the loss of annual revenue means the privatization proposal would be a bad deal for the state over time.

McDonnell policy director Eric Finkbeiner told a subcommittee of the governor's hand-picked Government Reform Commission on Thursday that he was offering changes to the plan, unveiled to the same commission Sept. 8, in response to feedback from lawmakers and industry groups.

The changes drew criticism from Sen. Mary Margaret Whipple (D-Arlington), a commission member.

"A basic precept of this whole endeavor was that the general fund would not be affected," she said. "Now, that's not happening."

Finkbeiner said other recommendations for government efficiency that will emerge from the same commission will "more than make up" for the lost revenue. And he tried to refocus debate on the philosophical underpinning of the governor's proposal: That government should not be in the liquor business.

Finkbeiner also unveiled two other modifications to the plan Thursday, both dealing with the public auction that would be held to sell newly created distilled liquor licenses to retailers.

McDonnell had proposed dividing the licenses into three categories -- 600 for big-box stores,150 for freestanding package stores and 250 for convenience and drug stores.

Now he has said a fourth category should be created, taking 100 of the 250 licenses proposed for convenience and drug stores and earmarking them for stores that have no more than 3,000 square feet of total retail space, 200 feet of liquor shelves and 50 employees in the state. These would basically be for convenience stores and would allow locally owned franchises to better compete with nationally owned drug store chains.

Finally, Finkbeiner confirmed that McDonnell would like to let any package, convenience or drug store that employs fewer than 50 people finance their winning bid over several years. The goal would be to help small retailers afford minimum bid prices, which could reach to several hundred thousand dollars.

UPDATE 3:43 p.m.: Former Gov. George Allen (R) has released a statement calling McDonnell's plan "common-sense," "innovative" and "beneficial." Perhaps previewing a new tact for knocking down arguments like Whipple's, Allen suggested those who dwell on general fund revenues are wedded to big government.

"As our elected legislators work through the ABC privatization initiative, there is no good reason or need to insert a tax hike in this plan. The taxpayers of the Commonwealth know that the state budget is sufficiently big. Worrying about how much revenue the government can keep from liquor sales is a distraction from the larger cost savings of privatization," he said.

about the general fund,

By Rosalind Helderman  | September 30, 2010; 2:59 PM ET
Categories:  Liquor privatization, Robert F. McDonnell, Rosalind Helderman  
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If they don't divide the licenses by county based on population they will have problems and stores will end up concentrated in the high population areas. They could make up the revenue by selling package licenses to bars.

Posted by: washpost45 | September 30, 2010 7:02 PM | Report abuse

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