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Posted at 7:00 PM ET, 01/11/2011

McDonnell outlines new scaled-back, retail-only ABC plan

By Anita Kumar and Rosalind S. Helderman

Gov. Robert F. McDonnell will unveil a proposal Wednesday to close 332 state-owned liquor stores and replace them with 1,000 private retail outlets -- a scaled-back version of a plan he's pushed for months to end Virginia's monopoly on the sale of distilled spirits.

Under the proposal, the state is expected to reap at least $200 million upfront for the sale of new liquor licenses and $13.1 million more than it now collects each year in profits and taxes at Alcoholic Beverage Control stores, according to the governor's office.

McDonnell (R), failed to get support for his orginal proposal to privatize all aspects of the 77-year-old liquor system, including the wholesale, distribution and retail sales. He hopes his new retail-only proposal will be more favorable to a divided General Assembly, which will return to Richmond Wednesday.

"He's reconfigured the thing. It's pretty simplistic," Sen. John C. Watkins (R-Chesterfield), who will sponsor the bill in the senate. "If you're going to reduce the size of government, this is a natural."

McDonnell hopes to blunt the criticisms of his plan from Democrats and some Republicans, who worried his original proposal would have brought in $47 million less each year than the current system. The scaled-back plan will be more profitable to the state each year but would also mean just $200 million in upfront cash from the sale of the system-$300 million less than McDonnell had hoped to bring in for roads.

But Democrats are still unlikely to greet the proposal warmly. Late Tuesday, Sen. J. Chapman "Chap" Petersen (D-Fairfax) said he would have to examine the governor's proposal more closely but added that he continues to have concerns about increasing access to hard alcohol by tripling the number of stores that sell it.

"We'd be taking a state asset that's been producing revenue for years, that's generally well known, and effectively we'd be selling off half of it, for what?" he said. "To capture $200 million, which is frankly a small piece of change in the big scheme of things?"

Under McDonnell's new liquor proposal which he will unveil Wednesday, the state will
continue to act as the wholesaler of liquor in Virginia, buying thousands of cases of booze directly from distilleries and selling it at a profit to private retailers, which would then set prices for consumers.

Aides to the governor hope prices might fall, however, because, as the state would cut the mark-up it applies to liquor prices from 69 percent to 50 percent.

The stores would be be sold off over an 18-month period starting July 1.

McDonnell hired PFM, a national financial management company, at a cost of more than
$75,000 to consider ways to privatize the state's stores without losing money after he did not have enough votes to hold a special session.

Licenses would be sold to the highest bidders and split among big-box stores, such as
grocery stores and Wal-Mart; convenience stores and drug stores; package stores and wine store and small convience stores.

A legislative study released in November showed McDonnell's original proposal may have overstated by tens of millions of dollars the amount of money Virginia could make
from selling the entire system. His new figures came from PFM. Read their report.

By Anita Kumar and Rosalind S. Helderman  | January 11, 2011; 7:00 PM ET
Categories:  Liquor privatization, Robert F. McDonnell  
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