Liquor-store privatization could be boon for industry

February 15, 2010 at 12:00a.m.

The privatization efforts in Virginia and other states rankle groups that argue alcohol-related problems would increase if stores are run by private businesses.

MarketWatch

CHICAGO — With their finances on the rocks, states that control the sale of liquor to the public are looking at handing the job to private enterprise, a move that could raise revenue, streamline government, and prove a boon to the spirits industry.

Four states — Virginia, North Carolina, Washington and Mississippi — are all weighing proposals that would reduce the powerful role they play in sales of liquor, and in some cases wine, via state-owned distributorships and/or retail outlets.

The effort could take months to play out because lawmakers have to show how privatization would deliver significant revenue and cost benefits. It also faces stiff opposition from labor groups, religious communities and others who would prefer keeping the state in charge.

Eighteen U.S. states and some Maryland counties still have some form of a liquor monopoly, a relic of the Prohibition era.

When that ban was repealed by the 21st Amendment in 1933, states were given near-absolute power to regulate alcohol sales within their borders. Some chose a more active role than others, adopting the idea that state ownership would enable them to better control consumption and mitigate negative social consequences from drinking.

Bob McDonnell, Virginia’s new Republican governor, made privatization of his state’s liquor stores a key plank of his campaign last year. He insisted in his State of the Commonwealth address last month that selling Jack Daniel’s whiskey is not “a core function of government.”

McDonnell believes Virginia could reap a short-term windfall of $500 million by privatizing its liquor stores, money he’d like to spend on transportation projects. Virginia faces a budget deficit of $4 billion for the fiscal year that will end June 30.

A Virginia state senator, Republican Mark Obenshain, has introduced legislation that, if approved, would require the state to auction off licenses to sell distilled spirits to retailers. The state would continue to receive tax from liquor sales, along with the licensing fees. In fiscal 2009, the state liquor agency contributed $322.3 million to Virginia’s general fund from profits and excise taxes.

McDonnell has asked Obenshain and others sponsoring such legislation to put their bills on hold pending recommendations for various changes to state government that are expected to emerge from a reform and restructuring commission he created. The governor has asked for recommendations by mid-July and has repeatedly stated it is a “first-year priority.”

The privatization efforts in Virginia and other states rankle groups that argue alcohol-related problems would increase if stores are run by private businesses.

In Virginia, the privatization effort is opposed by the Virginia Assembly of Independent Baptists, which represents about 500 Baptist churches and has helped defeat similar proposals in the past. “We oppose anything that we think would expand the sale and use of alcohol,” said Jack Knapp, the group’s executive director.

Some retail groups, such as the Virginia Petroleum, Convenience and Grocery Association, which represents convenience- and grocery-store operators, also have voiced concerns about the state doling out licenses to the highest bidders, fearing it would pit small-shop owners against better-funded national retail chains.