McDonnell Wants You to “Drink Baby, Drink”

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    Republicans have lousy math skills. Though Malek has a counting resume, it isn’t accounting. So here’s help: to equal the revenue from the ABC stores, every year the state must sell 50,000 liquor licenses or have you and yours purchase 15.5 bottles of booze apiece. No government overhead factored.

    This is a nice economics lesson, too, because it tells you a lot about monopolies. Virginians aren’t very familiar with private sales of bottled spirits. A retail liquor license in New York City costs about $4,000. The privatization proponents have no real analysis, but there are estimates of some 800 stores going into the business. Using the high New York figure, that brings in a grand total of $3.2 million. No overhead factored. That means the consumers must bear the remaining $196.8 million. Again, using those contemptible New York figures, with a per gallon liquor tax of $6.44, every swinging Virginian must purchase 3.82 gallons of spirits per year. With the combination of expensive licenses and high taxes, we’re down to 15.3 quart bottles of hard booze per Virginian per year.  

    Republicans are showing poor business acumen too. There is this thing called profit. That is the amount that the state is giving away by divesting the monopoly, breaking it up, and allowing the free market to do its thing. Here’s one of its things: squeezing margins through competition. Mom and pop are going to have a hard time covering the $4,000 license fee when they compete with the likes of Wal-Mart which can function at the margin of margins.

    But here’s the bottom line: Virginia per capita sales at ABC stores is about a third (4.6 bottles) of that necessary to break even replacing the current annual revenues from the ABC stores with a New York style tax structure. And do you think Governor McDonnell wants New York style taxes? It is impossible to balance two of the constituencies that are pushing him: faith-based groups and alcohol retailers. It is also impossible to balance out the revenues. If this is just a charade to accomplish some “conservative principle,” do it and be done with it. All the discussions are embarrassingly sophomoric.  

    • …now I feel like I need a stiff drink! LOL

    • blue bronc

      The Republican mantra of everything the “free market” does is good should be interesting to watch as it battles the numbers from above.  Unfortunately there are a lot of morans out there willing to kill the government to prove their “free market” mantra is correct.  

      There are not enough politicians around to make up the difference between profit and loss either.

    • Iowa reaped the benefits of privatizing liquor sales. They have seen $10 million in annual licensing fees along with a savings in Government expenditures of $2.5 million. Shame Dan doesn’t mention a word about that.

      In West Virginia, they saw a boon of $26.5 million to the state coffers in license fees and sales of current state-run liquor outlets. They also reaped $25 million in 10-year license re-issues. Not too mention the millions in reduced state expenditures.

      Alberta, Canada saw an increase of $87 million dollars in revenue they wouldn’t have gotten without privatization. In addition to that, they were able to reduce Govt expenditures by $67 million. Shame the author doen’t mention a word about that.

      Let’s face it, the best liquor stores are in D.C. and Maryland. Why do we consumers in Virginia have to go to one liquor store to buy booze and a convenience store to buy beer and wine? It’s not very practical. Privatizing will allow for better service, and better selection. Government is not very good at running a business.

    • tx2vadem

      If the governor proposed to make up all of the lost revenue via an increase in the sales tax or in the income tax, would you be okay with privatization?

    • Elaine in Roanoke

      Just try to question Bobbie’s pet project, and we can watch the GOPers rush to defend the indefensible. If Bobbie wants to replace all of the $200 million ANNUALLY that comes from ABC stores, he will have to raise substantially the liquor tax in the state, as well as charge a huge price for the license to sell hard spirits.

      I have no problem with that, but the GOPers will have. After all, that would be an increase in taxes…the horror, the horror…  

      • Lowell –

        Let’s say Dan’s right about the $4K in liquor license fees. How much will the Commonwealth save by not having to pay payroll, not having to pay pension & benefits, not having to pay suppliers, etc? How much will the Commonwealth earn selling the property VABC owns? Also, because of increased competition the privatization will bring, how much more will the state benefit in increased sales taxes? If you have increased competition, then you have lower prices which leads to better sales and higher revenue to the Commonwealth.

        I had a party recently and I had to go to four stores in order to get the liquor and wine I needed. Why?

        Monopolies, especially Government-run monopolies don’t work. I think even President Obama acknowledged such when he spoke about how UPS & Fed Ex do okay competing against the dreadful Postal Service sometime last year during a town hall.

        An example of competition at work is Lasik surgery. Years ago, it would cost much more to have Lasik done than it does today. Why? Competition. Research has shown that even a $100 difference can sway a patient in which Doctor will perform the Lasik treatment.    

    • can be seen in the Blue Commonwealth archives from last September:

      http://www.bluecommonwealth.co

      It’s hard to see how privatization could replace about $200 million in profit that the current ABC stores generate annually.  That’s a lot more than the $10 or $20 million that those other states took in by privatizing.  

      Right now, the state is collecting revenue from both retail sales and from taxes on each bottle of liquor sold.  Dan is right that the only way for privatization to lead to more revenue would be for us to start drinking a lot more, or for the state to collect enough liquor license fees annually to make up for the lost profits.

      • If this is right in principle, great, but how about the details of how it works exactly?

    • jfontaine

      A conservative maxim is if it ain’t broke don’t fix it.  The state run ABC stores seem to be working pretty well.  You can buy your whiskey, the workers have good jobs and the state makes a tidy profit.  Seems like everyone wins here.  Frankly I think the best thing the state could do is use the power of its stores to start promoting Virginia spirits.  There is a revolution going on in the distilled spirits industry similar to the microbrewing revolution of the 1990s.  Locally produced vodka, whiskey and other spirits are creating a new brands. Virginia with its long heritage of moonshiners and whiskey makers like Washington; and abundant good agricultural land should be able to capitalize on this trend.  State run liquor stores could provide immediate distribution channels by showing preference for in state brands. If you want to see capitalism grow, how about cutting back on the crazy regulations that make it hard to get the business started.  Furthermore how about doing more to support or local brewers and vinters.  Brewing, Vinting and Distilling should allow us to leverage our existing agricultural economy and increase earnings per acre.  Instead we are dumping corn on the market and watching farms get turned into suburbs despite the housing collapse.

      • Dan Sullivan

        There are no new revenue streams, unless we drink a lot more. Of course revenues have changed in 11 years. They would and have in a public monopoly too. Check out the Virginia statistics. You’ve come to this discussion unarmed.

      • libra

        In my little town, 3 large stores carry wine and beer: Kroger, Food Lion and WalMart. To the extent where all 3 carry the same product, the price differential is a couple of pennies — less than what it would cost in gas to drive to the next store. Not worth it, especially since there is no guarantee that the next store will actually have the product at a lower price on this particular day. So the “competition” argument is pure, unadulterated, BS.

        • The ten million is just from licenses. Where will the state and local Govts make up the money?

          Virginia would be generating a new form of revenue through privatization in fact: the licensing of existing and new retail stores. Even with privatization, the state would retain its role as a regulatory body, which would include serving as the licensing body for new retail establishments.

          Further, privately-run stores would also pay income and property taxes, representing new revenue streams to the state and local governments (state stores are currently tax-exempt). Lets not forget sales taxes which would increase because of better selection, service and competition. This has been the experience of Iowa (1987), West Virginia (1991) and Alberta, Canada-the most recent governments to privatize alcohol control operations.

          Case in point: In the 11 years after Iowa privatized its state stores in the late 1980s, revenue from liquor sales in Iowa actually increased by $125 million compared to projected profits had Iowa not privatized (Iowa is MUCH smaller in size than VA I believe). But, that’s not the conclusion of a right-wing think tank. It comes from a report by Iowa’s own division of alcoholic beverage control.