Baptists and Bootleggers
By Amit Singh | Sunday, August 22nd, 2010 | PoliticsGuest Post from Eric Brescia – 2009 GOP Candidate for 47th District House of Delegates
When then-candidate Bob McDonnell announced that he was in favor of privatizing the state-run ABC liquor sales system, I was happy to see one of my own platform planks gaining traction. I wish I could claim that my long-shot campaign to represent Arlington’s 47th District in the House of Delegates inspired this move by the top of the ticket. However, the truth is that the McDonnell team just realized it was a matter of sound policy. Just about a year later, the Washington Post reports that the administration will soon release the details of its plan.
The ABC system came about during post Prohibition in an effort to limit liquor consumption. It was decided that Virginia would become a “control state” where all liquor sales would be conducted through a state-run system.
For years this system has managed to escape reform because of an unholy alliance between the “Baptists and bootleggers.” The “Baptists” on both the left and right have wanted to restrict alcohol consumption on moralistic and social grounds while the “bootleggers” have been special interests looking to limit competition.
However, it is clear now that after over 70 years of such a system, that alcohol related social harm is not reduced by having the state control sales. According to data from the National Institute of Health, there is no difference in consumption between states with government run systems and those with private sales.
The only parties left to benefit from such a system are the various “bootlegger” special interests who profit from it. The current batch includes beer and wine distributors, who are trying to shield themselves from competition. It is no surprise that they donated heavily to legislative campaigns last cycle.
Scrapping the current system would seem like a no brainer. Why not get rid of an ineffective Prohibition era relic? Private sales would result in lower prices, greater convenience and broader selection for consumers. We already do this with beer and wine sales. In addition, the windfall from the sale of assets would be put towards badly needed transportation improvements. This seems like an idea that everyone would be able to get behind. So what’s the hold up?
The biggest obstacle revolves around the budget. Currently liquor sales bring in about $220 million per year in taxes and profits to the state general fund. Most of the opposition to the governor’s initiative has come from Democrats fearful of losing this revenue stream.
These fears however, are unfounded. A private system can be designed so that annual revenues to the state remain neutral. Over half of all state revenue generated from liquor sales comes from taxes, not profits, and the loss of current retail profits would be made up for in a number of ways:
-Private stores would be subject to income taxation, yielding new revenue for the state. Because privately-run stores have lower operating costs, the potential tax base would be higher than it is currently at the state-run stores.
-Lower prices and greater convenience would allow Virginia to recapture (and generate new tax revenue from) the estimated 10-15 percent of sales that the state currently loses to its neighbors.
-The private system will likely involve auctioning liquor sales licenses, which in addition to the initial cash infusion would be a long-term revenue stream.
-State employee pension costs and other overhead expenses would be eliminated.
We can also look to examples of other states. West Virginia and Iowa each privatized their systems in the last two decades, and their experiences show how a state can switch to private liquor sales without a loss of revenue to state coffers.
In fact, both states saw net-revenue increases. After the first six years of the new private system, the Iowa Legislative Fiscal Bureau conducted a review and found that even with the wholesale markup rate cut by a third, state revenues were $65 million higher than they were under the state-run system. The results were similar in West Virginia. In the first year of the new system, even with retail prices falling 10 percent, state revenues from sales went up 23 percent.
Following Iowa’s privatization, Dennis Mitcham the Products Director of the Iowa Alcoholic Beverage Division at the time, stated “[w]e found a lot of pluses to privatization, and we really can’t find any minuses. Iowa will never change back to control.”
Rona Moats, then-Deputy Commissioner of West Virginia’s alcohol control board concluded, “[w]e’re really pleased with the new system. It took the state out of retailing, where we didn’t have the expertise. And we’ve had no problems with sales to minors or increased crime rate.”
In addition, both states benefitted from millions of dollars in windfall from asset sales that were used to help get through funding shortages elsewhere in their budgets.
Virginia isn’t the only state currently looking at these past experiences with interest. Pennsylvania and North Carolina are now looking at getting rid of their state run systems, and voters in Washington State will consider a ballot referendum on this issue in November.
And this issue need not be a partisan battle. In all three of these states, the legislatures and governors mansions are held by Democrats. In Washington, neither of the two chief sponsors of the effort are Republicans. Details will have to be worked out to see the best way towards privatization; however, moving in this direction is clearly the smart policy decision.
The Democrats in Virginia, particularly those in the State Senate, will have a choice to make. Are they going to join the side of progress and work with governor? Or are they going to pick up the banner of an obsolete moral crusade and entertain the “Baptists and bootleggers?”
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9 Responses to "Baptists and Bootleggers"
In talking to various legislators about this- it isn’t a partisan issue. Democrats don’t like it…and neither do some very conservative Republicans like Brenda Pogge and Tom Gear… this just isn’t happening this year. That’s too bad. I oppose the state being in the alcohol business and I think there is a way to structure the change to as to keep the state from losing annual revenue. But the legislature just isn’t interested in doing this.
I was personally against it, but now due to this article I have reconsidered. Perhaps privatization of the ABC stores is not such a bad idea. However I still object to this step as being part of a solution towards solving the transportation issue. What Virginia DOT (Dept of Transportation) needs is a long term revenue stream to deal with the problems, not a one time booster shot.
As a self employed truck driver, I remain firm in my position that an across the board increase in the fuel tax here in Virginia is justified. It is the position of the trucking industry that the fairest and most efficient way to provide increased revenue, when it is justified, is through increased fuel taxes. My opinion is that in Virginia it is justified and that every penny I send to VDOT is well spent. OK, perhaps Reid Greenum can come up with the horror story of waste, but my more broad experience is that VDOT does a fine job with the limited money Virginia citizens give them.
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Eric, I agree completely, as I’ve posted before on this topic. Ecept for one thing, with which I agree with LittleDavid–earmarking revenues is always a pretty bad idea, like selling a lottery scheme to support education. And this privitazion income isn’t enough to do doodly squat. Gas taxes are a user fee the rightly taxes those who use the highways–and truckers a huge wad of cash for this. The argument is always the same: rural areas – who get far back than they pay in – oppose a gax tax because they think it will go to the urban areas. Urbanites tend to oppose because they don’t get back as much they pay in.
Why am I not surprised Democrats would be opposed to giving state control of anything? I think in the long run it will be revenue positive–more so than this antiquated system we have now. It is one of the most backward-looking, regressive, “old south” Baptist-Bootlegger, Byrd machine things that is a real black mark on Virginia’s reputation.
Craig and LD,
I agree with you that proceeds from asset sales are not an end all solution to our transportation problems – I don’t think anyone is really saying it is. This is just one piece of the puzzle and doing so does not prevent other action re: transportation from being taken.
Again, don’t think this is happening this year. But, if the governor’s proposal gets serious debate, one issue that should be looked at is that he’s seriously undervaluing the asset. He’s willing to sell a price that’s great for the private industry that will buy the licenses, but stiffs the taxpayer. The ABC business is really worth more in the neighborhood of $2 billion than the $300-$800 million figure that has been bandied about.
That article is the kind of baloney you get when it becomes clear that the business case does not support the sale of the ABC system. Ironic that the Governor has apparently released the analysis to those in the industry who want to buy the system but not to legislators nor the citizens of Virginia. Even senior republican legislators are now wary of this proposal, knowing that financially, it simply does not make fiscal sense. At a time when citizens demand fiscal accountability, it is time for this proposal to fade away. But with a Commission filled with corporate CEOs and campaign contributors, it is likely they will endorse the Governor’s Plan; that will be a further embarrassment when Legislators say no way.
@Mike Barrett
Please reconsider. Many states across our nation have found it profitable to privatize alcohol sales. If you are against alcohol consumption I can understand your opposition, but making alcohol sales more convenient will increase sales and increase tax revenue. If we can get a one time boost along with a long term increase I am in favor of it, and that is what the facts present. Even Jesus turned water into wine so the Southern Baptists have it wrong.
@everyone else
What I object to is the efforts Governor McDonnell is to putting up a toll booth at the North Carolina line on I-95. Perhaps this is the Republican answer to the unemployment problem. We’ll just hire the unemployed to stick their hands out at a toll booth. The national average is for a third of the money paid in tolls goes towards paying the cost of collectng the tolls. I want to see all of any increase I pay end up in the asphalt. Every penny of a fuel tax increase will end up in VDOT’s hands because the cost of compliance is already paid through payment of the existing tax.
McDonnell says toll roads are the most efficient? Well the experts employed in highway freight transportation (that would be the trucking industry) disagree with him. His proposal is a jobs creating program that he expects me to pay for. I want value for the taxes I pay and there is no value to be had from toll roads.
No LittleDavid, I have no opposition to alcohol consumption, and in fact, have stated that I am predisposed to support privatization if the business case supports it. Problem is, the moment the Governor began his PR campaign, it was obvious that the business case simply did not justify the sale of the ABC operation so he is trying to find some other justification for selling this revenue stream. Sure, we need a permanent fix for the funding of transportation infrastructure, not a one time infusion that would build one good sized interchange at one place in the Commonwealth.
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