Conservatives should embrace Virginia ABC privatization
By JR Hoeft | Monday, September 13th, 2010 | Policy
Virginia Attorney General Ken Cuccinelli is not exactly a liberal.
Over the weekend, Cuccinelli, who is never shy about applauding steps to limit government, released a statement regarding the proposed privatization of ABC stores:
“ABC privatization is a complex issue with many elements that will be debated and likely adjusted before the final legislative bill is written. This step toward privatizing government functions that should generally be within the purview of the private sector and the free market is a step in the right direction (emphasis added). I commend the governor for starting the ball rolling, and I am pleased that monies raised from auctioning licenses and selling ABC real estate will go toward transportation needs.
“For those Virginians who are concerned that alcohol-related problems, such as under-aged drinking and drunk driving fatalities, will increase under privatization, they can be assured that the research has shown there is no greater incidence of alcohol-related problems in states with private ownership of liquor stores than in states with government ownership.” (Study: “Impaired Judgment,” the Virginia Institute for Public Policy)
I am not an advocate for higher taxes; however, I am also not like some who buckle at every mention of a fee, license, or toll. I recognize the need to limit government, but I also recognize there is a need to fund government for core services.
When we look at our transportation needs, the bill that comes due is truly monstrous. Funding is going to have to come from somewhere.
Right now, Democrats argue that by eliminating the government’s monopoly over the sale of alcohol that a much-needed source of revenue for state spending is going to vanish. This is why Governor McDonnell’s proposal takes great pains to ensure that the transition to the private market is relatively revenue neutral.
When it all is said and done, the governor’s plan collects $303 million a year, compared to the current $324 million – a difference of 6.3% (when looking at the nearly $38 billion annual budget that is a difference of .054%).
There are some fees – such as the optional 2.5% fee for the right to buy liquor wholesale and have on-site delivery to your bar or store. And, some retailers will pay this voluntary convenience fee, others will continue as they do now to drive up to the store and go to the cash register like everyone else. Either way, the state gets revenue.
It’s not rocket science that some retailers will try to pass this convenience fee onto consumers, but they may end up paying for that approach at their own sales counter.
The Virginia Retail Merchants Association, who are perhaps most impacted by this plan, recognizes that there is a trade-off with McDonnell’s proposal, but agree that it’s a good one. They realize that government should not be selling alcohol:
VRMA believes that the retail sale of all products is best served by the private sector, which will allow the government to focus on other core services. It is clear that the government sale of alcohol is a decades-old policy that needs to change. To that end, we support the plan announced this week by the administration to privatize ABC stores in the Commonwealth. We also support the dedication of up-front revenue to transportation. While this initiative is only one piece of a long-term solution to transportation funding, we should not turn our backs on $500 million in revenue that can help relieve congestion across the Commonwealth. ABC stores should be privatized as a matter of principle because there is no compelling policy reason to distinguish sales of distilled spirits from other alcohol products.”
As conservatives, we should be jumping up and down with joy that we’re trimming down government, not expanding it.
Of course, while conservatives debate whether the governor’s plan contains a hidden tax or not, Democrats have seized upon the discussion to actually advocate raising taxes to pay for transportation.
The state Senate, out of ideas and clearly out of touch with the ongoing debate across the country, is advocating a gas tax hike:
Democrats in the Senate, particularly, have questioned the plan, preferring, instead, a gasoline-tax increase. McDonnell opposes a gas-tax hike. Every penny a gallon increase in the gas tax would generate about $50 million a year, according to estimates.
In the end, the governor’s plan generates $500 million directly for transportation and gets government out of the booze business – clearly a conservative approach; liberals want to keep government as is and raise taxes higher.
Republicans and conservatives need not sit “on the fence” about the governor’s proposal. The choice is obvious: privatize ABC today!
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About the author
Conservative to the core; liberal with his opinion! J.R. has been involved in politics for over a decade and has worked on several campaigns in Hampton Roads. He has served on the Executive Committee of the Republican Party of Chesapeake and the Central Committee of the Republican Party of Virginia. He is also the director of “Blogs United” in Virginia. E-mail J.R.. Follow J.R. on Twitter.
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36 Responses to "Conservatives should embrace Virginia ABC privatization"
Sorry, Jim, but I refuse to call the plan perfect and/or impossile to improve. It can be improved (by taking out the 2.5% restaurant/hotel tax and the 1% wholesale tax), and I genuinely believe that for economic and political reasons (including improving the probability of this actually passing) it *must* be improved.
In fact, nothing Cuccinelli said in his statement differs from that.
The 2.5% tax cannot be called a fee because it is not a charge for a government service. McDonnell’s plan would neither have the government as a wholesaler or a deliver of alcohol (and kudos to it on both counts for that). Thus, it is not a fee, it’s a tax.
Furthermore, I sincerely doubt Richmond can’t do without the $26.5 million a year these two taxes would raise (there’s already enough undesignated surplus to cover it for two years). Make no mistake, that’s the space between us here.
McDonnell is absolutely right to get the government out of the liquor business, but his plan needs a couple of improvements.
D.J., if those taxes are taken out, the plan will not be revenue neutral. The state will end up losing money on the deal after the one time gain from selling the stores.
The whole point of this process is to raise money for infrastructure. Any money left on the table is a bad idea, considering that we have billions left we need to fund to get us where we need to be.
J.R. is right and I just can’t understand where you’re coming from on this issue.
D.J., I’m glad you finally stopped calling it a “tax increase”, and simply referred to them as a “tax”. That’s a great step in the right direction, as now we can talk about this on honest terms.
J.R., I disagree that there will be any cost passed along to the consumer. The 2.5% rate is a better deal for businesses than the status quo. If anything, consumers will see a reduction in cost (and a vast increase in selection), and that’s even before the market has a chance to have businesses compete with one another.
D.J. will certainly respond shortly to say that the difference between 0% and 2.5% will be passed on to the customer, which is fine. But as you pointed out, the Democrats are looking for real tax increases. They’re opposition to the plan is only going to harden if the proposal slashes more government revenue than it currently does. While D.J. mistakenly believes that Democrats are suddenly the anti-government-revenue party, I think McDonnell’s proposal is a good compromise that conservatives can rightly support and Democrats have only limited objection to. After we get it passed and take back the Senate in 2011, we can look at improving it, as well as other fees and licenses across the commonwealth.
So much for campaign commitments; I guess revenue neutral has a different meaning before and after election. Fact is, for most conservatives, this plan meets the simple need to reduce revenue so there are more excuses to “cut the arms and legs off government so the body can be drowned in a bathtub.” No matter that jobs are lost, public services deteriorate, and public infrastructure decays just a bit more. This race to the bottom to the detriment of Virginia’s stature as a quality place to live and do business, will have strategic implications, but to those for whom there is no such thing as tax rates too low, they could care less.
VA Blogger – great point on costs that I hadn’t considered. Even more reason to support the plan!
So much for campaign commitments by Dems; I guess lowering health care costs and helping small business and middle class workers has a different meaning before and after the election. Fact is, for most leftists cutting off all the cronies’ bribe money amounts to “cutting the arms and legs off government so the body can be drowned in a bathtub.” No matter that jobs are lost, public services deteriorate, and public infrastructure decays just a bit more as public service unions cripple the state. This race to the bottom leads to the detriment of all the Dem controlled states like California, Michigan Illinois, New York etc and their capability to be a quality place to live and do business. One need only look at the traffic streaming out of the socialist paradise of Maryland in the morning coming to their jobs in Virginia It will have strategic implications as we see around the world, but to those for whom there is no such thing as taxing and spending too much or too many porn watching govt workers, they could care less.
Brian, the plan isn’t revenue neutral now. It’s still about $20M anunally below the status quo. Is $47M really that much worse? I don’t see it.
It’s clear you see this mainly as a monetary matter. I don’t. It’s about getting government out of the liquor business, period.
VAB, I’m not saying the Dems are suddenly the low-tax party. I *am* saying that these taxes will give them the chance to blunt the low-tax message of the GOP, just as they blunted it in 2005 and 2007, but could not in 2009 thanks to the 2008 special session.
I don’t know whether the 2.5% tax will be passed along to consumers or eaten. Honestly, I don’t care. Even if consumers don’t feel the tax, would-be employees won’t get hired and/or investments in the businesses won’t be made. I don’t consider that something to celebrate.
Again, I want the government out of the liquor business. I have loudly expressed my reservations with these taxes only because I genuinely believe they will hurt the plan’s chances for enactment, and that the plan will be better without them.
Oh, and Brian, if you want revenue for roads, how about reversing Mark Warner’s expansion of FAMIS, which Gilmore rightly noted turned it into Medicaid II and is costing us billions: http://rightwingliberal.wordpress.com/2008/07/19/so-thats-where-all-the-money-went-in-virginia/.
D.J., you’re saying that employees won’t get hired and investments won’t be made comparing McDonnell’s proposal to your idealized vision of what it could be. I’m saying, consumers will benefit, employees will get hired, and investments will be made comparing the status quo to McDonnell’s proposal. This plan will be a net positive for businesses, jobs, and consumers. As J.R. says, all the more reason to support it. You can argue its not as good as it could be. I argue, let’s get it passed and then make it better when we take back the Senate.
DJ – I’m not going to quibble over semantics with a friend. Howevr government collects its revenue – tax, fee, toll – I see it the same. Thus, I don’t see this new scheme to collect revenue any different from the old. We’ll have to agree to disagree here.
What I think is the more glaring issue is how the administration rolled this policy out. They failed to shore up a solid base of support, getting fiscal conservatives and tax hawks like yourself supoorting the plan before presentation.
Further, they have never established a nexus between selling the ABC system, and transportation funding. There is no connection, other than that the Governor can roll out the need to invest in roads to blunt criticism that his plan loses money for the general fund. Kind of like “I know this plan stinks, but it may help us fix a road or two.” Do conservatives really care that little for the damage created by the intrasigence of the House of Delegates in providing a steady, reliable sourc of revenue for the most important strategic asset we own?
I may be in the minority, but compared to what we could be doing, this is a supremely small issue to be spending so much energy on.
George Allen reformed welfare and abolished parole.
Jim Gilmore cut the car tax.
Does McDonnell want his legacy to be “he privatized liquor stores?”
I really don’t care if it’s revenue neutral or funds transportation or stays state-controlled or not. Not going to impact my life one way or the other.
I bet if I polled this question with the choices being “state-stores,” “private stores” or “I don’t care,” I think C would win.
Brian, as always, you hit the nail on the head.
That said, if Mike is this set against it, the plan must have merit.
Hang on now. If McDonnell can actually shut down the Southern Socialist Special, that would be quite an achievement. Ending government programs is hard to do under any circumstances.
Thanks J.R. for the back handed compliment. Fact is, I constantly conveyed herein that if the Governor could make the business case, I had no issue with privatization. But I questioned early and often why the Governor simply did not release the business case before he began the PR campaign. Of course, now we know why. It loses money for the general fund, it raises taxes which the right deplores, and it raises a pittance for transportation. Other than that, its fine.
[...] joined Brain Schoeneman, VA Blogger (note to VAB, if you have a post on this, let me know), and Jim Hoeft on the other side. Brian in particular is miffed about my call for the new taxes to be yanked, due [...]
[...] joined Brain Schoeneman, VA Blogger (note to VAB, if you have a post on this, let me know), and Jim Hoeft on the other side. Brian in particular is miffed about my call for the new taxes to be yanked, [...]
Those who think only about the loss of revenue are NOT thinking about the salaries, rent on stores and utilities, and overhead. The typical store has
three employees with the manager being a level 8 which is about $40,000 starting or more a year. Utilities run about $700-$1,400 a month,janitorial fees about $1,500 and the average rent/lease is about
$1,500-$2,300. a month.
So if we go private, that will be a large savings to the state. Just all tax profit and a % of the sales.
The only losers here are the approximately 4,000 state employees. But so many new jobs will be created (some of them presumably even in VDOT) this should be a net wash.
No I admit, I don’t if this proposal will allow liquor to be sold in grocery stores, or merely replace the current public monopoloy with a private one. And replacement taxes, especially on the already ridiculously taxed hotel industry, is something I cannot support.
D.J., it’s not revenue neutral now, but the expectation is that the increase in sales will close the gap – that’s why you’ve got taxes like the license that are based on volume.
I understand your philosophy is to get government out of the liquor business but that’s not the reason why the Governor proposed the move and that’s not how he’s been selling it to the GA and to the people. So criticizing him because his motivation is different than the one you choose doesn’t make a lot of sense and it makes your goal even harder to achieve – the Democrats already don’t like this idea because they don’t have a problem with the status quo. Turning this into some kind of smaller government crusade isn’t going to win Democrats over.
I don’t think this is going to be the highlight of his term in office, it’s simply the next big issue. The highlight will be turning the economy around.
Actually, for McDonnell and his team, I don’t think for one minute they really give a hoot if the inflated numbers they are using make this revenue neutral. They actually hope that it is not, so they have another excuse to cut the budget further next time. Afterall, that is their true passion; cut government, no matter what the effect. By the time most effects are manifest, McDonnell will be on to his next assignment in the republican hierarchy of tax cutters. If we have to become Mississippi or Alabama to help his political career, that’s fine as well.
Food for thought, when this part of the McDonnell plan for transportation fails, like all the others, and PPV’s remain, can anyone actually believe that a private firm with the wherewithal to actually buy the concession for SR 460 would waste one more red cent on a state that thinks a public private partnership is one in which the private sector provides all the money? I think the failure of the House of Delegates, and the reluctance of the Governor to chide them, will bring ruin to our status as the best port on the East Coast and will jepordize our competitive status when the Panama Canal routes open.
The best thing about the Governor’s proposal is that adult beverages will be cheaper for all of the Republican victory celebrations that will be taking place in coming elections.
Now, back to the unfunded Federal mandates on the states and illegal and oppressive taxes being levied on all of us by the liberal cockroaches who are scurrying as fast as they can away from their votes.
Anyone who believes this proposal will be good for consumers has not checked the prices in DC vs VA, some are better in DC but most are better in VA; and as for choice, VA ABC has a much larger selection than the stores in DC.
This proposal is meant to help large retailers and wholesalers and nothing else. It does not provide the revenue that was promised and won’t make a dent in our transportation problem. It will raise prices and limit choice. It will help big business at the expense of the small businessman. All the stereotypical proclamations about republicans wrapped neatly in one ill conceived measure. We don’t need more fodder for that argument. If this albatross disappeared it would be better for conservatives.
Finally, on the question of “should the state be in the business?” I suppose that is for those who study the 21st amendment to decide, but the state has an interest founded in our constitution.
Perhaps Mikey would like to explain why he thinks not having one entity control all selection in stores will limit choice, or how allowing stores, bars, and restaurants to have access to liquor at cheaper costs will result in increased prices. Not to mention having stores compete against each other.
Most interesting that nobody wants to talk about real numbers. Here are some I was given by a correspondent in North Carolina. He titles this “FOLLOW THE MONEY.” Always an important ingredient in anything. Perhaps I am lone voice, but I posit this this anyway.
C ABC Stores
General Fund $184,356,114
County – City Distributions $46,238,171
NCABC & ABC Distribution Center $8,772,840
Local Alcohol Education $8,487,026
Local Law Enforcement $7,111,855
Counties – Rehabilitation $2,406,026
Dept. of Health & Human Resources $1,339,466
From below – Some of these boards are raping the NC tax payer ………..
Raleigh, N.C. — ABC liquor stores across the state have a wide range of employee salaries and policies. That’s because the state ABC commissioner has little say in how business is done, even though liquor sales are government-controlled in North Carolina.
“We don’t have any operational control over them at all,” said ABC Commission Chair Jon Williams, who noted that each store is controlled by a local board. “Those 163 local boards are individual government offices.”
For example, the highest ABC board salary in the state belongs to New Hanover County’s administrator. He makes $214,000 a year with a $30,000 bonus, even though Mecklenburg County does triple the sales. In Asheville, the CEO received a $21,000 raise this year.
======
This is what the private sector is for: to be raped by greedy poll in terms of sin taxes. Why, for heavens bid, should “anyone” be taxed to pave a road we all use when we can pass this off on those who buy booze?
What galls me most is how people here and there and everywhere think everything should be FREE and NOT TAXES. Hey people, I am so tired of all these surtaxes on my phone bills and cable bill for this, that, and the other thing, I could revolt. Let’s just pay for what we want, and not pay for things we don’t want. I am all for a check-off list of (1) OK, you are going to be socked with 20% of everything you earn for a,b,c. Check off where you want it to. I call it Libertarian Taxation. I bet we’d be mightily surprised how people would vote give such instructions.
I say this in all sincerity. I doubt anyone here knows I was a state legislator in Missouri from 1987-1991 when a lot of these ideas and very issues were being bandied about even then.
There really is a way to do things, and talk about things, and solve problems. They are not always partisan. There is no Republican or Democratic way to pave a road or pick up garbage.
CMK
In political discourse, when you are explaining a policy to voters such as we see above with arguments over even the meaning of terms (tax, fee, markup, etc,) you are losing the public relations battle. And at present, this proposal takes a lot of explaining.
I am not hostile to the change, and in fact I introduced legislation to implement the Wilder Commission recommendations, of which ABC privatization was one proposal.
And I cannot get around what I believe to be the end result of the proposal now, namely, an increase in retail prices to the consumer with this present bill.
Lastly, if Governor McDonnell calls the General Assembly into session just after the Fall elections in which all observers expect big-spending big-taxing Democrats will have their political clocks cleaned, why would Richmond Republicans want to be toying with anything that even looked like tax increases to the voting public?
Mr. Marshall seems to be the only one here who understands what is at stake. Just when the Republicans appear to be coming out of the wilderness, the ‘adults’ who took over the party want to turn back to the dark ole days. Well the only reason GOP candidates are even remotely viable is because the other side’s egos are bigger than their own. It doesn’t matter whether someone calls it a tax or a fee or green cheese. When the voters are leery of both parties and are being given flashbacks of the last time the RPV took charge, it should serve as a warning.
Bob, given that we’ll finally be having a free market in the hard liquor business with the end of this monopoly, can you go into more detail as to what leads you to believe that consumer prices will rise if this happens?
J.R.- I thought conservatives wanted government run in a business-like manner. Selling a business with $600 million in annual gross sales for $500 million seems like a really poor business decision.
VA blogger,
I was just stating the facts as they are now. Virginia has much more selection than stores in DC. My “explanation” would be that in VA they have a whole bunch of space and only fill it with liquor whereas independent businesses limit their selection to best sellers to maximize profits.
Same goes for the price the consumer pays. Common sense should dictate that you cannot add layers of profit for wholesalers and retailers and come out with lower prices to the consumer. Also, the only “competition” will be amongst the “limited” number of establishments that are able to purchase the license. If you want “real” competition let anyone get a license, don’t limit it to those special few who wrote the proposal.
This proposal is not trading “one entity” for a “free market” system.
It is trading “one entity” (that makes a lot of revenue for the state) for a “limited market system”. (which will return much less to the taxpayer).
I am not exactly against the privatization of the ABC liquor stores. I am torn.
I am less then convinced by arguments it will solve our transportation problems. It would be like a one time orgasm and why worry you might collect an STD doing it?
Our transportation funding problems are so large and so wide spread that a one time band aid is not going to solve it. Democrats alone suggest raising the fuel tax? I guess the VTA (Virginia Trucking Association) which represents over 500 trucking industry businesses is dominated by liberal Democrats. Get real.
Virginia needs a comprehensive and long term solution. The trucking industry, which rarely agrees on anything, agrees an increase in the fuel tax is the most fair and efficient method of raising increased revenue when increased revenue is justified. Who will argue the revenue is not needed? Isn’t the sale of the ABC stores an attempt to raise increased revenue?
For the long term solution the Republican solution is toll roads, at least if you listen to my Republican Senator Wagner (the toll road king). Make every Virginia highway a toll road and pay one third of the revenue collected go towards paying the costs of the wages of the employees sticking their hands out at the tollbooth is what Wagner suggests.
Perhaps the problem is that we as active conservative Republicans are no longer talking about the proper role of government. (Having absolutely nothing to do with selling liquor.)
Instead we’re arguing over how much money we can make, and whether or not privatizing the stores will give the government enough money to perform its goals.
Let’s get the government out of the business of selling anything.
By coincidence, today I was forced to drive through Washington DC during rush hour. Now, I normally try to time my travel through the DC area to avoid rush hour. When I acceptted the load I am under, I figured I could get through both Baltimore and Washington DC before the evening rush hour. Due to problems getting loaded at the shipper I was delayed until I had to transit both during rush hour. Slid right on thru Baltimore but I was given a fresh reminder of why I have been dutifully avoiding DC rush hour for years now. I didn’t have much choice, I have to get this load to Orlando, FL on-time and dealing with the rush hour was the only way to do it.
Have any of you experienced DC rush hour? I’m not talking about going up there during special events. I am talking about experiencing what DC commuters have to deal with twice a day 5 days a week even when nothing special is going on.
While I still think the Hampton Roads Bridge Tunnel backup still rates high on the list, I think I now realize that Northern Virginia has a bunch of needs at or near the top. There are lots of motorists up there not getting their moneys worth for what they pay in fuel taxes.
At the very top of the list of Virginia’s needs are to maintain what we already have and this need reaches even into the farthest, most remote corners of our commonwealth. Current fuel tax revenues are not even enough to fund that let alone new construction.
Tolls are inefficient and unfair. Some of the current toll proposals probably are unconstitutional and if Cuccinelli was doing his job he would be advising people like Governor McDonnell and Senator Wagner on why their proposals do, in fact, violate the constitution. Cuccinelli does understand the commerce clause doesn’t he? If Cuccinelli is lacking knowledge in this area of law, the trucking industry will be happy to teach him about it in court.
The trucking industry is willing to pay its fair share, however we are going to protect the interests of our customers. Our customers include both American businesses and ultimately American workers and consumers.
[...] Brain Schoeneman, VA Blogger – albeit in various comments, rather than posts - and Jim Hoeft among [...]
[...] Brain Schoeneman, VA Blogger – albeit in various comments, rather than posts – and Jim Hoeft among [...]
What I would like to know, is how VABC profits compare to other state owned liquor stores. I’m originially from NH and the state owned liquor stores there are vastly superior to the ones here in Nova. Instead of selling the VABC stores, to apply the tiny bandaid on the gushing wound that is VDOT, they should look to mimic NH liquor stores, offer wines and a wider selection of liquor. The way NH runs it seems pretty smooth to me. And if Steve Vaughan is correct with his numbers, then it would be stupid to sell the VABCs for less then what they make annually.
VA BLOGGER said:
“Perhaps Mikey would like to explain why he thinks not having one entity control all selection in stores will limit choice, or how allowing stores, bars, and restaurants to have access to liquor at cheaper costs will result in increased prices. Not to mention having stores compete against each other.”
Read the proposals. Gas stations can’t afford to buy the number of bottles the state can. Go to stores in privatized states and you’ll see that they only have Jack, Jim, Jose, Bacardi, Smirnoff and the other commercialized brands. And with something like 60% of licenses being given to superstores like WalMart under the current plan, how could a mom and pop possibly undercut them?
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