Where ABC Privatization Went Wrong
By Brian Kirwin | Monday, October 11th, 2010 | PolicyNoted political scholar Rowdy Roddy Piper said it all the time. “Just when they think they have all the answers, I change the questions.”
That’s exactly what has happened to Gov. McDonnell’s proposal to privatize the Alcoholic Beverage Control. McDonnell let the opponents change the questions, and actually tried to answer them.
Now privatizing ABC, despite being a great idea, looks to be headed to the barren wasteland of debate and study where all good ideas go to die.
McDonnell’s first mistake was kowtowing to the government-first crowd by touting how it would be at least revenue neutral.
Nice thought, but it then set the bar so high that anything short of revenue neutrality and Democrats get to blow the dust off their “you’re hurting children, ruining lives, creating mass hysteria” and whatever other talking points they have for the notion that government might not deserve every last penny we earn.
I’ve long held that revenue neutrality should never have been a goal for ABC privatization. We don’t privatize things in government so that government can make more money. That’s not the goal. If it’s a coincidental result, well that’s just skippy! But it isn’t the point.
The point is to get government out of businesses that rightfully belong in the domain of the private sector.
The talking point should’ve been, “Yes, government will make less, but private business will make more, hire more, invest more and in this economy, don’t we want more activity in the private sector than in government?”
But it wasn’t, and striving for revenue neutrality ticked off conservatives for adding some fees, optional or not, and ticked off liberals – basically because that’s what liberals do when they aren’t painting protest signs, eating vegan burgers or passing legislation no one can read until after it passes.
Mistake number two was tying ABC privatization to transportation. Learn this about liberals. They are never happy. They spend their lives waiting for global warming to drown them while expecting to be fired for racism/sexism/tallism/shortism/Maoism or whatever ‘ism is in vogue today.
They have a Pavlovian response ready for anything that helps transportation: “It’s not enough. We need to raise the gas tax.” Transportation isn’t about transportation. It’s about taxes. If it was about transportation, we’d have real regulatory reform which would lower the cost of major transportation projects to the level where people might actually want to pay for them.
Let’s face it, if we didn’t have an Interstate Highway system already, today’s government would make it impossible to build one.
McDonnell can find a billion dollars by auditing VDOT. Dems: “It’s not enough.” McDonnell can sell private ABC licenses. Dems: “It’s not enough.” Mark Warner can raise taxes through the roof in 2004 and Dems complain about how they need more taxes.
Ever notice how no tax increase is ever enough?
But I digress.
By tying ABC to revenue neutrality and transportation, he made the conversation about ABC privatization about everything but ABC privatization. It became about roads and schools and Sen. Dick Saslaw thinking his mussy hair is just so manly (ok, I added that).
Who but Saslaw would stand on the Senate floor talking about taxes and say “You can’t give me enough money to satisfy me.”
And it’s the truth. You can’t satisfy Democrats. Their whining wants never end. McDonnell was ambitiously idealistic in reaching out to try, but like most who do, he’s realized it was just an exercise in feeding fingers to snapping jaws.
ABC should be privatized, but not to help government, and not to fund transportation, but just because the private sector will do it better and economic activity belongs in the walls of private businesses rather than in the halls of State capitols.
Tags:
Contribute for Conservatism!
Share this post
About the author
The right wants to jeer him. The left wants to censor him. Moderates usually want both. Brian Kirwin is a political consultant and public relations strategist in Virginia Beach with a lightning-rod flair. Brian also serves on the VB Arts & Humanities Commission and frequently appears on Hampton Roads theatrical stages, if only to prove that all actors aren’t liberals. Kirwin’s columns stir up debate and hit the political scene with no punches pulled.
Comments
30 Responses to "Where ABC Privatization Went Wrong"
Brian, while your post criticizes “Dems” for their criticism of McDonnell’s plan, the fact is most Republican legislators haven’t come out for it either. Some who would normally be staunch McDonnell allies, Gear and Pogge for instance, are opposing him on it.
You and I agree, philosophically, that the state shouldn’t be in the alcohol business. But that Rubicon was crossed long before either of us were born — by very conservative legislators by the way.
Given that the state is in the business and does control the sale of hard liquor in the commonwealth, any governor or legislator supporting changing that fact has a fiduciary duty to the taxpayers of Virginia to get the most money possible out of the sale of the state’s asset. The ABC business doesn’t belong to some amorphous entity called “the government,” they belong to you and me. The proceeds from the stores go into the state’s general fund. Without those proceeds, we’d need to either cut services — which I know you prefer — or raise taxes. The point is that the stores do provide a concrete benefit to the taxpayers. If you’re going to turn them over to the private sector, the taxpayers should be compensated.
Here’s where McDonnell’s plan goes off the rails. It’s bad business to sell a company with $650 million in annual sales for $500 million. The real value of that business is likely closer to $2 billion. But the governor has let the protential bidders set the price.
I’m also not sure why the governor is selling licenses “in perpetuity,” when he could provide the continuing revenue streams that both Dems AND Republicans say they are looking for by selling renewable five or ten years licenses.
Maine is getting $144 million for leasing its wholesale operation for ten years. Although Virginia has seven times the population of Maine, the governor proposes to sell our wholesale operation permanently for $168 million. That doesn’t make sense.
There’s nothing wrong with the principle behind the governor’s plan. But governing isn’t just about principles. It’s about execution as well. And the governor’s plan is poorly executed.
I agree with both Kirwin and Steve, and disagree with both of you at the same time. Just what are we selling here? The same brick and mortar/leased spaced in the same locations with the same restrictions and lack of choice? If so, then I say why bother? The value of the existing business is based on two things: (1) net profits capped at, say 6% return on investment (ROI). That would be a store-by-store evaluation which presumably would reflect each local market and (2) growth potentional or “value added” risk/return as each buyer would see it.
This is all problematic. In my view, the whole thing should be opened up just as it is in so many other states across the Union where the state does not run a monopoly. If our liberal AND conservative friends think state-run business is such a great idea, and that the more we spend in tax dollars the more jobs we create then well, uh, I think that experiment has been tried before and was a dismal failure.
Kiriwn is right when he says McDonnell made a mistake by trying to argue about revenue neutrality and then earmarking proceeds for transportation. Both very bad ideas. He should have been talking about the philosophical merits and spinning the whole operation off and opening new markets and more convenience and competition for the citizens of Virginia.
[...] This post was mentioned on Twitter by ProjectVirginia, Bearing Drift and Rick Richardson, Rick Richardson. Rick Richardson said: RT @projectvirginia: From @BearingDrift: Where #Virginia's ABC Privatization Went Wrong – http://ow.ly/2RJtZ #VAGOP #VAGOV #TCOT #GOP @bobmcdonnell [...]
It’s odd for Brian to cry over spilt milk. I guess they should have consulted him first. But his analysis missed one basic conclusion; if you say you are going to do something, make sure your facts are correct. McDonnell simply did not have the facts on his side, and when he began the PR campaign before releasing the business case, everyone knew it. All the other changes just added to the drama. I do agree that it should never have been linked to transportation. Frankly, transportation related taxes and fees should support transportation; I thought most of us agreed on that.
Steve, I just love how you take issue with me, and then prove my point.
You say ABC stores provide a concrete benefit to the taxpayers.
So does Farm Fresh. Guess what, Steve. My taxes don’t have to pay for Farm Fresh.
The fact that some benefit exists does not mean that government needs to be the one providing it.
And as far as your rubicon being crossed “long ago”, I’m sure glad the Founding Fathers didn’t whine about “rubicons” and decide we should stay colonies of England.
As long as your interest, Steve, (and that of liberals – and I’m laughing here as I pretend you aren’t one) is in how much money government makes, no ABC plan will meet your approval.
Craig, you are brilliant and wise and I agree with your comments completely.
“It’s odd for Brian to cry over spilt milk. I guess they should have consulted him first. ”
Truer words have never been spoken.
Brian:
Farm Fresh is not now a public entity.
I get it, you want to give away the taxpayers property to private corporations and you don’t care how bad the public get’s screwed in the process. Gotcha.
To you the principle that the state shouldn’t be int he business overrides the practical fact that it is in the business.
As far as “never be satisfied” I wrote an op-ed advocating privatizing ABC stores before McDonnell ever raised it as campaign issue.
As I said, the principle is right, the execution is wrong.
And are Dels. Pogge and Grear and Albo “liberal” because they don’t support the governor’s plan? (Okay, we can maybe agree that Albo IS a liberal.)
BTW: Your taxes don’t pay for ABC either. It’s a self-supporting agency. It ADDS money to the state budget by making a profit.
Selling liquor is really no different than selling shoes (or so the argument goes…), so why do we have all those stupid rules? Like not selling to kids, not selling to drunks, not being able to get a whiskey with my burger at a drive thru window?
Let the small businessman reap the hundreds of millions of dollars currently going into the general fund for silly things like education and mental health; find a way to make it up somewhere else.
We need a liquor store on every corner like W.V. and Maryland.
This is not a “core” function of the government (or so the argument goes…) so keep the police out of my bottle….hickup…
Now seriously: The ABC pays for itself and makes money all while keeping control on hard liquor. It is one of the few things the government does well. I cannot think of another self sustaining and profitable government entity (besides the federal patent office).
If they want to get rid of the system, so be it, but make it fair for everyone and not just for the national retail chains and wholesalers.
Oh, Steve. Why must I prove that “reporters” are idiots yet again…
“Farm Fresh is not now a public entity.”
Who cares? At the rate you’re going, it soon will be.
“you want to give away the taxpayers property to private corporations”
It was taken by force, Steve. It’s not like the private sector gave it away or sold it to the “taxpayers.” Government took over the industry by force, and you have this Helsinki syndrome view of government for some reason. I think the most commerce the “taxpayers” can transact on a PRIVATE SECTOR level, the better.
But yes, you wrote the first Op Ed on ABC Privatization! McDonnell must’ve gotten the idea from you! You are a freakin’ genius.
By the way, why is a reporter writing op eds? Doesn’t that ruin the “objectivity” you reporters are supposed to have?
And yes, if you ignore the part of my column where I talk about conservatives not liking the plan, your discovery of conservative delegates who oppose it would be seen as an incredible revelation.
As it is, the only revelation is that there is a Del. Grear somewhere. Did Rosie get into the House somehow? Pam? Who the hell are you talking about?
Perhaps you should wait until 5pm before hitting the scotch. Your comments would do you much more credit then.
@Brian. I really have to wonder what some of these people are doing here. This weekend we had the “Christian Nation” people and now we have people who just can’t get their hands around free enterprise and free markes and government run monopolies on “sin” commodities. My, at this rate we should have state-run pharmacies, state-run tobacco stores and hmmm, what else can we think of that the government ought to get its sticky fingers on for “our protection?”
OK. Let’s grant them all that. Maybe that way we could legalize hemp. Think of what a cash cow that would be for the state. A license to plant it, a tax to harvest it, a tax to sell it to the wholesaler, a tax on him to distribute it, and of course a tax when its sold. But where shall we ALLOW it to be sold? The government run liquor store, the government run pharmacy, or the government run tobacco shop? Or all three?
Oh, hell with it. How about just one big happy government run drug store, and we do mean drugs people!
Speaking of having a scotch-to-go at McDonalds. Now I’d be all for that too. Just park a cop outside the parking lot and pull them over for open container laws. MORE REVENUE!
Seriously, in Europe you CAN buy beer and wine at McDonalds. At least in the metro areas where people don’t usually much drive automobiles and there is no drive-through.
What’s the difference between a McDonalds and a Ruby Tuesdays? Other than the drive-through, of course.
Seriously, I’m not even sure McDonnell really understands the business dynamics of all this. Certainly few people here do. As you can tell, I come from a state (Missouri) where there is no such thing as ABC and I can tell you it is a VASTLY SUPERIOR, open-market, free-enterprise system.
No, you cannot buy liquor 24/7 but there are a lot more places and choices to buy what you are looking for.
Yes, Virginia, there is a better way.
Craig,
The difference between McDonald’s and Ruby Tuesdays is that Ruby Tuesdays insists on serving broccoli with nearly every entree on their menu. I agree with G.H.W. Bush: broccoli sucks!
The key problem is that he let the opponents change the questions? Really???
How about the simple truth of the proposal:
a) TAXES: for direct purchase, for the distributors, and for the consumers. Horrible — absolutely reckless — for Virginia businesses.
b) high cost of introductory bids for small business licenses. He wouldn’t have made the sale on that front.
c) finally relenting on the tax question and suddenly realizing that he had initially promised this as a transpo funding fix. That’s a huge lack of foresight.
d) all of the above combined with going all-in on privatization instead of semi-privatizing, thereby forcing a major issue in half-baked form in front of fellow party members in the GA who hadn’t forgotten that it’s supposed to move to fix transportation, not contribute to the problem.
He played shallow politics and lost. Perhaps instead of privatizing, he should get rid of the disincentives on business by chopping out regulations forcing purchase through distribution, the rules banning taste-testing on VA distilleries’ premises, and maybe selling a smaller number of licenses and letting the market prove itself for private industry while doing small Virginia businesses a favor. It’s never a good idea to tax or cold-shoulder small businesses, especially in a down economy. Privatization is a great goal. The legwork was missing.
@Henry–I am so glad McDonald’s does not force feed me broccolli, but you might be on to the newest fad burger–broccolli and cheeseburgers!
@Rob. VERY good points. It was a half-baked idea and that souffle fell flat. The focus ought to be on free market incentives and opportunities. There may be some areas where no private companies would want a license. The issue of distribution is a very perilous pit of pirahnas. There is no group of more vicious people than the Wine & Spirits Whole Salers lobby.
Ah, but now we get in the whole reciprocity and distribution argument about Virginia wines….that’s probably something McDonell could fix with far less rancor than privatizing the sacred ABC stores.
What are the ABC stores worth? I keep seing the number $500,000,000 in GROSS SALES bantied about. That is not the same thing as NET OPERATING INCOME (NOI). In a state budget with a General Fund of $14.8 BILLION it is a drop in the bucket. (Total state budget is $37.2 BILLION).
Still, let’s say that our incredibly efficient and well-managed ABC stores make an amazing 20% profit after all expenses are paid. This means the real net income to the state is $100 million. Capped at a generous 6% Return on Investment (ROI), the value is $1.67 BILLION. No paltry $500 million!
To put this into perspective, if I wanted to earn $100,000 million a year putting my money out at 6%, I would have to invest $1.67 billion. Of course earning 6% is not a viable option in todays money market or even Wall Street, so I would be looking for something a little more time-consuming and slightly more risky, like Virginia ABC stores. Frankly, I don’t think a 6% cap rate is unreasonable.
Now, my numbers may be all wrong. Does anyone really know the true net income the ABC stores are producing annually. That’s the first question to be answered. What are we trading here?
Ah, Brian why you want to combine stupidity with arrogance is beyond me.
You don’t really want to get into a flame war with me again, do you?
Not after the way I made you cry last time?
Look, I’m not sure why you find anything I said about your post all that threatening.
To you, the principle that the state shouldnt’ be in the alcohol business overrides everything else. I get that.
It’s just not a very realistic position in the real world.
Steve, I’m sorry you find that so much is beyond you.
Geez, that was weak even by your standards. I accept your surrender.
Steve, rumor has it you like when guys surrender…
See, that’s what’s wrong with guys like you. You listen to rumors and get your hopes up. Sorry.
Unfortunately for you, Steve, hopes are about all you can get up.
You sad little pathetic man. You’ve probably not been able to see over those chins to know if you’ve gotten anything up for quite a few years.
Enough to see the top of your head.
Ha. Now that’s better.
But no, even if I was gay I’d have better taste than that. I doubt you’ve ever seen anybody’s head in that position. Well, maybe your dog if you tied a pork chop to it.
Didn’t know you wanted to bring your wife into this…
That’s typical of you keyboard heroes. Bet you wouldn’t have dared to say that to me face to face. But then I doubt you’d have the guts to say most of what you babble on about without the insulation of the Internet.
You’re right, Steve. My stomach can handle a lot, but your face might be pushing it.
Fatboy,
We’re through here. Your comment about my wife sank to a level that I won’t go. I’m not going to make comments about your mama or your hypothetical significant other, of whatever sex.
Also in my neighborhood you’ve crossed the line where people stop joking and start throwing hands. If you ever think you’ve got the testicular fortitude for that …..well, you know where I work.
I didn’t even know you were married.
Steve Vaughn captured the essence of the opposition to privatization as now structured. I am one of those who agrees that privatization is the right action to get government out of private enterprise, but have expressed to the policy group and the governor, as well as in interviews, that the benefit to the Commonwealth is inadequate. The wrong entities are driving this deal. The structure was/is not well-done….in fact, it is totally unacceptable. Who can make a legitimate argument that 700 new licenses are a sure thing and that the upfront price is adequate. Steve is correct.
Leave your response
The comments section is for meaningful discussion. Readers are reminded to post comments that are germane to the article and write in a common language that steers clear of personal attacks and/or vulgarities.
Please take a moment to review our comment policy.