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Va. governor wants to privatize liquor stores

Bottles of Kings County Distillery alcohol

TEXT OF STORY

Kai Ryssdal: If you want to buy hard liquor in Virginia, there's only one legal way to do it: You have to buy it from the state at one of its 332 retail outlets. Virginia's among the 19 states that control liquor sales with a state-run monopoly. As you might imagine, there's a pretty penny to be made selling booze. After a couple years of recession, with ever tightening budgets, some of those states are looking to get out of the spirits business. Take the profits and use 'em shore up their books. In Virginia, the idea's creating a hangover before the party's even started.

Sabri Ben-Achour reports.


Sabri Ben-Achour: If you want to know why Virginia is considering privatizing its liquor stores, you just need to go for a drive. Anywhere. During rush hour. Like this exit ramp in Northern Virginia off of the D.C. beltway, that's an eight-lane highway.

Ben-Achour: What's traffic like in northern Virginia, how can you sum it up for me?

Mariane Peters: It stinks!

That's Mariane Peters. Other drivers used far more colorful language. And before you write in to say how dangerous it is to interview people while driving -- don't worry. Nobody's driving here.

Peters: I'm now at 20 minutes on this exit ramp.

Virginia's traffic is awful, and the state can't afford to do much about it. Enter Republican Governor Bob McDonnell, who was elected last year. He proposed selling off the state's liquor business. Melissa Luchau is his aide.

Melissa Luchau: The proposal will generate a significant amount of money, hundreds of millions of dollars that we can put on the street for road projects.

The governor also feels that Virginia's government has no business running a business, but that argument didn't really go anywhere until the state got thirsty for cash. The plan now is to break up a monopoly that's been in place since Prohibition. The state would sell off its 350 liquor stores, and sell licenses for 700 new liquor outlets. That'll raise a half billion dollars almost immediately. But consumers are looking for relief out of all this too.

Jim Ginette: Vodka, vodka, vodka. Chivas

Jim Ginette owns a restaurant.

Ginette: Beefeater Gin, Bombay, gin, Tanqueray Gin...

So he buys a lot of liquor. He would love to see an end to Virginia's monopoly and its 69 percent mark-up.

Jim Ginette: Currently, we don't get any sort of deals or breaks on anything, there's no competition.

But privatization might not mean lower prices. Virginia wants to ditch its stores, not its profits. It'll raise taxes to make up the difference, so some prices might actually go up. And once Virginia allows liquor to be sold in the same place as beer and wine, smaller retailers worry they'll get muscled out.

Norm Yow runs Norm's Beer and Wine in Vienna, Va. He's setting up for a gourmet beer tasting.

Norm Yow: I'm not opposed to the idea of privatizing the stores, but this plan feels like it's geared towards big businesses.

Yow says the proposed license fees are exorbitant. Even owners of small stores would have to pay as much as $300,000. But many other retailers -- including a lot of larger ones -- can't wait to get their hands on privatized liquor.

David Trone is president of Total Wine, a chain that has outlets in 11 states.

David Trone: We think there's an opportunity to have everything under one roof, which will clearly give us the ability to increase the size of our business, create more jobs, and better off for the consumer.

But for legislators, who will be voting on this plan, it comes down to revenue. David Albo is a state delegate from Fairfax County.

David Albo: Right now, the bill would raise $500 million but it's one time. So, one time for the next thousand years?

And after that one-time payment, he points out that annual tax revenue would fall $20 million short of what the state currently gets.

Albo: I like the concept, but, like everything else, the devil's in the details, and so far we haven't found a way to make it work.

And the state has to be careful -- it can't just keep raising taxes to make up the difference.

Albo: You can't have a huge cost on the license, and a huge tax on the liquor, because then no retailer's gonna want to do it. It's kinda like that balloon analogy -- you squeeze one end and the other end pops out.

It's all a pretty complicated cocktail. New Hampshire, Vermont, Washington state, North Carolina and Mississippi are thinking about privatizing too. They'll be watching to see how it all shakes out in Virginia.

I'm Sabri Ben-Achour for Marketplace.

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When I listened to this story, I thought of some advice I heard from a web entrepreneur on a podcast a couple months ago. He was asked if he had any regrets, and he cited a business that he started early on in his career and then sold for a quick buck. He was able to pay off all his debts and buy a nice house and car, but he lost a revenue stream that would still be providing him the capital for new ventures now. Although the hassle of running the business was cited as one of the reasons he let it go, he argued that this was rather petty in retrospect and he should have stuck it out.

If VA can't keep up with demand for liquor, they should act like a smart business and expand, instead of acting like a dumb government and just give up.

I would like to commend Mr. Yow in his articulation of the pending plight of small retailers who cannot afford to be a one stop shop with a cash outlay for a one time license of ~$300K. I would further like to point out that 85% of the license is established for big box chain stores such as Costco, Walmart, and large retail groceries. As interviewed, Total Wine, a multistate chain with alcohol sales elsewhere, is clamoring to grab up all the licenses it can. I also take no comfort in the idea that any entity cannot own more than 25% of the market segment. I find this incredibly short sighted.

One think lacking in the report is that Virginia discovered $877M in unspent highway funds through a recent audit of the DOT. That figure likely eclipses the onetime windfall that the sale of the licenses brings.

There is an ignorance and arrogance from the Governor’s office around reality of these funds versus his rush to get out of the booze business. He seems eager to make good on his campaign promise in spite of fact or logic. Overall this plan and its execution seem incredibly shortsighted and, really, business unfriendly to all but the most moneyed enterprises. Perhaps the plan is that then new jobs at the groceries, convenience stores, drugstores and discount retailers will hire the displace business owners and employees who are certain to be crushed under the banner of progress.

To this I will agree, the Governor is showing that the Commonwealth should not be in any business as he, as chief executive, seems incapable of strategic thinking as this plan is simply tactical. The plan attacks a visible problem which has been historically politically under budgeted. The long vision decidedly lacks and is potentially a folly he will leave for others to repair as the liquor taxation paradox will materialize two or three years from the date it is enacted.

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