I was going to attempt to do a synopsis of this article in the Washington Post. It cannot be done. This article explains how Virgina will lose big bucks if the liquor stores are sold and they become private. Governor McDonnell doesn’t think the state should be involved in liquor sales. How hypocritical. They sure don’t mind taking taxes from the sale of liquor. So I don’t even want to hear the moral indignation surrounding liquor sales. The Governor also suggests that revenue will be made up in taxes because more liquor will sell because it will be cheaper.
The logic here is simply …missing. Besides, do we want more liquor sold? How is that concept fitting in with the Guv’s supposed moral objections to the sale of liquor. He needs to run the state and leave the liquor stores alone. Virginia needs to just keep raking in the $245 million dollars it is currently making on profits and taxes. Governor McDonnell needs to do the math and get over this hold over from the evangelical Pat Robertson school regarding booze.
Make sure you check out the interactive graphic. It is very interesting.
From the Washington Post:
Virginia’s inner struggle to get off the scotch tax
RICHMOND — For drinkers, a fifth of Jack Daniel’s costs about the same wherever they buy it — about $25 in Virginia and the District, a couple of bucks less in Maryland. But for the governments that regulate that bottle, the difference is as stark as a sip and a chug.
In the District and most of Maryland, just a dollar or two from a fifth of Jack Daniel’s goes to government. But in Virginia, where whiskey and every other kind of liquor is sold in state-run stores, more than $13 of the retail price goes to the state.
As Virginia Gov. Robert F. McDonnell (R) prepares to call the legislature into a special session to consider privatizing the state’s 76-year monopoly on the sale of hard alcohol, he faces a hard economic fact: The liquor business has been exceptionally profitable for the commonwealth.
Every shot poured and every cocktail downed is another cha-ching for the state, and that translates into hundreds of millions of dollars a year that are used to fund schools, prisons and mental health facilities.
Even after paying all of the expenses involved — buying millions of cases from distilleries, paying more than 2,680 employees, keeping the lights on and the rent paid at 332 stores — Virginia’s Alcoholic Beverage Control board deposited $248 million in liquor profits, as well as excise and sales taxes, into state coffers during fiscal 2009. And unlike nearly every other facet of government, the liquor business has proved to be essentially recession-proof, taking in $13.7 million more in fiscal 2009 than in 2008.
Regardless of the profits, McDonnell fundamentally believes that running the liquor business ought not to be a government function. He also believes that selling the system’s assets and new liquor licenses could bring in a one-time windfall of $300 million to $500 million, which he would use to improve the state’s ailing roads. A private system would also mean better selection and more convenient stores for consumers, he contends.
On Wednesday night, McDonnell held the first of a statewide series of town hall meetings in Roanoke, partly to sell the idea.
Legislative challenge
McDonnell and his aides know that to steer a plan through the General Assembly, where one chamber is controlled by Democrats, he will have to convince legislators in both parties that the state will not lose out financially if the system is privatized.
“We’re working on a mechanism that would get us as close as possible to the current revenue that ABC generates for the state right now,” said Eric Finkbeiner, a senior policy adviser who is leading the governor’s privatization effort and plans to unveil a proposal this month.
An examination of the pricing structure for liquor in Virginia, Maryland and the District demonstrates the difficulties involved with coming up with such a plan.
Take, for instance, that bottle of Jack Daniel’s, which is the bestseller in Virginia.
Virginia buys the bottle from the distillery in Tennessee for $11.48. The state adds a $1 warehouse processing fee to every 12-bottle case. It also marks up the price by an amount generally set by the ABC governing board with state budget targets in mind: currently 69 percent. Then comes a 20 percent excise tax, one of the nation’s highest. After paying the state’s standard sales tax, customers plunk down $24.68 for a bottle, whether they live in Lynchburg or suburban Loudoun County.
In private systems, such as those in the District and most of Maryland, the state collects taxes but leaves pricing and profits to businesses. Store owners buy Jack Daniel’s from a wholesaler, not the distillery. The businesses add a markup, resulting in a price comparable to Virginia’s. But the government collects only sales taxes and an excise tax that is set at $1.50 per gallon in both jurisdictions.
At the District’s largest store, Calvert Woodley Wine and Spirits in Northwest Washington, a fifth of Jack Daniel’s has been selling recently for $22.90 — or $25.06 after sales tax. But the D.C. government will make just $2.37 on excise and sales taxes, less than 10 percent of the total sale. At privately owned Camelot Discount Liquors in Laurel, Maryland will pocket $1.43 on a bottle of Jack Daniel’s, which has been going for $20.02 after sales tax.
Instead of hundreds of millions of dollars from the sale of distilled spirits, the District collected $10.82 million in sales and excise taxes last year; Maryland took in an estimated $24.7 million.Montgomery County, like Virginia and unlike most of the rest of Maryland, controls the sale of distilled spirits within its boundaries, but the county sells Jack Daniel’s for less and makes less of the profit than Virginia does. Montgomery applies a 27 percent wholesale markup and an 18 percent retail markup to arrive at a price of $19.09, or $20.24 after sales tax. On a retail sale, Montgomery takes in $6.38 and the state collects $1.45.
Profits vs. taxes
“Virginia is clearly capturing the profits that would otherwise be captured by private industry,” said William Kerr, an economist with the Alcohol Research Group at the Institute of Public Health in California. “And there’s no way to get that money otherwise except to raise the tax.”
Finkbeiner said he thinks Virginia can come up with a taxing structure to largely replace liquor sales profits, in part by creating a tax at the wholesale level. State revenue will also rise, he said, in response to payroll and other taxes paid by an enlarged private liquor industry.
But it won’t help customers much. Virginia officials concede that prices of mid- and low-range items probably won’t drop. They do think, however, that the prices of high-end items will fall, resulting in additional sales and increased tax revenue. Those stores may also be more convenient. Under some plans, distilled spirits would be sold at some drug and grocery stores, a sales model prohibited in Maryland and the District.
Plus, McDonnell and his aides think Virginians will buy more liquor overall in a private system. That’s partly because they envision more stores — various privatization models call for 800 or more retail outlets.
McDonnell aides think the state could capture sales to Northern Virginians who today cross the border for liquor. They estimate that the state loses 10 percent of liquor sales to Maryland and the District.
“Maryland and D.C. will likely still have a price advantage, but if people are able to buy when they go to the grocery store, if they don’t have to make a separate trip to an ABC store, that will boost sales,” Finkbeiner said.
Experts with the Distilled Spirits Council of the United States, one of a number of industry groups that has been advising the governor, are skeptical about the state’s ability to match the $248 million revenue stream it gets today. According to an analysis by the council, overall government collections on a gallon of liquor would have to reach $25 in Virginia to match the state’s current revenue. That would make taxes in Virginia five times the average in other privatized states.
“If you try to impose that kind of tax, you’re never going to get the up-front revenue you need. You’re taxing away everybody’s potential profit,” said David Ozgo, an economist with the council, which is neutral on privatization but generally supports modernization of liquor sales.
Some supporters of privatization say the millions of dollars collected by Virginia on liquor sales are a product of the state’s monopolistic control over what should be a private industry.
“There’s nothing wrong with reducing our revenues by a couple hundred million if it forces politicians to make long-needed cuts,” said Ben Marchi, director of Virginia’s chapter of Americans for Prosperity, which lobbies for smaller government.
That argument is unlikely to sway leading members of the legislature, whose approval the plan needs.
“I’m open to being persuaded,” said Sen. R. Edward Houck (D-Spotsylvania), setting himself apart from members of his party who have made clear their opposition. But to persuade him, must the plan match the current system’s profitability?
“Absolutely,” Houck said. “We don’t need any less revenue than we have now.”
There is some real fundamentalist thinking going on here. Governor McDonnell is certainly free to his own private beliefs about the use of alcohol from his religious perspective. However, he is not free to impose his beliefs on the rest of us. I am not ready to give up the millions that Virginia hauls in annually from its liquor sales. There have been state stores for 76 years. There is no reason to change. McDonnell needs to apply common sense and get over whatever is driving him to persue this ridiculous adventure. I hope the General Assembly tells him to pack sand, then goes down to one of the local bars and toasts his defeat on this initiative.
Virginia buys the bottle directly from the distillery in Lynchburg, Tennessee, paying $11.48 for it. The state adds a $1 fee per 12-bottle case for warehouse processing, marks up the price by 69 percent and then applies a 20 percent excise tax, one of the nation’s highest. After paying the state’s standard sales tax, customers plunk down $24.68, no matter where they live in the state.
So, a bottle that the govt buys for $11.48 the state turns around and sells for 24.68? I was pretty much on the fence before I saw the math. Now, I’m firmly in the camp of govt needs to stop selling liquor. We’re way overpaying for our sauce.
So you would rather give your money to a liquor vendor? You did see the comparison prices? The savings is not passed on to the customer.
I would rather support the state. I am still going to be paying $25 for a bottle of booze. I just want the profits to help offset my taxes.
That’s not entirely accurate. Stores have sales all the time. Grocery stores offer coupons. Could a privately owned liquor store have a buy one get one free offer? Maybe a if you buy 10 Captain Morgan’s we comp you a bottle for free. The commercial market is full of those offers and incentives. The State-run ABC is not.
It’s doubtful that prices will go up but there is a good bet that competition across stores and chains could force the price(s) to go down.
This is a pro-consumer move. The state will still get a 25% of the pie (excise + sales tax).
I for one think the government (state, local, federal), should run EVERYTHING!! Gub’ment grocery stores, gub’ment flower shops, gub’ment sex toy shops. Heck, I wonder what pets you can buy at the gub’ment pet shop! Nobody, and I mean NOBODY, does it better and more efficiently than gub’ment! They’re clearly the best and the brightest!!
“However, he is not free to impose his beliefs on the rest of us.”
You mean like Obamacare? Dept. of Education? Gay marriage? EPA? Cap and Tax? Bailouts? TARP?
@Slowpoke Rodriguez
The state of Virginia has done a damn good job of running the liquor stores.
Slowpoke, stick to topic. I obviously was talking about religious beliefs, not political beliefs.
Marin, the ABC store has sales also. I don’t think you read the article because you have totally ignored the math presented. in the article and the amount of money brought in to VA, MD, and DC.
There are two issues present.
First, is it right and proper for the state to be in the business of selling a product that it also taxes and regulates.
And second, would the new model be sufficient in providing revenue (maybe not equal or exceeding but does it offer an alternative revenue stream)
To the first I respond that it is not. The government should not be in a position where it makes revenue off selling a product, is the only legal provider of that product and then regulates itself. If we were to replace the word ‘government’ with ‘Wal-Mart’ would you agree that Wal-Mart could be the sell products, be the sole provider and then regulate itself? If you can answer yes to that then I think it undercuts my arguement but I don’t think anyone would. I’m a BIG free market guy but even I concede that govt must sit back as a ‘referee’ and inserting itself when a safety or fraud condition exists.
Daily progress notes a 4th condition; “Eliminating paradox. The Virginia Alcohol Beverage Control agency is supposed to raise money for the state by selling liquor, while also regulating sales of liquor for the public good, while also educating the public about the dangers of drinking liquor. How are these functions compatible? ” Reference http://www2.dailyprogress.com/news/2010/jul/25/privatization-liquor-stores-beneficial-ar-349225/
To the second; Virginia has 300 ABC establishments wherein DC with it’s much smaller land area and population sports over 500 retail locations. The state is already underserved and competition will only breed effeciency and lower end costs for the consumers. With prices decreasing more consumers are able to have access to a larger variety of products for consumption. The private market already has experience in selling restricted products like tobacco, pornography, beer, wine, and controlled substances (medications). I personally don’t see this any differnet than gas stations selling beer and wine or a CVS filling a script for percocet. Reference http://www2.starexponent.com/cse/news/opinion/columnists/article/privatizing_abc_stores_makes_sense_economically_politically/61364/ (it’s a columnist opinion versus the newspaper opinion)
Privatization will not impact the law enforcement mission of ABC as it already oversee’s ABC locations as well as every restraunt that serves alcohol in the commonwealth in addition to retail locations that sell wine and beer.
Lastly, as a poke to those that malign the republican party for being a party of ‘No’.. How can we get compromise on this from our brethern on the left? I think allowing consumers to have more money in pocket and then using it for other purchases, debts, etc will help the Commonwealth overall to better effect.
I don’t like giving up the money. As for it being right for the state to sell booze, what are you? Carrie Nation? I don’t like this bible belt mentality about spirits. I don’t have a single problem with the state selling booze and making a profit off of it. It has done so for 76 years.
How do you feel about lottery tickets? Do you think the state ought to be in the business of legal gambling? Licenses? License plates? vanity plates?
I hope the GA sends McDonnell packing. What he proposes is financially irresponsible and a huge loss of state revenue which the taxpayers will have to make up for.
I don’t see how religion plays into alcohol sales. To me it’s not about religion but what is the proper role of govt.
Again, would you feel OK if Wal-Mart were doing it’s own sales and regulation?
I need to really think about lottery tickets. Darn good question. I’d be more interested in legalizing card games and slot machines in Virginia. We already have legalized Bingo and I think churches are opposed to slots and cards because of the impact it’ll have to bingo parlors but I think at the end of the day there is room for everyone at the gambling table (har har a pun!)
License plates serve a valid state function – the regulation of the privledge of driving an automobile.
Just to be clear, you side with the party of ‘No’ on this and you see mounting an oppisition versus compromise as a valid tactic. Good to know. 🙂
You don’t understand that there are people whose are very much against drinking and all alcohol because of religious reasons?
No, I don’t want Walmart to take over the sale of liquor. They can stick to beer and wine.
I would like to see slots and table games in Virginia also except I don’t know how much the govt makes off of that. Same with betting.
I don’t think booze is Republican or Democrat so I guess I missed what you mean abouut the party of NO. I am very much a NO on this one. And you are right…there is no compromise on this one. Things either change or they stay the same. I vote for stay the same.
Did I leave out the old adage about …if it ain’t broke, don’t fix it?
Our liquor stores bring in millions. Follow the money. Its money YOU, the tax payer don’t have to pay out of pocket in sales tax, real estate tax, car tax, or any of the many ways we get gouged. Drinking is a luxury.
My goodness, we have a principled Governor who understands that the Government should not be in the business of setting up businesses to compete with the private sector for the sale and distribution of a legal consumer commodity – much less establish a monopoly. I am impressed!
The only thing worse would be a statutory requirement that citizens purchase a historically discretionary and personal consumer commodity – like health insurance, as compared to car insurance which is tied to the right to use our highways.
There are and should be limits to government and the services provided directly by the government. This is not one of the exceptions. Marinm and Slow Poke, once again have it right. The problem is that you two are arguing with someone who has no principles over what the government should or should not do. Its all on the table. Thinking with the heart – or other body parts – without a sense of limits tends to confuse the brain – whether in the family or in government. We have been seeing a lot of that lately.
What is missing in this discussion is the extra-ordinary tax – yes hidden tax – that the State has inscrutably hoisted on Virginians through its mark-up and transfers to the general fund. That is simply dishonest. As the WP notes, such sales are recession proof. I would go further. These taxes are the most regressive taxes imaginable and affect the poor more and perhaps more significantly as a percent of disposable income than any other.
I reject the neutral revenue argument. It is a matter of principle that Virginians demand that the government respect its limits.
I might offer one alternative though – a compromise – eliminate the monopoly. Let the ABC stores compete head on with private industry after the full cost of the ABC stores are established by an independent accounting firm – by store – and go forward. Its not the most principled correction but it’s a start in the right direction.
As for me – this may be a real litmus test for my vote to the GA.
There may be people against this or for it because of religious reasons – I don’t care about that as it doesn’t influence my belief that the govt shouldn’t be in the business of being in business.
Maybe that’s a future thread….why DOESN’T the Commonwealth look at Slots and Card Games as a legal private venture to be taxed? WVA and MD allow it (not sure of NC I just know people that’ll goto those states to spend VA money)
To the compromise and party of NO it wasn’t really directed at you but mainly at comments I keep hearing about how the republicans are obstructionists and can only vote no. If compromise is really what’s being sought after – what’s the compromise here? Where can we both give in some… I just don’t see any -D’s or RINO’s working that angle… So, what I’m saying here is that the -D’s lose the high ground saying they want -R’s to compromise but fail to do so when they’re asked the same.
Government should be the ‘referee’ and not a player in the game. And, referee’s don’t interfere with the game they only call infractions and eject as required.
Will the Class IV stores on military bases in VA also be privatized? Or are they already considered “private” since the military owns them. Just wondering.
I haven’t posted here for a while because honestly I disagree with so many positions taken that it is just too stressful, but in this instance I question the fiscal responsibility of this proposal. I haven’t studied it thoroughly however I believe the state profits roughly 250 million a year from ABC stores and to sell the the stores would bring in a one time 300-500 million dollar influx to be used for transporation. It appears from a financial perspective that the ROI on this is only about 1-2 years and at that point the revenue has been lost (minus tax revenue). Would it not be more prudent to decree that the ABC stores will remain state operated and every cent made will go to transportation rather than the general fund? And yes, I am one that believes in smaller government but it seems like the state is running a profitable operation here, why sell out for a quick one time chunk of money. Kind of the flip side of using our one time chunk of stimulus cash for pay raises……
Ask the governor about this issue yourself at a Prince William Chamber event:
Hear from Governor Bob McDonnell On the Issues
That Directly Effect the Way You Do Business
Wed., August 25, 7:30 a.m.
Old Hickory Golf Club, 11921 Chanceford Dr., Woodbridge
Members: $25/person, Non-members: $35/person, Prices include breakfast
Enjoy the chance to ask questions
and hear answers directly from your Governor
following breakfast and a brief presentation.
RSVP to Diana Tringali by email at [email protected]
or by phone at 703-590-5000, ext. 103 or ext. 101.
Space is limited.
Bet that was true before the state gub’ment decided to get into the booze business.
Actually no booze was sold in the state at all. Prohibition. So things were real broken before the ABC stores were invented. @ Slowpoke.
@ Tom that actually isn’t a bad idea. My only problem with it is the money from booze sales is currently used for education, mental health etc. What would replace that money?
The money is great. The state can get even more if the ABC stores were allowed to add certain services like renting out punch bowls and glassware to those who are having a big party. The host would buy the liquor and mixes from the ABC. Any bottle not opened could be returned for credit. That’s the way it was in California 50 years ago. Having a cocktail party was a breeze then.
As for the getting people to drink more with private liquor stores – is that what Richmond wants?
I would hope not. @ punchak
The ABC stores have certainly gotten more modern over the last few decades. Back in the old days, you couldn’t even browse. You had to go to the counter and just order what you want.
“How do you replace the revenue loss?” – is the question that I have not seen answered. We are dependent on that revenue – do we raise taxes to offset the loss? Do we increase fees on something? Do we make the private enterprise that buys the business maintain the revenue stream?
What is the plan? You can privatize ABC in many different ways, I just do not see how the state can replace the revenue stream with the proposals.
Pat, I share your concerns. The only thing I have heard from McDonnell is that because booze will cost less (which is very debatable) people will buy more. I don’t think that is a desirable outcome.
No one has given a real answer. I take that to mean our taxes will be raised, the localities will be hit with more educational costs or there will just be 50 kids per classroom to make up for the loss of funds.
I guess everyone complaining about the drunk driving incident will be happy to hear that the state of VA wants to encourage more booze sales.
Pat, I made the point above….. ABC has two heads on this issue. One head encourages sales because as MH points out the more revenue generated the more money the schools get. But, the second head is the enforcement head and has to regulate the first…………..
We don’t trust any organization anywhere to do the same but we trust ABC to police itself.
@Tom Andrews
That’s funny! Fund the highway system with money contributed by drunks. Kind of like funding the school system with lottery funds (also run by the government).
Slowpoke Rodriguez and marinm have it right. Government should not be in the liquor business. Pat.Herve, I detest alcohol, and I don’t drink. So consider the irony. Do you really want the people responsible for arresting drunk drivers running our liquor stores? Is the most important thing about liquor stores collecting taxes from them?
Why are our roads and our schools such a mess? Why do we leave to politicians, people notorious for making promises, breaking promises, and telling lies things to run things we can buy for ourselves? You want road? Pay a toll. At least the road will be where YOU want it. You want to send your child to school. Pay the cost of tuition yourself. At least you will have chosen the people who teach your child.
[…] Check out this post, McDonnell attempts to give up millions by selling ABC stores. […]
Not a bad plan if you live in the 19th century,
marin, actually Virginia doesn’t encourage people to drink. There is no advertizing and there is very little signage other than the ABC store sign. Give me an example of how Virginia otherwise encourages drinkers?
The lottery has advertizing. The ABC stores do not.
So far all you Republicans have offered up for getting rid of the ABC stores is that the state controls them. wowowowow (wiggling all ten fingers) how scary. They have done a darn good job over the past 76 years. Millions of dollars in profit that help support state and local services.
I am still trying to figure out how local and state law enforcement who arrests drunk drivers are running the liquor stores. Are we saying that they moonlight? Most cops who moonlight in that capacity work in private bars as bouncers and security.
Riiiiiiiiiiight. ABC officers stand at every restraunt that serves alcohol, every gas station that sells beer, every grocery store that sells wine and every ABC retail store selling spirits saying “Pretty please don’t buy any of this stuff….”
Even the arguements FOR keeping ABC government controlled all center around how much money it brings in and how that number keeps going up every year.
ABC has it’s own law enforcement officers/agents. They even carry badges and sticks that go “boom”. BTW, cops that do moonlight still have police powers (ref the shooting of a dine and dasher at a Denny’s in Arlington and use of Soverign Immunity to protect the police officer).
Just to clarify – I think the shooting was justifiable. The way I see it is if you replaced the police officer with us mere mortals would I believe the shooting would’ve still have been justified.
The above might make it seem as though I was critical of the officer in that shooting; I’m not.
Wait, I have a great idea, instead having a consistent resource of money from ABC, we could just continue to STEAL from VRS and pretend we have a budget surplus!
marin, you are coming off the track there, buddy.
I have no problem with Virginia making a profit. Any company would be envious of the ratio of expense to profit that Virginia has.
What astounds me is that the ABC concept was extremely conservative at the time it was implemented. It was seen as the lesser of all the evils if Virginia was going to have liquor sales. Virginia controlled its booze because those wiser older heads had seen the crime and corruption around booze sales in before prohibition and during it.
76 years of handling something right is good enough to me. I am proud of my state for how it has handled its liquor sales. It pretty much is all about the money. We don’t encourage drinking and we don’t advertize or try to sell it as a good idea.
I don’t fear the state though, or at least I didn’t used to fear it until the new Taliban took office.
Elena is on to something. As long as there is a state pension fund there, it won’t be necessary to generate revenue. Just use the VRS as an ATM, lie to the Virginians and tell them they have a balanced budget, sell those rascally liquor stores so we don’t have booze breath or booze hands, continue to be hypocrits and collect the tax money….got it.
marin – I am with you, VA should not be in the liquor business.
but they are, and we are dependent on the revenue stream that it creates. So, how do you propose we replace that revenue stream once we give away, err, sell, the ABC business. This has the potential to be a one off, in that VA might get a chunk of change, but loose the long term revenue. They do not even know how they are going to spin it off, so they do not know the projections. If I were proposing to spin off a BU in my company, I would not be going to the board until I knew the facts – how I was going to spin it off, how to replace the revenue stream.
Citizen Tom,
I appreciate your point of view and of course support your right to express it but I would add that the issue of transportation consists of more than just the highways and that everyone that enjoys a drink is not a drunk. Everything is not always a zero sum game.
@Tom Andrews, I agree about everyone who enjoys a drink is not a drunk.
Pat, there is no requirement that we replace the revenue stream at 100%. But, my initial thought is by cutting spending you can get to parity.
I also don’t really like the word ‘revenue’ when we talk about government. It’s either a fee or a tax. In this case, it’s both!
@cindy b
Cindy, you need to put out your own newsletter! LOL! You’re great!
Incidentally, I think it’s weird to have a State run liquor store. But I didn’t grow up here, either.
The moderates all want to preserve their state stores for the money and for tradition reasons. The states running their liquor stores is very southern and very conservative.