Virginia Governor Announces New Liquor Store Plan

January 18, 2011

Virginia Gov. Bob McDonnell (R) announced a plan to close 332 state-owned liquor stores and instead allow a larger number of licensed private liquor stores to open in their place. Those private stores would only be able to buy from the state, however, as the plan maintains a state monopoly over wholesale liquor sales. (Virginia leases much of the real estate for its ABC liquor stores, meaning the only windfall revenue from privatization would come from selling existing inventory and whatever license revenue they impose.)

McDonnell has sought to balance three competing promises: (1) to privatize liquor sales, (2) to generate lots of up-front cash which he’s pledged to spend on transportation (he threw out a $500 million number during the campaign), and (3) to maintain ongoing annual state revenues from liquor sales (last year, about $258 million). An obvious restraint is the impossibility of doing all three of those things at the same time.

Last year, he tried however: the plan at the time relied on up-front license fees and an extra tax on the sale of liquor in groceries and restaurants to replace lost state monopoly revenues. Grocery stores and restaurants (and thus consumers) probably would have paid lower prices for liquor on net, but that wasn’t convincingly conveyed and nixed under their pressure. After stripping that out, the plan would have brought in $50 million a year less than the status quo, which legislators didn’t like.

McDonnell estimates the new plan would generate $200 million up-front from the auction of 800-1,000 retail licenses, and would bring in on-going revenues of $13 million more than the status quo. Thus the new plan doesn’t quite privatize everything, doesn’t generate as much cash as he promised, but satisfies legislators by bringing in just as much revenue.

Other states have considered state liquor store privatization, and have been watching to see if Virginia succeeds and can be copied. There are states that currently have the state-monopoly-wholesale but private-retailer model (Ohio, for instance). And, of course, in most states, the state has no role whatsoever in selling liquor, wholesale or retail.

More on Virginia here.

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