Monday, May 17, 2010

Reinventing commissions to reinvent reinventing government

Now that he's got the General Assembly out of town and he can get down to business, Gov. Bob McDonnell has turned his sights on "reinventing government."

He's appointed a commission to suggest ways to do that.

As usual for such commissions, it's filled with eminent names from state and local politics and government, as well as business interests and lobbyists. McDonnell's commission is huge, 31 members, so it might have trouble reaching consensus by July 16, when its report is due.

If what the governor is trying to do is cut down on red tape and unnecessary government spending, he could  have just read the last five or six reports issued by commissions on reinventing governments. After all, none of their recommendations have been acted on yet.

In fact, since the current commission is really just a way to get to the governor's goal of selling off the state's liquor stores, he'd really only need to read one report, the Wilder Commission report from Gov. Mark Warner's administration,

That report suggested selling the ABC stores, both to simplify government and to pump $400 to 500 million into the state budget. The primary objection to this proposal was, and remains, that in order to realize that one-time cash infusion, the state would be giving up a steady stream of revenue -- more than $200 million per year -- from ABC profits.

In a scenario where the state just got out of the liquor business, allowing it to be taken over by private industry, while the state liquidated its inventory and warehousing operations and terminated its retail employees, the state would also lose control over liquor sales.

And that worries some people, including legislators.

Because the future they see is one with liquor stores proliferating on every corner or victimizing disadvantaged neighborhoods or marring other neighborhoods with tacky advertising. And that's a prospect that many -- including many of the conservative, religious Republicans who are part of McDonnell's base -- oppose. That plan probably can't pass the General Assembly, even the Republican-controlled House.

So the pure "free-market" approach won't work. It doesn't generate enough money for the commonwealth and it will be very unpopular. That means the McDonnell administration needs to think outside the box and get beyond the GOP's free-market dogma. It needs to adopt a scheme of "quasi-privatization."

What that means is that the state needs to keep control of the number of liquor stores in the state and generate the maximum  revenue possible for allowing them to "go private."  That's fairly easy.

Although the news media often frames this issue as the state "selling its ABC stores," the fact is that the state won't be selling any stores. That's because it doesn't actually own any. Nearly all of Virginia's more than 350 retail liquor outlets are leased. What the state does own is the right to operate a liquor store in Virginia. And that's what it should sell. At auction.

There's interest in this public-private approach. The McDonnell administration has reportedly been approached by a large corporation with an offer to buy and operate Virginia's alcohol distribution network. I don't think a single-buyer proposal is the way to go either.

Here's why. I think the state can maximize revenue and retain control of how many stores are in the state by auctioning the right to operate individual stores. The state can set the number of franchises that will operate in each locality. At first, that should be set at the same number of stores each county or city currently has. Additional franchises should become available as increases in population dictate. To protect Virginia consumers against monopoly pricing (which the state itself does now), no one entity should be allowed to operate more than 50% of the franchises in a given locality, assuming the locality has more than one.

The franchises should not be permanent. They should go up for auction again at regular intervals, perhaps every 10 years. That provision, along with additional franchises to be awarded when populations increase and an increase in state taxes on liquor, will give the state a continuing stream of revenue from the operation of the ABC stores. So the state will benefit from both a one-time cash infusion, which will be larger under the auction scheme, and an annual stream of revenue.

With the state controlling how many stores will operate, local governments can control where they will operate and what they will look like. Once liquor stores are private enterprises rather than organs of state government they will be subject to local zoning ordinances. City councils and boards of supervisors will have a better feel for what's right in their communities than either the General Assembly or the Richmond bureaucracy.

Although the auction plan overcomes many of the objections to privatizing the ABC stores, it's not a slam dunk. It will still be opposed by beer and wine distributors, who are major political contributors in the state, for example. They have little interest in changing the status quo which gives them a competitive advantage over sellers of hard liquor because beer and wine are sold in supermarkets. No one would likely propose that spirits be sold in supermarkets, not even the staunchest "free-market" Republican.

The governor wants to spend the money raised by the ABC initiative to improve transportation in the commonwealth. Virginia has more than $6 billion of identified, unfunded transportation needs. So $500 million would only be a downpayment. It's still more than the General Assembly has been able to do over the last 10 years. So it's worth doing. But it's not a panacea.

As for other savings from "streamlining" and "reinventing" government, I'm not optimistic. Despite what you might hear out there on the campaign  trail, Richmond is not Washington, D.C. While there might be some redundancies that can be eliminated, too much government is not really the commonwealth's problem, too little revenue is. Virginia's budget has already been slashed by more than $7 billion over the last three years, including cuts to core government functions like public education. The fat has largely already been cut from the state budget. Doing anything about the state's financial situation will require a change in our political culture, which would include Gov. McDonnell's party realizing that there's more to good government than low taxes.

I'm not holding my breath waiting for a McDonnell initiative to reinvent the Republican Party of Virginia platform.

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