Monday, June 14, 2010

Bob McDonnell's Speakeasy

Like a Prohibition-era speakeasy, you apparently need to know the password to get into the room where Gov. Bob McDonnell's real plan to privatize Virginia's liquor stores will be hatched.

And if you are a member of the public you are definitely not invited.

Although the governor, with a great deal of hype, named an august bi-partisan commission to review and streamline state government, which was expected to come up with the privatization plan, that's not going to be the case.

That body, which holds public meetings, might prove too independent.

Instead the governor's plan will be hashed out by a small working group, meeting behind closed doors with the governor's policy staff and then presented to the larger commission for its rubber stamp.

If you want to get into that inner sanctum where the real privatization plan is being served, you'll need the password. And it's apparenlty, "I'm with the booze industry." Aside from a few representatives of the Religious Right and McDonnell staffers, the working group is made up entirely of representatives of distillers, alcohol distributors and beer and wine retailers.

Maybe I'm just a cynic, but I have a hard time believing they'll have the taxpayers' interests at heart.

While I agree with McDonnell that the state should get out of the alcohol business, for several reasons, he's going about it all wrong.

Because the taxpayers do have a huge interest in the privatization scheme.

With the demise of the governor's ridiculous plan for deep water oil drilling off the coast of Virginia, this is the last chance we're likely to have in this administration of creating significant revenues for transportation infrastructure improvements. The governor has already said he won't raise taxes to pay for roads. If you've driven any of the state's pockmarked highways or tried to get through Hampton Roads at rush hour or Northern Virginia at any time lately, you know we need those improvements.

So, in getting rid of the state's system of licensed package stores and going to private liquor stores, the administration has an obligation to try to generate the most revenue for the state that it can.

Letting the distillers, distributors and retailers, who'll likely inherit the system, create the plan is more likely to inflate their profits than the state's coffers.

McDonnell has spoken often of plans to "sell" the state's liquor stores. That's something of a misnomer. The state doesn't actually own any liquor stores. Virtually all of the ABC Board's locations are leased.

What the state does own are the rights to operate retail liquor locations. It should sell those rights at a very high price. After all, the state will be foregoing about $200 million per year in profits from those stores that now flow into the state's general fund. That's for a one-time revenue infusion that the governor's office has estimated at up to $500 million and other authorities have said could be as low as $150 million.

That's not a good deal for Virginia unless some way can be found to at least partially offset the yearly profits from the ABC stores.

What McDonnell's secret panel is apparently looking at so far is a vast increase in the number of retail locations and a big tax increase on alcohol sales. That would seem likely to drive prices up and to drive some business across convenienent borders with D.C., Maryland and North Carolina. It also puts the burden for paying for the cost of privatization squarely on the shoulders of the state's consumers. Probably because they don't know the password to get into McDonnell's speakeasy.

A better model would be the one that's worked so well for McDonald's and Burger King and Subway. The state should sell franchises to operate retail liquor locations, preferably at auction. The deal could be structured so there was a relatively large up-front buy in cost and yearly franchise fees. That would give the state both the one-time cash influx it needs to do something about the sorry state of its roads and  a yearly stream of revenue to replace the ABC profits, so as not put more stress on a budget that's already stretched thin by the recession.

But McDonnell's friends in the liquor industry are not going to come up with that kind of plan. Some members of the government reform commission -- mostly Democrats --  have already let it be known that they don't plan to rubber stamp a proposal they had no hand in creating.

Really, the commission shouldn't draft a plan either. This is a big change in state policy and government, with the taxpayers' having a huge interest in the outcome. We've already got a body charged with making policy changes and protecting the interests of the taxpayers. It may come as a surprise to the governor, but that's not the liquor lobby. It's the General Assembly.

McDonnell should make his suggestions and find a legislator willing to the introduce them as a bill. That shouldn't be too hard, usually legislators try to help the governor out. Then he should let the General Assembly work its will on the package. That's the best way to make sure that everyone's interests are protected.

The password should be "Democracy."

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