Where McDonnell's ABC plan went wrong

Governor Bob McDonnell' s much-discussed, often-changed, plan to privatize the state's ABC stores and get the Commonwealth out of the liquor business is likely dead for the year.


Del. Chris Jones (R-Suffolk), chairman of the House General Laws Committee has said he'll use his chairman's discretion not to bring the bill up in committee. The Senate had previously said it wouldn't take up the bill until it passed the House.

That's really too bad. The state should get out of the liquor business. I was writing about it before McDonnell brought it up as an issue in the 2009 gubernatorial campaign.

But the governor and his staff made just about every mistake they could in rolling out a plan.

The first mistake, made back during the campaign, was linking privatization with funding the state's highway needs. There's no logical nexus between alcohol sales and road funding.

The amount of money that the plan would raise, even under the governor's most optimistic scenario, is fairly trivial compared to the state's unmet highway needs. It also created opposition to the plan among people who weren't necessarily against ABC privatization, but wanted to see the state pursue a more rational course -- such as a gas tax increase -- to fund highway improvements.

Given that a gas tax increase wasn't in the works, McDonnell is better served by his latest transportation plan, which is to borrow $3 to $4 billion. That's more than has been accomplished for transportation under the last six governors.

The second, and perhaps most critical mistake, the governor made was to let the people most likely to buy the stores essentially write his plan. The plan was crafted by a senior McDonnell aide in conjunction with lobbyists representing beer and wine wholesalers, convenience stores and large retailers like Walmart.

That was critical because it led to choices that made McDonnell's plan less saleable politically and less beneficial to the taxpayers.

First was price. While the interests that wanted into the liquor business set a nice price for themselves, they set one that wasn't necessarily in the best interests of the taxpayer.

Essentially, they set the price for Virginia's entire liquor business, which generates about $650 million in gross sales, at $550 million.

From a business point of view, and certainly from the point of view of the state's taxpayers, who own that asset, this made no sense. Soon after it was announced, two GOP businessmen on the Peninsula, both supporters of McDonnell for governor, called me and complained that he was "selling off all the state's assets just to keep from raising taxes."

Both said the real fair prices for the state's alcohol business was several times what McDonnell was asking.

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Catching up....

 I've been slack on posting to the blog lately.
I went on vacation in Vegas and had a hard time getting back into blogging mode. And, I didn't want the blog to be too dominated by posts about Ken Cuccinelli, although he does something worth talking about nearly every week, or the governor's ABC privatization plan. I've written a lot about ABC privatization. I was on that bandwagon before Bob McDonnell.

However, with the full details of the governor's plan available since my last post, I'll hit it another lick in a grab bag full of topics in the news.

• McDonnell tries to give away the stores...and the wholesaler too: I'm on record as thinking Virginia needs to get out of the business of selling alcohol. It's hypocritical for the state to put people in prison for drug offenses while Virginia markets and sells the drug that has the most disruptive effect on society -- in terms of lives lost to drunk drivers, divorce, domestic violence, etc.  The state should never have gotten into the liquor business in the first place after Prohibition. But it did. We crossed that Rubicon more than 70 years ago. The state controls the right to sell hard liquor in Virginia. And, to paraphrase a now-disgraced former governor of Illinois, "That's a @#!$%&* valuable thing, you can't give that away for nothing." But that's essentially what our governor has planned. He's allowed a commission composed of many of the interests who will probably end up buying the business to set the bid price. They've come in at about $500 million. At a guess, the state's ABC business is probably worth closer to $2 billion, based on annual sales of more than $600 million. That's for 1,000 permanent retail licenses. To give but one example of how the governor has underpriced this asset, Paul Goldman former Zvengali to Gov. Doug Wilder points on at Blue Virginia that Maine will realize about $144 million from leasing its wholesale distribution facilities to a private entity for 10 years. Virginia has about six times the population of Maine, but the governor proposes to permanently sell the state's wholesale operation for $168 million. That doesn't smell right. An audit of the states liquor business, to find out what it's really worth, would be appropriate before the General Assembly proceeds with the governor's plan, which it's showing no inclination to do so far.
• The McDonnell Miracle: turns up $1 billion in unspent money at VDOT : Speaking of audits, an audit of the Virginia Department of Transportation turns up more than $1 billion in unspent funds. While the McDonnell administration acted surprised by this and said it created a windfall for transportation and inferred that it bespoke of mismanagement by the prior two Democratic administrations, there's less to this story than meets the eye. All state agencies accumulate cash reserves for unforeseen circumstances. In the case of VDOT, with uncertain funding coming partially from the state's general fund and partially from the Transportation Trust Fund from fuel taxes and with uncertain expenses due to weather conditions, it's not surprising that those cash reserves are unusually large. That's what VDOT would have used to clear the roads in a harsh winter or to make repairs if we had a bridge collapse like the one in Minnesota two years ago. It's not that big a deal.

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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.

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