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ABC sale outlined in plan

September 9, 2010 12:35 am

RICHMOND

Gov. Bob McDonnell's staff yesterday unveiled his privatization plan, long awaited by legislators trying to decide whether to support the high-profile proposal.

McDonnell had campaigned on the issue of getting the state out of the liquor business--Virginia has controlled liquor sales since the 1930s--because he argues it's not a core service. As a result, the announcement of his plan was made to his own commission on government restructuring.

The plan is expected to generate up to $500 million quickly for transportation while maintaining roughly the same amount of tax and other revenue from liquor sales.

The governor plans to route the $500 million through a special transportation fund, instead of through normal transportation funding formulas. That fund, the "Virginia Transportation Infrastructure Bank," would use the money for grants and loans to fund road and transit projects.

The bulk of the transportation money would come from selling 1,000 licenses to retailers to sell liquor, which is predicted to generate a minimum of $265 million; selling wholesale licenses ($160 million); and the sale of the ABC warehouse and stores ($33 million).

The 1,000 licenses is triple the number of ABC stores the state currently owns. McDonnell's staff, however, argued that the change would likely lead to a smaller number of liquor stores, because they anticipate that most of the new licenses would go to existing grocery or other stores.

That is reflected in the plan's three-tier system for licenses, in which 600 would go to large stores, such as big-box retailers like Walmart. The other two tiers are for smaller stores focusing on alcohol sales, and smaller retailers that already sell beer and wine, like CVS. Retailers would bid on the licenses, with a minimum bid formula yet to be worked out. Minimum bids would likely be in the $100,000 to $500,000 range, however, based on a proposed formula dependent upon sales volume.

The plan also includes a proposal to sell an unlimited number of licenses to wholesalers and charge a 2.5 percent "optional" fee to restaurants for the ability to buy their liquor direct from wholesalers, rather than having to go to a liquor store.

McDonnell's proposal currently has the 1,000 retail licenses being sold "in perpetuity"--once bought, a licensee would have the license as long as it wanted, or it could sell or transfer the license. Some members of the restructuring committee questioned whether perpetual licenses is wise.

Eric Finkbeiner, McDonnell's policy director, who presented the governor's plan to the commission, said the governor's proposal is "the start of the discussion.

"We know as you take this up and look at it over the next few weeks there'll be a lot of changes, a lot of modifications, a lot of improvements," Finkbeiner said.

McDonnell plans to hold a special session of the General Assembly in November, hoping lawmakers will approve a version of McDonnell's plan. If so, licenses would be sold next summer, and by September Virginians could be buying their liquor at CVS or specialty wine shops.

Lawmakers have expressed reservations about the idea of ABC privatization before seeing the plan. Many, like Sen. Edd Houck and Del. Bobby Orrock, were worried about whether the state would lose a critical source of revenue.

McDonnell and his staff sought to present a plan that would create an equivalent amount of ongoing revenue for the state's general fund. They did so in part by replacing the current ABC markup and excise taxes, which generate about $226 million, with a $17.50 per gallon excise tax at the wholesale level. That's expected to generate $176 million a year, and $166 million of that will go to the general fund. The remaining $10 million will go to enforcement and regulation.

The optional 2.5 percent fee for restaurants would generate about $19 million a year for the general fund.

What remains to be seen is whether McDonnell's plan, now that the details are out, will win the support of enough lawmakers.

Sen. Mary Margaret Whipple, D-Arlington, said she still has concerns, in particular about the idea that 1,000 stores will be selling liquor under the plan.

"That sounds like a lot of stores to me," Whipple said.

She also said she has not heard any constituents express concern about the state's involvement in the liquor business. And, Whipple said, she has issues with McDonnell's linkage of alcohol sales and transportation revenues.

"Just the whole notion that we should drink more so we can drive more really bothers me," she said.

House Speaker Bill Howell, R-Stafford, sounded positive about McDonnell's plan, or at least the concept of privatization.

"It's a good framework to begin the discussion," Howell said. "I don't think what we see today is going to be the final product."

The proposal outlined yesterday still must go through a commission vote, and then McDonnell would be expected to schedule a special session.

McDonnell told reporters he will now start selling the plan to lawmakers.

"I think this proposal takes away most of the objections I've been hearing about," he said.

He acknowledged that legislators may make changes to his proposal, but said his goals are to end the state's liquor monopoly, raise money for transportation and keep money in the general fund relatively the same. Otherwise, he said, he's open to ideas.

Chelyen Davis: 540/368-5028
Email: cdavis@freelancestar.com