$500 Million For Transportation As Easy As ABC

Governor’s Staff Recommendation for ABC Privatization Unveiled

Plan Provides Massive New Funding of $500 Million for Transportation

1,000 Retail Licenses to be Auctioned Off

RICHMOND- Senior members of Governor Bob McDonnell’s staff today unveiled the official staff recommendation for ABC privatization in the Commonwealth at a meeting of the Simplification and Operations Committee of the Governor’s Commission on Government Reform and Restructuring in Richmond. The Committee heard the recommendation today, and will vote at a meeting later this month to send the proposal to the full Reform Commission.

The staff recommendation which is expected to undergo changes through the Commission approval and legislative processes, is highlighted by the following points:

• Privatization is expected to provide $500 million in new funding for transportation
• The money realized from privatization will be placed in a Virginia Transportation Infrastructure Bank
• This Bank will loan and grant funds to localities for transportation projects based on congestion relief and economic development
• 1,000 retail licenses will be auctioned off to the highest bidders
• The licenses will be broken into three categories: 600 licenses for large establishments such as grocery stores; 150 for smaller establishments such as package stores and wine and beer shops; 250 for convenience stores/retail pharmacies
• No one company will be allowed more than 25% of licenses within each level
• 1,000 licenses will still give Virginia 1.8 outlets per 10,000 adults, far below the private state average of 3.8 per 10,000 adults
• Majority of new license holders will be existing stores; Virginians will primarily see new shelves in retail establishments, not new establishments.
• 332 licenses will be guaranteed for areas currently served by an existing ABC outlet
• The additional 668 licenses will be granted based on population density
• The wholesale side will also be privatized, allowing the Commonwealth to completely focus on law enforcement and regulation of distilled spirits
• The FY 2011 budget projects $324.2 million to the General Fund from the sale of alcohol in the Commonwealth
• The staff privatization proposal keeps ongoing revenue to the state equivalent to this figure
• There is no tax increase in the privatization proposal
• The Commonwealth will also make an additional $33 million on the sale of the ABC warehouse in Richmond and 19 state owned outlets
• The number of ABC enforcement agents will be increased by 25%
• The Commonwealth, through the ABC board, will maintain health, safety, law enforcement and marketing regulatory authority over privatedistilled spirit sales and distribution

Speaking about the staff recommendation, Governor McDonnell noted, “This is an opportunity to put half a billion dollars into transportation simply by eliminating an outdated government monopoly. $500 million for roads and rail will mean congestion relief for our citizens. By privatizing ABC, Virginia will join the majority of states in the nation that have long recognized alcohol distribution is not a core function of government. Transportation, on the other hand, is a core function and this plan will deliver immediate results for Virginians frustrated by long commutes and stalled construction sites. ABC privatization is one part of the overall solution to our transportation challenges. I look forward to working with Republicans and Democrats to privatize ABC, make government more efficient and improve our transportation system.”

Presentations from today’s Committee meeting can be viewed here:  http://www.reform.virginia.gov/

The Committee will vote on the staff recommendation at a meeting to be held the week of September 27^th. The full Commission will consider the proposal at its October 4^th meeting.

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To dispel the misconceptions that are floating out there, here are some things to keep in mind.  This privatization proposal does NOT include a 4 percent tax increase as some newspaper accounts have incorrectly reported nor is there a 1.5 percent fee on all outlets that sell alcohol.  Under this proposal, all restaurants and hotels will have the option of paying an additional 2.5 percent “Restaurant Convenience Fee” that would allow them to buy discounted distilled spirits directly from private wholesalers and receive on-site delivery, ultimately saving them money in terms of product price and delivery costs (not to mention the added convenience.)  If they choose not to participate, they can still buy directly and pick-up from private retailers as they currently do with ABC stores.  The plan anticipates full participation with the 2.5 percent “Restaurant Convenience Fee” on account of its cost and time saving attributes.

The privatization plan maintains state revenue at current levels while abolishing the antiquated monopoly.  The state is still projected to bring in $324.2 million in FY 2011 from alcohol sales.  After privatization, that number is $303.7 million.  The difference of $20.5 million amounts to .054 percent of the Commonwealth’s annual budget.

From the Commonwealth’s PowerPoint presentation on this:

There would be no change to the structure of the beer excise tax, the wine excise tax or the retail sales and use tax.

However, increased distilled spirit and wine sales (due to convenience and repatriation of lost sales) are anticipated to generate an additional $700,000 wine taxes and an additional $14.0 million in retail sales taxes for the general fund.  Virginia will still be below the national average for per capita sales (by volume).

Finally, business income taxes are expected to increase about $5.8 million a year for the general fund as private firms take over the wholesale and retail distribution network for distilled spirits.

So, we get the Commonwealth out of the retail liquor business, the revenue stream is maintained and we get $500 million to fund transportation projects targeting congestion relief and economic development.  Not bad.  Not bad at all.