Proposed Restructuring of Liquor Sales
In August 2010, Governor Bob McDonnell embarked on a promotional tour advocating legislation to sell Virginia's liquor stores to private owners. McDonnell argues that retail alcohol sales is not an appropriate state activity and proposes that any sales proceeds could be used to finance transportation needs. Opponents note that the liquor stores generate $248 million per year for Virginia's general fund.
On September 8, 2010, McDonnell presented his plan for auctioning liquor licenses to his government reform commission. Under the plan, the number of stores selling liquor would triple to 1,000, with the licenses to operate these new stores being auctioned. According to the Richmond Times-Dispatch, "Of the 1,000 licenses, 600 would be available to big retailers, whose lawyers and lobbyists helped craft the governor's proposal. An additional 150 licenses would be reserved for package stories, with 250 for small retailers, such as convenience-store operators." McDonnell estimates that winning bidders would pay $265 million for the licenses, and that the state could receive $33 million from selling existing state-owned liquor store properties. In addition, $160 million would be collected in wholesale license fees. To make up from the annual loss of general fund revenues from the current state-owned stores, McDonnell proposes a $17.50 per gallon excise tax (which is above the national average and above that charged in neighboring states). He would also charge an annual fee of $500 to $2,000 to each store license holder, and would impose a new 1% gross receipts tax on wholesalers of liquor. Restaurants and bars that chose to purchase alcohol from wholesalers instead of retail outlets would pay a 2.5% tax. Just before the presentation, McDonnell dropped his proposed 1.5% fee on all restaurants and retail establishments that was in earlier drafts of his plan.
The plan drew immediate opposition from conservative lawmakers as a "tax increase". It is also opposed by the 3,000-member Virginia Retail Federation and the Virginia Wine Wholesalers Association. The Commission was expected to vote on the plan on October 4, and McDonnell planned to call a special session of the legislature to consider it in November. The plan is endorsed by the Virginia Retail Merchants Association and the Fairfax County Chamber of Commerce (which said the plan should be a part of a larger effort to increase transportation funding.)
On the eve of McDonnell taking the plan to the restructuring commission for its endorsement, the Washington Post reported that he modified the plan by dropping the restaurant tax and certain other proposed fees. McDonnell proposed to set aside over 100 licenses for companies that employ fewer than 50 people in order to help small, family-owned stores. He also wants to give small businesses several years to pay off their auction bids. The Post suggested that "he might call off plans for a November special session" of the General Assembly. These modifications would result in a general fund shortfall of $48 million of lost revenues. This prompted a number of Republican members of the Virginia House of Delegates to refuse to support the plan. According to the Washington Post, "Delegates have privately complained that the plan was developed with too little input from legislators and too much from lobbyists for retail and alcohol interests." In response, Phil Cox, who heads McDonnell's political action committee, called the Republican House of Delegates leadership "spineless" and threatened to withhold campaign funds from any Delegate who refused to support the modified plan. Although McDonnell had suggested calling a special session in November 2010 to consider his plan, his differences with the House Republican Caucus reportedly prompted him to abandon his special session plans.
On November 23, 2010, the Joint Legislative Audit and Review Committee released a report which found that the McDonnell proposal had overstated the expected proceeds of liquor store sales and licenses. In response, McDonnell's spokesman said that he is committed to privatization and is considering alternative plans. McDonnell has hired a consultant to formulate a new privatization plan at a cost of $75,000 prior to the new legislative session in January 2011. The Auditors found that McDonnell's proposal would raise the retail price of distilled spirits 11 to 26 percent, which in turn would lead to a drop in liquor sales that could result in a loss of as much as $15.4 million in sales tax revenues.
On December 1, 2010, the Governor's Commission on Government Reform and Restructuring top recommendation was:
The Commission ... supports privatizing Virginia’s ABC operations and recommends continuing work with stakeholders to develop legislation to accomplish this important government reform to meet the Governor’s objectives of generating money for transportation while maintaining ABC’s enforcement role in regulating the health, safety, and marketing of distilled spirits.
But the Commission did not endorse any specific privatization proposal.
In what the Washington Post described as "the biggest legislative defeat of his tenure," both houses of the Virginia General Assembly refused to hold hearings on McDonell's plan during the 2011 legislative session. Both the Republican-controlled House and the Democratic-controlled Senate killed the bill implementing McDonnell's proposal without a vote. McDonnell's director of policy, Eric Finkbeiner told the Post, "Whether we do it this year, next year or the year after, it's going to get done in this administration."
Read more about this topic: Virginia Department Of Alcoholic Beverage Control
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