Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, January 18, 1992 TAG: 9201180216
SECTION: VIRGINIA PAGE: A-3 EDITION: METRO
SOURCE: WARREN FISKE STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium
WILDER SEEKS TO TRY PRIVATE LIQUOR STORES
If Gov. Douglas Wilder has his way, the first privately owned Virginia liquor stores in more than a half-century may open by the end of the year.And that, critics say, could mean higher prices for consumers and the eventual layoff of more than 1,300 state employees.
Since the end of Prohibition in 1933, the only place to buy liquor in Virginia legally has been a state-owned store. Wilder, seeking to scale down the size of government, has asked the General Assembly to authorize a pilot program to establish about five privately run liquor stores by the end of the year.
Details of the plan are sketchy. But legislators and lobbyists are already rising in opposition, saying that once the state relinquishes any control over liquor sales, it may never be regained. Among the issues are whether it's morally defensible for the state to be in the liquor business, and what will happen to $38.5 million in annual profits if it gets out of it.
Virginia is among 17 states that ban private liquor stores. The Alcoholic Beverage Control Board purchases spirits from suppliers and sells them from 243 stores.
Wilder says ABC should continue as the wholesale buyer for liquor in Virginia, but he wants to determine whether private business could handle retail sales more efficiently.
State Sen. Clarence Holland, D-Virginia Beach, introduced a bill last week for a two-year trial for an unspecified number of pilot stores. "There's been fairly strong support in recent years for privatizing areas in state government, and the sale of distilled spirits is a good area to explore," he said. "I have trouble with the state government being in the business of promoting liquor sales or anything perceived as a sin item."
Holland has yet to fill in critical details of the plan, such as how private owners would be chosen and how much they would have to pay the state for the right to sell liquor.
He also is uncertain of how to lure businessmen to invest in a venture that the state could end in two years. He said ABC officials are helping him refine the bill.
The key question, however, is what would happen to the state's sizable profits from liquor sales if stores go private.
The proceeds are distributed to local governments based on a population formula.
Supporters of the measure argue that liquor profits would increase through payment of taxes that state-owned stores don't pay. "If you put the stores in private hands, you can charge a sales tax on bottles and you can realize money from business license taxes, property taxes and state income taxes," said Del. John Watkins, R-Chesterfield.
Watkins, who has introduced several unsuccessful privatization bills in recent years, said the new taxes would not automatically translate into higher-priced liquor. He said competition would force private retailers to keep their prices low.
But opponents disagree. Robert J. Grey Jr., a lobbyist for liquor companies, said state-run stores sell bottles at an average 46.5 percent above their wholesale costs.
Private retailers, he said, would be forced to mark up the price a second time to ensure profits.
"That means the prices go up," Grey said. "When that happens, consumption drops and consumers buy less-expensive brands, which means overall revenues to the state could wane."
Two states that recently have privatized their stores, Iowa and West Virginia, have had vastly different experiences.
Both states acted as wholesalers for private stores. But Iowa, seeking to maximize its profits, sold liquor to retailers at a 60 percent markup.
That forced retailers to push their prices higher, and consumers wound up paying 10 percent more to private stores than they had when the state was the retailer. That depressed sales and revenues to the state.
West Virginia imposed only a 25 percent markup, which allowed retailers to profit while selling for 7 percent less than the state had. Sales increased and "overall profits to the state have remained constant," said Ron Moats, of the West Virginia ABC.
The legislation appears to face a difficult route in the General Assembly.
The House has unceremoniously killed a number of similar bills in recent years, and Wilder said he will not go out of his way to fight for passage this year.
Senior Democrats in the Senate express strong opposition.