PrintJuly 16--ABC is easy as 1-2-3, only 1-2-3 isn't simple at all when it comes to the state's liquor monopoly.
Gov. Bob McDonnell could have made a purely philosophical argument in favor of privatizing Virginia's 330 retail stores. Few people would suggest that selling vodka and gin is a core function of government, but the issue doesn't inspire wild passions outside the most committed small-government cliques.
Instead, McDonnell made his pitch for privatization based on numbers, or, more specifically, one number. He promised to generate $500 million to spend on road projects throughout the commonwealth.
Unfortunately, most people will judge his plan based on that one number, which was never realistic. Instead, here are the numbers Virginians should keep in mind as they learn more about the governor's proposal:
First, what is the value of the asset? That number should have been figured out before McDonnell put an expiration date on Virginia's liquor business.
The asset in question isn't the stores, most of which are leased. It's not the cases of liquor, either. The real asset is the monopoly itself. A monopoly is a powerful thing; it's a valuable thing. And it belongs to the people of Virginia. They shouldn't be asked to give it away for anything less than full value.
The businesses seeking a piece of the liquor market will know exactly what it's worth, but they're unlikely to share the real figures. The negotiator who understands the numbers gets the best deal.
The second number is the impact on the state budget from a divestiture. The Department of Alcoholic Beverage Control generates $110 million in annual profits devoted to public schools, mental health and prison operations. If McDonnell cannot demonstrate that licensing fees will earn the state an equal or larger sum, then this deal is dead.
He must also guarantee that revenues for those services continue to grow, as they would under the existing system. If McDonnell tries to divert money from this stream for roads, it will be far more difficult for him to make a convincing case that other services will not be harmed.
A third number is particularly sneaky and has been largely ignored. It will cost Virginia money up front to extract itself from the liquor business. Is the cost of shutting down operations, employee severance and retirement being factored into McDonnell's estimates?
The fourth and final number is the most controversial. How many stores should be permitted to sell liquor in Virginia? There are 330 now, with 20 new ones on the way. One plan being floated by a state senator would increase that number to 800 but would not generate the profits enjoyed under the existing monopoly. The state would likely need to sell between 2,000 and 3,000 licenses to stand-alone liquor outlets, grocery stores and big-box retailers in order to break even and have a few extra bucks for road construction. That may not exactly qualify as a "liquor store on every corner," but it will still be a culture shock for many Virginians.
If McDonnell chooses to gradually phase out state-operated ABC stores to avoid that jolt, he'll be stuck with a clumsy system in which public shops compete with private stores in what's sure to be a losing game for taxpayers.
McDonnell is right when he says Virginia should never have gotten into the liquor business.
But that doesn't change the fact that it is in the liquor business and is doing quite well, thank you very much. If he wants to end the monopoly, he'll have to make a strong business argument for doing so. Virginians should be willing to hear him out, but they should bring their calculators with them.
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