McDonnell is handed legislative defeat as Virginia assembly drops bill to privatize liquor stores

February 9, 2011

RICHMOND - Virginia Gov. Robert F. McDonnell's proposal to privatize the state's liquor stores died quietly Tuesday - the biggest legislative defeat of his tenure - after months of lobbying lawmakers and residents about getting out of the alcohol business.

But the obituary for one of McDonnell's boldest campaign promises could have been written before the annual legislative session began last month after a series of missteps that prompted even members of his own party to oppose the plan.

McDonnell (R) is expected to return next year with a new proposal to privatize the state's 77-year-old monopoly on distilled spirits. The next 12 months will serve as a test of whether he can broker a compromise among competing factions on a complex issue that has confounded state officials for decades.

After a public campaign that included eight town-hall-style meetings across Virginia, a Web site and poll in support of the effort, and months of bully-pulpit interviews by the governor on what he sees as the merits of privatization, the General Assembly let McDonnell's bills die Tuesday without a vote or even a hearing. Tuesday marked the deadline for the House and Senate to pass their own bills.

Even before arriving in Richmond last month, members of both parties were weary of debating a plan they thought was fraught with problems. They feared that the plan, which included tripling the number of retail outlets that sell booze, would lead to an increase in alcohol consumption, a loss of state revenue and a rise in liquor prices.

"It has a lot of moving parts," said House Deputy Majority Leader C. Todd Gilbert (R-Shenandoah), who was concerned that the legislation would give big-box retailers and edge over mom-and-pop stores in his district. "It's tough to make everyone happy."

Democrats, who narrowly control the Senate, refused to let McDonnell's measure be heard until it was debated in the GOP-led House. But House Republicans declined to let the bill be considered because it was expected to be killed: A Democrat had introduced the legislation against McDonnell's wishes.

"I think we need to step back and work on something for next year," said Speaker William J. Howell (R-Stafford).

Republicans promised they would examine the issue in future years but made no apologies for not moving forward this session after repeatedly warning the governor that they thought he was investing too much of his political capital.

"The administration galvanized around this piece of legislation so early on, long before the General Assembly came to town," said Senate Minority Leader Thomas K. Norment (R-James City). "Sometimes when you get so engrossed in something so early, it's difficult to get extricated from it."

Democrats, who had always opposed the idea, crowed over the outcome and promised they would not let McDonnell play down the failure to even get his proposal heard.

"It is fair to say that it's a defeat of a major initiative that Governor McDonnell spent considerable time and effort trying to achieve," said House Minority Leader Ward L. Armstrong (D-Henry).

Sensing the mood of the legislature, McDonnell has barely mentioned the proposal this year.

He has instead focused on other legislative priorities in which he has achieved some success: a plan to issue nearly $3 billion in bonds for roads, and a bill to restructure how colleges and universities are funded toward a goal of awarding 100,000 additional degrees over the next 15 years.

McDonnell's director of policy, Eric Finkbeiner, said Tuesday that he was disappointed the proposal did not get a "full and fair hearing" in the legislature but that the governor is committed to the change. McDonnell can send another ABC bill in the final three weeks of the session, but he is unlikely to do so.

"Whether we do it this year, next year or the year after, it's going to get done in this administration," Finkbeiner said.

McDonnell failed to get support for his original plan to privatize all aspects of the system, including wholesale, distribution and retail operations, partly because it would have brought in $47 million less each year to the state than the current system.

He then hired PFM, a national financial management company, at a cost of more than $76,000, to consider ways to privatize just the state stores. He had scrapped plans to hold a special session to take up the issue after he realized he didn't have the legislative votes to get the plan approved.

A scaled-back, retail-only proposal to close 332 state-owned liquor stores and replace them with 1,000 private retail outlets was unveiled the day before the legislative session started Jan. 12.

The plan called for at least $200 million upfront for the sale of new liquor licenses and $13.1 million more than it now collects each year in profits and taxes at ABC stores.

But by then it was too late.

McDonnell faced opposition from legislators of both parties who thought they were being kept out of the process, lacked the time to consider the proposal and did not like various aspects of the plan.

Many were peeved at having been left out of closed-door meetings his staff was holding with lobbyists and retailers over the summer and insulted that he kept details of his complicated plan secret from them even as aspects began to leak publicly.

When his staff laid out the original plan in a conference call for the GOP caucus in September, Republican delegates said they could not support it because it included a tax on restaurateurs. Overnight, McDonnell dropped a portion of the restaurant tax, in hopes of winning support, but without the revenue-raising tax, the proposal would have left a $47 million annual hole in the state budget.

PFM's report came in December, weeks later than expected, legislators said, giving them little time to consider their findings or McDonnell's revamped plan before the session started.

In December, Howell and Del. S. Chris Jones (R-Suffolk), chairman of the committee that would have heard the ABC bill in the House, told McDonnell that the House would not be able to pass the bill, said sources close to the legislators who were not authorized to speak on their behalf.

By the end of December, McDonnell had stopped lobbying legislators on the issue.

"There's absolutely been no opportunity to evaluate new information and discuss with our community," said Del. G. Glenn Oder (R-Newport News). "I genuinely think the issue needs more time."

kumaranita@washpost.com heldermanr@washpost.com

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