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Drinking Games
Robert F. McDonnell's transportation plan rests heavily on privatizing hard-liquor sales in Virginia. Is it sober?

Saturday, September 26, 2009

ROBERT F. McDONNELL, the Republican nominee for governor of Virginia, takes every opportunity to tout his 20-page, single-spaced transportation plan. But a close reading of the plan yields only disappointment.

Much of the plan relies on wildly optimistic assumptions, brazen exaggerations, gauzy projections and far-off scenarios: budget surpluses and revenue growth that may not materialize; interstate tolls that the federal government may not approve; royalties from offshore oil and gas wells that may not be drilled; borrowing that the state may not be able to afford anytime soon. Lump all that in a file called "Don't Hold Your Breath." Insert some of his other proposals -- such as diverting some sales tax revenue from schools, public safety and human services statewide to pay for Northern Virginia road improvements -- into a file called "Politically Dead on Arrival." Quite simply, much of what Mr. McDonnell has in mind would almost certainly not come to pass during his four-year term as governor, if ever.

However, there is one idea in the McDonnell transportation program -- by far the biggest one in dollar terms -- that has attracted more favorable notices: his contention that Virginia could raise the alluring sum of $500 million simply by privatizing the state's hard-liquor sales. The problem is, Mr. McDonnell's revenue estimates are invented or, worse, an intentional distortion.

This plan has appeal, because there is no reason for the state to be in the business of selling booze. Although the idea of shifting Virginia's liquor profits to pay for transportation is new, the idea of privatizing the sale of spirits has been around for years and was endorsed earlier this decade by a state commission led by former governor L. Douglas Wilder, a Democrat. Virginia is one of 18 states that still controls wholesale and retail sales and distribution of hard liquor, and we have every confidence that the commonwealth would survive privatization.

But the idea that privatization would generate significant money for transportation is a pipe dream. And the notion that liquor sales could provide a steady source of revenue for new road projects is even less plausible.

We asked the McDonnell campaign to identify the basis of his prediction that a privatizing hard-liquor sales would produce a $500 million windfall. We were directed to two sources. One is a think tank study -- from early 2007, before the recession -- of what might happen if Pennsylvania privatized its liquor sales under one possible (maximalist) scenario. The other is the Wilder Commission's report, published seven years ago, which, while urging privatization, made no estimate whatsoever of the amount that might be generated. The commission said Virginia might save $500 million by streamlining state government and made 16 recommendations for how to go about it; a number of those recommendations have been implemented. Privatizing liquor sales was one of the 16 recommendations, but the commission said the goal should simply be to match the annual revenue produced by the state's monopoly on liquor profits.

We don't know, and Mr. McDonnell isn't saying, how he'd go about privatization. He does suggest, however, that it could be achieved without increasing alcohol consumption -- or, presumably, dramatically adding to the 334 outlets that now sell spirits. Bearing in mind that all but a few of those outlets are leased, not owned, and that many are in rural areas where customers are sparse, it is wildly unrealistic to think the state could squeeze out $500 million by peddling 334 licenses or franchises to sell booze. The last states to sell off their liquor monopolies -- Iowa, West Virginia and Ohio -- didn't get anything close to that.

Even if privatization produced a short-term windfall (though certainly it would be much less than Mr. McDonnell envisions), the more important question is how the state would fare on a longer-term basis. After all, road-building is not a one-shot deal. Here, it's fair to worry that Virginia would instead lose money. As we said, the state's Department of Alcoholic Beverage Control currently transfers the annual profit from liquor sales ($103 million last year), in addition to taxes on the sale of alcohol, to the state's general fund. Much of those funds support programs in mental health, substance abuse and other human services. So, in effect, Mr. McDonnell is proposing to cut $103 million from those human service programs and divert it to transportation -- a political non-starter.

What's more, he would have to find an additional $40 million or so to pay for the ongoing regulation and enforcement of liquor sales, now also covered by the state's liquor revenue. Remember: Virginia currently keeps 100 percent of profits from liquor sales. Would the new taxes on liquor store owners and their profits really replace the roughly $140 million a year the state nets? Don't count on it, unless there is a huge expansion of liquor sales and outlets, probably including big retailers such as Wal-Mart, Walgreens and Costco -- which won't happen.

Mr. McDonnell's proposal to address the state's most critical long-term problem, transportation, appears to have heft; in fact, it crumbles under close scrutiny. Far from fixing the state's roads, Mr. McDonnell would leave them in the lurch -- and Virginia commuters along with them.

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