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Virginia would be well served by privatizing state-run liquor stores

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By Garrett Peck
Sunday, November 8, 2009

Newly elected Virginia Gov. Robert F. McDonnell has proposed privatizing the state's Alcoholic Beverage Control (ABC) stores to fund transportation improvements statewide. It wouldn't be an enormous revenue producer, but the idea has merit. After all, we don't buy gas, groceries or jeans from the state. So why liquor?

There hasn't been a good answer to that question for decades, though there once was. The ABC system was established in 1934 after Prohibition. There was a huge distrust of alcohol, especially distilled spirits. If you recall, bootleggers had mostly produced spirits, which had a higher profit margin than beer and wine, so the rationale for state distribution was that John Barleycorn had to be controlled. As a result, Virginia developed an awkward hybrid system: Residents could buy liquor at state-run stores, while wine and beer would be sold at any licensed supermarket or specialty retailer, or even convenience stores.

Thus, ABC was once about promoting temperance, but the abstinence movement has basically died. Two-thirds of American adults drink alcohol. In reality, Virginia ABC is now about generating revenue for the state -- and at that, it isn't particularly efficient. Virginia can make more money -- as can localities -- by privatizing the system, both from auctioning the licenses and through ongoing tax revenue. The private sector will assume the operating costs, shifting ABC authority to where it properly belongs -- regulation and enforcement.

Much of this additional revenue hinges on a reasonable increase in the number of stores. This past legislative session, state Sen. Mark D. Obenshain (R-Harrisonburg) offered a privatization plan that would permit one retail liquor license per 10,000 people. That is actually a rather low ratio: Most states have a licensee rate of one per 2,500 to 3,000 residents. Virginia would hardly be awash in liquor stores.

But the commonwealth currently only has about 300 ABC stores to serve nearly 8 million people, or about one per 27,000 people. The District, in contrast, has more than 500 stores. D.C. consumers are much better served with broader selection, greater convenience and lower prices. Many Virginians, particularly the half-million or so who live inside the Beltway, travel into the District to buy spirits, costing Virginia revenue.

Virginia's ABC stores are a tower of mediocrity. They are centrally managed retail outlets that would have been palaces in the Soviet Union, but today they are anachronistic. They offer highly limited choices, often lacking exciting new brands or those with a cult following. Staff members generally aren't knowledgeable about how to mix drinks or make cocktails. And the prices are artificially high because there is no competition: The state decides what to charge.

Objections to privatizing ABC stores will come from religious conservatives who don't want anyone drinking and prefer state control of booze. Others will cite the usual mantra that more kids will have access to alcohol. But ask yourself: Does Virginia have a retail problem with wine and beer stores? No. Then why should we suppose there will be a problem with liquor stores if they are properly licensed, regulated and run?

The private sector is much more efficient at running businesses than is the government. It's time for the state to get out of the business of selling spirits.

The writer is the author of "The Prohibition Hangover: Alcohol in America from Demon Rum to Cult Cabernet."

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