Liquor privatization insufficient for transportation

VIRGINIA GOV. Robert F. McDonnell's long-awaited proposal to privatize the sale of distilled spirits in the commonwealth is rooted in two seemingly unassailable propositions. One is that the state should not be in the liquor business. The other is that selling off liquor licenses and assets could yield a one-time cash windfall for Virginia, which Mr. McDonnell (R) has pledged to devote to the state's appallingly underfunded highways and transit systems.

In principle, these are sound ideas, and Mr. McDonnell has now fleshed them out by proposing a detailed privatization plan that will be presented to the General Assembly in a special session this fall. The concern is that the risks posed by Mr. McDonnell's plan to the state's finances, which could be considerable, may outweigh the prospective benefits for its transportation system, which look modest.

Sales of hard liquor in Virginia are handled by a state agency called the Department of Alcoholic Beverage Control (ABC), which collects taxes and profits that net about $324 million a year for the state's budget. That figure is expected to grow. As Mr. McDonnell understands, any privatization scheme should be revenue-neutral, especially in a time of scarce and dwindling public funds. But it's unclear whether the new taxes that Mr. McDonnell would impose (which would fall heavily on restaurants selling liquor) would fully replace the annual revenue the state would lose to privatization -- or whether that income would grow over time to match the growth projected for ABC's own liquor sales.

If Mr. McDonnell's calculations are correct, selling off liquor licenses and other assets would produce a one-time windfall of $458 million. That sounds like a substantial sum -- but it is paltry compared to the state's annual unmet needs for transportation. It would be a onetime gain, when the state needs a steady stream of new revenue. To put it in some perspective, $458 million doesn't even begin to cover the cost of maintaining Virginia's roads for six months, let alone constructing new ones.

Mr. McDonnell says that he would leverage that money through the creation of a transportation infrastructure bank that would dramatically reduce the state's borrowing and finance costs for road building. That's not a bad idea. If Mr. McDonnell can provide assurances that his scheme would not deprive the state budget of revenue, legislators would have reason to support it. But it still does not amount to a sustainable, long-term and ample plan to rescue the state's sclerotic transportation network.