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Va. Gov. McDonnell abandons plan for special session on liquor sales

By Rosalind S. Helderman and Anita Kumar
Washington Post Staff Writers
Friday, October 22, 2010; 10:09 PM

RICHMOND - After months spent lobbying legislators and the public, Virginia Gov. Robert F. McDonnell bowed to political reality Friday and retreated from his push to hold a special legislative session this fall to consider privatizing the state-run liquor business.

The decision represents a significant political setback for McDonnell (R), who concluded that mounting bipartisan opposition would prevent him from delivering on a key campaign promise in his desired timeframe. The governor had repeatedly said he hoped the legislature would meet before Jan. 1 to take up his proposal.

But when the governor made the announcement Friday afternoon, he said he had not abandoned the effort to end the state's 76-year-old monopoly on the sale of hard liquor. He promised to introduce a bill to privatize the state's Alcohol Beverage Control system on the first day of the legislature's regular session in January.

McDonnell presented the delay as little more than a shift in strategy designed to avoid the experience of his predecessor, Gov. Timothy M. Kaine (D), who in 2008 called the legislature into an unproductive special session on transportation.

"We will privatize Virginia's ABC stores. The only question is one of timing," he said in a statement. "As Governor, I will not call a Special Session to debate; only to act."

Philosophically, he repeated assertions that government shouldn't be in the liquor business. But he acknowledged that his liquor plan does not have enough votes to pass the General Assembly and said that calling legislators to Richmond to take up the measure now would be a waste of time.

"He's trying to make a virtue out of a necessity," said Robert D. Holsworth, a longtime Virginia political analyst. "Ultimately, he's buying some time, hoping he can find a compromise or trade-off to gain more GOP support. But this is an uphill climb."

Under McDonnell's liquor plan, authority to engage in the wholesale and retail distribution of spirits would be sold to private interests. Virginia's 332 state-run liquor stores would be replaced by 1,000 private retailers, including grocery and convenience stores.

McDonnell has said that auctioning liquor licenses would generate a one-time windfall of $458 million, money he says could be used to improve state roads without raising taxes.

But giving up the state monopoly would also result in a projected revenue loss of $47 million a year, money that Virginia spends on core services such as schools, public safety and health care.

The ABC initiative has consumed McDonnell's energy for months. His staff spent the summer meeting behind closed doors with liquor interests, retail business representatives and others. McDonnell presided over eight town hall meetings across the state to sell the public on the idea.

But the plan has been in trouble since his staff officially unveiled it before the governor's Government Reform Commission in early September. He has tweaked the plan once in hopes of building support.

McDonnell's commission examined ABC privatization and more than 100 other ideas as part of a broader effort to shave money from the state budget and make government more user-friendly and efficient.

Before the 2011 legislative session, the governor has nearly three months to drum up support for the idea and negotiate changes with lawmakers. In Friday's statement, he indicated that he is open to compromise, provided the final plan ends the government's monopoly and raises money for roads.

McDonnell and his GOP allies were embarrassed last week when accounts leaked of an angry exchange between the governor's top political strategist and the chairman of the Republican caucus in the House of Delegates. McDonnell's aide said House leadership had been "spineless" on the issue.

Republicans are anxious to restart the process and avoid a political meltdown on the issue in January, when the November 2011 legislative elections will start to loom. House Speaker William H. Howell (R-Stafford) said most delegates in the GOP-led House support the proposal in concept, even if they have concerns about the details.

He recommended that McDonnell form a working group of legislators, wholesalers, distillers, retailers and others to hash out a compromise.

"As a former legislator himself, the governor is fully cognizant that the process of involving all stakeholders surrounding an issue, agreeing on general goals and specific provisions and then drafting an actual bill takes time,'' Howell said.

Del. David B. Albo (R-Fairfax) said he and Dels. S. Chris Jones (R-Suffolk) and G. Glenn Oder (R-Newport News) have been asked to meet with the governor's staff to start working on a compromise.

At their first meeting, Albo said, they brainstormed about ways to make up the $47 million in lost state revenue. "We learned retailers are willing to pay a lot of money for licenses,'' he said. "There's more money to be made on liquor."

But Albo said the group is considering looking at whether the state should give up only the retail stores while maintaining its monopoly on liquor wholesaling and distribution.

"I just don't think the math works," he said of trying to privatize the entire system.

But even if a new plan can draw support in the House of Delegates, McDonnell will still face a tough sell in the state Senate, where Democrats hold a slim majority.

Democrats have said for years that fixing state roads is a multiyear, multibillion-dollar project that will require a tax increase - not just the one-time cash infusion that would be generated by the ABC sale.

They have also questioned whether the state should triple the number of outlets selling hard liquor. And they have made clear that they will not vote for a plan that cuts into the $260 million in liquor profits and taxes generated by the ABC system for schools, police and public health.

"I just don't see it," said Senate Majority Leader Richard L. Saslaw (D-Fairfax). "The numbers aren't there."

McDonnell finished his first legislative session last winter with modest victories in economic development and education, intentionally limited goals that he set for himself because of a multibillion-dollar budget shortfall.

He put off many of the ambitious pledges he made on the campaign trail last year, such as finding additional funding for roads, shifting more money to public schools and making progress toward a goal of having state colleges award an additional 100,000 degrees over 15 years.

He will ask the General Assembly to take on much of that agenda in January. The General Assembly generally meets just once a year, alternating between a 60-day session and a 46-day session.

Governors have often convened special sessions to focus attention on complex policy proposals. But by delaying the ABC plan to the regular legislative session, which opens Jan. 12, McDonnell will improve his ability to negotiate with lawmakers because they will be seeking his support on hundreds of other issues.

heldermanr@washpost.com kumaranita@washpost.com

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