JLARC report says McDonnell's liquor plan is off by millions

By Anita Kumar
Washington Post Staff Writer
Tuesday, November 23, 2010; 9:21 PM

RICHMOND - Gov. Robert F. McDonnell's original proposal to privatize the state's 76-year liquor monopoly may have overstated by tens of millions of dollars the amount of money Virginia could make from selling the entire system, according to a legislative study released Tuesday.

The report by the Joint Legislative Audit and Review Commission found that in many instances, the Republican governor's staff was too rosy in its estimates, but in others it simply made mathematical errors.

For example, auditors found, the state could receive less than half of the $160 million McDonnell expected from selling wholesale licenses and up to $81 million less from auctioning retail licenses. And the price of distilled spirits in Virginia could rise.

Senate Majority Leader Richard L. Saslaw (D-Fairfax), one of the most vocal critics of the governor's plan, said the report shows McDonnell has "lost all credibility as far as his estimates are concerned."

"He just really needs to let it go,'' Saslaw said. "It's not happening.''

McDonnell unveiled a plan Sept. 8 to nearly triple the number of liquor stores in Virginia, which would allow Virginians to buy liquor for the first time at private liquor stores, grocery and convenience stores, and big-box stores such as Wal-Mart and Costco. But after considerable opposition from legislators in both the Democratic-led Senate and GOP-controlled House of Delegates, he is working to revamp that proposal.

"The governor is committed to ending this outdated government monopoly and making state government smaller; however, he is not wed to any specific proposal,'' McDonnell spokeswoman Stacey Johnson said in a statement. "While this report is based on one plan, the administration is considering multiple privatization models and proposals. We will continue to work with legislators and others to determine the best means by which to move forward in the upcoming session."

McDonnell has hired a national financial management company at a cost of $75,000 to look into privatizing just the retail stores in time for lawmakers to debate that when they return to Richmond for their legislative session in January.

Senators had requested that the General Assembly's investigative arm perform an analysis of the impact of McDonnell's initial proposal - including the sale of retail and wholesale licenses and ongoing revenue from a new taxing structure - before legislators debated the issue. Auditors could update their their report to include any new proposals.

The 20-page report found that McDonnell made numerous assumptions in calculating his plan, and changing any one of them could lower, or sometimes raise, revenue. It was met with glee by Democrats, who have been accusing McDonnell of overestimating his figures for months.

"The JLARC report confirms what we suspected,'' said Sen. Janet D. Howell (D-Fairfax), a JLARC member. "The governor's ABC privatization plan is a very bad deal for Virginia taxpayers."

McDonnell's proposal estimated that Virginia would receive a one-time windfall of at least $458 million for transportation and about $229 million a year. But after facing criticism about some of his proposed fees and taxes, McDonnell revised the plan, which left it bringing in $47 million less each year to the state.

Auditors estimate that the state could receive less than half of the $160 million the governor expected from selling wholesale licenses because his staff left out certain costs and used the wrong figures in their calculations.

McDonnell called for the state to receive a minimum of $265 million from auctioning retail licenses and $33 million from selling off properties.

Auditors estimate that the state could receive up to $81 million less for retail licenses, in part because they are not sold in some areas, bids are not accepted for the amounts McDonnell has set for them or some bidders pay according to a payment plan. They also note that the state could take in as much as $47 million more if companies are charged a higher amount for the licenses.

Del. David B. Albo (R-Fairfax), who supports privatization, said the report confirms that McDonnell's first attempt at privatization was not the right one, but that he and others are working on a new proposal. But, he said, any compromise has to be revenue-neutral.

Auditors also concluded that McDonnell's proposal could cause the prices of distilled spirits to rise 11 percent to 26 percent - an increase that could lead to a drop in sales not accounted for in McDonnell's projections. They estimate that the increase in cost could result in a loss of as much as $15.4 million in sales tax revenue.

The report also concluded that McDonnell may have overstated how much more alcohol would be bought in Virginia by those who now buy in the District and Maryland. While it might be more readily available in the state under the governor's plan, auditors say, it is unlikely to be bought in Virginia because of the increase in prices.

Staff writer Rosalind S. Helderman contributed to this report.

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