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Correction to This Article
Earlier versions of this story, including in the print editions of The Washington Post, misstated the amount that Virginia Gov. Robert F. McDonnell wants to spend on the state's roads. McDonnell (R) wants to spend $3.3 billion, not $3.3 million. This version has been corrected.
McDonnell proposal would privatize Va. liquor stores

By Anita Kumar and Rosalind S. Helderman
Washington Post Staff Writer
Wednesday, January 12, 2011; B01

RICHMOND - Gov. Robert F. McDonnell will unveil a proposal Wednesday to close 332 state-owned liquor stores and replace them with 1,000 private retail outlets - a scaled-back version of a plan he's pushed for months to end Virginia's monopoly on the sale of distilled spirits.

Under the proposal, the state is expected to reap at least $200 million upfront for the sale of new liquor licenses and $13.1 million more than it now collects each year in profits and taxes at Alcoholic Beverage Control stores, according to the governor's office.

McDonnell (R), failed to get support for his original proposal to privatize all aspects of the 77-year-old liquor system, including wholesale, distribution and retail operations. He hopes his new retail-only proposal will be more favorably received by a divided General Assembly, which will return to Richmond on Wednesday.

"He's reconfigured the thing. It's pretty simplistic," said Sen. John C. Watkins (R-Chesterfield), who will sponsor the bill in the Senate. "If you're going to reduce the size of government, this is a natural."

McDonnell hopes to blunt the criticisms of his plan from Democrats and some Republicans, who worried his original proposal would have brought in $47 million less each year than the current system. The scaled-back plan would be more profitable to the state each year but would also mean just $200 million in upfront cash from the sale of the retail operations - $300 million less than McDonnell had hoped to bring in and allocate for roads.

Democrats are still unlikely to greet the proposal warmly. Late Tuesday, Sen. J. Chapman "Chap" Petersen (D-Fairfax) said he would have to examine the governor's proposal more closely but added that he continues to have concerns about increasing access to hard alcohol by tripling the number of stores that sell it.

"We'd be taking a state asset that's been producing revenue for years, that's generally well known, and effectively we'd be selling off half of it, for what?" he said. "To capture $200 million, which is frankly a small piece of change in the big scheme of things?"

The General Assembly will convene in Richmond at noon for a 46-day session to consider thousands of proposed bills and offer amendments to the state's two-year, $78 billion budget.

In the opening days, Saturday's Arizona shooting will weigh heavily on legislators' minds.

Del. Patrick A. Hope (D-Arlington) introduced a bill to ban firearms from the state Capitol and the General Assembly Building. But it will likely face stiff opposition in the legislature, where conservative members often seek to loosen, not tighten, gun rules.

McDonnell must steer his proposals through a divided legislature that faces reelection in November. Republicans hold a strong majority in the House of Delegates, but Democrats control the Senate. Looming over the session is legislative redistricting, a highly charged process that takes place once every 10 years to reflect new census results. After concluding their normal legislative business, the General Assembly will return to Richmond in April to draw new districts.

On Tuesday, unified Republicans led by McDonnell unveiled a package of tea party-friendly reforms that includes strengthening individual rights and pushing back against perceived overreach by the federal government.

Republicans from both chambers joined McDonnell, Lt. Gov. Bill Bolling (R) and Attorney General Ken Cuccinelli II (R) in support of amendments to the state constitution to protect property rights and guarantee that union elections are conducted by secret. They also talked up a proposed amendment to the U.S. Constitution to allow federal laws to be repealed if two-thirds of states agree.

The lawmakers laid out an agenda, dubbed "Smaller Government, Stronger Economy," that includes several proposals McDonnell has previously discussed - $54 million for economic development, a new way to fund colleges and universities and $3.3 billion for traffic-clogged roads.

Under McDonnell's liquor proposal, the state will continue to act as the wholesaler of liquor in Virginia, buying thousands of cases directly from distilleries and selling them at a profit to private retailers, who would then set prices for consumers.

Aides to the governor hope prices will fall because the state will cut the markup it applies to liquor prices from 69 percent to 50 percent.

The stores would be be sold off over an 18-month period that would start July 1.

McDonnell hired PFM, a national financial management company, at a cost of more than $75,000 to consider ways to privatize the state's stores without losing money after he did not have enough votes to hold a special session to take up the issue.

Licenses would be sold to the highest bidders and split among big-box stores, such as grocery stores and Wal-Mart; convenience stores and drugstores; package stores and wine stores; and small convenience stores.

A legislative study released in November showed McDonnell's original proposal may have overstated by tens of millions of dollars the amount of money Virginia could make from selling the entire system. His new figures came from PFM.

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