Liberate the Liquor Business
What's not to like about the privatization of state ABC stores?
By Geoffrey Segal

For months now we've heard from elected officials about Virginia's impending transportation funding crisis. But are we really doing everything we can to find more money for our roads?

Facing similar financing challenges, Pennsylvania has opened up its books and looked for all types of assets it can sell. Perhaps one of the biggest opportunities for Pennsylvania -- and Virginia, too -- would be selling or leasing the state's interest in the liquor business.

Pennsylvania looked at that very idea last week. In a hearing in Harrisburg, state senators questioned whether divesting the wholesale and retail liquor operations would generate enough revenues to help close a transportation funding gap. Sen. Jake Corman actually went a step further, suggesting that the legislature should review all of the state's assets to see how they can best be utilized to benefit taxpayers.

It's estimated that Pennsylvania would generate as much as $1.7 billion in one-time revenue from the sale of its liquor business. Yet privatization would not much hurt the state's long-term financial outlook. Taxes on wine, beer and spirits wouldn't go away with privatization. Revenues from licensing bars and restaurants would continue as well.

The loss of retailing profits could be offset to some degree by revenue generated by licensing retail stores as well as the income and property taxes that private establishments pay.

The same financial outlook would hold for Virginia. Given the Old Dominion's continual search for new transportation revenues, maybe it's time we too considered getting out of the liquor business.

Privatization of state ABC stores would offer benefits to more than just taxpayers.

If you're a consumer, you'd benefit from increased customer choice, convenience and lower prices. Adult Virginians who visit neighboring states can shop for beer, wine, and spirits in stores that offer more convenience, better choices and lower prices. Without a government monopoly protecting them, stores in Virginia would have more freedom to innovate and greater incentive to respond to customer tastes. Private merchants might well offer more convenient hours and locations, provide a broader selection and put more creativity into displays and presentation.

With this said, however, the state would retain significant control over the sale of alcohol. For example, the state would retain regulatory oversight, setting standards and requirements for private ownership and operation.

One might legitimately ask whether privatization would stimulate alcohol sales, leading to more social problems. Since the end of Prohibition, government policy has had little influence over the consumption of alcohol. The old southern dispensary has been replaced with private licensed resellers — bars and restaurants — as intermediaries with customers. As a result of this change in industry structure, the state's ability to affect alcohol problems through its distribution system has effectively diminished to zero.

Despite fears, there have been no dramatic shifts in consumption, underage drinking, drinking and driving and alcoholism attributable to privatization in three recently privatized systems in Iowa, West Virginia, and Alberta, Canada. In addition, a forthcoming study from the Reason Foundation finds that there are no dramatic differences between control states and license states.

Virginia is conflicted in its mission. On the one hand the state is responsible for enforcement and enforcement funding, but under public operation it is also responsible for maximizing revenue from the sale of alcohol. Separating enforcement from its liquor-sales funding source could improve both enforcement and revenue generation. As one Iowa state legislator noted in considering privatization, "It strikes me as hypocritical to have Iowa all uptight about drunk drivers and also sell the stuff." Indeed, this disconnection prevents the state from pursuing the best opportunities to meet its public health mission and promote responsible drinking.

The bottom line: Privatization would be a good thing for the Commonwealth. It's an idea whose time is overdue. Customers would likely see increased choice and better prices. Taxpayers and commuters would benefit as untapped value is extracted to invest in our infrastructure without raising taxes. The Commonwealth would benefit by focusing its efforts on awareness, education, and enforcement rather than operating liquor stores.

Geoffrey Segal is director of government reform at Reason Foundation. An archive of his work is here and Reason's government reform research and commentary is here.

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