Sunday, July 18, 2010

Governor McDonnell's Proposal to Privatize Virginia's ABC Stores

Bob McDonnell wants to privatize the sale of liquor in Virginia. Anita Kumar has the story in this morning's Post, here.

When Prohibition ended, the General Assembly made the decision that beer and wine could be sold in private stores but that liquor would be handled by the state. 

There are now 332 ABC stores in Virginia, and several recent governors (including Mark Warner) have explored the idea of selling them off.

It sounds like the primary rationale for privatization is financial: there'd be a one-time boost to the state's coffers of $300-$800 million. This does not seem like very much money to me, and it makes me think this proposal probably will not go anywhere.

Currently, the ABC stores produce about $220 million for the state annually; this is from a combination of taxes and profits.  If they already bring in that much annually, then why bother selling them for only $300-800 million?

It sounds like that is exactly the argument being made by opponents of the plan.

Part of McDonnell's retort is a free-market-capitalism argument: government shouldn't be in the retail business (if that's right, then why is government in the retail business of selling lottery tickets?).

Here's the oddest part, though: McDonnell's goal, in selling the ABC stores, would be to generate extra money for the highway system. This illustrates the disfunctionality of our taxing/spending system: Virginia clearly needs money for its roads, but we are unwilling to raises taxes in order to generate the funds.  So instead of making the tough decision to raise taxes, we come up with strange disconnected sources of revenue (in this case, a one-time source of revenue, which is problematic given that roads require ongoing maintenance). It's like looking through your closet to find old stuff to sell on eBay rather than taking a hard look at your budget and making long-term decisions about income and expenses.

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