Posted September 11, 2010 | comments Leave a comment

McDonnell's ABC plan

Privatizing Virginia's ABC stores has long been a rallying cry for conservatives, including Gov. Bob McDonnell, who on the campaign trail last year framed the idea as a potential windfall for the state's congested and deteriorating transportation system.

Yet the experience of other states who have trod the same path belies proponents' claims of a revenue bonanza from the sale of liquor licenses and state assets.

Fleshing out the idea has proven more complicated, especially for a governor who pledged not to raise taxes, but McDonnell this week unveiled a comprehensive plan that envisions selling licenses to as many as 1,000 stores, including 600 to "big-box retailers" such as Wal-Mart and Costco.

McDonnell estimates that auctioning the licenses and selling ABC Board property will generate at least $458 million, which would be put in a "transportation infrastructure bank."

In future years, he foresees annual revenue of $206 million, compared with $231 million in the fiscal year that ended June 30. Most of the money comes from a $17.50 per gallon liquor excise tax -- far above the national average -- and a 1 percent tax on gross receipts, both charged to wholesalers but likely paid by consumers. Restaurants and bars that buy liquor from wholesalers would pay a 2.5 percent tax.

The proposal was originally revenue neutral, but Republicans in the General Assembly, who were briefed on the plan, balked at a proposed 4 percent "cocktail tax," prompting McDonnell to reduce the tax and label it a "convenience fee."

However, the income projections are apt to be pared further through persistent and intense lobbying among the vested interests affected by the bill.

While getting Virginia out of the liquor business accords with capitalist principles, the state and its residents can ill afford to water down the steady revenue stream the ABC Department provides.

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