My latest op-ed appeared in The Virginian-Pilot this morning. From the headline, you can guess that I’m talking about the privatization of ABC. From a theoretical point of view, I’m not against privatization. The big issue for me is the redirection of the money from the general fund.
While Governor McDonnell is touting a “surplus” now estimated to be $404 million, think about what this year’s cuts did to the localities. (And that “surplus” is bogus, anyway, given the fact that the government didn’t pay $620 million into the retirement fund, not to mention other gimmicks.) As long as the localities have few tools in their toolboxes to replace state revenues, a reduction in general fund dollars at the state level will result in a shifting of that burden to the localities, which ultimately means we end up paying more.
The root of this privatization effort is transportation money. I agree: we need to do something – like yesterday – to put more money in transportation. Since it’s ultimately coming out of my pocket, why not make it as transparent as possible? If the argument is that taxes aren’t raised in a recession, then raising them via this shell game of moving money out of the general fund into transportation and forcing localities to raise taxes to cover the shortfall isn’t appropriate, either.
VIVIAN J. PAIGE | All Politics is Local 
Vivian, is it the job of the Commonwealth to sell poison to its citizens?
I don’t understand your question. Alcohol is legal.
As you like.
Toxicity depends on dosage. Irrespective of dosage, everything is toxic to you. Your poison reference doesn’t make sense.
Lovely pedantry, there.
Lovely hyperbole on your part. =)
I honestly don’t see the transparency of the ABC stores. I mean, hiding government behind a business front doesn’t exactly sound like straight forward taxing to me.
Instead, selling the stores will allow for a quick infusion of money, while privatization will allow tax money to still come in to the state (transparency there would be for the only taxes on alcohol to be a sales tax, same as all other regular purchases) as is normal.
Of course, if Richmond hadn’t taken money away from transportation in the past to begin with, this whole idea may not have been placed on the table in the first place.
It’s not straight forward taxation. But it certainly has nothing to do with transportation, either.
But here’s the questions:
1. How many licenses will need to be sold in order to get a reasonable amount of money? Will it be 800 or 3,000?
2. If, in order to get to $100 million in annual revenue, the liquor tax and/or profit sharing amounts have to increase, will the revenues be realized? And will the value of the licenses drop so much that we’d have to sell 6,000?
I don’t think this is as easy as it sounds.
I have a surplus this month too! Of course I haven’t paid my mortgage, gas and electric bills, and quarterly taxes.
Don’t pay your bills and have surplus. I learn fast!
Was out of area yesterday, so read this this morning.
The concerns I have mirror your’s Vivian. You op-ed seems to state that that ABC stores profit to the tune of $250 million a year. Selling these licenses will net $500 million, on the high side. On the optomistic side the state will get $100 million annually after that. Which means that cash influx will be used up in 3 and a third years, and we will have to make up that income, somehow, just to maintain services.
Am I missing something? It sounds like another end the cartax, thanks Gov Gilmore, debacle.
You’re missing something: the money from ABC now goes into the general fund. As soon as this “plan” goes into effect, core services of government will be out of $248 million, not in three years.
Although I’m no fan of the car tax relief, at least that money gets back to the localities.
while I didn’t state, that part I understand. Does no money go to transportation from the general fund?
And true, the state had to send the car tax money to the localities, but I think they have not been sending the amount lost for several years, and the amount they send has been dropping, if I remember what I have read.
Some money already goes from the GF for transportation. This would take $248 mil directly from the GF.
And no, the amount that the state has been sending to the localities has not dropped. In 2005, the GA fixed the reimbursement at $950 mil, instead of a fixed percentage of the total car tax. The result is that the fixed amount buys a decreasing amount of tax relief, as the cost of cars rises.
Government shouldn’t be running retail stores.
@Brian Kirwin
Hmmmmm, close the military package stores, commissaries, exchanges, gas stations? Without them watch the prices on the other side of the military installation fences sky rocket. Also, who wants to buy a liquor franchise and compete with the military package store prices. Local ABC stores are open 7 days a week just to try to keep up.
They are not really retail stores, since the citizens cannot use them.
Not really retail? Does that mean Costco, BJ’s and Sams are “not really” retail, since only certain citizens can shop there?
Retail is the sale of a tangible to its ultimate consumer.
Maybe you should run for Commissioner of the Revenue in Norfolk. You and she agree on this issue. 🙂
Anyone can shop at Costco, BJ’s, and Sam’s. That one’s first purchase must be a membership is irrelevant.
The biggest issue for me is that I can think of very little that the State government should be doing that the people should NOT be allowed to do also.
This isn’t happening.
Although I support privatizing the stores, it’s not in the cards.
When Dick Saslaw says the idea is “dead on arrival” that can be chalked up to partisan spin, but when Brenda Pogge and Tom Gear and other conservative Republicans are against the plan, that makes Saslaw look like a prophet.
I agree – it ain’t happening. But with the governor going around the state holding these town halls, I felt like the public needs to understand the issues. And while it may not happen this time, it will come up again.
It seems like a lot of commenters failed to read: “From a theoretical point of view, I’m not against privatization. The big issue for me is the redirection of the money from the general fund.”
And yet a number of people want to engage you in a debate about ideals. Go figure.
Thank you.
Let’s go the other way. To increase income to the General Fund, the GA will make it illegal for private businesses to sell food in the Commonwealth, and all food must be purchased at state-owned grocery stores.
Do you have a problem with THAT?
Wow! You are dense. On principle, I don’t think the state should be in the business of retailing liquor. That isn’t the issue that Vivian is bringing up in this post though. It is about how will the state make up the money lost from privatizing portions of VABC.
And you are missing MY point, which is that if something is WRONG, you do not say, “Well, let’s keep doing it because we need the money.”
If the State needs the money, what is the difference between continuing to do something wrong, and doing something ELSE wrong?
Nothing.
It seems to me that something is wrong with the math. If the stores generate $100M in profit each year, how is it possible that their sale would only net $250M?
Find me a franchise that I can buy that will get me 40% ROI the first year!
You need to catch up. The stores are generating $248 million in profits, excise taxes and sales taxes, all of which end up in the general fund. The $100 mil is what the state anticipates it will collect in taxes after the stores are sold. In addition, the state would realize a one-time $300 mil – $500 mil from the sale of the licenses.
Well, assuming sales do not change upon privatization, the excise taxes and sales taxes will remain the same. I assume that is the $100M. So that is $148M profit each year. If the stores are sold for $500M, that’s still a hefty 29.6% ROI the first year to whomever buys the stores.
Warren: That’s part of the problem that of the Republicans I’ve talked to have about the plan — the governor’s number don’t add up.
Valuation of a performing asset should be based on revenues. ABC has sales in excess of $650 million per year, which produce a profit of about $122 million.
Business people I talk to say that the value of the business hould be, at minimum, four to five times it’s annual sales. So we’d be talking about $2.4 billion at the lowest. But the governor’s folks are talking about letting them go for, at best, $800 million.
That’s not a good business deal. It’s one that tilted in favor of the buyers at the expense of the taxpayers.
I don’t think the state should have ever gotten into the liquor business. But that Rubicon was crossed decades ago.
The state is in the business. And does have the exclusive rights to sell liquor. To paraphrase a former governor of Ill., “that’s an f’ng valuable thing, you can’t let that go for nothing.’
Valuation on sales is one method. Valuation on net cash flows is another. In either case, the value of the licenses should be significantly more than $500 (or even $800) mil. (Here is a quick & dirty explanation of several business valuation methods.)