Cities fear loss of liquor revenue

Initiatives: State tallies losses if measures pass

September 16, 2010 

Thurston County and its cities stand to lose hundreds of thousands of dollars from the state Liquor Control Board if voters pass Initiative 1100, Initiative 1005, or both this November.

Both initiatives would eliminate the state monopoly on liquor sales, allowing private outlets to sell liquor. In turn, they would eliminate all or part of liquor taxes and profits the state shares with cities and counties. I-1105 would eliminate both; I-1100 would eliminate state liquor profits.

Olympia alone could lose about $600,000 per year, and its City Council is considering passing a resolution stating the city’s official objection to both measures.

“That has a huge impact on the city, especially in this economy,” said Jane Kirkemo, the city’s finance director. “It means that we would lay off people. It’s that simple. We don’t have the capacity to absorb $600,000.”

The Liquor Control Board estimates it will give $710,997 to Thurston County government this year, $568,361 to Olympia, $489,107 to Lacey and $208,885 to Tumwater.

If Initiative 1105 were to pass, local governments statewide would lose from $205 million to $210 million over five years, according to estimates from the state Office of Financial Management. If Initiative 1100 were to pass, local governments would lose $180 million to $192 million over five years, the state estimates. The state didn’t break down figures by county or city.

However, it’s unclear exactly how much of a net loss local governments would experience under those scenarios, because each initiative would affect state liquor control in different ways, and there are opportunities to replace at least some of the lost state revenues with new taxes.

Ashley Bach, a spokesman for Yes to 1100, questions the accuracy of the Office of Financial Management estimates. He said they don’t consider that governments could begin charging business and occupational taxes on private liquor sellers if the state got out of the liquor-sales business. And they’re based on numbers from the state Liquor Control Board, not an uninterested party, he said.

“They’re just going off numbers that were fed to them by the state,” Bach said. “We don’t think that they’re going off of accurate numbers.”

Charla Neuman, a spokeswoman for I-1105, said the initiative is intended to ensure local governments continue getting the same amount of money from the state, “if not more.”

It recommends the state adopt a liquor tax, on top of permit fees and sales and business and occupational taxes.

“We went to great lengths to make sure we caused no harm,” she said.

However, I-1105 doesn’t require that the legislature consider such taxes.

STATE CONTROL

Washington is one of 19 states that control the sale and distribution of alcohol. All liquor is sold in state-run or state-contracted liquor stores, while beer and wine can be sold in private outlets.

As the Association of Washington Cities sums it up, local governments get payouts from the state from two sources; liquor profits and liquor excise tax.

 • Liquor profits are revenues from permits, licenses, permits fees and liquor sales. All liquor is marked up 51.9 percent above the wholesale cost before it is sold. From those profits, the state first pays for Liquor Control Board activities, then divides the remaining profits – 50 percent to the state, 40 percent to cities and 10 percent to counties.

 • Liquor excise tax revenues come from basic rates of a 15 percent sales tax on liquor buyers and 10 percent for restaurant licensees, plus surcharges. Revenue from the basic rates are split 65 percent for the state, 28 percent for cities and 7 percent for counties.

For example, Olympia last year received $300,000 in liquor board profits and $221,500 in liquor excise taxes, Kirkemo said. Two percent of the liquor excise tax revenue must go to alcohol-treatment programs; 2 percent of the city’s share goes to the Thurston County Health Department, she said.

If I-1100 were to pass, cities and counties still would get liquor excise tax revenues from the state but not liquor profits. If I-1105 were to pass, they would get neither liquor profits nor liquor excise tax revenues. It’s unclear what happens if both initiatives pass. The Legislature or the courts might sort it out.

Liquor-privatization advocates say that if state liquor sales are eliminated, cities and counties can find ways to make up the shortfall.

If either initiative passes, localities could charge businesses selling liquor a business and occupational tax.

If the liquor excise tax is eliminated as part of the passage of I-1105, localities could start charging sales tax on liquor.

In addition, the state could pass new taxes on liquor, which I-1105 recommends.

LOCAL REACTION

In Olympia, Councilman Stephen Buxbaum asked that the council consider a resolution against the liquor initiatives. Such a resolution requires a public hearing, which hasn’t been scheduled, before action.

Buxbaum raised two concerns – the money Olympia would lose and the effect on downtown if private outlets could begin selling liquor. Buxbaum has studied restricting sales of non-liquor, high-alcohol drinks downtown.

Lacey also is considering a resolution against the initiatives that will come up in the next few weeks, Lacey Mayor Tom Nelson said. He said the council has two objections – the loss of revenue and that the initiatives would open up more liquor to young people.

The city stands to lose more than $500,000 per year if all liquor control money ceases, and cuts would have to be made.

“Something would have to go,” he said. “That’s not something you could just make up very easily.”

The county wasn’t planning cuts for next year but will have to make them if the state liquor money goes away, Thurston County Administrator Don Krupp said.

“This would simply make that balancing act a lot harder than it already will be,” he said.

He said the county commission hasn’t discussed a resolution against the measures. Nor has the Tumwater City Council, Tumwater City Administrator John Doan said, but the city has discussed the financial effect.

“We’re looking at essentially a flatlining income stream next year, but yet we have costs in that area still going up,” he said. “This just makes the difference even worse.”

Matt Batcheldor: 360-704-6869 mbatcheldor@theolympian.com

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