Proposal: $300M for right to run state liquor warehouse

The OlympianMarch 16, 2011 

Details are still emerging, but a Tacoma-based business consultant has pitched the very preliminary idea to the Washington State Liquor Board.

But if Tom Luce's idea pencils out, he or another investor could give the state as much as $300 million upfront – in exchange for the rights to operate the state-controlled liquor distribution system. Backers also would seek a cut of the state liquor-monopoly's profit.

Word of the concept surfaced today during an Olympian editorial board meeting. Liquor Control Board chair Sharon Foster and agency staff were trying to explain what the down side might be if the state were ever to turn its liquor-distribution warehouse over to the private sector. They said there was a chance the state could lose profits from its operation and Garza mentioned the idea from Luce.

Democratic Sen. Tim Sheldon of Potlatch has long sought to turn the state's liquor monopoly over to the private sector. He has contended the warehouse operation is inefficient compared to other operations.

Luce, who is affiliated with the business-oriented Executive Council for a Greater Tacoma, was not available to comment. Public affairs consultant Sandeep Kaushik of Seattle spoke on his behalf.

"We're working on an idea to modernize the state's liquor distribution system in a way that would benefit taxpayers, consumers and workers without compromising public safety," Kaushik said. "It's an idea that's still under development. Until we have a chance to work with stakeholders to flesh out this idea we aren’t ready to go into details."

Kaushik confirmed the idea belongs to Luce, whom he described as a business consultant and former congressional aide to U.S. Rep. Norm Dicks.

The Liquor Control Board is backing Gov. Chris Gregoire's request for budget authority to expand the number of state stores by 15 – including a couple of "super stores" in urban areas, specialty stores and also a handful of pilot stores inside supermarkets. That and other proposals could raise about $4.5 million.

Rick Garza, deputy director for the agency, said it would be up to Gov. Chris Gregoire and legislators to decide if the Luce proposal to raise more money for the state upfront was worth exploring.

Garza and Foster identified New York private equity firm Lindsay Goldberg LLC as part of the proposal. Lindsay Goldberg had involvement with a private takeover and modernization of Maine's distribution system several years ago.

Foster said any company leasing the state operation would receive about $45 million a year while spending about $18 million on operations.

Garza said that the company's take be tied to a percentage of state profits from its liquor enterprise – which brings in about $370 million a year to state coffers.

It was not yet clear how the state might set up a bidding process to solicit potential warehouse operators, under Luce's concept.

Gregoire's spokeswoman Karina Shagren said a similar idea was raised during the governor's effort to colicit ideas around the state last year for transforming government. Shagren said ideas are still coming in.

"I don't know if the governor has reviewed this specific proposal. At this point I'd say she hasn’t completely shut the door to any proposal," Shagren said.

Sen. Sheldon, who introduced a sweeping privatization measure this year, had not heard of the idea but was interested in learning more.

"I think it would be a good beginning. I think the distribution center is s logical place to privatize," Sheldon said. "If you brought modern warehouse techniques to the facility it would save a considerable amount of money. While it might cost some jobs, it's where we should be heading."

Rep. Gary Alexander, R-Thurston County, said proponents came in to talk about leasing the warehouse. "It's an attractive idea given that money seems to be an issue … They were talking about $300 million in upfront money."

As Alexander understood it, the group would lease the building from the liquor board and take over the warehousing operation for a lengthy period of time.

"I told them that this was something they should be working with the Governor’s Office and the Liquor Control Board," Alexander said, emphasizing that his primary focus is to hand over state-run stores to the private sector.

With Thursday's revenue forecast expected to bring more bad news, this is just one of many ideas likely to surface in the coming weeks.

UPDATE: It appears some people thought Maine’s experience was – at least initially – a “boondoggle.’’

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