The move may be penny-wise, but is pound-foolish. Lawmakers must be absolutely certain this move toward privatization makes economic sense before signing off on the deal.
It’s dangerous to pay for ongoing state programs using one-time funds. That’s precisely what this liquor proposal does. It gives the state $300 million up front to pay for programs such as the Basic Health Plan for low-income uninsured workers and the Disability Lifeline which provides health care for people unable to work.
But how are those programs going to be paid for in future years when the state has already spent the one-time, $300 million? That’s a trap lawmakers must avoid.
Tom Luce from the Washington Beverage Co. claims that private industry can operate the liquor distribution system and bring in higher profits and improve service to consumers and restaurants.
Washington is one of 18 so-called “control” or “monopoly” states, which exercise broad powers over wholesale liquor distribution. Of those states, only eight – including Washington, Virginia and North Carolina – also are involved in retail alcohol sales. Thirty-two states are license states, where the private sector handles wholesale distribution.
The state has 94 employees at the state’s 220,000-square-foot liquor distribution warehouse in Seattle, which has the capacity to receive and ship upward of 22,000 cases of liquor per day.
Currently, liquor brings in about $320 million in revenue to Washington each year, but a recent report by Washington state Auditor Brian Sonntag found that the state could increase revenue by as much as $277 million over five years if it changed its liquor model.
Costco, the large wholesaler, and liquor distributors tried to get the state out of the liquor business last year with competing initiatives – 1100 and 1105. Voters – concerned a proliferation of liquor outlets and the impact on public safety – rejected both initiatives last November.
Faced with yet another budget deficit – $5.1 billion – House budget writers opted to take the first step toward privatization. House Ways and Means chairman Ross Hunter, D-Medina, included $300 million from a warehouse lease deal in the operating budget for 2011-13 that passed the House a week ago.
Hunter said the goal is to issue a request for proposals, or RFP, to see what might be feasible, and the state could reject RFPs “if it turns out not to be a good deal for the state,” he said.
The RFP would require payment of at least $300 million to the state in cash – up front. The request would assure the winning bidder about $75 million a year minimum to cover operations costs, and the private company would split profits 50-50 with the state that are above what the Liquor Control Board expects.
It also would leave the winning bidders’ investments of millions of dollars in equipment and facilities in state ownership at the end of the lease.
Luce said his proposal would lead to greater efficiencies because the state and distributor – whomever is selected – would share an interest in raising state profits from the distribution.
He predicted his approach – if state profits can increase by nearly 4 percent a year, or 1 percent more than the liquor agency’s have over the past decade – would give the state about $1.5 billion more revenue over 20 years than it could otherwise expect.
Critics include Rep. Gary Alexander, R-Olympia, the ranking minority member on the Ways and Means Committee. The budget Republicans put forth did not rely on $300 million from leasing the state’s liquor distribution system. But Alexander did say he is OK with putting out a request for proposals to see what private sector firms would be willing to do.
When first asked about the idea, Gov. Chris Gregoire said she wanted to make sure there was an RFP process. She also said the switch in Maine didn’t work and that she has concerns with using the entire $300 million in one spending cycle (2011-13) when the lease contract would be over perhaps 20 years.
Using one-time funds for ongoing programs is a risky proposal. What happens when the $300 million is gone and state revenues stay flat or decline?
We understand their desperation, but relying on this budget gimmick is the wrong strategy.
