Reason Foundation’s policy analysts are examining statewide ballot initiatives on issues related to consumer freedom, including, sports gambling, flavored tobacco and e-cigarettes, wine and alcohol sales, and more.

California Proposition 26 (2022): In-person sports betting regulation and tribal gaming expansion

California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs

California Proposition 31 (2022): Banning flavored tobacco products

Colorado Initiative 96 (2022): Concerning liquor licenses

Colorado Initiative 121 (2022): Sales of wine in grocery stores

Colorado Initiative 122 (2022): Third-party delivery of alcoholic beverages

Maryland Question 4 (2022): Marijuana legalization amendment

Voters’ guides for other states and policy issues can be found here.

The post The 2022 ballot initiatives about consumer freedom issues appeared first on Reason Foundation.

Fiscal Impact

According to the Colorado Secretary of State’s analysis, Initiative 122 is likely to have no meaningful impact on the state’s net revenue or costs.  

Proponents’ Arguments For

As with another of the alcohol initiatives slated for the 2022 ballot, Initiative 122, is backed by an issue committee called Wine in Grocery Stores. This group is funded primarily by delivery companies like DoorDash and Instacart and is also supported by Safeway and Target. Proponents argue that the measure would modernize alcohol sales in Colorado and improve consumer convenience.

Opponents’ Arguments Against

Opposition to allowing third-party delivery of alcohol has been limited and has come mainly from the committee, Keeping Colorado Local. This group is also opposed to the other two alcohol-related measures on the 2022 ballot, and they portray these measures as a bid from “billion-dollar, out-of-state corporations who want to come in and put the mom-and-pop small business out of business.” They fear that allowing non-liquor stores to offer home delivery will further harm the ability of liquor stores to compete in the market.

Discussion

With memories of COVID-19 lockdowns still fresh in voters’ minds, it may be tough to convince them that there are many downsides to allowing the home delivery of alcohol. During those lockdowns, Colorado was among the many states to temporarily liberalize alcohol laws, allowing bars and restaurants to sell alcohol to-go and deliver alcohol along with customers’ food orders; a measure the state legislature recently extended to July 2026.

Instead of using their own staff to make home deliveries, Initiative 122 would simply allow businesses already licensed to sell retail alcohol to do through third-party delivery services. While specific regulation of alcohol delivery differs by state, at least 15 states and Washington, DC, currently allow some form of home alcohol delivery through third-party services, like Instacart and Drizly.

In addition to the benefits to consumers, access to these specialized services could benefit grocery stores, particularly smaller ones that may not have their own fleet of delivery people. This is especially true if voters approve Initiative 121, also on Colorado’s 2022 ballot, which would allow grocers to sell wine in addition to beer.

Initiative 122 could also benefit small liquor stores, as well, who might be able to increase their capacity for deliveries throughout the state.

Finally, the Initiative would certainly be beneficial to residents and visitors to Colorado, particularly those accustomed to the on-demand alcohol delivery available in other states. 

The post Colorado Initiative 122 (2022): Third-party delivery of alcohol beverages appeared first on Reason Foundation.

In 2016, Colorado passed a law that would incrementally phase in grocery store sales of full-strength beer, wine, and liquor, with all stores allowed to sell all alcoholic beverages by 2037. Currently, however, wine can only be purchased in licensed liquor stores. 

Colorado’s Initiative 121 on the November 2022 ballot would allow stores that are already licensed to sell retail beer to begin selling wine for off-premise consumption beginning in 2023. The measure would also allow these shops to submit an application to their local licensing authority in order to conduct wine tastings on-site. 

Fiscal Impact

Based on the analysis provided by the Colorado Secretary of State’s Office, Initiative 121 is not expected to meaningfully increase either state revenue or costs.  

Proponents’ Arguments For

Initiative 121 has been supported by third-party alcohol delivery companies, like DoorDash, and national grocery brands, like Target, organized under the issue committee Wine in Grocery Stores. They argue allowing grocery and convenience stores to sell wine, in addition to beer, would significantly increase convenience for shoppers who would no longer need to visit multiple locations to buy food, beer, and wine.  

Opponents’ Arguments Against

Local liquor shops, which lost their monopoly on retail sales of full-strength beer in 2016, claim that eliminating their monopoly on wine sales would cause up to 1,000 liquor stores around the state to close. As they argued prior to Colorado’s legalizing the sale of full-strength beer in grocery stores, opponents of the initiative claim that allowing grocery stores to sell wine would harm local wineries and favor large national brands. Others have raised concerns that allowing wine sales in local grocery stores might increase underage drinking. 

Discussion

Colorado’s experience with the legalization of the sale of full-strength beer in grocery stores has been largely positive. Though the move decreased liquor store beer sales volume, a 2020 study by the Research Institute at Colorado State University found that craft brewers benefited from the move, which stimulated interest in and demand for beer relative to other alcoholic beverages. Moreover, there is no evidence that allowing beer sales in grocery stores have had any meaningful effect on underage drinking.

Local liquor store owners’ fears are understandable. Removing their monopoly and allowing other shops to sell wine would potentially decrease their own sales. But, importantly, it would also significantly increase consumers’ choices and convenience, reducing the number of locations shoppers have to visit, and likely reducing the prices of the more popular brands due to increased competition. If this initiative passes and is enacted, liquor stores could respond in a variety of ways, including by competing with grocery stores by offering customers more knowledgeable staff to assist shoppers and by stocking the hyper-local and specialty brands their larger competitors may not offer.

The post Colorado Initiative 121 (2022): Sales of wine in grocery stores appeared first on Reason Foundation.

Colorado Initiative 96 on the November 2022 ballot would incrementally raise the number of retail liquor store licenses an individual may own or hold to be equal to the number of licenses for off-premise alcohol sales that could be owned or held by drug and grocery stores in the state.

Under Colorado’s current law, an individual may hold only three retail liquor store licenses across the state, increasing to a maximum of four after 2027. Liquor-licensed drug stores, on the other hand, can hold up to eight licenses, but that number will increase to 13 in 2027, 20 by 2032, and be unlimited after 2037.

Grocery stores, which are currently restricted to selling beer only, can have a maximum of 20 licenses for alcohol sales, until 2037 when the maximum number will be unlimited.

Initiative 96 seeks to create parity in licensing between businesses that sell alcohol. If approved, the measure would allow liquor stores to hold up to eight licenses immediately, rising to 13 in 2027, 20 in 2032, and an unlimited number after 2037.

Fiscal Impact

According to the Colorado Secretary of State, Initiative 96 is expected to only minimally impact state finances. Increased licenses would slightly increase revenue through application and renewal fees, as well as slightly increase compliance costs for the state.

Proponents’ Arguments in Favor

Proponents of Initiative 96 argue that the state’s archaic restrictions on liquor licenses have unfairly blocked large liquor store retailers from the state, denying Coloradans the convenience, choices, and prices such chains could offer.

They also argue that increasing the maximum number of licenses and locations would help local liquor stores better compete with grocery and drug store alcohol sales, particularly if voters approve Colorado Initiative 121, also on the 2022 ballot, which would allow non-liquor stores to sell wine, in addition to beer.

The committee backing the measure, the Coloradans for Consumer Choice and Retail Fairness, has been largely funded by David and Robert Trone, the founders of Total Wine and More, raising $2.2 million for the Initiative, most of which was spent collecting signatures to qualify for the ballot. 

Opponents Arguments Against

Opposition to Initiative 96 has come primarily from the Colorado Licensed Beverage Association, a trade group representing independent liquor stores in the state, which formed a committee group named Keeping Colorado Local. This group is opposed to all three of the alcohol measures on Colorado’s 2022 ballot. They oppose Initiative 96 because it would open the state’s doors to large national chain brands, like Total Wine, potentially making it harder for local liquor stores to compete. 

Discussion

The competition faced by local liquor shops in Colorado is going to increase in the near future, no matter what voters decide this November, with current law set to vastly increase the number of chain grocery and liquor stores selling alcohol.

Though small liquor store owners are understandably worried about opening the state’s doors to larger, nationally-recognized retailers, like Total Wine, the smaller stores could find underserved markets and compete in areas like customer service, such as offering more knowledgeable employees to assist customers and stocking products larger chains may not. The iniative would also likely benefit consumers, increasing the variety of products available and reducing prices due to the increased competition.

The post Colorado Initiative 96 (2022): Concerning liquor licenses appeared first on Reason Foundation.

By allowing producers to use existing parcel delivery services (except the United States Postal Service, which Congress prohibits from shipping booze), small-scale alcoholic beverage makers would be given the opportunity to better compete with larger distributors. Many states already allow that to some degree, but the practice usually gets limited to beer and wine only. 

Limiting direct-to-consumer shipping to certain alcoholic beverages but prohibiting others makes no sense. In 2005, the Supreme Court ruled in Granholm v. Heald that states cannot discriminate against others when allowing direct-to-consumer shipping of wine (i.e. allowing in-state producers to ship to consumers but not out-of-state ones). Allowing the shipping of wine and beer should open the door for spirits, too.

Predictably, the most vocal opponents of direct-to-consumer distilled spirits shipping are distilled spirits wholesalers themselves. Partnered with teetotaler politicians representing districts where state (and in North Carolina, local) agencies monopolize liquor retail, private liquor wholesalers naturally want to prevent the sale of liquor through channels where they play no role in distribution.

So instead of trying to encourage greater choice for consumers by offering more options to purchase spirits, the liquor wholesaler-distributor crowd would rather curry favor from state politicians who abstain from buying the products those companies distribute. The reason is simple: Liquor wholesalers want to protect themselves from new competition, and direct-to-consumer shipping introduces new competition for them. Allowing direct-to-consumer shipping of alcoholic beverages typically takes legislation to implement where it isn’t presently allowed, and plenty of politicians oppose making it easier to obtain alcoholic beverages in general.   

Also, predictably, the aligned otherwise-enemies (liquor distributors and anti-alcohol legislators) make appeals to getting rid of “illegal” booze and fears of “common carriers conduct little to no age verification, and when attempted, failed about half the time,” citing a single decade-old study in one of the most highly regulated alcohol markets—North Carolina—in the United States.

Parcel delivery services require age verification of alcoholic beverage shipments and if their delivery drivers violate that policy, they can lose their jobs. Yes, in some cases minors would likely still end up possessing alcohol, but that can happen regardless of whether wholesalers played a role in getting the product to consumers.

It’s obvious why distilled spirits distributors don’t want direct-to-consumer shipping: It takes them out of the equation. Crocodile tears about safety are easily exposed when cried by self-interested firms that face zero liability over their products ending up in the hands of minors. Remember, liquor wholesalers never have to verify anyone’s age, so they can never be held liable for selling to minors, even though the products they distribute end up being consumed by minors illegally. Just like Fanucci in The Godfather, Part II, liquor wholesalers cannot be satisfied unless they “wet (their) beak”—making money off every drop of spirits sold.

Liquor wholesalers make no money off DTC transactions, so they oppose DTC shipping. It’s really that simple.

But while the existence of wholesaler firms in the alcoholic beverage industry makes lots of sense for many types of producer and retailer arrangements, there’s no reason why all alcoholic beverages should be subject to the “3 Tier” system. It is dubious for an organization to advocate for “market access” and the “prevention of monopolies,” while insisting transactions outside of their own cartel’s reach be prevented. Distilled spirits distributors opposing direct-to-consumer options should show why they are so important—openly and honestly, not through seeking to prevent competitive channels that enhance consumer access, an idea the, without any irony, state they support.

When liquor wholesalers seek alliances with politicians who would rather their enterprises not exist, consumers and taxpayers are right to question the reason for the arrangement. When there is competition, customers benefit. Competition helps raise the quality of products and services and helps keep prices low. It’s time for states to stop limiting the shipment of alcoholic beverages.

The post Customers would benefit from fully legalizing direct-to-consumer shipping of alcohol appeared first on Reason Foundation.

We have seen distilleries and breweries step up to help fill some of the void created by the surge in demand, but the sparse availability is leading individuals to seek alternatives, including making one’s own hand sanitizer.

Unfortunately, many states prohibit the sale of grain alcohol in concentrations high enough for homemade alcohol-based hand sanitizers to be effective. Americans typically have access to three types of alcohol, but only two—ethanol (consumable alcohol) and isopropyl (rubbing alcohol)—have been shown by the Centers for Disease Control and Prevention (CDC) to be effective disinfectants.

To be of use, a homemade sanitizing solution’s alcohol concentration needs to range from 60 to 80 percent alcohol by volume (ABV). If higher, the alcohol works to coagulate, not destroy, the envelope that surrounds coronaviruses. On its own alcohol will quickly evaporate and makes it difficult to effectively sanitize one’s hands. Because of this, hand sanitizing solutions include thickening moisturizing gels and oils, which in turn dilutes the alcohol concentration, and thus, the potency, of the resulting sanitizing solution.

Various recipes recommend a two-thirds alcohol, one-third aloe gel (or other moisturizers) ratio for making one’s own hand sanitizing solution. Therefore, in order to reach the recommended 60 to 80 percent ABV solution needed to be an effective disinfectant, the original alcohol source must be 90 percent alcohol or greater.

While 90 percent ABV or higher isopropyl alcohol, or rubbing alcohol, is easy to locate in non-pandemic times, finding 90 percent ABV or higher ethanol alcohol can be much more difficult, as many states cap the potency of distilled spirits available to their citizens. Doing so effectively prohibits citizens from making their own ethanol-based hand sanitizer.

Seventeen states, with a combined population of roughly 150 million, ban the sale of alcohol with ethanol concentrations high enough to make effective homemade hand sanitizers. Several states with the ban are experiencing high numbers of confirmed COVID-19 cases, including California, Michigan, Florida, and Washington.

Although Virginia recently raised its cap for citizen purchase to 151 proof, or 75.5 percent ABV, the increase still does not help individuals looking to make their own effective sanitizing solution during this pandemic.

Hopefully, the drastic changes individuals and organizations are undergoing will make high-concentration alcohol bans irrelevant in containing the pandemic. But with many governments already suspending regulations related to diagnostic tests, occupational licenses, and even alcohol delivery to fight COVID-19, why should state governments continue to deny Americans a substance that can be valuable in helping prevent the pandemic’s spread?

The widespread availability of pure grain alcohol for all Americans should have come with the repeal of prohibition over a century ago. Instead, not only does Prohibition persist, but nearly half the U.S. adult population cannot access an effective sanitizing agent that can substitute for products that are in very high demand for the foreseeable future.

The post To Help Fight Coronavirus, States Can Eliminate Alcohol Rules Preventing Homemade Hand Sanitizer appeared first on Reason Foundation.

Other odd and antiquated North Carolina alcoholic beverage restrictions provisions prohibit direct sales of liquor to out-of-state consumers and limit liquor purchases at in-state distilleries for off-premises consumption to five (750 mL) bottles per year, each affixed with “a sticker that bears the words ‘North Carolina Distillery Tour Commemorative Spirit’ in addition to any other labeling requirements set by law.” Establishments that serve “mixed drinks” (any beverage containing liquor) cannot purchase liquor with any form of electronic payment, while establishments under common ownership cannot transfer alcoholic beverages of any kind to each other to account for overstocks and shortages. Local ABC stores are not allowed to provide customers product samples, with beer and wine retailers operating under similar restraints. Also, customers consuming alcoholic beverages on the premises of any licensed establishment are limited to one drink per order.

House Bill 971 (“Modern Licensure Model for Alcohol Control”), introduced late last month by a bipartisan group of seven legislators, would modernize North Carolina’s liquor control by eliminating the state’s retail and wholesale spirits monopolies, introducing a private licensure regime where private entities will operate all distilled spirits wholesale and retail functions. Local governments would receive a one-time windfall from the sale of existing government-run stores, while current and new retail establishments that sell other types of alcoholic beverages for off-premises consumption (e.g., beer and wine shops, grocery stores) would be allowed to apply for licenses to sell liquor.

While the state ABC Board would still approve all products for sale, retail license holders would get to decide what gets offered for sale to customers. Economies of scale and retail competition would lead to more diverse product offerings, as retailers operating in multiple counties could make larger purchases than small local ABC boards would find difficult to justify, even with monopoly protection. Startup distilleries today have trouble selling to individual local boards, while under modernization, larger retail establishments operating across what previously were multiple liquor retail jurisdictions could make bulk purchases to help new distilleries reach new customers.

One unfortunate change concerns the state’s excise tax on liquor. The state’s monopoly regime has successfully squeezed tax revenue out of residents, and lawmakers unsurprisingly do not want to disrupt its revenue streams. At $36.79, North Carolina’s tax revenue per gallon of liquor sold tops all southeastern states, with non-control “licensee” states in the Southeast all falling below half NC’s rate (Kentucky’s $16.77 being the highest), according to 2015 figures provided by the state legislature.

However, since the current local ABC Boards’ profits all become state and local government revenues, one must account for the revenue reduction that would result from retailers retaining profits under a licensee system created by HB 971, even after accounting for smaller margins consistent with a competitive retail market: According to Sageworks’ list of least profitable industries, beer, wine, and liquor stores average around a 2.4% profit margin nationwide, while North Carolina’s local ABC Boards overwhelmingly enjoy higher margins, averaging 11.2% system-wide (though some still manage to lose money), as the John Locke Foundation’s Jon Sanders pointed out recently.

Although HB 971 simplifies liquor taxation by replacing a clunky combination of bailment and bottle surcharges, a 30% excise tax, and local government mandated markups with a flat excise tax, the new excise rate will nearly double the rate per gallon of all the previous taxes and markups. An analysis of Distilled Spirits Council data performed last year by the Tax Foundation ranked North Carolina’s liquor taxes as the nation’s sixth highest, at the equivalent of $14.63 per gallon. HB 979 would nearly double that, to $28.00 per gallon, which still falls short of the state’s high revenue per gallon figure of $36.79 figure, and reflects not just excise taxes, but the bailments, markups, and surcharges.

Even still, HB 971’s excise tax increase would make North Carolina the second-highest taxed state for liquor, behind only Washington State, which recently went through its own privatization that included higher replacement taxes and resulted in slight rises in prices. North Carolinians should not expect different outcomes if HB 971 were passed as-is.

Another alcohol reform bill, House Bill 536, liberalizes a host of liquor and other alcoholic beverage regulations. While it would not reform any liquor monopolies, the bill, short-titled “ABC Omnibus Regulatory Reform”:

• Allows North Carolina distilleries to sell directly to customers in other states
• Allows ABC stores to conduct on-site tastings
• Allows local ABC boards to accept electronic payment from “mixed beverages” permit holders
• Allows establishments under common ownership would be allowed to transfer “malt beverages” (alcoholic beverages that are not wine, nor distilled spirits) up to four times per year
• Allows state colleges and universities to decide whether to allow beer and wine sales at sporting events
• Allows beer and wine sales on trains and ferries
• Increases drink purchase limit for customers at on-premises retail establishments from one to four drinks at a time
• Increases discount limit retailers may provide customers for bulk beer and wine purchases, from 25% of retail price to 35% of retail price
• Removes five bottles per year customer purchase restriction from distilleries and the “North Carolina Distillery Tour Commemorative Spirit” sticker requirement

By ending government wholesale and retail monopolies on liquor, as well as myriad other alcoholic beverage provisions that have burdened customers and establishments since the wake of Prohibition’s repeal, House Bills 971 and 536 would modernize liquor and other alcoholic beverage operations in North Carolina. The state quickly became a craft beer destination after successfully removing alcohol limits on beer, and the state continues to support craft beer growth with the recent passage of HB 363, which allows small breweries limited self-distribution. While HB 971’s tax increase likely means that liquor prices will not see a significant drop (or possibly, a small rise), the bill’s provisions, along with HB 536, would work to give residents greater variety and access to products by giving alcoholic beverage retailers and producers greater flexibility to serve customers.

The post Pair of Bills Would Modernize North Carolina’s Alcohol Laws appeared first on Reason Foundation.

On Writ of Certiorari to the Supreme Court of Wisconsin

Brief of Reason Foundation, DKT Liberty Project, and the Due Process Institute as Amici Curiae in Support of Petitioner

Summary of Argument

The warrant requirement provides an essential safeguard against the government’s ability to invade Americans’ most private spaces. When considering whether “to invade another’s body in search of evidence of guilt,” the “importance of informed, detached and deliberate determinations” is particularly “indisputable and great.” Schmerber v. California, 384 U.S. 757, 770 (1966). Yet, Wisconsin has attempted to impute consent, by statute, to enter one of the most sacrosanct of private places: an individual’s body.

After Petitioner was arrested on suspicion of drunk driving, while he was unconscious, and without a warrant, Wisconsin officials drew a sample of his blood based only on the consent he purportedly provided under the state’s implied consent law. Based on that statute, the Wisconsin Supreme Court found the consent exception to the warrant requirement satisfied on the theory that Petitioner had agreed to a blood draw as a consequence of his decision to drive on the state’s roadways. Allowing the government to deem, by statute, an individual to have voluntarily waived essential constitutional rights would provide the government with expansive authority to chip away at the Fourth Amendment, as well as a number of other rights.

It is beyond dispute that a blood draw involves a serious invasion of an individual’s expectation of privacy. Individuals have a strong liberty interest in their bodily integrity. Yet, through a blood draw the government pierces an individual’s skin and extracts a part of her body. Not only does such a search invade an individual’s body, it also places in the government’s hands material— a person’s blood—from which a vast array of personal medical and genetic information can be obtained. In part because of these privacy interests, this Court has declined to find that warrantless blood draws, as a categorical matter, satisfy the exigent circumstances and search incident to arrest exceptions to the warrant requirement.

Under this Court’s precedent, the result should be the same with respect to the consent requirement. Whether consent is actual and voluntary requires an analysis of the totality of the circumstances. The rule endorsed by the Wisconsin Supreme Court below, however, permits the government to impute consent based entirely on the fact that a motorist has elected to drive on the state’s roads. Not only does this categorical rule fail to analyze whether an individual actually consented to a search, it also is necessarily coercive.

Most importantly, affirming the decision below would supply the government with a straightforward means to undermine essential constitutional protections. In the Fourth Amendment context, the ability to deem certain actions as establishing voluntary consent would provide the government with an easy avenue to avoid the necessity of seeking a warrant. But the consequences of an affirmance would not necessarily be cabined to the Fourth Amendment. Most constitutional rights can be waived after a finding that an individual has voluntarily relinquished those rights. Thus, deeming certain actions as sufficient consent to waive a constitutional right could likewise undermine the right to counsel, the right against self-incrimination, the right to a jury trial, and other critical protections. That result cannot be squared with the Constitution; allowing the government to erode protected individual rights and liberties simply through legislation is impermissible. The decision below must be reversed.

I. A Blood Draw Constitutes A Serious Invasion Of An Individual’s Bodily Integrity And Expectation Of Privacy.

II. Statutorily Imputed Consent Is Not Constitutionally Sufficient Under This Court’s Precedent.

III. Allowing The Government To Impute Consent By Statute Would Establish A Significant End-Run Around Constitutional Protections.

Amicus Brief: Mitchell v. Wisconsin

The post Amicus Brief: Mitchell v. Wisconsin appeared first on Reason Foundation.

• PENSIONS: Public Support for Pension Reform
• TRANSPORTATION: Reauthorization Recommendations for Congress
• PRIVATIZATION: Pennsylvania House Passes Liquor Privatization Bill
• ENVIRONMENT: Repealing Plastic Bag Bans Good for Shoppers, Environment
• INNOVATORS IN ACTION: Reforming Public Safety Pensions in Tequesta, FL
• INFRASTRUCTURE: A Private Fix for Crumbling Locks and Dams
• News & Notes
• Quotable Quotes

PENSIONS: Does the Public Support Pension Reform?

Conventional wisdom suggests that while pension problems are likely to be a serious discussion in fiscal and budget committees in city halls and statehouses, substantive pension reform efforts will be given short-shrift, in part due to a lack of interest among the public on such a complex issue, as well as misinformation about the effects and political repercussions of reform. But what if the conventional wisdom is wrong? New polling suggests that it may indeed be. Not only does the public understand the importance of the issue, but there is also widespread support for reforms.
» FULL ARTICLE

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TRANSPORTATION: Reauthorization Recommendations for Congress

Approximately every six years, Congress reauthorizes U.S. surface transportation legislation, providing an opportunity to make changes and updates that affect millions of Americans. Reason Foundation has identified six programs or policies that need to be changed in the next reauthorization.
» Eliminate TIGER Grants
» Require Metropolitan Transportation Plans to Consider Congestion Reduction
» Add Taxpayer Protections to the Railroad Loan Program
» Eliminate Surface Transportation Funding for Non-federal Modes
» Simplify Conformity Regulations for Regional Transportation Plans
» Simplify DOT Regulations Regarding Metropolitan Transportation Planning

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PRIVATIZATION: Pennsylvania House Passes Liquor Privatization Bill

For the second time since 2013, legislation that would privatize the sale and distribution of wine and distilled spirits in Pennsylvania has passed the House, which voted yesterday to approve House Bill 466 by a 114-87 margin. HB 466-sponsored by Speaker Mike Turzai-would privatize Pennsylvania’s state wholesale wine and spirits monopoly, gradually close the hundreds of state-owned liquor stores, and create 1,200 private retail and distribution licenses for wine and spirits.
» FULL ARTICLE

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ENVIRONMENT: Repealing Plastic Bag Bans Good for Shoppers, Environment

A statewide plastic bag ban signed into law by California Gov. Jerry Brown won’t come into force until after the voters have a say in November 2016. While Californians can be proud of their commitment to environmental protection, it has sometimes led to perverse results, and local efforts to ban lightweight plastic bags in is a case in point. As Reason Foundation vice president of research Julian Morris recently wrote in the Orange County Register, such bans have been sold on their supposed environmental merits, but almost certainly cause more emissions to the environment, increase the use of natural resources-including oil and water-and do little to reduce litter or marine pollution.
» FULL ARTICLE

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INNOVATORS IN ACTION: Reforming Public Safety Pensions in Tequesta, Florida

The latest installment of Reason Foundation’s Innovators in Action interview series-which profiles innovative policymakers in their own words, highlighting good government efforts delivering real results and value for taxpayers-focuses on the Village of Tequesta, Florida’s 2010 reforms to its public safety defined-benefit retirement plans. Village officials negotiated significant reforms to police and firefighter pensions in the collective bargaining process-including a full transition to a defined-contribution, 401(k)-style system for new police officers and a realignment of benefits for new firefighters entering their defined-benefit pension system-putting the plans on a path toward sustainability. I recently interviewed Tequesta Village Manager Michael Couzzo on the reforms enacted, the resulting benefits and more.
» FULL INTERVIEW

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INFRASTRUCTURE: The Private Cure for Crumbling Waterway Infrastructure

The locks and dams on our nation’s rivers are decaying and require billions in investment, but given our current fiscal condition, it is unlikely that the current or next administration will find the political will and support to fund the cost of rebuilding these assets. According to former Conrail executive William Newman, it doesn’t have to be this way. In a new Reason Foundation article, Newman writes that given their economic value and potential attractiveness as commercial investments, the locks are a classic federal asset ripe for either: 1) privatization; 2) a long-term concession (lease) to private investor/operators; or 3) a public-private partnership, with preference in that order.
» FULL ARTICLE

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NEWS & NOTES

New Research on Public Pension Underfunding: The failure of many states to properly fund their pension systems has been a well documented reality over the past few years, and unfunded liabilities are estimated to be as high as $4 trillion. A little examined question is why policymakers have been so particularly bad at fulfilling their duty of making full annual required contributions to pension systems. Reason Foundation colleague Anthony Randazzo recently teamed up with USC political scientist Michael Thom to examine this question and found that there are various fiscal, political, and institutional factors at work, and no one-size-fits-all answer. Their results were recently released by the journal State and Local Government Review; the article is available here.

GAO Releases Latest Biennial High Risk List: Earlier this month, the Government Accountability Office (GAO) released the latest edition of its biennial High Risk List, identifying 32 federal activities with a high risk for waste, fraud, abuse or mismanagement, or are in need of reform. GAO added two new areas in this edition, covering information technology acquisitions and operations and veterans affairs health care, and it also introduced new star-shaped graphics to indicate degrees of progress in meeting five criteria for removing an area from the High Risk List, which include leadership commitment, agency capacity, an action plan, monitoring efforts, and demonstrated progress. Details on the list, a full report, and podcast are available on the GAO’s High Risk List homepage.

A Fix for New Jersey Pension Mess? New Jersey’s severely underfunded government employee pensions made national news this week in the wake of a Superior Court judge’s ruling that Gov. Chris Christie’s administration violated a 2011 pension reform law by cutting over $1.5 billion from the state’s legally required pension contribution in this year’s budget; the administration plans an appeal. The ruling came a day before Christie’s annual budget address, in which he endorsed a “roadmap to reform” developed by the New Jersey Pension and Health Benefits Study Commission he appointed last year to develop comprehensive solutions for the state’s looming pension and retiree healthcare crises.

Among other reforms, the Commission recommends freezing the state’s current defined-benefit pension plans to any new accruals or employee contributions and shifting all current and future employees to a cash balance plan, which blends some aspects of defined-benefit pensions with features of a 401(k)-style defined-contribution plan. The Commission’s full report and recommendations are available here.

Pennsylvania Gov. Wolf Creates Innovation Unit: On February 5th, new Pennsylvania Governor Tom Wolf signed Executive Order 2015-04 establishing a new Governor’s Office of Transformation, Innovation, Management and Efficiency. The order calls for agency heads to solicit employee input and identify key staff to form innovation teams, enhances interagency coordination, and emphasizes public-private partnerships in order to find an immediate $150 million in cost savings to help close the Commonwealth’s current $2.3 billion budget deficit. In addition to seeking internal cost savings ideas from employees, the new office will explore new opportunities to partner with the private sector and better leverage the state’s collective buying and purchasing power. The executive order is available here.

Nearly Half of PA Municipalities Have Distressed Pension Plans: Earlier this month, the Pennsylvania Department of the Auditor General released a report finding that of the 1,223 municipal governments that administer pension plans, 562 of them (46%) administer plans that are “distressed” and underfunded by at least $7.7 billion. The aggregate unfunded liability is up $1 billion since the previous edition of the report was issued two years ago. Philadelphia topped the list of distressed municipalities with its $5.3 billion unfunded liability, followed by Pittsburgh at $484.6 million. The full report is available here.

New Report on Water PPPs: A new report from the Horinko Group provides a useful primer for local public officials on how different types of public-private partnerships (PPPs)-including management consulting contracts, operations and maintenance contracts, concessions/leases, and design-build-operate agreements-can be used to meet a local government’s unique water and wastewater infrastructure needs. It includes discussions regarding ways to assess water/wastewater needs, selecting the best PPP model, and best practices in PPP implementation. The full report is available here.

Texas Pols Seek to Improve State Contracting: Shortly after taking office last month, new Texas Gov. Greg Abbott issued a memorandum endorsing contracting reform legislation-Senate Bill 353, sponsored by Sen. Jane Nelson-aimed at improving transparency and accountability in the contracting process. Among its provisions, the bill would require public disclosure of all no-bid contracts (and a public justification for using them); require agency employees involved in contracting to disclose any possible conflicts of interest; prohibit contracts with firms in which agency leaders or staff have a financial interest; and require the agency’s board chair or director to sign any contract valued over $1 million. The legislation comes in the wake of a January 2015 report from the Texas State Auditor’s Office reviewing 14 contract audits conducted since 2012 that found that while state agencies generally complied with contract planning and contract formation requirements, they “did not consistently comply with contract procurement and contract monitoring requirements.”

Georgia Social Infrastructure PPP Legislation Reintroduced: After coming close to passage in 2014, the Georgia General Assembly will again consider social infrastructure PPP enabling legislation in the 2015 session. The “Partnership for Public Facilities and Infrastructure Act” (Senate Bill 59), sponsored by Sen. Hunter Hill, would authorize state agencies, local governments, school boards and other governmental units to use PPPs to develop any infrastructure project on government-owned or leased land that serves a public purpose and would also create a Partnership for Public Facilities and Infrastructure Act Guidelines Committee to prepare model guidelines for governmental authorities to use in developing PPP projects. A very similar bill passed the Senate and the House Committee on Governmental Affairs in 2014 but failed to receive a vote in the full House. Hill has modified the 2014 legislation to address concerns raised over provisions related to unsolicited PPP proposals that private sector firms would be allowed to submit to state agencies, according to the Atlanta Business Chronicle.

Indiana to Contract Out License Plate Production: The Courier-Journal reported late last month that the state’s Bureau of Motor Vehicles plans to end its contract with a company that employed maximum-security state prisoners to produce license plates, instead opting to shift production to a new vendor, Intellectual Technology Inc., in a contract estimated to save the state $14 million over five years.

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QUOTABLE QUOTES

“Many economists disagree with GASB and argue that it is more appropriate to measure funding status of public pensions using a lower riskless rate of return analogous to the corporate bond rates used to discount private sector pensions, such as a long-term Treasury rate, instead of a higher expected long-run investment return on assets. They reason that there is an implicit public guarantee that assures public pensions will be paid regardless of investment returns, which makes it hazardous to determine funded status and make benefit promises based on anticipated investment returns that may not come to pass. In lay terms, they say using expected investment returns amounts to counting the chickens before they hatch.”

-Christopher M. Klein, Chief Judge of the United States Bankruptcy Court, Eastern District of California, “Opinion Regarding Confirmation and Status of CalPERS,” February 4, 2015, p.21.

“A funded ratio of 80% should not be used as a criterion for identifying a plan as being either in good financial health or poor financial health. No single level of funding should be identified as a defining line between a ‘healthy’ and an ‘unhealthy’ pension plan. All plans should have the objective of accumulating assets equal to 100% of a relevant pension obligation, unless reasons for a different target have been clearly identified and the consequences of that target are well understood.”

-American Academy of Actuaries, “The 80% Pension Funding Standard Myth,” Issue Brief, July 2012.

“Illinois’ pension debt is so large that it would take three years of a complete government shutdown, during which the entire general fund went toward pensions, just to break even. That means no funding for schools, no money for public safety and nothing for health care and human services. […] This $111 billion pension shortfall means the state has only 39 cents of every dollar it should have in the bank today to pay for future benefits. In the private sector, these funds would be deemed bankrupt.”

-Benjamin VanMetre, “State of the State: 10 Pension Facts Every Illinoisan Should Known,” Illinois Policy Institute, February 3, 2015.

“If you cover current obligations by borrowing money, you’re on an unstable course.”

-Former New York lieutenant governor Richard Ravitch on pension obligation bonds, cited in Aaron Kuriloff, “Pension Bonds: State and Local Official Should Proceed with Caution,” The Wall Street Journal, February 6, 2015.

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Additional Resources:

• Reason Foundation privatization research archive
• Annual Privatization Report 2014 homepage
• Innovators in Action 2015 homepage
• Privatization & Government Reform Newsletter archive

The post Privatization & Government Reform Newsletter #15 (February 2015 edition) appeared first on Reason Foundation.

The post Pennsylvania House Approves Liquor Privatization Bill appeared first on Reason Foundation.

HB 466 faces uncertainty in the Senate, which has in recent years been resistant to full privatization proposals. A Turzai bill very similar to HB 466 passed the House in 2013, but the Senate balked that session and refused to consider the legislation again in 2014.

The House tried a different tack in 2014 by adopting a budget plan that assumed an influx of revenue from the sale of the state’s liquor wholesale and retail operations, yet the proposal died in the Senate and was not included in the final passed budget. Meanwhile, the Senate debated “privatization lite” legislation that would have opened up beer and wine sales to grocery stores, allowed convenience stores to sell beer, and left the state’s liquor retail stores to remain in operation, but it failed to achieve a political consensus before the end of the legislative session.

Given the state’s current budget deficit, the ability to generate one-time revenues from licensing private retailers and wholesalers is a significant aspect of the political calculation. According to the fiscal note on the bill-released yesterday by the House Appropriations Committee-HB 466 would produce an estimated $1.167 billion in one-time license fees, which breaks down as:

• $615.6 million in wine and spirits wholesale license and application fees;
• $404.6 million from retail wine and spirits store license fees;
• $138.2 million in grocery store license fees; and
• $9.0 million in retail dispenser license upgrade fees.

The fiscal note for HB 466 did not include estimates of one-time revenues from asset sales related to current state wholesale and retail operations.

HB 466 would also make additional changes to the alcohol market beyond privatizing the state’s wholesale and retail enterprises. For example, the bill would expand the locations and hours of Sunday alcohol sales, and it would allow grocery stores to sell wine, up to 12 bottles per transaction. It would also allow beer distributors to sell 6-packs and 12-packs, instead of the minimum amount (one case, or 24 beers) allowed today. It would allow restaurants and taverns to sell up to four 6-packs or two 12-packs, compared to the single 12-pack (or two 6-pack) maximum allowed today. And it would expand the enforcement reach of the state’s Bureau of Liquor Control Enforcement to all entities that sell alcohol; the Commonwealth’s state-run liquor stores are not currently subject to the Bureau’s enforcement.

If HB 466 were to pass both legislative chambers, Gov. Tom Wolf has promised a veto. Since he was on the campaign trail last year, Wolf has expressed support for modernizing-but not privatizing-the state’s liquor monopoly, at one point even suggesting a potential expansion of the Commonwealth’s wholesale monopoly to other states. A competing fiscal note produced by Democrats on the House Appropriations Committee opposed to privatization-available here-outlines a liquor modernization proposal that includes more pricing and procurement flexibility for the Pennsylvania Liquor Control Board, expanded Sunday sales, allowing lottery ticket sales at state-run liquor stores, and more.

However, Speaker Turzai has suggested in the past that liquor privatization could be a bargaining chip with the Wolf administration as it seeks to compromise with the legislature over issues that include Wolf’s proposal to implement a natural gas extraction tax.

Despite repeated failures to advance liquor privatization in the political process-especially in recent years-Pennsylvania voters remain supportive of the idea. A January 2015 poll of registered voters published by Mercyhurst University’s Center for Applied Politics found that 52% supported liquor privatization, with only 34% opposed.

Leonard Gilroy is director of government reform at Reason Foundation.

The post Pennsylvania House Passes Liquor Privatization Bill appeared first on Reason Foundation.

On June 1, 2012, Washington State became the first state since the end of Prohibition in 1933 to dissolve its state-run monopoly on the distribution and sale of distilled spirits, the result of a ballot measure approved by voters in 2011-Initiative 1183 (I-1183)-that shifted the state’s wholesale and retail spirits enterprises from public to private sector operation (For more details on I-1183, see Reason Foundation’s Annual Privatization Report 2011.)

Under I-1183, the state divested its 328 retail outlets and issued licenses for spirits sales at approximately 1,500 stores statewide, primarily stores larger than 10,000 square feet that include grocery stores, drugstores, alcohol retail chains and more. Major retailers now selling spirits alongside beer and wine after privatization include Costco, Target, WalMart, BevMo!, Total Wine and More, Safeway and Albertsons.

The transition to privatized spirits sales has largely been smooth, but has come with an increased volatility in spirits prices attributed to new liquor taxes imposed by I-1183, creating an initial “sticker shock” among consumers. In December 2012, the Washington State Department of Revenue estimated that the average retail price per liter of spirits had risen by 11.6 percent after privatization, from $21.58 in September 2011 (prior to I-1183 implementation) to $24.09 in September 2012. The rise, which has leveled off since an initial spike with the onset of privatization in June, is attributed to tax increases contained in I-1183, which retained the state’s previous sales and per-liter taxes on spirits but added new fees-primarily a 17 percent fee on retail sales and a two-year, 10 percent fee on wholesalers-to replace the state’s previous 52 percent wholesale markup, which was eliminated under I-1183.

The ballot measure also authorized the state’s liquor control board to issue an additional, one-time fee on wholesalers in 2013 if the total revenues collected under the new 10 percent fee have not generated a total of $150 million by the end of March 2013, prompting some observers to speculate that spirits wholesalers have padded their prices to mitigate the potential risk of a one-time payout to the state. In 2014, the 10 percent wholesaler fee is set to drop to 5 percent, which, along with increasing market competition, is expected by state officials to yield lower spirits prices over time.

Despite media reports noting a spike in spirits sales in bordering counties in Oregon due to the higher prices in Washington State, in-state sales have not suffered in Washington under privatization. The Washington State Department of Revenue reported in December 2012 that spirits sales by volume were 3.1 percent higher during the first five months of privatization than they were the previous year, rising from 16.3 million liters sold from June through October 2011 to over 16.8 million liters sold those same months in 2012.1 Similarly, the total value of spirits sold in the state totaled $389 million over the first five months of privatization, up 16 percent from the same five-month period in 2011. The Department also reported higher than anticipated tax revenues after privatization; actual spirits taxes collected between July and December totaled $111.3 million, over $4 million higher than the agency’s original forecast and nearly 13 percent higher than the $98.6 million collected during the same period in 2011. Overall, the data suggest that Washington State consumers are looking beyond price and have embraced the newfound convenience of privatized spirits sales.

Beyond the economic impacts of privatization, it is too early to assess the social impacts of liquor privatization in Washington State, as comprehensive data on underage drinking, drunk driving and alcohol-related fatalities are not yet available. However, a November 2012 report in the West Seattle Herald examined crime data in two Seattle-area suburbs and found that while alcohol thefts have risen since privatization-likely due to the dramatic expansion in the number of retail spirits outlets and a local plastic bag ban that encourages customers to shop using their own bags-incidences of other alcohol-related crimes (e.g., DUIs, public drunkenness and underage drinking) had actually decreased between June and September 2012, relative to the same period in 2011.2

State officials will continue to suffer some growing pains in 2013 as they face two separate lawsuits related to I-1183, neither involving the substance of the law itself, but rather the state’s implementation of the law:

• In June 2012, the coalition that backed I-1183-including Costco, the Washington Restaurant Association and the Northwest Grocers Association-filed a lawsuit against the Washington State Liquor Control Board over rules the board adopted earlier in the year to implement I-1183 that restrict retailer sales to restaurants to no more than 24 liters in a single day, as well as restrictions on delivery locations for spirits distributors, the imposition of unauthorized fees on certain spirits manufacturers, and rules discriminating against foreign spirit producers’ ability to market their products to retailers. According to the coalition, the Board’s actions run counter to the intent of I-1183 and have the effect of stifling, not facilitating, competition in the post-privatization marketplace.
• In November 2012, the owners of 11 stores that had previously sold spirits under contracts with the Liquor Control Board prior to privatization sued the Board for losses of $7.5 million that the owners attribute to false promises made by the state in the transition to privatization. One major grievance involves the 17 percent fee charged to retailers for sales to bars and restaurants under the state’s interpretation of I-1183; such sales incurred lower fees prior to privatization, and store owners claim that they were originally told by the state that the new retail fee would not be charged on sales to bars and restaurants. According to the store owners, the decision to impose the 17 percent fee on retail sales to bars and restaurants puts former state-run stores at a disadvantage to wholesalers, who can sell spirits to bars and restaurants without the additional fee. Some owners of former state-contracted spirits stores have reported significant declines in sales in the wake of new-found-and growing-competition with large, national retailers, which are able to better leverage volume discounts with distillers, and in turn, offer them more ability to compete on price.

Despite the early challenges, it is clear that a competitive marketplace is taking hold in Washington State after many decades under a state-run spirits monopoly. Robust competition is starting to take place among national retail chains, which tend to focus on offering few brands at more competitive prices (due to volume purchasing), while smaller specialty spirits retailers are emerging to offer competition through more variety in product mixes and greater attention to customer service and offering a high-quality retail experience.3 Perhaps more importantly, the fears promulgated by privatization opponents-primarily over the potential declines in state liquor revenues and significant negative effects on public health and safety-have not materialized.

With the implementation of I-1183, Washington State joined the 32 other states that have allowed private firms to distribute and sell distilled spirits since the repeal of Prohibition in 1933. Since that time, all major shifts in state alcohol systems have moved in a one-way direction toward privatization; no state has ever shifted from a private regime to a state-run liquor monopoly. Of the 17 remaining “control” states that retain a government-run monopoly on the sale and/or distribution of distilled spirits, Iowa and West Virginia privatized their spirits retail monopoly in recent decades (while retaining their in-house wholesale operation), and Maine has outsourced the operation of its wholesale monopoly to a private manager.

Though Washington State saw the first major liquor privatization effort in recent years, policymakers and stakeholders in several other states continue to explore the possibility of further privatization. Other noteworthy developments on liquor privatization in 2012 include:

• Pennsylvania: The ongoing efforts by Governor Tom Corbett and House Speaker Mike Turzai to privatize the Pennsylvania Liquor Control Board (PLCB)-the state-run monopoly wholesaler and retailer of spirits and wine-will continue in 2013, after legislative action on a Turzai-sponsored privatization bill was suspended during the summer of 2012.

  Despite becoming the first liquor privatization bill to receive action in a Pennsylvania legislative chamber since the end of Prohibition in 1933, the House debate on Turzai’s House Bill 11 was cut short in June 2012 as legislators began considering over 250 proposed bill amendments. First introduced in September 2011, Turzai’s original bill would have privatized both the state’s wholesale and retail monopolies in the sale and distribution of wine and distilled spirits (for details, see discussion in Reason Foundation’s Annual Privatization Report 2011). But in December 2012, the House Liquor Control Committee gutted Turzai’s bill, replacing it with language that would maintain the state’s retail monopoly on spirits but allow private retail outlets that currently sell beer to apply for licenses to sell wine.

  Turzai responded by drafting an amendment that would revamp the bill to focus on privatizing the PLCB’s retail operations and replacing the state’s 18 percent “Johnstown Flood” tax (a 1930s-era tax on liquor originally enacted to aid flood victims) with a gallonage-based tax of $11-12 per gallon of spirits and $8-9 per gallon of wine, depending on alcohol content. The proposal would have shuttered the PLCB’s 620 state-run stores and issued licenses for spirits and wine sales at 1,600 retail outlets, with the 1,200 outlets currently selling beer getting a right of first refusal to purchase the new licenses. Those licenses not sold to beer retailers would then be sold at auction. Further, beer retailers-currently allowed only to sell beer in cases or kegs-would have been able to sell six-packs under the revamped bill language. Turzai estimated that the legislation would net the state at least $1 billion, which he proposed dedicating to statewide transportation improvements. It was during discussion over Turzai’s proposed amendment that the House debate was suspended, which Turzai attributed to a lack of sufficient votes to move forward and the need to focus on completing the state budget.

  Both Turzai and Gov. Corbett-who made privatizing Pennsylvania’s liquor monopoly a priority in his 2010 campaign-have stated their intentions to continue pushing for privatization in 2013. “I don’t give up. I keep coming back,” Corbett told the Pittsburgh Tribune-Review in December. “If I don’t get it this year, I’ll keep going next year. If I don’t get it next year, if I have a second term, we’ll keep going.”4 Public opinion continues to swing in favor of privatization, with a November 2012 Philadelphia Inquirer poll finding that 55 percent of likely voters supported privatization of the state wine and spirits monopoly (28 percent were opposed) and a 61 percent majority supporting the sale of wine and spirits in grocery stores.5

  Still, legislation to privatize the PLCB is sure to face a number of headwinds, particularly via continued opposition of the United Food and Commercial Workers Local 1776, the union representing approximately 2,500 state store clerks. The union claims that its new collective bargaining contract with the state would require any buyer of a privatized state store to retain former PLCB employees at the same pay and benefit levels until the contract expires in June 2015, making any such transaction less appealing for potential private buyers. However, the Corbett administration disputes this claim, noting that a private entity would not be bound to the terms of a contract it was not party to, having been established solely between the union and the state.

  Other challenges include alternate legislative proposals introduced in the Senate to “modernize” the PLCB by loosening restrictions on it without actually privatizing it (ironically, proposed by the PLCB leadership as a way to help the agency act more like a private business) or to allow restaurants and retail outlets to sell bottles of spirits and wine while leaving the state store system intact.

• Virginia: Having failed in its two previous attempts to privatize Virginia’s spirits monopoly, the administration of Governor Bob McDonnell did not pursue privatization legislation in 2012. However, Total Wine co-owner David Trone told The Virginian-Pilot in July that his company planned another lobbying push for privatization in the 2013 General Assembly session, noting “the pure common sense of privatizing spirits” and that “[e]ventually, what’s in the consumer’s best interest and what is logical will prevail.”6
• North Carolina: Despite offering previous statements of support for the concept of privatizing North Carolina’s state-run liquor monopoly prior to his gubernatorial campaign, incoming Governor Pat McCrory told media on the campaign trail that privatizing the system would not be a focus in his administration. “It’s not [one] of my priorities at this point in time,” McCrory told WSOC in October 2012. “I still support privatization, but I have a broken government to fix.”7
• Alabama: In October 2012, State Senator Arthur Orr, who chairs the legislature’s Joint Fiscal Committee, told the Decatur Daily that he intends to introduce a bill to privatize Alabama’s 172 state-run liquor stores, a move he estimates could save the state approximately $45 million per year.8 The proposal would leave the state’s regulatory system and wholesale monopoly on spirits distribution intact, and it would establish a new commission to determine how many retail licenses would be issued and where they would be authorized. The bill’s prospects are uncertain, however, as Governor Robert Bentley has not endorsed the concept, and the director he appointed to lead the Alabama Alcoholic Beverage Control Board, Mac Gipson, has made public statements opposing privatization, despite supporting the concept previously as a state legislator.9
• Oregon and Idaho: The Northwest Grocers Association has told legislators in both Oregon and Idaho that it plans to sponsor Washington-style ballot initiatives in 2014 to privatize those states’ wholesale and retail monopolies on distilled spirits if legislatures fail to enact liquor privatization laws on their own in 2013. Among the changes sought are allowing spirits sales in grocery stores and volume discounts on bulk purchases.10 Two separate groups in Idaho attempted to place privatization measures on Idaho’s ballot in early 2012, but both failed to gather enough signatures.11

» Return to Annual Privatization Report 2013: State Government Privatization
» Return to Annual Privatization Report 2013 homepage

Endnotes

1 The Washington State Department of Revenue provides data on monthly spirits taxes and sales on its website at http://www.dor.wa.gov/.

2 Ty Swenson, “Privatization and plastic bag ban factor into liquor theft spike,” West Seattle Herald, November 9, 2012.

3 Tom Sowa, “Booze competition likely to intensify,” The Spokesman-Review, December 23, 2012.

4 Kari Andren, “Despite vow, governor faces same battles on LCB privatization,” Pittsburgh Tribune-Review, December 6, 2012.

5 Angela Couloumbis, “Inquirer Poll finds wide backing for privatizing liquor sales,” Philadelphia Inquirer, November 1, 2012.

6 Carolyn Shapiro, “Total Wine opens new store, pushes for privatization,” The Virginian-Pilot, July 22, 2012.

7 Jeff Smith, “McCrory says privatizing liquor sales is not a priority,” WSOC TV, October 23, 2012.

8 Mary Sell, “Not as easy as ABC. Debate about state-run liquor stores returning,” Decatur Daily, October 14, 2012.

9 “New chief of Alabama Alcoholic Beverage Control Board opposes privatization of liquor sales,” Associated Press, February 16, 2011.

10 Harry Esteve, “Grocers tell Oregon lawmakers: Update liquor laws or face initiative,” The Oregonian, September 13, 2012.

11 Eric D. Dixon, “Supporters of liquor privatization look forward to 2013 legislative session,” Idaho Reporter, July 9, 2012.

The post State Liquor Privatization Update appeared first on Reason Foundation.

By an overwhelming 60-40 margin, Evergreen State voters approved Initiative 1183 (I-1183), a ballot measure sponsored by Costco and other major retailers that will fully privatize both wholesale distribution and retail sales of liquor, while removing obstacles to the wholesale distribution of wine. I-1183 was designed to rein in the scope of, and address the perceived deficiencies of, Initiative 1100 (I-1100), a more sweeping Costco-backed privatization measure narrowly defeated at the polls in November 2010. (For more details on I-1100, see Reason Foundation’s Annual Privatization Report 2010

Among its provisions, I-1183 will:

• Dismantle the state’s existing wholesale and retail monopoly by authorizing private distribution and sales of distilled spirits. I-1183 limits spirits sales to stores of over 10,000 square feet (with certain exceptions), which the state expects could increase the number of spirits retailers to 1,428, relative to 328 outlets under state operation. By contrast, I-1100 had no such limitation on store size and was estimated to result in over 3,000 potential new retail outlets. An analysis by the Washington Policy Center reviewed liquor retail outlet density in 11 western states and found that under I-1183, Washington State “would still rank among the top five states for restrictive access to liquor sales […] and would be the most restrictive non-monopoly-control state in the West.”[1]
• Authorize the sale of the state’s liquor distribution and liquor store facilities and equipment, including the state’s distribution warehouse.
• Allow retailers to buy spirits and wine directly from manufacturers, while preserving the existing mandate that retailers purchase beer from wholesalers. While retailers may still choose to purchase spirits or wine from wholesalers, the initiative’s direct sale provisions mark a significant step away from the mandated use of the “three tier” system-where retailers are only allowed to purchase alcohol products from wholesalers, who in turn are required to purchase their products from manufacturers-prevalent across states today. By contrast, I-1100 would have gone further by eliminating the mandatory use of wholesalers for spirits, wine and beer, which generated significant opposition from existing beer and wine wholesalers in the state.
• Allow spirits and wine manufacturers to offer quantity discounts to retailers.
• Leave existing taxes on spirits, wine and beer unchanged. I-1183 would also eliminate the state’s current 52% wholesale markup, creating the opportunity for retailers to compete on the level of private markup applied.
• Create a new retail license issuance fee of 17% of all spirits sales revenue (with payments required quarterly in arrears), as well as an annual license renewal fee of $166.
• Create a new distributor license fee of 10% of total annual revenue from spirits for the first two years of licensure-which drops to 5% of spirits sales revenue in subsequent years-as well as an annual renewal fee of $1,320 per license. The initiative also authorizes the state’s liquor control board to issue an additional, one-time fee on distributors in 2013 if total distributor fees collected by the state have not generated an aggregate $150 million by March 31, 2013.
• Give local governments the ability to object to or prevent the issuance of local liquor licenses.
• Require retailers to train all liquor sales staff on compliance with liquor laws and regulation. Additionally, I-1183 limits the issuance of retail licenses to those outlets that adequately demonstrate effective safety, management and training protocols to prevent sales to minors and inebriated persons.

The license fee structure-designed to generate more alcohol-related revenues to the state relative to monopoly operation-was key to the passage of I-1183, as it created a strong argument that state and local governments would see a financial benefit under privatization. According to the state Office of Financial Management’s (OFM) fiscal impact statement for I-1183, the measure would increase revenues to the state by an estimated $216 million to $253 million over six fiscal years, with a similar $186 million to $227 million increase in local government revenues over that same period. Further, the OFM estimated a one-time net state revenue gain of $28.4 million from auctioning off the state liquor distribution center. OFM did not estimate proceeds from the sale of existing state-run liquor stores, so actual one-time revenues from divestiture are likely understated.

I-1100’s opponents had stoked fears that passage would reduce state and local government revenues, which played a key role in voters’ rejection of that measure in 2010. The provisions of I- 1183-in particular, provisions establishing a new license fee structure-were designed to ensure that it can fully replace revenues generated by the current state wholesale markup.

Though it remained neutral on I-1183, the Distilled Spirits Council of the United States (DISCUS) highlighted two key critiques of the measure amid the election campaign that are likely to inform similar debates in other states. First, the minimum retail outlet size of 10,000 square feet effectively excludes a broad range of small- and medium-sized retailers-including gas stations and mom-and-pop specialty spirits stores-from the market, potentially reducing competition and consumer choice. This restriction prompted groups like the Washington Food Industry Association-an organization representing independent grocers that supports the general concept of privatization-to oppose I-1183 on grounds that it gives large retailers an advantage over smaller businesses.

Second, DISCUS raised concerns that I-1183 would create franchise protection for spirits wholesalers, with the practical effect that once a supplier selects a wholesaler for a particular brand, that wholesaler would retain exclusive distribution rights in perpetuity unless it chose to forfeit them. DISCUS noted that in most states, suppliers can choose their wholesale partners and hold them to high standards of performance and service through the ability to open the arrangements to competition in the event of wholesaler underperformance.

As with I-1100, Gov. Chris Gregoire, many state legislators and the Washington State Democratic party opposed I-1183, but unlike in 2010, these political opponents did not reject the concept of privatization. Ironically, in the spring of 2011 Gov. Gregoire signed into law a bill (Senate Bill 5942) passed by the majority Democrat legislature authorizing the state to solicit proposals for a long-term lease of the state’s spirits wholesale monopoly in return for a one-time, lump-sum payment. Though I-1183 proponents complained that the bill was designed to serve as an end-run around the initiative-potentially taking the wholesale component off the table in advance of the November 2011 election-those fears were rendered moot a week before the election when the state announced that it had rejected both bids it received from wholesalers as not being in the financial interests of the state.

S.B. 5942 was not the only legislative action on liquor monopoly privatization in Washington State. Legislators introduced two separate Senate bills (S.B. 5111 and S.B. 5933) that, like I-1183, would have completely privatized the distribution and sale of distilled spirits. However, both bills were referred to the Senate Labor, Commerce & Consumer Protection Committee and failed to receive a hearing in the 2011 legislative session.

With the passage of I-1183, Washington State will join 32 other states that have allowed private firms to distribute and sell distilled spirits since the end of Prohibition. Of the 18 remaining “control” states-a term referring to states that have a government-run monopoly on the sale and/or distribution of distilled spirits-Iowa and West Virginia privatized their spirits retail monopoly in recent decades (while retaining their in-house wholesale operation), and Maine has more recently outsourced the operation of its wholesale monopoly to a private manager. Since the end of Prohibition, major shifts in state alcohol systems have moved in a one-way direction toward privatization; while several “control” states have expanded the role for private enterprise to varying degrees, no state has ever shifted from a private regime to a state-run liquor monopoly.

Pennsylvania appears to be the state best poised to potentially follow in Washington State’s footsteps by privatizing its alcohol monopoly. First-year Gov. Tom Corbett announced his support for privatizing the state’s alcohol monopoly during his 2010 campaign, and upon taking office in 2011, his administration hired the consulting firm Public Financial Management (PFM) to conduct a valuation study for the potential privatization of the Pennsylvania Liquor Control Board’s (PLCB) monopoly on the wholesale and retail sale of wine and distilled spirits.

The PFM report found that the current monopoly system provides the state with an average of $97 million in net revenues annually, but that the system’s overall profitability has been on the decline as the growth in expenses has outpaced revenues. In fact, the analysis found that if the state fully accounted for indirect costs and other factors, then nearly all PLCB stores would be unprofitable today.

The PFM analysis identified two viable privatization approaches:

• Full wholesale and retail privatization, with limits around the number or types of both licenses. In the “limited retail license” scenario, PFM found that approximately 1,500 retail licenses would be a reasonable accommodation of consumer convenience and license scarcity, and the model could be implemented through an auction process.
• Full privatization with limited licensing of wholesale, open licensing of retail. Under the “open market retail” approach, PFM estimates there would likely be 3,000 to 4,000 retail licenses issued, and any qualified applicant would have an opportunity to apply for a license.

Among the key findings of the PFM report:

• The “limited retail license” option would generate more upfront revenue, for which PFM estimated a valuation of retail licenses under this scenario in the range of $730 million and a valuation of wholesale licenses in the range of $575 million, for a total estimated valuation of between $1.1 billion to $1.6 billion.
• The “open market retail” option would generate less upfront revenue but has the advantage of fewer market restrictions around retail licenses and reduced risk of sub-optimal license auction results. Further, this scenario would generate more ongoing revenue from licensing, so other alcohol taxes would not need to be as high to generate the same level of alcohol revenues to the state relative to the current monopoly system.
• Upfront revenues from the auction of wholesale licenses would be generated in both retail scenarios. PFM determined that auctioning wholesale licenses by brand was the best option, which would lead to between 10 and 30 primary wholesalers serving the state. Wholesale licensees would pay an initial franchise fee along with annual license fees that support the cost of regulation.
• PFM estimates that additional sales from the repatriation of sales currently lost to other states (e.g., “border bleed”) will be approximately $100 million under privatization. A September 2011 study by the Commonwealth Foundation found that bootlegging across state lines-in part driven by lower wine and spirits prices in some surrounding states- has cost the state billions in lost sales and tax revenue.
• PFM recommends that one-time proceeds to the state from privatization could be used to reduce the state’s unfunded pension liability, invested in infrastructure, or used as incentives for economic development.
• PLCB’s licensing and enforcement responsibility under privatization would remain and likely require increased staffing to accommodate additional licensing activities. Overall, after privatization PFM estimated that the PLCB would likely consist of approximately 290 full-time equivalent positions after the departure of approximately 3,200 retail, distribution and central office staff.
• With regard to product pricing, PFM estimates price neutrality under the “open market retail” approach and some potential, minor price increases under the auction retail approach. However, the analysis uses a conservative pricing model, and with the expected amount of competition in retail pricing, PFM estimates that “for the majority of sales in Pennsylvania, the product prices will be at or slightly lower” than its model suggests.[2]

In a press release announcing the receipt of the PFM report, Corbett noted, “Pennsylvania should not be in the business of selling alcohol. It’s time to get state government out of the retail trade business and instead focus on essential public services-that’s what taxpayers expect of us.” He added that he would likely sign into law a bill offering a viable privatization alternative to the current system, if it were to reach his desk.

Corbett may get that opportunity in 2012 when state legislators turn attention to House Bill 11 (HB 11), legislation introduced in September 2011 by House Majority Leader Mike Turzai. HB 11 would privatize the state’s wholesale and retail monopoly, creating a limited number of retail and wholesale liquor licenses and auctioning them to the highest bidders under a model consistent with PFM’s “limited retail license” scenario (HB 11 contemplates the auction of 1,250 retail licenses, up from the current 613 state stores). HB 11 would allocate 750 retail licenses to large retailers with stores over 15,000 square feet, with the remaining 500 licenses granted to smaller retailers with a set number in each county. Also, HB 11 would replace current alcohol taxes-including the 18% Johnstown Flood Tax, the state’s retail markup, and the per-bottle handling fee-with a gallonage tax of between $8 and $9 per gallon of wine and $11 and $12 per gallon of spirits, varying based on alcohol content.

At press time, the outlook for HB 11 was unclear. The bill had not yet been heard in legislative committee, and although a range of legislators have already signaled their support, it also faces stiff opposition from the United Food and Commercial Workers Local 1776, which represents approximately 2,500 state store clerks. However, numerous opinion polls demonstrate strong public support for privatization among Commonwealth residents. For example, a September 2011 Quinnipiac University poll found that Pennsylvania voters support privatizing liquor stores by a 62% to 31% margin, with support among all demographic groups.

Virginia is another state with an ongoing policy discussion on privatizing the state’s spirits monopoly. Privatization of the Commonwealth’s liquor retail and wholesale operations was a central pillar of Governor McDonnell’s larger fiscal agenda upon entering office in January 2010, but his first privatization proposal that year-which would have privatized wholesale and retail functions to generate approximately $400-500 million for the state to invest in transportation infrastructure-failed to garner enough legislative support to advance, largely due to concerns that privatization would reduce alcohol-related revenues to the state. (For more details, see discussion in Reason Foundation’s Annual Privatization Report 2010.)

The McDonnell administration made a second attempt in 2011, offering a more limited proposal that would have privatized retail operations-closing the 332 state-run liquor stores and authorizing the issuance of 1,000 private retail licenses-while leaving wholesale functions under state operation. The McDonnell administration hired PFM to analyze the privatization proposal, and the consultant’s January 2011 report found that retail license auctions would net the state an estimated $200-400 million (which McDonnell proposed to invest in transportation) and an additional $13 million in alcohol-related revenues on an annual basis, even with the proposed reduction in the state’s markup from 69% to 50%. Despite a proposal that addressed lawmakers’ previous concerns over ongoing revenues, the administration’s accompanying legislation never received a legislative committee hearing and failed to advance.

Despite the second legislative defeat, Governor McDonnell has indicated his interest in another privatization push in 2012, an effort that could be aided by a transition of the state Senate to Republican control in the wake of the November 2011 election.

In other news on the privatization of state alcohol monopolies:

• Alabama: The former state legislator tapped by Gov. Robert Bentley to serve as the Alabama Alcoholic Beverage Control Board’s chief administrator, Mac Gipson, told a February 2011 gathering of state ABC agents that he had reversed his former support for privatization of the state’s spirits monopoly since taking over leadership of the Board, according to The Montgomery Advertiser.[3] Gipson’s change of heart came amid rumors the new Republican legislative majority in Alabama may be interested in exploring privatization, and he warned of potential negative fiscal and law enforcement consequences.
• Idaho: A January 2011 report commissioned by Idaho’s Joint Legislative Oversight Committee found that privatization of the state’s liquor enterprise is feasible and outlined several potential approaches.[4] Completely converting to a privatized wholesale and retail system and establishing a liquor tax to replace the current state markup could generate approximately the same amount of revenue as the state receives today. Alternatively, the state could retain the wholesale enterprise and convert all stores to private operation if it continued using a wholesale markup to maintain current revenues. Last, contracting out the operations of the 13 state-operated stores with the lowest sales was estimated to offer $700,000 in potential annual cost savings. The report was met with a cold reception by Gov. C.L. “Butch” Otter, who told the Associated Press in February 2011 that alcoholic beverage control and promoting temperance are proper functions of government under Idaho’s Constitution.[5]
• North Carolina: In January 2011, North Carolina Gov. Beverly Perdue announced that her administration would not pursue privatization of the state’s alcohol monopoly. Like Pennsylvania and Virginia, the state hired PFM to conduct a privatization analysis, which found that the state could reap approximately $300 million upfront from retail license auctions and divestiture of the wholesale operation. However, this estimate was based on issuing the same number of retail licenses to match the current number of state-run stores; PFM estimated that one-time revenues could exceed $500 million if additional retail licenses and other systemic changes were approved. In announcing her opposition to privatization, Perdue noted her belief that the current system works well and that she was unwilling to loosen current restrictions on the number and type of retail outlets, operating hours and marketing. Despite the governor’s opposition, several state legislators announced that they were still interested in exploring privatization as part of a larger government streamlining push.
• Ohio: Ohio Gov. John Kasich’s plan to transfer ownership of the state’s wholesale liquor monopoly to JobsOhio-a new nonprofit organization created by privatizing economic development functions formerly performed by the Ohio Department of Development-was approved as part of the 2012-2013 budget. Under the plan, JobsOhio will gain control of the liquor system’s annual net revenues for 25 years in return for a $1.2 billion upfront payment. Approximately $700 million of the proceeds would be used to defease existing state debt, while roughly $500 million would be deposited in the state’s general fund for short-to-near term uses.
• Utah: The Utah legislature appears poised to take on the issue of alcohol monopoly privatization in the 2012 legislative session, with State Rep. Ryan Wilcox announcing plans to introduce a bill to privatize the state’s retail ABC monopoly. The proposal came amid widespread legislator frustration with recent management scandals at the Utah Department of Alcoholic Beverage Control, as well as the agency’s proposed closure of 10 profitable state-run stores in response to a $2.2 million legislative cut to the agency’s budget, an outcome temporarily averted when Gov. Gary Herbert later transferred $1.4 million in savings from capital projects to the agency.

  The privatization concept was endorsed by the state Privatization Policy Board, a legislative advisory body on privatization issues that issued a letter to Gov. Gary Herbert in May 2011 supporting retail privatization. “We believe that, although there are difficult political issues, the state should carefully consider the reasons for […] being in the alcohol business and evaluate ways to move this activity to the private sector,” according to the Board’s letter.

  “It should not be a function of government to sell alcohol,” Wilcox told The Salt Lake Tribune in April 2011. “When the state gets into the retail sales, customer service and performance suffer.”[6] At press time, Gov. Herbert had not taken a formal position but had publicly expressed openness to considering Wilcox’s privatization proposal. More impetus for privatization may come from a November 2011 business plan for the Department commissioned by the state legislature, which recommended an expansion in the use of privately operated liquor retail outlets (known as “package stores”) to generate savings and increase system profits without increasing sales.

Leonard Gilroy is director of government reform at Reason Foundation. A version of this article originally appeared in Reason Foundation’s Annual Privatization Report 2011, released in April 2012.

Notes

[1] Jason Mercier, Citizens’ Guide to Initiative 1183: To End Washington’s Liquor Store Monopoly, Washington Policy Center, September 2011, p. 4, http://goo.gl/2OQ5f (accessed November 9, 2011).

[2] PFM Group, Liquor Privatization Analysis: Final Report, Commonwealth of Pennsylvania, Office of the Budget, October 2011, p.101, http://goo.gl/aIzN0 (accessed November 17, 2011).

[3] Sebastian Kitchen, “ABC leaders: Privatizing state liquor sales a hard sell,” The Montgomery Advertiser, February 16, 2011.

[4] Idaho State Legislature, Office of Performance Evaluation, Distribution and Sale of Liquor in Idaho, Report No. 11-01, January 2011, http://goo.gl/MDCqb (accessed 10/6/2011).

[5] Associated Press, “Gov. Otter: Don’t Privatize Idaho liquor stores,” February 1, 2011, http://goo.gl/bG1Nl (accessed 10/6/2011).

[6] Dawn House, “Push to privatize Utah liquor sales is growing,” The Salt Lake Tribune, April 8, 2011.

The post Washington State Approves Privatization of State Liquor Monopoly; Other States May Follow appeared first on Reason Foundation.

For context, at the end of Prohibition, 32 states opted to regulate liquor through the issuance of wholesale and retail licenses to private wholesalers and retailers, effectively creating a regulated, private liquor market. Meanwhile, 18 other states (and Montgomery County, MD) opted to place liquor wholesaling and/or retailing functions in the hands of government as a means to “control” spirits sales and distribution and encourage temperance and responsible consumption. [Click here for a map of control states prepared by the National Alcohol Beverage Control (ABC) Association].

Apparently not envisioned in the early post-Prohibition discussions were some inconvenient truths that have emerged:

1. Nearly all “control” states have government control of distribution and/or retail sales of spirits, while beer and wine sales occur in private regulated markets. Well over half of the pure alcohol sold in the U.S. comes via beer and wine though, so how much so-called “control” do the control states really have if they’re only covering a slice of the total alcohol market? If beer and wine can be regulated by government but sold and shipped privately in those states, why not spirits?
2. Having the state in both the position of alcohol regulator and alcohol distributor/retailer creates an inherent conflict of interest.
3. Another obvious conflict of interest lies in the diametrically opposed goals of promoting temperance and moderation while at the same time trying to maximize revenues for the state from the sales of the products you’re supposedly trying to control.
4. Taking aside the question of whether or not it is appropriate for government to try and promote temperance in the first place, it is laughable to argue that selling and distributing alcohol is a core function of government. Government doesn’t operate porn shops, tobacco stores, commercial pharmacies, or medical marijuana dispensaries, so what’s so special about liquor? Liquor distribution and sales are business enterprises best suited for businesses, with government in the role of oversight.

Accordingly, no state has shifted to government monopolization of alcohol wholesale and retail functions since Prohibition. Rather, the direction of change has moved entirely in one direction-towards privatization-albeit slowly. Up until 2011, there were only three major shifts in state control systems since Prohibition. Two states-Iowa and West Virginia-privatized their retail operations over two decades ago while retaining a spirits wholesale monopoly, and more recently Maine signed a 10-year contract with a private operator for its wholesale spirits monopoly. Beyond those major moves, a number of the “control” states-including Utah, Oregon, Vermont, Mississippi and Montana-already contract with private liquor stores operators instead of running them in-house, so paradoxically there’s already a lot of privatization going on under the surface of the “control” states.

The year 2011 brought further change, with major structural changes and privatization announced in two control states-Washington State and Ohio:

• Washington State: In November 2011, Washington State voters approved the privatization of the state’s monopoly on the distribution and sale of distilled spirits, becoming the first state in the nation since Prohibition to fully shift both wholesale and retail functions from public to private sector operation. By an overwhelming 60-40 margin, Evergreen State voters approved Initiative 1183 (I-1183), a ballot measure sponsored by Costco and other major retailers that will fully privatize both wholesale distribution and retail sales of liquor, while removing obstacles to the wholesale distribution of wine. A revamped license fee structure outlined in I-1183-designed to generate more alcohol-related revenues to the state relative to monopoly operation-was key to passage, as it created a strong argument that state and local governments would see a financial benefit under privatization.According to the state Office of Financial Management’s (OFM) fiscal impact statement for I-1183, the measure would increase revenues to the state by an estimated $216 million to $253 million over six fiscal years, with a similar $186 million to $227 million increase in local government revenues over that same period. Further, the OFM estimated a one-time net state revenue gain of $28.4 million from auctioning off the state liquor distribution center. OFM did not estimate proceeds from the sale of existing state-run liquor stores, so actual one-time revenues from divestiture are likely understated. The state is currently navigating the transition to privatization, which is set for completion by June.
• Ohio: Ohio recently announced its own privatization overhaul. In February 2011, Gov. John Kasich signed House Bill 1, creating JobsOhio, a new private, nonprofit economic development organization created by privatizing functions of the Ohio Department of Development related to the state’s corporate recruitment and expansion, marketing and job retention efforts. To fund the new entity, Kasich advanced a plan to lease revenues from the state’s liquor monopoly to JobsOhio, which was finalized last week. Under the plan, finalized last week, JobsOhio will gain control of the liquor system’s annual net revenues for 25 years in return for a $1.4 billion upfront payment funded through the sale of revenue bonds backed by liquor system profits. Approximately $700 million of the proceeds will be used to defease existing liquor revenue-backed debt, while roughly $500 million will be deposited in the state’s general fund for short-to-near term uses and another $150 million will be dedicated to clean-energy projects formerly financed with alcohol revenues.Though described as privatization, Ohio’s initiative is perhaps better described as “quasi-privatization,” since it did not open up the state’s wholesale market to competition, but rather transferred the state’s wholesale monopoly to a private nonprofit corporation chartered by the state. Retail liquor sales in Ohio are already sold through private retail outlets, and the new initiative does not authorize an expansion of these outlets. Further, JobsOhio plans to contract with the existing state Department of Commerce to continue providing certain wholesale operations functions.

In addition to Washington State and Ohio, there are several other states where ABC privatization could potentially advance in 2012:

• Utah: The Utah legislature appears poised to take on the issue of alcohol monopoly privatization in the 2012 legislative session, with State Rep. Ryan Wilcox planning to introduce legislation to privatize the state’s liquor retail enterprise. The proposal comes amid widespread legislator frustration with recent management scandals at the Utah Department of Alcoholic Beverage Control (ABC) and recent state audits critical of the agency’s performance. A recent poll found that Utah voters support ABC retail privatization by a 58%-37% margin, with majorities of Republicans, Democrats and Independents in support. The privatization concept was endorsed last year by the state Privatization Policy Board, a legislative advisory body on privatization issues that issued a letter to Gov. Gary Herbert in May 2011 supporting retail privatization. Gov. Herbert has not taken a formal position but has publicly expressed openness to considering Wilcox’s privatization proposal.
• Idaho: Last week, a local Republican party organization announced plans to file a ballot initiative to privatize Idaho’s retail ABC enterprise, for which it needs to collect over 47,000 signatures by late April. Separately, the Northwest Grocery Association announced plans to push for ABC privatization legislation in 2013; the grocers’ organization had previously considered pursuing its own privatization ballot measure this year. These moves follow on the heels of a January 2011 report commissioned by Idaho’s Joint Legislative Oversight Committee that found that privatization of the state’s liquor enterprise is feasible and outlined several potential approaches. Completely converting to a privatized wholesale and retail system and establishing a liquor tax to replace the current state markup could generate approximately the same amount of revenue as the state receives today. Alternatively, the state could retain the wholesale enterprise and convert all stores to private operation if it continued using a wholesale markup to maintain current revenues. Last, contracting out the operations of the 13 state-operated stores with the lowest sales was estimated to offer $700,000 in potential annual cost savings. The report was met with a cold reception by Gov. C.L. “Butch” Otter, however, who told the Associated Press that alcoholic beverage control and promoting temperance are proper functions of government under Idaho’s Constitution.
• Pennsylvania: Despite significant political support to privatize the Pennsylvania Liquor Control Board’s (PLCB) monopoly on the wholesale and retail sale of wine and distilled spirits, action in 2012 is uncertain. Last September, House Majority Leader Mike Turzai introduced House Bill 11 (HB 11), a privatization bill that would have created a limited number of retail and wholesale liquor licenses and auctioned them to the highest bidders, and it would have replaced current alcohol taxes-including the 18% Johnstown Flood Tax, the state’s retail markup, and the per-bottle handling fee-with a gallonage tax of between $8-9 per gallon of wine and $11-12 per gallon of spirits, varying based on alcohol content. However, last month a House committee passed an amended version of the bill, gutting its original language and instead advancing a “privatization-lite” proposal to partially privatize wine sales and distribution but leave spirits untouched, effectively perpetuating the anachronistic state alcohol monopoly. The bill was advanced to the full House of Representatives where it faces an uncertain future.Gov. Tom Corbett remains supportive of privatization, however. Corbett announced his support for privatizing the state’s alcohol monopoly during his 2010 campaign, and upon taking office in 2011, his administration hired the consulting firm Public Financial Management (PFM) to conduct a valuation study for the state’s alcohol monopoly. The PFM analysis identified two viable privatization approaches, with the most likely being a full wholesale and retail privatization, with limits around the number or types of both licenses. Under this scenario, PFM estimated a valuation of retail licenses in the range of $730 million and a valuation of wholesale licenses in the range of $575 million, for a total estimated valuation of between $1.1 billion to $1.6 billion. Regardless of the fate of HB 11, Gov. Corbett’s new privatization advisory commission plans to consider PLCB privatization this year as part of its broad review of state services, so the issue figures to remain in the public discourse for some time. Numerous opinion polls demonstrate strong public support for privatization among Commonwealth residents. For example, a September 2011 Quinnipiac University poll found that Pennsylvania voters support privatizing liquor stores by a 62%-31% margin, with support among all demographic groups.
• Virginia: Virginia is another state with an ongoing policy discussion on privatizing the state’s spirits monopoly. Privatization of the Commonwealth’s liquor retail and wholesale operations was a central pillar of Gov. Bob McDonnell’s larger fiscal agenda upon entering office in January 2010, but his first privatization proposal that year-which would have privatized wholesale and retail functions to generate approximately $400-500 million for the state to invest in transportation infrastructure-failed to garner enough legislative support to advance, largely due to concerns that privatization would slightly reduce alcohol-related revenues to the state.The McDonnell administration made a second attempt in 2011, offering a more limited proposal that would have privatized retail operations-closing the 332 state-run liquor stores and authorizing the issuance of 1,000 private retail licenses-while leaving wholesale functions under state operation. The McDonnell administration hired PFM to analyze the privatization proposal, and the consultant’s January 2011 report found that retail license auctions would net the state an estimated $200-400 million (which McDonnell proposed to invest in transportation) and an additional $13 million in alcohol-related revenues on an annual basis, even with the proposed reduction in the state’s markup from 69% to 50%. Despite a proposal that addressed lawmakers’ previous concerns over ongoing revenues, the administration’s accompanying legislation never received a legislative committee hearing and failed to advance.

  Though McDonnell continues to express support for privatization, it currently appears doubtful that his administration will make a third privatization attempt in 2012.

• North Carolina: Early last year, North Carolina Gov. Beverly Perdue announced that her administration would not pursue privatization of the state’s alcohol monopoly. Like Pennsylvania and Virginia, the state hired PFM to conduct a privatization analysis, which found that the state could reap approximately $300 million upfront from retail license auctions and divestiture of the wholesale operation. However, this estimate was based on issuing the same number of retail licenses to match the current number of state-run stores; PFM estimated that one-time revenues could exceed $500 million if additional retail licenses and other systemic changes were approved. In announcing her opposition to privatization, Perdue noted her belief that the current system works well and that she was unwilling to loosen current restrictions on the number and type of retail outlets, operating hours and marketing. However, Gov. Perdue recently announced that she would not be seeking reelection this fall, and several state legislators announced that they remain interested in exploring privatization as part of a larger government streamlining push.

Time will tell whether all, some or none of the above states will follow in Washington State and Ohio’s lead. Nonetheless, advocates of limited government nationwide should toast the national liquor privatization push as a hopeful sign that well-entrenched, anachronistic government enterprises and activities can indeed be dismantled and privatized with strong public support.

Leonard Gilroy is the director of government reform at Reason Foundation.

The post Will States Toast Liquor Privatization in 2012? appeared first on Reason Foundation.

Some of Iowa’s regulations are entertainingly anachronistic. Bartenders are prohibited from pouring water down the drain while serving an officer of the law. Don’t try asking your local bartender to put something on a tab-those are illegal, too. And if a tavern keeper is exhausted after a long day of following archaic laws? Well, he can’t open up a cold one; it’s unlawful for an owner to drink in his own establishment after closing. Candidates traveling with their families should be particularly careful in Ames-it’s against the law to have three sips of beer while in bed with your wife.

But some policies aren’t nearly as funny. Until last year, Iowa imposed a limit of 6 percent alcohol by volume on beer production, drastically circumscribing local breweries’ ability to compete in the growing craft beer market. The limit has been lifted to 15 percent, but Iowa remains in the minority of states that have a limit at all.

Small scale craft breweries are on the rise nationally as beer drinkers grow weary of big label beers. Many of these craft brewers have settled in Iowa for its excellent water sources. But even with the new rules on alcohol content, Iowa is unlikely to become a beer mecca. The Tax Foundation ranks the state’s business tax climate 45th. A combination of high local and federal taxes-including tariffs on everything from the hops to barrels-makes taxes the single most expensive component in beer, according to a Standard & Poor’s study. All in all, taxes constitute 44 percent of a beer’s average retail price, a larger share than ingredients and labor combined.

Iowa is one of 19 states that retain a monopoly on distribution of alcoholic beverages within their borders, which means anyone who wants to drink or serve booze becomes a cog in a massive regulatory apparatus. (Iowa does have privatized retail operations, though.)

In addition to the regulatory environment, Iowa places a very heavy tax burden on its sellers of alcoholic beverages. Iowa not only places large excise taxes on wine (3rd highest in the nation) and beer (the highest in region, with the exception of two states). It marks up all distilled spirits by 50 percent.

Tonight, as Republican hopefuls crack open cold ones and toast to their future ambitions, they should count themselves lucky. By this time on Sunday, most of them will have hightailed it to other early primary states with booze-friendlier laws where the beer is cheaper, more plentiful, and easier to come by.

Harry Graver is a writer in New Haven. This column first appeared at Reason.com.

The post Getting a Beer in Iowa Is Tougher Than You Think appeared first on Reason Foundation.

No, the divide today is between nudgers and nannies. Between those who believe the fat, feckless masses should be nudged towards better, healthier behavior and those who believe the fat and feckless should be nannied towards better, healthier behavior.

Yes, the nation that gave you a civil war between parliamentarians and a king, which staged a major stand-off between the elected Commons and the unelected Lords in the early 1900s, which had the world gripped with its war between the helmet-haired Iron Lady and angry striking miners in the 1980s, now offers you the sad spectacle of politicos divided on the question of how best to hector the populace. How low British politics has sunk.

Our prime minister David Cameron leads the nudgers. He has a distinctly Orwellian-sounding Behavioural Insight Team inside Downing Street, which furnishes him with ideas for how to nudge the “illogical” masses (its word) towards the kind of lifestyle approved by Cameron’s government: non-smoking, alcohol-free, slim, safe, and no fun.

Public health officials and their cheerleaders in the media lead the nannies. They believe Cameron’s obsession with nudging, with using subtle signals and mind manipulation rather than legislation to try to wean people off junk food, cigarettes, and so on, leads only to neglect. Without actual legislation forcing people to become more health-conscious, there will be “a surge in obesity and mass poisoning [through the consumption of booze and junk food]”, says one of the media supporters of the nannies.

Cameron’s nudgers are, of course, leading the field in this uncivil war over how to remould people’s minds and bodies. Having taken Downing Street in this year’s general election, the nudgers promise to override the previous 13 years of New Labour nannying, which including smoking bans, legal restrictions on junk-food advertising, anti-booze measures, and relentless and patronizing public-health advice. And they plan to override it, not with liberty, or with a renewed respect for individual moral autonomy, but with a political creed that is if anything even more insidious and allergic to the idea of individual responsibility than nannying ever was: nudging.

Inspired by Richard Thaler and Cass Sunstein’s Nudge: Improving Decisions About Wealth, Health and Happiness-that blasted book!-Cameron set up a Behavioural Insight Team (BIT) when he arrived at Downing Street in May. With Thaler and various psychologists as advisers, the BIT brain cops aim to use social psychology and behavioral economics to hypnotize people into adopting approved forms of behavior.

According to BIT propaganda, the nudgers plan to do away with the old-style Blair-and-Brown bossiness in favor of offering incentives, using subliminal messaging, and changing the “choice architecture” of our daily lives, in order to influence us, sometimes sub-consciously, towards what they call “healthier decisions and healthier lives.” So, for example, instead of using taxes to make driving of cars more expensive, as New Labour did, the nudgers will focus on rebuilding public spaces in such a way that choosing to walk or ride a bicycle becomes easier than it currently is. In short, they’ll physically re-engineer public space with an eye for socially engineering those who inhabit it.

Some of BIT’s propaganda is gobsmackingly Orwellian. Even the name-Behavioural Insight Team-sounds like something Big Brother might have devised to keep Winston and Julia and the rest in order and in shape. BIT is built on the idea that the mass of the population lacks both the intellect and the free will to become better persons, and thus they must be secretly signposted towards approved behavior. A Cabinet Office paper explaining the importance of developing nudge policies argues that “people are sometimes seemingly irrational” and therefore the state should “influence behaviour through public policy.” And because many of our behavior-related choices are made “outside of conscious awareness,” there is no point trying to convince us through public information to change our behavior-no, we must simply have our grey matter toyed with by those who know best. “Providing information per se often has surprisingly modest and sometimes unintended impacts”, says the Cabinet Office paper, and therefore government should “shift the focus of attention away from facts and information and towards altering the context in which people act.”

In short: never mind reasoning with people, just use pressure instead. Forget about debate and discussion, just deploy underhand nudging techniques. This is not only profoundly illiberal, it is profoundly undemocratic, as the nudgers explicitly circumvent the realm of information and law in their relentless campaign to reshape our apparently problematic consciousnesses.

Most strikingly of all, the Cabinet Office paper informs us that the government ultimately aims to be a “surrogate willpower” for the public. Because we the people are so fickle, so clueless, so fundamentally unconscious in the way we poison ourselves with cigarettes and hamburgers, the government must become our will. It’s straight out of Nineteen Eighty-Four, bringing to mind O’Brien, the jailor who tortures Winston and who says: “We create human nature. Men are infinitely malleable.” Likewise, Britain’s ruling nudgers look upon the public as putty, as an easily reshaped blob.

Fortunately, a war of words has been launched against the nudgers. Unfortunately, it’s been launched by the ousted nannies, who only want to recover their old power to legislate against so-called bad behavior.

In the run-up to Christmas, that apparently wicked and destructive period of overeating and too much booze consumption, the nannies have come out of the woodwork to accuse Cameron’s government of failing to force through an immediate campaign to correct people’s behavior.

Under the headline “Nudge or Fudge?”, the Independent tells us that more and more public-health officials, influential doctors, and the like, are concerned that “tougher regulation of junk food, smoking and cheap alcohol [has been] cast aside by a government that prefers to ‘encourage’ public health.” Apparently such “encouragement” (which looks more like attempted mind-manipulation to me) is not enough; people must instead be forced to change their habits through bans and the threat of legal sanction.

So a spokeswoman for the British Medical Association says “what we need to see is more action on pricing, taxation and advertising.” That is, we should make bad things such as cigarettes and alcohol more expensive, to keep them out of the hands of the self-destructive poor, and we should curb or ban adverts for these bad things as well.

The nannies’ battle against the nudgers has encouraged some nanny-happy commentators-who are normally more guarded about their busybody instincts-to pipe up and demand tougher legislation to control the masses’ reckless lifestyles. A writer for the liberal Sunday broadsheet The Observer says the idea that “we can be gently pushed into self-improvement… smacks only of neglect.” The real problem with nudging, she says, is “its feebleness in dealing with the biggest threats to health.”

What is alarming about this debate is the taken-for-granted idea that it is the role of the state to tell people what to do in their private lives: what to eat, what to drink, whether to smoke, how to travel from A to B, even how to fuck (always “safely,” of course.) It is a testament to the lack of libertarian instinct in modern British politics that no one is standing up to say that, actually, these issues are none of the state’s business. Anyone who respects individual moral autonomy should reject both the nannies, who believe we exercise our autonomy in the wrong way, and the nudgers, who believe we are fundamentally incapable of exercising autonomy and thus the state should do it on our behalf. We need a third army in this unsightly war, one that chucks some serious intellectual hand grenades right into the middle of this clash between nudgers and nannies.

Brendan O’Neill is editor of spiked in London. This column first appeared at Reason.com.

The post Nudgers vs. Nannies appeared first on Reason Foundation.

As one of 18 monopoly control states (only government sale of liquor allowed), this question is front and center in Washington State where not one, but two ballot measures are being considered on whether to end the state’s liquor monopoly.

A similar debate is occurring in the control states of Virginia and Pennsylvania.

Proponents of government control over liquor sales argue a state monopoly serves numerous social goals, such as preventing under-age drinking and reducing alcohol related deaths.

A central argument against private liquor sales is that ending government monopolies would lead to drastic social costs. For example, the National Alcohol Beverage Control Association argues that privatization of liquor sales would increase binge drinking and decrease road safety.

But a recent Commonwealth Foundation study looking at national per-capita alcohol consumption questioned the supposed link between state control and achieving social goals. The study examined rates of underage drinking, underage binge drinking, alcohol related road fatalities and DUI arrests.

Were the Commonwealth findings supportive of NABCA and other’s claims, then serious consideration should be given to slowing the privatization process. But the data paints quite a different story.

The study finds that while alcohol consumption in privately operated license states is slightly higher than in controlled states, “among controlled states, greater levels of control are actually associated with increased consumption rates.” Similarly, the rates of underage drinking and underage binge drinking “are virtually identical in license and control states.”

The study also found that states with private liquor sales don’t have any more alcohol-related traffic deaths than control states. However, “among control states, states with the most controls also exhibit the highest rates of alcohol-related traffic deaths – even after adjusting for differences in enforcement of DUI laws.”

Our own review of the data reveals that societal effects of drinking, such as the percentage of binge drinkers by state, is more closely correlated to regions of the country, rather than control versus private sales.

Essentially, the evidence suggests that state run monopolies do not result in any better social restraint than states with private liquor sales.

Another argument against ending government monopolies, particularly prevalent in the Washington State debate, is that treating liquor sales the same as beer and wine will lead to increased societal harm.

However, a 2007 study on binge drinking published in the American Journal of Preventive Medicine provides some sobering evidence against those claims.

According to the researchers: “Overall, 74.4% of binge drinkers consumed beer exclusively or predominantly, and those who consumed at least some beer accounted for 80.5% of all binge alcohol consumption.” B

Breaking down the numbers by beverage type, beer accounts for 67.1% of binge drinks consumed, compared to liquor at 21.9%, and wine only10.9%. The study concluded that beer accounted for the “most alcohol consumed by those at greatest risk of causing or incurring alcohol-related harm.”

This means that unless those arguing for government monopoly control of sales want to include beer and wine with the hard liquor restrictions, their arguments over societal costs ring hollow.

The “Great Recession” is forcing states across the country to reset their programs and focus on their core functions. The question for citizens in the 18 liquor monopoly states is whether selling liquor is a core government function or whether it is an outdated holdover from the prohibition era. Regardless of whether you fill your glass with private or government-supplied liquor, the answer is unlikely to alter alcohol’s impact on society.

Anthony Randazzo is Director of Economic Research for the Reason Foundation based in D.C. Jason Mercier is Director of the Center for Government Reform at the Washington Policy Center based in Seattle.

This column originally appeared at FoxNews.com.

The post The Other Big Debate This Election Cycle — The ‘Wets’ vs. ‘Drys’ appeared first on Reason Foundation.

Balancing policy goals, political realities and the plethora of competing stakeholder interests and concerns-include those of large retailers, small retailers, wholesalers, major distillers, local vintners, religious and social groups, law enforcement and many more-is inherently tricky work, and the McDonnell administration deserves credit for shaping the ABC plan in a way that integrates these varied concerns while achieving a sensible balance among them. This process will continue as the administration continues to solicit input from legislators, stakeholders and the public to help refine the details.

A recent poll suggests that strong majority (57%) of Virginians support ABC privatization, and recent endorsements from former Gov. Doug Wilder, former governor and Senator George Allen, Jerry Falwell Jr., the Virginia Fraternal Order of Police and the Virginia Chamber of Commerce confirm that support for the ABC plan falls along a broad and bipartisan spectrum.

Still, some in the Assembly are complaining that the current plan would not be revenue-neutral, since the annual revenue derived from the proposed spirits excise tax would fall $47 million short of the $226 million currently raised through the existing ABC monopoly markup and excise taxes (which would be eliminated under the plan). This argument isn’t unexpected-state legislators do not release their grip on state revenue streams easily, after all-but it is short-sighted, for two key reasons.

First, the current ABC monopoly is profitable because it does what monopolies often do-it abuses its monopoly status by overtaxing spirits consumers, sending profits to the state’s general fund to pay for general government services. Those services ostensibly benefit all Virginians, so the costs of those programs should properly be borne by all taxpayers alike, not just the convenient target of spirits consumers.

In that light, the fact that the proposed ABC plan would generate less revenue for the state suggests a major step in the right direction, since it implies that consumers and taxpayers would gain some relief from overtaxation concurrent with the benefits of more choice, convenience and competition. Weaning the state from excessive monopoly profits should not be construed as a bad thing, despite the inevitable complaints from legislators that would always prefer more tax dollars to spend.

Second, ABC privatization is not a fiscal issue, it’s a government reform issue. Running a liquor monopoly is not a core function of government, as Gov. McDonnell and others have stated repeatedly. A majority of 32 states rejected the state ABC monopoly model outright at the end of Prohibition-opting for privatized spirits wholesale and retail from the outset-and no state has ever transitioned from a privatized model to a state monopoly model. Texas, Arizona, Georgia, California and the other 28 privatized states simply recognized early on that alcohol is alcohol, and it doesn’t make sense to treat spirits any differently than beer or wine.

This is why two separate government reform commissions-both Gov. McDonnell’s current reform commission and the Governor’s Commission on Efficiency and Effectiveness chaired by Wilder in 2002-have recommended ABC privatization to get government out of something it should not be doing in the first place. Further, in addition to ABC privatization, the current reform commission is in the process of researching and recommending other structural reforms in government that will more than offset the revenue differential. As Gov. McDonnell stated recently, “We will make up $47 million plus some.” Similar reform commissions in Louisiana, New Jersey and Arizona recently identified reforms that would save hundreds of millions of dollars on an ongoing basis, and there’s every reason to assume that the Virginia commission will yield similar results.

Stepping back from the ongoing revenue component of the ABC plan, there are also legislative critics of the other major component-using the estimated $500 million or more in upfront proceeds from ABC privatization (e.g., revenues from new wholesale licenses, retail license auctions, warehouse divestiture, etc.) to invest in badly-needed state transportation infrastructure.

Some policymakers have claimed that $500 million is not enough to meet the state’s transportation needs, but this is a red herring. Perhaps the most misunderstood aspect of the ABC plan is that the administration doesn’t merely intend to just spend that $500 million on a project or two. Instead, they propose developing a new state transportation infrastructure bank that could leverage that upfront ABC revenue with private funds several times over, essentially turning hundreds of millions into billions of new funds for transportation projects. Put simply, a well-constructed infrastructure bank could be a gift that keeps on giving for Virginia transportation.

Billions in smart transportation investment will generate massive economic and mobility benefits to the state. Removing bottlenecks, improving freight rail and port capacity and the like will reduce travel times, improve goods movement and generate positive productivity returns in the larger economy. More speed and more productivity will generate more jobs, more economic opportunity and more tax revenues to the state. Using data compiled by the American Association of State Highway Transportation Officials (AASHTO), Gov. McDonnell noted in a press release on the recent VDOT audit findings that, “every $100 million spent on highway construction and maintenance projects adds 3,000 jobs created or supported, $250 million in economic activity and $25 million in revenue for the commonwealth.”

If that’s the case, then let’s assume that $500 million in upfront ABC revenues can leverage three times that (a conservative assumption) through the infrastructure bank to achieve roughly $2.0 billion in highway investment. Using the AASHTO estimates, that could result in approximately $500 million in revenue for the state during project construction, and the underlying intention of the infrastructure bank would be to have a constant cycle of projects moving at any given time, not just a one-time slate of projects that would bring a temporary bump in tax revenues. Further, the estimated $500 million in state revenue would be derived from the direct benefits of construction and does not account for additional tax revenues that would flow to the state from new businesses and higher land values in improved corridors, business productivity increases commensurate with congestion reduction and other indirect-but very real-benefits of infrastructure investment.

It’s impossible to estimate whether the combined direct and indirect revenue benefits from transportation projects would be higher or lower than the $226 million the Commonwealth annually receives from ABC through the current markup and excise tax on spirits. Regardless, it is critically important for policymakers to recognize that the fiscal before-and-after of ABC privatization is not just an issue of how much alcohol-related revenues flow to the state, but also how much additional revenue enhancement would be derived from the new infrastructure investment.

Quibbling over revenue neutrality thus seems misguided. In theory, Virginia policymakers could even cut the proposed spirits excise tax rate in half as transportation projects ramp up, and the incremental tax revenue derived from the new transportation investment could still partially-or even completely-offset the reduction in alcohol-related revenues.

Hence, it’s puzzling that some Senate Democrats would balk at the prospect of real money that can make a big difference in Virginia transportation and the Commonwealth’s budget. Instead, they still cling to the fantasy notion of raising the state’s gas tax to fill the funding gap. They fail to acknowledge a broad consensus among transportation experts-including the Congressionally-chartered National Surface Transportation Infrastructure Financing Commission-that the gas tax has essentially run out of gas, its revenue-generating power having been on a steady decline in recent decades with increasing vehicle fuel efficiency. After all, the cleaner cars get, the less fuel they use and the less revenue a gas tax will generate.

Would it really make more sense to double-down on the dying gas tax and forego a realistic and viable opportunity to redeploy other state assets to achieve major transportation goals?

Of course not, which is why opponents and critics of ABC privatization should have to answer why they support preserving an outdated, unnecessary government-run liquor monopoly that abuses taxpayers and why they want to raise gas taxes for transportation and walk away from real money that’s already on the table. Policymakers should recognize this as a golden opportunity to streamline government and address transportation needs in one fell swoop, delivering massive benefits to taxpayers, businesses and the state economy alike.

Leonard Gilroy is Director of Government Reform at Reason Foundation and Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy. This column was originally published at Bacon’s Rebellion.

The post Reform, Transportation Trump Revenue-Neutrality: The Rationale for ABC Privatization, Part 2 appeared first on Reason Foundation.

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In a press release, Mr. Beall explained why you need to pay more taxes: “The alcohol industry creates devastating problems – traffic accidents, alcoholism – and walks away with money stuffed in its pockets while the public – including nondrinkers – are left to pay billions for the mess.”

And you thought that glass of wine with your dinner wasn’t hurting anybody.

Mr. Beall is parroting the Marin Institute’s deceptive and inaccurate claim that alcohol “costs” California taxpayers $38 billion a year and that high taxes will somehow reduce high-risk alcohol consumption. Let’s look at a few ways the folks at Marin allege alcohol is costing you money.

They contend drinking costs the state “$25.3 billion in lost productivity and reduced earnings.”

That claim, simply, is false. My 2006 Reason Foundation study found that drinkers earn 10 percent to 14 percent more money than nondrinkers. Men who drink socially, visiting a bar at least once a month, bring home an additional 7 percent in pay.

A 2005 study sponsored by the National Institute for Alcoholism and Alcohol Abuse similarly found that drinking actually increased the returns to both education and work experience. And a 2001 study, “The Impact of Problem Drinking on Employment,” found that even “problem drinking is not negatively related to labor supply.”

The Marin Institute says another $8 billion in annual costs to taxpayers stem from alcohol-related crime. Research indicates about one-third of violent crimes involve alcohol. The explicit assumption in blaming these crimes on alcohol is that the offenses would not have occurred without it. There is no proof of that. Just as there is no guarantee that criminals committing violent crimes would be upstanding, law-abiding citizens if they refrained from drinking.

The overwhelming majority of people who consume alcohol do so responsibly. At some point, personal responsibility has to enter the equation and the choices people make have to receive the blame. But alcohol is such a great scapegoat. When former Congressman Mark Foley was caught in a scandal with an underage page, he blamed alcohol and went to rehab. After Mel Gibson went on an anti-Semitic rant and comic Michael Richards had a racist tirade, they blamed booze and entered rehab centers, too.

The Marin Institute’s motives for pushing higher alcohol taxes are clear. Its stated mission is to make “communities free of the alcohol industry’s negative influence.” And on its Web site frets that “67 percent of adults 21 years of age and older in the United States reported drinking alcohol in the past 30 days.”

Funny, I thought adults consuming alcohol was perfectly legal.

Mr. Beall and Marin’s whole strategy of taxing people sober (with the long-term goal of eventually going back to prohibition) is fatally flawed. Consider the group of people they say they are most openly targeting: alcohol abusers and criminals. Research indicates that the heaviest drinkers do not curb their drinking in response to higher prices, unlike light-to-moderate drinkers, for whom there can be positive health benefits. This should not surprise anyone. If alcohol abusers are truly addicted, will an extra “dime a drink” stop them? Will a career criminal decide to not get drunk before his next crime spree because of a 10-cent-per-drink tax? Of course not.

What higher taxes do, however, is infringe upon the rights of the millions of Californians who legally enjoy a margarita with a Mexican dinner, a beer with pizza or a glass of wine in the evening. Millions of moderate drinkers are enjoying themselves responsibly. Is that really a reason to tax them?

Edward Stringham, Ph.D., is an adjunct scholar at Reason Foundation and professor at Trinity College. This column first appeared in the Orange County Register. Stringham’s study on alcohol and earnings is here.

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