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Wednesday, April 13, 2016

Profiteers and the Liquor Privatization Scam

If you pay much attention to alcohol and politics, you probably know big box grocers are again floating liquor privatization in Oregon. They've been chomping at the bit to get hard liquor into grocery stores for many years, and so far they've failed. And will likely fail again.

The current initiative would end state sale and distribution of spirits and allow beer and wine retailers to sell them. Under current law, spirits are sold exclusively by state-authorized retailers, while beer and wine is sold through grocery and convenience stores.

In fact, seeing the privatization effort ramping up, the Oregon Liquor Control Commission allowed liquor stores to sell beer and wine in addition to spirits beginning in 2014. But it wasn't enough to pacify grocers, who desperately want access to liquor profits.

The latest development is that the Oregon Supreme Court certified the measure, Initiative 71, for the 2016 ballot. That doesn't mean the bill is guaranteed to appear on the ballot. It simply means supporters can begin collecting the 88,000 signatures they will need by July to get the initiative on the ballot.

Ironically, the Court refused to allow initiative sponsors to revise the title and take out the portion that says it would "eliminate liquor revenue." Voters tend to be wary of language like that and sponsors wanted it taken out for obvious reasons.

The elephant in the living room with this bill, even if you happen to favor privatization, is that it would eliminate $200 million a year in revenue that goes to the state. Sponsors of the bill hoped to keep that issue in the shadows, hidden from voters. It didn't work.

If the initiative makes the ballot and is passed by voters, the Oregon legislature would be on the hook to fill a gaping revenue hole. It could recover the money in a variety of ways, but it might not be pretty. Under pressure from the grocery lobby, legislators might decide to shift some of the tax burden away from liquor.

Today, Oregon has the second highest liquor tax in the country at $22.72 per gallon. Only Washington is higher, at 35.22 per gallon. Coincidentally, Oregon has one of the lowest taxes on beer at $2.60 per barrel or about 8 cents per gallon. Some think it should be higher. Would the legislature opt to increase the beer tax as part of a plan to recoup the lost revenue?

When privatization came to Washington several years ago, liquor prices actually increased due to additional fees levied on top of the existing tax. It wasn't supposed to work out that way. We don't know what would happen in Oregon. Initiative 71, as written, is likely fatally flawed because it doesn't address the revenue issue.

Of course, revenue isn't the only problem.

One of the favored arguments of grocers is that privatization improves selection. That hasn't exactly been the case in Washington. While there are three times as many stores selling booze as there were in 2011, most focus on top brands at the expense of small guys, including craft distillers, who have largely been squeezed out in the rush to stock fast-movers.

Another argument is convenience. A serious flaw in the Washington law is the requirement that stores selling liquor meet a square footage requirement, a nod to the big box stores who bankrolled the legislation. Oregon's bill takes a different tact, making it illegal for gas station convenience stores to sell booze...unless they're attached to a large retail store (think Costco or Fred Meyer). That's convenient for large retailers, not consumers.

Costco, which spent $20 million to get the Washington law passed and now refuses to discuss its implications, hasn't jumped on the Oregon bill. That's likely because it knows the bill is so flawed supporters will have a tough time collecting the signatures needed to get it on the ballot. But the money floodgates will open if the measure does somehow make the ballot. Trust me on that.

There are certainly folks who believe the state needs to get out of the liquor business, that private enterprise is always the best solution. But there are reasons liquor is state-controlled in a number of states, and the OLCC does a decent job here. Do you really believe things will be better when more than a thousand stores, bars and taverns are selling booze to go? Think about that.

Finally, the privatization effort won't end here, regardless of what happens. Like the robber barons of the 19th century, the folks behind this effort are obsessed with transferring public monies to private pockets. They care nothing about selection, price or convenience. All these profiteers care about is money. And they will continue to push privatization until they eventually get it passed.

This is, after all, America. And money is king.

Update 4/27/16: Grocers have dropped their privatization bid. They will surely be back with a better bill in a future election cycle, but for now they're done.

1 comment:

  1. Craft liquor licensees increased in Washington which is not the sign of an industry on the decline. In fact they went up 83% in the first 2 years after privatization.

    There is certainly far more selection overall available in Washington with numerous stores having more in stock on the shelves than the entire old state system used to carry in total.

    As far will things be better with 1000 stores? Probably, but the number is a legislative decision. Iowa has 1200 stores and they haven't left civilization as we know it because of it. Regulation and not retail is the job of government. It should be no more a governmental function to see that you have liquor than it is to see you have access to French cheese or Jaguar cars.


Keep it civil, please.