Article by Erik Smith. Published on Wednesday, June 10, 2011 EST.

Warehouse Contract Could Block Broader Liquor-Store Initiative – Big Interests in Suspense as Governor Considers Veto of ‘Emergency Clause’

Gov. Christine Gregoire.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, June 8.—As some of the state’s biggest commercial interests urge Gov. Christine Gregoire to veto all or part of a controversial liquor bill, the governor Tuesday appeared to signal that she will sign the measure into law.

            What remains in doubt is an “emergency clause” – a legislative strategem that appears aimed at blocking a much bigger and broader initiative likely to appear on the November ballot.

            The governor’s choice has emerged as perhaps the biggest remaining drama of this year’s legislative session – a choice in which hundreds of millions of dollars are at stake and big players on both sides are turning up the heat. The governor has until next Wednesday to decide. “I just need time,” she said.

            Senate Bill 5942, the subject of a fierce below-the-radar lobbying battle in the final days of this year’s legislative session, takes a modest step toward privatizing a portion of Washington’s liquor-sales system. As far as the general public is concerned, the most visible element of the operation is the state-owned chain of 165 liquor stores. The bill would do nothing to change that. Instead it launches a bidding process that could put the state liquor warehouse in the hands of a private operator. Because it declares an emergency and takes effect immediately, the state could award a contract before the November election takes place.

            At the very least, the tactic would muddy the waters for Initiative 1183, a much bolder measure backed by Costco Wholesale and a coalition of retailers and restaurateurs. That one would shutter the liquor stores, make big changes in liquor marketing rules, and generate hundreds of millions more for the state.

             In remarks to reporters Tuesday, the governor said she agreed with legislative leaders that the warehouse proposal was worth considering. But that doesn’t settle the question. She still has to decide whether to permit the state to strike a deal at warp speed.

            Not a Last-Minute Maneuver

            Big money is at stake on both sides. Grocers and large retailers stand to make plenty if liquor is sold in private-sector stores, as it is in 32 other states. And a provision of the initiative that would allow them to deal directly with manufacturers challenges a Depression-era arrangement in place in all 50 states that requires private-sector alcohol sales to go through distributors. That makes the initiative an attack on the distribution business. Meanwhile, investors stand to make plenty if the warehouse arrangement goes through instead. And unions have a stake in the decision as well, because any deal that allows the liquor stores to survive would preserve about 1,000 unionized state jobs.

A private company, the Washington Beverage Co., approached the Legislature during the session with a $300 million offer for a 20-year lease on the distribution operation. But the bill itself seemed to come from nowhere in the final days of the legislative session. Timing was curious. It surfaced for a vote in the Senate the day after the initiative was filed.

Gregoire said the eight top legislative leaders and budget-writers had actually agreed weeks beforehand to pass the bill.

            “There is an impression that the Legislature came to the decision to do an RFP [request for proposal] in the waning moments of the legislative session. Isn’t that the impression? Which is simply not true.

            “I can tell you from my ‘Gang of Eight’ meetings, all the way along, there was some speculation about whether a proposal from the private sector would work, and if so, could we put it in [the budget]?

            “And we spent time spelling it out and we couldn’t make it pencil out. The proponents said oh, but it does, so there was a definite conflict.”

            Bidding Process Will Sort It Out

            Gregoire said it didn’t make sense to include the warehouse proposal in the budget, as if the state could actually count on the money. But she and legislative leaders decided by the first week of May to see what the distribution operation might be worth.

            “In the end the Gang of Eight agreed we would do an RFP, that we would be thoughtful about it, and that we would let anybody else compete and answer the RFP and get engaged. And that way we would know the specific terms and we would have full understanding if we calculated what the impact of that would be, and so forth.

            “Frankly, I don’t know why the bill waited until the end to get passed. But there was no, suddenly we were going to do this. It was at least three weeks before the end of session.”

            Gregoire said she remains uncertain about whether the numbers will work. Certainly the state Office of Financial Management is dubious. “The way you flesh that out is with an RFP,” she said. Under the bill, the Office of Financial Management would have to certify that the idea makes financial sense before a contract is awarded.

            Governor Must Make Big Decision

            Though the governor appears poised to sign the bill, there’s one big question for her to settle. Will she allow the state to award the contract before the election takes place? The bill’s emergency clause shaves 60 days off the timetable, giving just enough time for the state Liquor Control Board to award a contract before Nov. 8.

            The governor could strike the clause with a line-item veto. Gregoire said she hasn’t made up her mind about that one. “I need to understand what happened there,” she said. “I don’t know. I haven’t had time to spend on that, what that was all about.”

            The governor acknowledged she is getting plenty of pressure for a veto. Three newspapers – the Seattle Times, the Herald of Everett and the Spokane Spokesman-Review – have editorialized against the headlong rush. And she said she took a call Monday from a Costco executive outlining the company’s concerns.

            Plenty of Interest in This One

            With all the financial interests at stake, the drama playing out in the governor’s office has become one of the last major episodes of the session. Mark Funk, spokesman for the I-1183 campaign, said the bill isn’t true privatization – it would merely replace a public monopoly with a private one. And he said the emergency clause is a clear-cut effort to prevent voters from making a clear-cut choice in November.

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