Article by Erik Smith. Published on Wednesday, August 11, 2011 EST.

A Half-Billion Over First Five Years – State to Weigh in With Own Estimate Today on Initiative 1183

See Also: Office of Financial Management releases figures in rough agreement with Research Council report.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Aug. 10.—An initiative that would shutter the state liquor stores would generate huge revenue for state and local governments – an extra half-billion dollars over the first five years alone, according a new report from the Washington Research Council.

            Initiative 1183, the liquor-store privatization measure that appears on the November ballot, would generate an additional $443 million for state and local governments between 2012 and 2017, the report says. You can extrapolate those numbers into the future. And that’s without increasing liquor sales by a drop.

            It’s the second try by Costco and a coalition of the state’s biggest retail interests to close down the state-managed stores and allow hard-liquor sales in supermarkets and big-box stores, as is permitted in 32 other states. But the billions of dollars the measure would raise for the state over the long haul is a central difference between this year’s proposal and Initiative 1100, which failed narrowly, 53-47.

Last time out, local government officials across the state expressed horror when they figured out they would lose millions of dollars in revenue. They get a cut of the state’s big markup on booze. This time around, a combination of steep license fees and taxes will not only make up the loss, it’ll put more money in their hands, says Richard Davis, president of the Washington Research Council.

That’s bound to be important when one considers that the state is expecting another big budget shortfall next year.

“It begins to add up,” Davis said. “Particularly given the news of the last couple of days, it’s going to be a tough fiscal session all over the state. When we’re trying to transform government and get it out of nonessential businesses, one concern that we have all shared is how can you do that in a way that still protects taxpayers and doesn’t add to the fiscal distress of governments.

“Voters last year had legitimate reason to be concerned. But 1183 does seem to address those concerns.”

            State Will Release Own Estimate

The Research Council’s report is being released just as the state is preparing to release its own “fiscal impact statement” on Initiative 1183. The state Office of Financial Management will render its official opinion on this year’s initiatives with reports that will be posted on its website later today.

 The state estimates are expected to show a net gain as well – and the main question is whether the numbers will line up. It should be noted that the Research Council, a business-oriented think tank, produced its report with support from Costco and its business membership. But the non-partisan organization maintains a 79-year tradition of independence and strict attention to economic modeling.

 As might be expected, the yes-on-1183 campaign says the report proves a point it has been making all along – that there are better ways to sell liquor in this state.

“This report clearly confirms that Initiative 1183 will generate significantly more funding for state and local governments than the current state liquor-store monopoly system,” said Bruce Beckett of the Washington Restaurant Association.

“Initiative 1183 will provide hundreds of millions in new revenue for vitally needed public services like education, health care and public safety,” Beckett said. “These additional revenues are obviously even more important in light of the state’s ongoing fiscal challenges.”

The restaurant association is one of the big players in the yes-on-1183 coalition. Others include the Washington Retail Association and the Northwest Grocery Association, which represents the larger grocery chains. Also on board this year is the Washington Food Industry Association, which represents smaller grocers.

The measure’s primary opposition comes from organized labor, which stands to lose 1,000 unionized state jobs in the 329 state-owned and contracted liquor stores. About 100 unionized jobs would be lost in the state liquor warehouse in Seattle.

How the Math Works

            In its analysis, the Research Council used the state Liquor Control Board’s own projections for liquor sales. Under the initiative, liquor sales would begin in supermarkets and big-box stores starting in June 2012. Private distributors would begin selling to the restaurant and tavern market starting in March. Because long-term projections are dicey, the council restricted its estimate to the first five years of operation.

The state saves big money because it no longer has to maintain the stores and pay salary and benefits for state employees. It also would get big bucks from license fees that would be charged to distributors and stores that sell hard liquor – essentially a revenue-sharing arrangement. Retail stores would pay 17 percent. Distributors would pay 10 percent the first two years and five percent thereafter.

And there are other revenue-generating mechanisms implicit in the switch. The state would be required to sell its Seattle liquor distribution center, but that’s not a major factor. Once bonds are paid off, the state would net one-time revenue of about $15 million, said Research Council economist Kriss Sjoblom.
            More importantly, businesses that sell hard liquor would be liable for the state’s business and occupations tax on gross receipts. So unlike the state liquor stores, private hard-liquor sellers would have pay taxes to the state. The Research Council figures gross sales would total $4.8 billion through June 30, 2017, and B&O tax revenue would be 24.9 million.

On the other hand, of course, the state wouldn’t get that big markup on booze – currently 51.9 percent.

The bottom line is that the state would get $443 million in additional revenue through 2017 than is generated by the current system. Under the way revenue is divvied, the state would get an additional $164 million and city and county governments would get $279 million.

Would Booze be Any Cheaper?

As far as consumers are concerned, the initiative certainly would make it more convenient to buy booze. The Research Council estimates that 1,000 to 1,500 stores would obtain liquor licenses – three to five times the current number of outlets. It should be noted that this year’s measure limits hard-liquor sales to stores of 10,000 square feet or more, meaning that only larger stores would be part of the picture. Last year’s measure allowed convenience stores to sell booze, meaning as many as 5,000 outlets statewide. So last year’s opposition advertisements featured images of teenagers buying booze at the corner gas station, and it was a key argument in its defeat.

A central difference is that the larger retail outlets would be able to sell booze on their own schedule, anytime between 6 a.m. to 2 a.m., rather than the bankers’-hours schedule employed by the state liquor stores.

But one of the biggest questions is whether the measure will make liquor any cheaper for the end purchaser. That’s not answered by the report, because it can’t be, Davis says. Certainly stores are going to have to pay big bucks for the privilege of selling liquor, but liquor prices are really a function of the marketplace.

“You have to think of liquor like any product in the marketplace,” he said. “Various wholesalers and retailers are going to make there own pricing decisions, and they will enter the market using whatever economies of scale and internal efficiencies they can bring to it. So you will see significant price variation.

“One of the characteristics of the current system is that there is no price variation. A bottle of Jack is going to cost you the same in Wapato as it does in Lake Chelan and Seattle and Moses Lake. That’s not how grocery stores work.

“A bottle of Heinz 57 is going to cost you a different price at the corner store than it might someplace else. The distiller or ketchup makers will set their prices in order to attract customers, and retailers will price in a way that makes them competitive.

“When you have large stores competing within a marketplace, that’s the way it goes, whether the product is gasoline, distilled spirits, Budweiser or Heinz 57. I think you will see price variation, and some products may be priced higher than they are in the current system, and others will be priced lower.

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