Privatizing the liquor business


Early in the campaign for this year’s liquor-privatization initiative, onetime spokesman Mark Funk was getting a little tired of answering questions about Costco. The Issaquah-based retail chain spent millions to get Initiative 1183 on the ballot and promote it. But an entire coalition was supporting the measure, he pointed out—restaurants, retailers, grocers—a veritable “big tent” of business trade associations.

The problem was that none of them spent any early money on the signature drive. A big tent? The way this one started, it looked more like a big box.

By Election Day, though, it’s a good bet they’ll all be bellying up to the bar—the business coalition, distributors, labor unions, and yes, big-box retailers like Costco. I-1183, a new and improved version of an initiative voters narrowly rejected last year, would get the state out of the liquor-selling business. For voters, probably the only point that matters is that it would bring booze to supermarkets and shutter the state’s chain of 329 state-run and contract liquor stores. For politicians, it’s one of those fascinating and interminable debates about the proper role of state government.

But for the commercial interests pulling the strings in this year’s campaign, what really counts is the billion dollars or so that Washingtonians spend every year on booze. I-1183 stands an entire industry on its head. It would end the monopoly on liquor sales the state has enjoyed since the end of Prohibition, eliminating about a thousand union jobs in the state liquor stores while theoretically creating new ones in the private sector. There also would be a big change in the way the industry operates: Liquor would be distributed and sold by private businesses that meet certain strict requirements, allowing the government to “focus on enforcing state liquor laws and regulating liquor sales,” according to the Yes on 1183 literature.

The issue makes a huge difference for every interest involved. It’s just that if they argued the case in a straightforward way, no one else might care. So that’s why, as Election Day approaches, you’re hearing all about vodka-swilling teens veering onto and off the state’s highways. Never mind that 32 other states allow hard-liquor sales in supermarkets and have drunken-driving stats no worse than Washington’s. Besides, beer is often the drink of choice for teens, and every corner gas station already sells it.

The most obvious argument for the initiative has problems, too. Normally, when people argue about privatization, the pitch is that private enterprise can do things better, faster and cheaper. Yet the idea of a smoother and more efficient market that puts more hard liquor into the hands of more people gives folks the willies. Last year’s campaign to defeat I-1100 proved it, with its ads showing teens lined up at the local convenience store, flashing fake IDs at the counter. The measure went down narrowly, 53 percent to 47 percent.

You’ll still hear arguments that the new measure will make liquor more accessible. But you can also say advocates are presenting a better business case this time around.

The story really started last year. Costco threw up its hands after years of trying to rewrite state liquor laws in the Legislature and the courts. The futility of that approach became clear when lawmakers, in the middle of a budget crisis, refused to consider closing the state liquor stores and farming out liquor sales to the private sector. They could have made hundreds of millions, but they weren’t willing to buck the unions.

Costco put its money last year behind an initiative that had already been drafted and filed by others. Problems became obvious almost immediately. The state wouldn’t have made a dime. And because it eliminated the protected position in the marketplace that distributors have enjoyed for nearly 80 years in nearly every state for all classes of

alcohol—beer, wine and hard liquor—the national distribution industry charged forward to crush it.

Beer distributors put up most of the nearly $9 million that was spent directly against the initiative. And some distributors executed one of the most breathtaking political strategies ever, spending nearly $3 million to promote a competing initiative, just to confuse things. Even with all that, I-1100 didn’t miss by much. Says Joe Gilliam of the Northwest Grocery Association, “I think very good lessons were learned in the last election.”

The new measure limits hard-liquor sales to stores of more than 10,000 square feet. That restriction takes convenience stores and gas stations out of the picture and aims to neutralize the drunken-teenager argument. The number of potential outlets in the state would be cut by half, from around 3,300 to about 1,500.

It also means big money for state and local governments. Unlike last year’s measure, this one imposes steep license fees—a revenue-sharing arrangement, really. When you add the amount the state would save by not operating the stores, and the new business and occupations taxes that would be generated by booze sales, you get a net gain over the current system. It would amount to a little less than $100 million a year, according to estimates from the state and independent business sources. Some Olympia insiders joke that it’s less than the “rounding error” in the budget for the Department of Social and Health Services. But that money arrives every year, rain or shine, and a hundred million here and a hundred million there begins to add up. Over 20 years, for instance, that’s nearly $2 billion. This figure becomes important in a second.

There’s another key difference. This new initiative doesn’t touch the big-spending beer industry. Still, John Guadnola of the Washington Beer and Wine Wholesalers Association says his group remains opposed. It’s largely assumed that the beer lobby fears hard-liquor sales will reduce the supermarket shelf space that now goes to beer and wine, though Guadnola does not confirm this fear.

By late summer, labor unions and distributors had ponied up nearly $4 million to fight 1183. The official slogan of the No on I-1183 campaign is “Protect Our Communities,” and spokesman Alex Fryer points out that the initiative is hardly a populist effort. “There’s no grass-roots support for this,” he says. “That was proven last year.”

A more subtle opposition strategy has come from the Legislature, with a plan that does sow confusion. A few days after the business coalition filed this year’s initiative, lawmakers passed a bill that would allow the state to award a long-term contract for the distribution system that serves the liquor stores. The plan is on the fast track and it appeared the winning bidder might actually be determined before the election. This deal could be worth $300 million to the state over 20 years— that was one proposal to the Legislature. But it’s sort of like talking about privatization without actually doing it. Distribution rights aren’t worth much without an exclusive market in the state liquor stores. So it basically replaces the existing public monopoly with a private one, and it would block true privatization as long as the contract is in place, complains Costco vice president Joel Benoliel. That’s the idea, of course. The $300 million is a long way from $2 billion. But the change also would allow the state to say it privatized something, and it would keep those union workers on the job.

Sandeep Kaushik, consultant to the Washington Beverage Company, the firm that promoted the idea, insists the Legislature has offered a fair alternative to the ballot initiative, saying, “How many chances do these guys get, anyway?”

The new initiative, if passed, would repeal the Legislature’s bill. So the voters still have a clear choice: Do they want the productivity and substantial increase in tax revenues that would be generated under the new initiative, or do they want the job protection and restricted access to hard liquor that exists under a network of state liquor stores? It’s just that no one seems to be wording the issue that way.

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