Liquor privatization has implications beyond the state budget

Yesterday the State Office of Financial Management (OFM) released estimates of how different initiatives on the ballot this fall would impact our ability to maintain core health care, education, and other vital public infrastructure.

Included is an analysis of Initiative1183 – a controversial measure that would largely dismantle our publicly-owned liquor distribution and retail system, and allow hard liquor to be sold at large grocery and retail stores and distributed via private distribution companies.

OFM found that I-1183 would increase state and local tax revenues in the coming years. However, such dramatic change to our liquor control system would entail implications beyond tax resources. Voters should carefully consider these implications, some of which are described below, before casting their vote.

Impact on state and local budget

In addition to strictly regulating sales of hard liquor in Washington, the current system provides much needed revenues via liquor taxes and “markup” or profit revenues. Relative to current liquor revenues, OFM estimated that I-1183 would have the following impacts on state and local government revenues:

• State government revenues would increase by $51 million to $59 million per year through 2014. This increase would largely result from new fees that would be levied on private liquor retailers and distributors. After 2014, the revenue increase would fall to between $35 million and $42 million per year. This is because the new fees would fall to 5 percent from 10 percent of total liquor revenues for fiscal years 2015 and beyond.
• Local government revenues would increase anywhere from $57 million to $63 million each year through 2014, which would also be attributable to new fees on liquor retailers and distributors. For fiscal years 2015 and beyond local revenue increases would fall to about $35 million per year, due to the liquor fee reductions described above.

 Potential public health, safety, and economic implications

• Long-term public health and safety costs: OFM’s analysis does not account for future costs associated with greater consumption of hard liquor. They estimate that hard liquor sales (consumption) would increase by about five percent under I-1183. However, a 2010 report from the State Auditor’s Office estimated that consumption of hard liquor could increase by as much as 15 percent under a privatized liquor system similar to that proposed in I-1183. (1) Either way, our state could face increased public health and safety costs under the initiative – due to higher rates of drunk driving and other alcohol-related crimes.
• Job losses could harm state economy: Nearly 1,000 state liquor store and distribution center employees would lose their jobs under I-1183. Nationwide, mass layoffs of front-line state and local government workers continue to slow our economic recovery. Here in Washington, adding hundreds of state workers to the unemployment rolls could hamper our own recovery efforts.
• Impact on recent revenue-enhancing legislation: Earlier this year, the legislature enacted Senate Bill 5942, which directed OFM to solicit bids from private businesses to manage the state’s liquor warehousing and distribution facilities. If approved, the winning bid could be worth hundreds of millions of dollars in one-time state revenues. Initiative 1183 would repeal SB 5942.

Initiative 1183 would dramatically change Washington’s liquor control system. Washingtonians should carefully weigh the benefits of additional revenue with other implications of such a change when casting their vote in November.

(1) Washington State Auditor’s Office, “State Government Performance Review: Opportunities for Washington,” Revised January 2010, http://www.sao.wa.gov/AuditReports/AuditReportFiles/ar1002726.pd