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McDonnell: Privatize Va. liquor stores

- The Washington Times - Wednesday, July 22, 2009

Republican gubernatorial candidate Robert F. McDonnell on Tuesday proposed privatizing Virginia's liquor stores in order to reap about $500 million in revenue dedicated to funding the state's transportation needs.

The proposal, unprecedented among states grappling with ways to fund infrastructure in the midst of a nationwide economic downturn, would provide for a wish list of projects led by a plan to widen Interstate 66 both inside and outside the Capital Beltway.

"The plan doesn't rely on tax increases; it relies on making Virginia transportation more efficient," Mr. McDonnell said at the announcement of his 20-page transportation plan - made on the roof of an Arlington parking garage that overlooks the often congested I-66.

The former state attorney general also proposed dedicating 0.30 percent of sales tax in Northern Virginia to a regional transportation account that he said would generate $105 million annually to pay for transportation improvements in the region.

He proposed a public-private partnership to establish tolls on Interstate 95 and Interstate 85 at the Virginia-North Carolina line. The money generated would be used to fund highway improvements, including what he described as "hundreds of millions of dollars annually for Northern Virginia."

But the biggest surprise was the proposal to privatize the liquor stores.

"We should get the private sector involved in the distribution of spirits, just like beer and wine," Mr. McDonnell said. "It makes perfect sense to get the government out of this business."

The new revenue would come from selling retail liquor licenses. Virginia is one of 18 states that do not allow private retail sales of alcohol. The state operates 334 liquor stores, which have generated about $1.3 billion in the past five years, said officials with the Virginia Department of Alcoholic Beverage Control.

Mr. McDonnell said the state would continue to collect the taxes on liquor sales and would collect additional money from property taxes paid by store owners, while no longer being responsible for the $115 million annually associated with running the stores. He said the plan could result in $500 million for Virginia "in the near term."

Legislation would determine how many retail liquor licenses would be sold under the McDonnell plan.

The recommendation to privatize state liquor stores has been around for several years. It was made in a 2002 report to Gov. Mark R. Warner by the Commission on Efficiency and Effectiveness - an advisory body led by former Gov. L. Douglas Wilder that was tasked with finding ways to make state government more effective and efficient.

Mandating that the money go toward transportation is innovative, said Leonard Gilroy, the director of government reform for the Reason Foundation, a nonpartisan, nonprofit think tank that is studying the issue of privatization of alcoholic beverage control agencies. Mr. Gilroy said he knows of no other states that have dedicated the profits of privatization to fixing transportation infrastructure.

In January, state Sen. Mark Obenshain, Harrisonburg Republican, proposed auctioning 1,000 retail liquor licenses. The bill, which did not propose directing the funds to transportation, died on a voice vote in the Senate's Rehabilitation and Social Services committee.

Mr. Obenshain said privatization would bring millions of additional dollars to the state, especially if the plan included licensing of valuable liquor distributorships.

Mr. McDonnell also listed as his transportation priorities upgrading Route 460 in the Hampton Roads area, building high-speed passenger rail between the District and Richmond, improving Interstate 81 that runs along the western part of the state, and finding consensus on and developing a third crossing - a long-proposed new bridge-tunnel between Norfolk and Hampton.

He proposed issuing some of the $3 billion in bonds authorized in 2007 and seeking to issue at least $1 billion more in new bonds to jump-start shovel-ready projects statewide. He also proposed seeking legislative changes that would dedicate a portion of the bond money to support new construction.

The McDonnell plan would seek to change laws to dedicate to transportation 1 percent of new revenue growth over 3 percent each year and 75 percent of surplus revenue. Those proposals, he said, could generate more than $200 million.

Mr. McDonnell said he would seek to dedicate 80 percent of revenue from offshore oil drilling to transportation projects. He proposed dedicating revenue from economic growth around the state port system in the Hampton Roads area back into transportation funding, which he said would result in more than $175 million annually.

Other parts of the plan included raising rural speed limits to 70 miles per hour, modernizing the Department of Transportation, calling on Congress to allow the state to spend $900 million in stimulus money scheduled for delivery by 2011 and exploring an eastern bypass around Northern Virginia.

Mr. McDonnell said his plan, when fully implemented could generate $1.4 billion annually.

Several components of the plan rely on approval from local officials and Congress. Asked about whether a McDonell administration would be able to, for example, secure federal approval for tolls on an interstate or get the votes from local authorities to create a regional transportation account, Lt. Gov. Bill Bolling said not to underestimate his and Mr. McDonnell's powers of persuasion.

And the plan assumes that state finances would rebound and produce growth and surplus revenue in coming years.

Finding funding to maintain and improve Virginia roadways has long bedeviled Gov. Tim Kaine. Large parts of a 2007 package of taxes and fees were declared unconstitutional in the courts or repealed by lawmakers, and a special session called last year to raise taxes for transportation funding ended with no solutions.

Democrats on Tuesday criticized the McDonnell plan, saying that dedicating so much money to transportation would restrict where lawmakers could find much-needed funding for education.

"There is a lot we can agree on. But one thing we can't do is divert funds currently going to public schools to pay for roads," said state Sen. R. Creigh Deeds, the Democratic nominee for governor.