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Originally published October 22, 2011 at 9:37 PM | Page modified October 23, 2011 at 9:18 AM

Taking a closer look at liquor initiative I-1183

Is Initiative 1183, that one to privatize the liquor industry, a good deal for the state? A closer look.

Seattle Times business reporter

Initiative 1183

COSTCO WHOLESALE's measure would kick the state out of the liquor business and allow grocery stores to sell spirits. Some other changes:

Impact on state and local governments: The state's Office of Financial Management estimates the measure would boost the state's liquor revenue by an average of $36 million to $42 million a year over six years. Local governments also would receive more money: $31 million to $38 million a year on average over six years.

Prices: Prices on some liquor, and possibly on a lot of it, likely would fall. I-1183 eliminates the state's 52 percent markup and surcharges. But it adds 27 percent in fees on retailers and distributors, who will add their own markups to cover costs and make profits. On the other hand, small distilleries say their prices could rise considerably.

Convenience: More than four times as many stores would sell liquor, the state estimates, up from 328 to 1,428 under this initiative. Only stores measuring at least 10,000 square feet could sell liquor, except for existing stores and those in underserved areas. Opponents say the number could be much higher, because of the loose definition of underserved areas.

Variety: Hard to say. State liquor stores carry more than 1,100 spirits products on average. Big grocery stores would have less shelf space for liquor than state stores, and therefore less variety per store — but there would be a lot more of them. And the state might attract some large, liquor-only stores.

Volume discounts and warehousing: Washington would become one of the few, and perhaps the only, state to allow retailers to buy liquor directly from distilleries. I-1183 also would permit volume discounts and central warehousing for wine and liquor, making it more economical for retailers to buy large quantities directly from wineries and distilleries.

Beer: I-1183 does not touch beer, which would continue to be sold at uniform prices, meaning everyone pays the same wholesale price — although some companies have found ways around that law. And retailers could not centrally warehouse beer.

Information

Office of Financial

Management report: www.ofm.wa.gov/initiatives/2011/1183.pdf

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Costco Wholesale spent millions on a voter initiative last year that would have pushed the state out of the liquor business, allowed more than 3,000 stores to sell spirits and severely reduced liquor revenue for the state.

That measure was soundly rejected by voters.

Now the warehouse chain is back, spending a record $22 million pushing a new initiative that it says addresses last year's concerns.

Initiative 1183 would still privatize the state's liquor business, but it pencils out better financially for state and local governments.

The measure would increase the money that goes to state and local governments from liquor sales. It also would limit spirits sales to existing liquor stores and large retailers, which the state's budgeting office figures would mean about 1,400 stores selling liquor.

Not everyone believes I-1183 is a good deal for Washington and its taxpayers.

Like last year's measure, passage of I-1183 would cost more than 900 workers their state jobs. Some opponents contend greater access to liquor would create expensive public-safety problems. Many owners of small businesses — family grocery stores, craft distilleries and small wineries — worry they would be big losers if Costco and grocery chains were to wind up controlling the sales of spirits in the state.

Here is a primer on key issues in the initiative:

More money for state, local governments

Washington is one of eight states that handle their own liquor distribution and sales.

The Washington State Liquor Control Board generates enough money to cover its costs and send money to the state and local governments. In fiscal 2011, liquor sales produced $345 million for the state's general fund and $71 million to cities and counties.

I-1183 would take the state out of the liquor business. To make up for the loss of revenue, the measure would impose fees on liquor retailers and distributors — fees that the "No" campaign calls taxes.

Those fees and other aspects of I-1183 would increase the state's liquor revenue by an average of $36 million to $42 million a year during the first six years, according to the Office of Financial Management.

Local governments also would receive more money: an additional $31 million to $38 million a year on average over six years, the budgeting office said.

That includes one-time costs of $28.7 million to cover unemployment and other worker-buyout expenses, end leases, sell inventory and otherwise liquidate the state's business.

The state would reap additional money from the sale of its Seattle distribution center, which is valued at $28.4 million.

Job losses, small business worries

If I-1183 passes, more than 900 jobs would be cut at the Liquor Control Board, including retail-store clerks making as much as $14.84 an hour and retail managers making as much as $3,614 a month. State employees would still be needed for licensing, enforcement and support work.

The "Yes" campaign says the initiative might create other public-sector jobs, because of the additional money going to the state and local governments, including $10 million a year guaranteed for public-safety programs.

And restaurants could save and add jobs, said Bruce Beckett, head of government affairs for the Washington Restaurant Association. "Anything that can improve efficiencies, cost structures and options for people not having to pick up liquor at the state liquor stores could have a positive impact on jobs," he said.

But many of those who make their livelihoods at small wineries or distilleries are nervous.

Like a lot of craft distillers, Kent Fleischmann, co-owner of Dry Fly Distilling in Spokane, will vote against I-1183. He worries that prices for Dry Fly's vodka and gin could be driven much higher by retailer and distributor markups, plus new fees imposed by the initiative. He figures a 750-milliliter bottle of gin and vodka could rise from $29.95 to $40, a daunting prospect.

But, he said, "I will survive in this state somehow. If the only way is to self-distribute, then I'm going to do that."

Meanwhile, prices on major liquor brands at large grocery chains and warehouse chains such as Costco, where most liquor would be sold, are likely to fall. That's in part because big retailers will be able to negotiate for volume discounts on liquor and wine.

Many small wineries worry they could not compete against big wineries under that system. If the initiative were to pass, they also say, wine would begin competing with liquor for grocery-shelf space.

But Paul Beveridge, the owner and winemaker at Wilridge Winery in Seattle and president of Family Wineries of Washington State, welcomes the competition. "It's the law of supply and demand. If we can lower the price, we'll sell more," he said.

Some small grocery stores would be in danger, said Jan Gee, president of the Washington Food Industry Association. Particularly in rural areas, she said, groceries that do not meet I-1183's 10,000-square-foot requirement for selling liquor could face stiffer competition from big chains.

"If you have to drive to Wal-Mart for your liquor, you're going to get your groceries there, too," Gee said. "To these small, family groceries, it becomes a life or death issue."

Most of the money spent opposing the initiative — more than $11 million — has come from the country's liquor and wine distributors.

They worry that deregulation in I-1183 would cut into their wine business in Washington. And they fear that the initiative, which would make Washington possibly the only state to allow retailers to buy directly from distilleries, might set a national precedent.

Public safety

One of the most hotly debated issues is whether making liquor more readily available would significantly increase alcohol abuse and create public-safety problems.

Critics of the initiative say that's both a social and economic problem.

"There's no way they could come up with enough money to pay for the increased harm in this economy," said Jim Cooper, president of the Washington Association for Substance Abuse and Violence Prevention. He argues that I-1183 would lead to more domestic violence, unintended pregnancies, car accidents and problems with minors.

The state's budgeting office estimates liquor sales would increase 5 percent under I-1183.

Earlier this year, an independent task force appointed by the federal Centers for Disease Control and Prevention (CDC) recommended against further alcohol privatization around the country.

Studies compiled by the CDC show that when states privatize the sale of an alcoholic beverage, consumption of that beverage grows by about 48 percent. Most of those studies looked at wine, not hard liquor.

The task force's stance on privatization is based in part on the widely acknowledged fact that more than half of all alcohol consumption is excessive, said Randy Elder, scientific director for reviews in the CDC's community guide office.

States such as Washington that already have high per capita consumption might not see as large an increase, he said. "Even a 5 or 7 percent increase in consumption is not something people want if their primary concern is health."

Washington already ranks in the top half of the country in underage drinking, although it's near the bottom for minors who bought the alcohol they drank.

The "Yes" campaign disputes findings that privatization will lead to more drinking, saying that liquor is different from wine. In West Virginia and Iowa, supporters note that liquor consumption did not rise after privatization.

Some states with far more liquor stores than Washington have lower alcohol consumption.

Californians drink about the same amount of liquor per person as Washingtonians, and quite a bit less alcohol overall, despite having far more liquor stores per person: 363 per million, compared to Washington's 49 per million.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

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