Underselling a state asset

It's an old story.

I'm part owner of a business.

It produces good profits every year, no matter what. In times like these, in fact, it does a little better.

One of my partners wants to sell out. He's convinced we shouldn't be in the business at all.

But the economy is terrible, which means we're likely to get a lousy deal.

He promised his buddies he would invest in their business, so he's gonna sell ours at a discount.

I don't want to own a chain of package stores. Neither, I suspect, do you.

But we do. Every citizen of Virginia owns part of the state's booze biz.

ABC sales cover more than $324 million of the state budget, or about $40 for every man, woman and child in Virginia. It's a good racket, making money in good times and bad.

And the governor has promised to sell it, in order to raise money for transportation. The struggle, at the moment, is to decide how much it's worth.

Strictly speaking, a business is worth what somebody is willing to pay for it. But a business that's always profitable should be worth more. A geographic monopoly should make it even more valuable. Maybe five times earnings. Maybe 10. Maybe more.

Instead, the governor has proposed selling the state's liquor business for around $500 million, though he promises there won't be any loss to the state budget.

Except that he can't make that deal.Right now, the governor's proposal is nearly $50 million short. Every year.

By the time a deal is done - in order to let Walmart and Costco make the profits they demand - it'll be worse.

Right now, the proposal is to sell the state's liquor business for less than two times earnings and to keep the government coffers filled with taxes on private sales.

Do the math: Jack's Big Booze Box's profits, plus big taxes, plus the cost of buying the business from the state, mean Virginians will end up paying more for a bottle of Beam because there's no other way to make this thing work.

Overhead is already pretty low in the ABC stores, because it can be. It's hard to imagine a private system of package stores that would provide fewer amenities and frills than the current one, with its strictly Soviet Union ambiance and modest staffing.

Private business could provide, I suppose, less oversight, but that works only if the intention is to start selling liquor to teenagers with fake IDs.

Proponents of this deal keep returning to the philosophical argument: Government shouldn't operate a private business. It shouldn't compete in the free market.

I agree. Entirely and completely. But I would prefer the governor not sacrifice my wallet in the middle of the worst recession since Prohibition for the furtherance of his - and my - economic philosophies. Especially while he's asking me to pay more for a cocktail.

It offends me, not for any political reason, but because the deal on the table is simply not as good as it should be.

I don't pay full price for anything. It's genetic. I got it from my father, who grew up in New York, where only suckers pay retail.

The governor's deal means we'll pay more for booze while selling the business at a discount of its true worth. And the slight virtue born of a vice, which also contributes to a trooper's salary, will be gone. Instead, the bottle I pluck off a Walmart shelf will be paying for somebody's pool in Bentonville.

I have no doubt that the governor, if he can find the political support, will find a way to get this done.

That doesn't make the deal any less terrible. If only a sucker pays retail, I'll be heading to the liquor stores in D.C.

Donald Luzzatto is The Virginian- Pilot's editorial page editor. E-mail: donald.luzzatto@pilotonline.com.