Virginia governor taps analysts to study liquor options

RICHMOND

As he looks to salvage a plan to privatize state liquor operations, Gov. Bob McDonnell and his team are revisiting an approach that was discussed over the summer and hiring an outside consultant to analyze the state system.

The administration has engaged The PFM Group to "provide financial analysis regarding potential approaches" to the privatization of state Department of Alcoholic Beverage Control functions, a McDonnell spokeswoman said.

The contract with the consultant hadn't been signed as of Monday afternoon but work had commenced, according to officials who didn't disclose terms of the deal.

A report from the group is expected before the General Assembly convenes in January, when the governor will renew his call for removing Virginia from the business of directly selling distilled spirits.

McDonnell pitched the privatization idea as a gubernatorial candidate in 2009. This year, he highlighted it as a key item for review by his government reform commission as it focused on ways to streamline state operations.

An initial version of the proposal unveiled in September included plans to generate a onetime windfall of $450 million for transportation through the auction of 1,000 retail licenses, wholesale licenses and the sale of other state liquor assets.

That plan left the state about $20 million short of the annual proceeds generated under the current system, prompting an outcry from some Democratic lawmakers.

Those complaints intensified when the revenue shortfall more than doubled, to almost $47 million, in a plan modified to assuage some interest groups' concerns about the first blueprint.

Depriving the state of millions in a tight economy made that version of the plan an easy target for Democrats who already weren't favorably disposed to the idea.

Not long after, McDonnell scuttled plans to bring the General Assembly back to Richmond this year for a special legislative session to consider the liquor plan.

"We will privatize Virginia's ABC stores. The only question is one of timing," McDonnell said last month when he decided not to call a special session, adding that his administration will have ABC legislation ready "on the first day" of the upcoming regular session.

One idea that appears to be gaining support among stakeholders is a kind of partial privatization discussed over the summer but ultimately eschewed in favor of the plan unveiled in the fall.

Virginia would retain wholesale and distribution responsibilities under that format, and private retailers would sell distilled spirits on their shelves in exchange for a slice of the profits.

Some retailers were initially cool to that concept but have softened now that the process has slowed.

"There's a recognition of the political reality that something has to be different. And so this is clearly one of the options that should be explored," said Rob Shinn, a lobbyist representing large retailers that support privatization.

Some of those retailers would prefer flexibility in setting liquor prices, rather than have the state dictate them, if Virginia pursues that approach.

Other business interests are quietly monitoring current developments.

A spokeswoman for the Retail Alliance said the group remains concerned about access to a new distilled spirits marketplace for small merchants, while a spokesman for beer and wine distributors declined comment on the latest back-and-forth.

More forthcoming with his views is Senate Majority Leader Richard Saslaw, a Fairfax County Democrat, who deemed the current plan "even worse than the other one."

He remains convinced that privatizing liquor operations will lose money for the state and won't raise as much money for transportation as advertised.

On a separate track, the General Assembly's audit and oversight commission is completing a review of the McDonnell liquor plan. That report could be available by the end of the month.

Julian Walker, (804) 697-1564, julian.walker@pilotonline.com