A necessary gamble

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October 28, 2010

11:23 PM

If you’ve heard of Virginia Gov. Bob McDonnell’s longstanding proposal to follow the lead of approximately 30 other states and privatize liquor sales, which inched further toward approval yet again this week, you probably had the same reaction as every other college student: This means cheaper booze. But there’s a larger, more salient issue underlying the debate, the answer for which is far less obvious. What effect might this policy have on state revenue?

It turns out that despite an avalanche of figures, no one has a clear idea. Closing ABC stores, in favor of privately licensed liquor vendors would mean a $47 million loss in yearly state revenue. McDonnell argues that this loss will be accounted for both by a $458 million one-time windfall from the sale of liquor licenses, which would all go to fund McDonnell’s planned transportation reforms, and through other planned-but-unspecified reforms which would replace the lost revenue stream.

There is a small but vocal opposition to this plan with entirely reasonable concerns. Liquor privatization offsets a reliable source of revenue for a single lump sum, and it puts those one-time funds toward a multi-billion-dollar transportation plan, where it comprises only a small portion of the money necessary for the reform on whole.

The plan is risky, we’ll agree. But this is one bet worth taking.

After the combination of economic recession and recent budget crisis, the prospect of new government spending (much less new taxes to support that spending) is politically unfeasible. But the political environment does not make planned reforms, including transportation overhaul, any less necessary.

Radical overhaul of the Virginia transportation system was one part of McDonnell’s 2009 platform which received widespread approval. Recession or not, Virginia’s roads are in desperate need of repair, and while the portion of these repairs this policy will finance is not large, it is by no means insignificant.
Presuming the figures presented are correct — yet another variable which makes this policy’s eventual outcome even harder to predict — privatization must remain budget neutral, at least in the short run. The state budget will only accrue its, hopefully limited, costs once the economy has, again hopefully, recovered from the current recession, thus making taxpayers more willing to bear the cost of filling that budgetary hole.

This move is a gamble. It presumes either that the revenue losses sustained will be supplemented by other budget cuts and taxes on licensed liquor vendors or that the short-term boost to state revenue will prove enough to support the state’s major initiatives through the uncertain and tax-averse present. There’s no way to know for sure, but our gut tells us it might work.
Plus, there was the part about cheaper liquor.

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