CHICAGO -- With their finances on the rocks, states that control the sale of liquor to the public are looking at handing the job to private enterprise, a move that could raise revenue, streamline government, and prove a boon to the spirits industry.
Four states -- Virginia, North Carolina, Washington and Mississippi -- are all weighing proposals that would reduce the powerful role they play in sales of liquor, and in some cases wine, via state-owned distributorships and/or retail outlets.
The effort could take months to play out because lawmakers have to show how privatization would deliver significant revenue and cost benefits. It also faces stiff opposition from labor groups, religious communities and others who would prefer keeping the state in charge.
Eighteen U.S. states and some Maryland counties still have some form of a liquor monopoly, a relic of the Prohibition era.
When that ban was repealed by the 21st Amendment in 1933, states were given near-absolute power to regulate alcohol sales in their borders. Some chose a more active role than others, adopting the idea that state ownership would enable them to better control consumption and mitigate negative consequences from drinking.
Bob McDonnell, Virginia's new Republican governor, made privatization of his state's liquor stores a key plank of his campaign last year. He insisted in his State of the Commonwealth address last month that selling Jack Daniel's whiskey is not "a core function of government."
McDonnell believes Virginia could reap a short-term windfall of $500 million by privatizing its liquor stores, money he'd like to spend on transportation projects. Virginia faces a budget deficit of $4 billion for the fiscal year that will end June 30.
A Virginia state senator, Republican Mark Obenshain, has introduced legislation that, if approved, would require the state to auction off licenses to sell distilled spirits to retailers. The state would continue to receive tax from liquor sales, along with the licensing fees. In fiscal 2009, the state liquor agency contributed $322.3 million to Virginia's general fund from profits and excise taxes.
McDonnell has asked Obenshain and others sponsoring such legislation to put their bills on hold pending recommendations for various changes to state government that are expected to emerge from a reform and restructuring commission he created. The governor has asked for recommendations by mid-July and has repeatedly stated it is a "first-year priority."
The privatization efforts in Virginia and other states rankle groups that argue alcohol- related problems would increase if stores are run by private businesses.
In Virginia, the privatization effort is opposed by the Virginia Assembly of Independent Baptists, which represents about 500 Baptist churches and has helped defeat similar proposals in the past. "We oppose anything that we think would expand the sale and use of alcohol," said Jack Knapp, the group's executive director.
A move to privatize stores could help the distilled- spirits industry better compete against brewers. That's because it's harder to buy spirits than beer in states such as Virginia, which has about 8 million people and offers 7,000 places to buy beer but only 334 state liquor stores. (By way of contrast, Chicago, with 2.8 million people, has 972 licensed liquor-to-go outlets.)
The Distilled Spirits Council of the United States (DISCUS), which represents giants such as Diageo, Pernod Ricard, Bacardi, Fortune Brands' Beam Global unit and Brown-Forman, said it is neutral on the subject. The Wines & Spirits Wholesalers of America, another trade group, is also staying out of it.
All of the companies contacted take a neutral stance for the record, but some privately admit they would welcome a more level playing field in their battle for market share against rival wine and beer interests.
Data gathered by DISCUS and others suggests that in control states, wine and beer typically garner a larger share of the overall beverage market than in license states.
Industry insiders also point out that some control states do a good job of promoting their products -- New Hampshire was repeatedly mentioned -- while others, including Virginia, typically have higher prices, a narrower selection, and more restrictive hours than neighboring states or districts, which costs them customers.
Pennsylvania, among the nation's largest single buyers of distilled spirits and a state where privatization has been floated in the past, has been hard at work modernizing its system to make it run more like a business -- a step praised by the industry.
Meanwhile, proponents in Virginia and other states are encountering opposition to privatization not just from churches and social groups, but from lawmakers and labor organizations reluctant to see state jobs -- which often come with good salaries and benefits -- eliminated.
Other potential opponents include beer makers, wholesalers and retailers who stand to lose business if spirits become more widely available. Spirits have been steadily gaining market share against beer for more than a decade and enhanced distribution would likely fuel that trend.
Privatization would lead to "a lot more money" for distillers, largely at the expense of other forms of alcohol, said Tom Pirko, president of Bevmark, a consultancy. "The beer guys will go to war over this," he warned.
Craig Purser, president of the National Beer Wholesalers Association, said it would be "hypothetical" to comment on lost market share as the result of privatization but said it's important for each state to have a "robust and healthy discussion" about it.