Capital News Service

of the Michigan State University School of Journalism

Privatizing liquor distribution surfaces as issue

By BRANDON HOWELL
Capital News Service

LANSING – Three of the 19 states with state-controlled liquor sales are considering handing the industry over to the private sector in an effort to save money.

Michigan isn’t one of them – not yet anyway.

North Carolina, Virginia and Washington have taken serious looks into privatizing their liquor distribution systems.  Virginia Gov. Robert McDonnell even made privatization one of the major issues of his 2009 campaign, saying it would save about $500 million.

Might that same strategy be effective in Michigan?

“Maybe it’s something we need to take a look at,” said Rep. Matt Lori, R-Constantine.  “If they’re preparing a change like that in Virginia, it’s probably something we should take a look at.”

Nida Samona, chair of the Liquor Control Commission (LCC), said the privatization of liquor distribution would have negative effects throughout the state’s economy.

If Michigan is “looking for a quick buck now, yeah it could bring in that kind of money,” she said.  “But I don’t think it would.”

In Michigan, the state owns the distribution of liquor but excludes beer and wine.  The state orders and stores the liquor, then takes orders from its licensees and distributes it.

Unlike some other controlled states, Michigan does not operate any liquor stores.

Samona cited long-term effects of the possible policy change as reasons against pursuing privatization.

“What about two, four, five years from now?” she said.  “You’ve lost all that revenue that comes in.”

At nearly $1 billion a year, Michigan ranks No. 1 in liquor sales among the 19 states with state-controlled sales, according to Samona.

Beyond that, the LCC’s revenues help fund other state agencies, according to Steve Robinson, the LCC’s director of financial management.

They include the departments of Community Health, Agriculture, Treasury and Education, the State Police and the Attorney General, he said.

Samona said that last year, after paying other state agencies, the LCC generated a $334 million profit for the state.
Of the fees collected by the LCC, 55 percent goes to local governments to fund the investigation of potential licensees.
It’s also used to make sure licensees are following the law.

Samona said that the short-term cost savings from privatization would be negligible in light of the large amount of money the state would lose.

“Our numbers are really staggering,” she said.  “We sold over 6.6 million cases of spirits over the last year.  That’s almost $930 million that came in at the end of last year.”

The loss Michigan would incur under privatization of liquor distribution wouldn’t be limited to just state dollars, Samona said.

“If you look at it as the businesses we create across the state of Michigan, we’re a multibillion-dollar industry,” Samona said.  “For all the new licenses we grant to new restaurants, that means new employees and economic development in that area.

“We understand that we have a very strong involvement in local businesses, local government, state agencies and state businesses.  Our fingerprints are really throughout the state in what we do and how we do it,” she said.

Samona said privatizing distribution would also invite independent distribution agencies in from outside the state, further harming Michigan’s economy.

Lance Binoniemi, executive director of the Michigan Licensed Beverage Association, sees pros and cons with the idea of privatization.

He said that the state does a good job preventing minors from accessing alcohol, as well as efficiently enforcing drunken-driving laws.  Under privatization, he said those areas might suffer.

“But there also could be some cost savings,” he said.  “We are one of the highest-taxed states in the country for distilled spirits.  Under a private system, certainly that tax burden would lessen.”

Binoniemi said he thinks the large amount of revenue generated by the state’s control of liquor sales would be hard to replace, though.

“Because of our high tax burden, it would have to be a very significant proposal in order for the state to save money,” he said.

© 2010, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

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