Liquor Board: Between Rocks & Hard Place

The Washignton legislature convenes today for a 60-day session facing seemingly intractable deficits. Normally, if you're in a hole, you stop digging. Ideally, you look for ways to climb out: stepping stones, rocks. The trouble is that the longer you wait, the worse it's going to get, the less likely you'll ever find a way out of the hole.

One danger, for politicians especially, is language: metaphors are simple, but life is complex. So it is with the sinkhole that is the Washington State Liquor Control Board, which generates modest amounts of revenue for our beleagured state government while digging itself ever deeper into the firmament of institutional paralysis. Why, for instance, is the WSLCB website liq.wa.gov? Not even liquor.wa.gov! Periodically, proposals are floated to privatize the Board's functions, with the promise of bright and shiny increases in revenues stemming from private-sector enterprise; we're at that point again, with predictable calls from entrenched interests to leave the existing system alone.

The Board was created in the wake of Repeal some 70 years ago and given a monopoly over the sale of alcohol. All beverages are included; beer and wine can be sold through private channels but at prices posted by the Board; spirits can only be bought at 160 state stores and 150 contract outlets.

Over the years, the Board has filled two competing functions: to regulate (i.e., restrain) the sale of alcohol; and to generate tax revenue from the alcohol it does sell. As a result of this schizophrenic mandate, the board generates over $300 million a year in tax revenues, but with the highest tax rate on alcohol in the country, $25.73 per gallon. (Oregon's rate is second-highest, $20.76, but California's is only $3.30, that hotbed of inebriation, Washington, DC, imposes a mere $2 per gallon. Taxes, however, have only a negligible effect on consumption; sober-sided Vermont, New Hampshire and Wyoming have no tax at all.

There's no question Washington could raise more tax revenue if the state got out of the liquor business, although the thought of high-test vodka in grocery stores scares the prohibitionists, who go ballistic at the prospect of a tenfold increase in liquor outlets. (They've never been to California, apparently.) Who would actually do the distributing? Ah, private companies would bid (perhaps too feverishly) for licenses, and the auctions, it's assumed, would raise millions; the state could close and sell off its cavernous warehouse and distribution center off E. Marginal Way.

Still, some unanswered questions: what percentage of hard liquor is sold to individuals, who'd be spared the inconvenience of making a separate stop to buy their Jim Beam, and how much is purchased by Class H licensees? The bars would love to be able to get their Stoli delivered by wholesalers, and would jump at the chance to buy on credit, too.

The distillery gets only 25 percent of a mid-tier $15 bottle of booze, the rest is taxes (state and federal) and "markups." The concern is that private retailers would offer steep discounts to build brand loyalty and store volume, encouraging more consumption, problems for law enforcement.and public health consequences. But the central question remains: should the state be in the liquor business in the first place? An exhaustive study by the State Auditor's office comes down on the side of privatization, though not without an unintentionally ironic aside: the state also runs a Department of Printing (seriously) that competes with private businesses and even with in-house print shops set up by numerous state agencies. The Department of Printing survives, in part, because its 130 employees actually did some work, printing 5,000 jobs. And yet this outfit lost money, to the tune of $300 million last year: almost precisely the amount earned by the state's liquor monopoly.

So let's return to the digging metaphor. The state, at this point, is broke. Gov. Gregoire, who used to support dumping the Liquor Board, is now having second thoughts about privatization. The problem, as she sees it, is that the benefits wouldn't be reflected in the state budget until 2012, and she needs the money in the current biennium. Getting rid of the Liquor Board has an upfront cost: leases of the 300-plus liquor stores around the state have to be broken, State employees have to be shuffled into other slots or terminated outright. In the corporate world, the cost of closing stores or consolidating divisions is taken as a one-time, off-the-books charge against earnings, and nobody blinks; in government, it's a giant mess. The obvious answer, a state income tax, is political anathema. Come to think of it, a more approriate metaphor might be the Augean Stables: a task for Hercules.