The Administrator of the Alabama Alcoholic Beverage Control Board has gone on the offensive to try and thwart the legislature’s attempt to remove the State of Alabama from the retail liquor business…see- http://alreporter.com/archives/archive-2014/march-2014/146-state/7478-a-risk-worth-taking.html.
Hmmm….. Well that’s a surprise.
His arguments are these. (1) The State would lose money, (2) employees will lose their jobs, (3) more liquor would be consumed in Alabama, and (4) liquor prices would go up.
Here is an analysis of his arguments:
The State will lose money.
Currently, the State “marks up” its cost of liquor (30% for sales in state-owned stores and 16.99% for sales in privately-owned stores) and then the marked up price has a liquor tax applied (56%). Then sales taxes are applied to that amount (6% in state-owned stores and 4% in privately-owned stores).
As illustrated in this example, technically the State will lose money, but only if you define the loss as those of “gross proceeds”. Yes, the proceeds from the markup, the liquor tax and sales tax will be less. For every $10 of liquor the loss will be about $2.50 (actual numbers will depend on the markup applied by private-owners as that will affect sales taxes).
The reality though is that the State will actually gain money when you look at it from the perspective of “net proceeds”. In FY12, the ABC had gross liquor retail sales of $257 million. When you back out the taxes and markup, the cost of the liquor to the state was $120 million. Since the State will lose $2.50 per every $10.00 of liquor purchased, the amount of revenue the State will lose will be approximately $30 million.
Based on this analysis, it appears that the State would have a net increase of $16 million annually.
State Employees will Lose their Jobs
Again, on the surface this indeed appears to be the case. But what is not being told is that these state employees will be given opportunities for other state jobs and will certainly be considered for employment as these state-owned stores convert to private-owned stores. If they choose the private sector, will their compensation be as good? Depends on whether they were overpaid or underpaid relative to the free market as state employees.
The ABC currently has 764 employees, with 618 of them working in retail. Of the remaining 146 ABC employees, 105 are in administration and 41 work with the warehousing side of the agency. That amount of administrative support should go down commensurately with the downsizing of the agency.
The proposed legislation allows for displaced workers to be given preferential treatment when applying for other state jobs. The employee will be given an additional five points on their state examination and an agency, if they pass on hiring a displaced worker, has to justify their action with the State Personnel Board.
Additionally, displaced workers will be given a preference of 20% when bidding on the retail license and permit fees for the privatized store location. This preference transfers to the private individual/company if they hire the displaced worker. This is a big incentive for the private sector to hire the displaced workers.
More Liquor will be Consumed in Alabama
Not sure how this conclusion is derived. Longer operating hours do not necessarily translate into more sales. The legislation merely converts current state-owned facilities to the private sector. Actually, if more liquor is purchased in Alabama, then that translates to more revenue advantage for getting out of the retail business in the first place.
Liquor Prices Will Go Up
This is true when you only consider the sales from the privatized state-owned stores. As illustrated in the example above, a consumer that previously only shopped at the state-owned stores will now pay approximately 6% more at a privately owned store than the previously state-owned store. This is based on the assumption that the private-owned store has a markup of 20%, but does not include the competitive free market aspect of privatization. Competition may actually force markups down and could result in consumers actually paying less.