Callaghan: How would liquor initiative affect cost?
Wednesday, October 26, 2011
I’m all for public safety and everything, but since the cops and firefighters featured in the dueling TV ads can’t agree about Initiative 1183, I’m left to ask: What’s in it for consumers?
I know it’s crass to look at the latest plan to privatize liquor sales in Washington through such a selfish lens. We are pressured by the pro and anti campaigns to base the debate on the talking points their campaign consultants crafted. You know, will it encourage or combat teen drinking? Will it boost or deplete government treasuries? Will it make booze too available? Will it profit a few huge retailers?
Only as an afterthought do proponents mention what might make the most difference to the voters in the middle: Will it decrease the price of liquor?
Maybe proponents don’t talk price more prominently because it could invite voters to “look into the facts.” If they did, they’d be left wondering how a measure that has the same booze taxes as the current system and that replaces the state’s “markup” on prices with comparable fees can have much effect on consumer cost. Supporters use terms like “free market” and “competition,” and proclaim faith that such forces will produce lower prices. That’s how the Washington Research Council backs its claim that the medium and large groceries “benefit from economies of scale not available to the current state stores and can survive on lower markups.”
“Competition among such stores is likely to result in lower prices in many markets,” the council asserts.
But independent grocers (think Thriftway and IGA) are opposed to this version of free enterprise they think is rigged for the big guys.
Certainly, we would have more places to buy hard liquor. And selection could improve. But it also is likely we’ll pay roughly the same under I-1183 as we do now. Voters with visions of California or Nevada prices dancing in their heads may be disappointed. The reason is politics. After Costco’s 2010 initiative was rejected by voters, its consultants looked at the polling and found two flaws. Key voters who ended up opposing the measure didn’t want booze sold in small stores (the much-maligned mini-marts and gas stations). They also opposed reducing funding for state and local governments right now. So this year’s model was made more palatable politically. A store would have to be at least 10,000 square feet to get a booze sales license (with exceptions), and governments will gain revenue, not lose it.
The state’s markup would be gone since the state no longer would have distribution and retail costs to recover. But I-1183 keeps the liquor sales tax and liter tax the state shares with cities and counties.
It also sets up new license fees for liquor distributors and retailers. And if those fees don’t raise a set amount for state and local governments, an additional fee will be assessed on all liquor distributors.
But private sellers have markups, too. A study by the state Office of Financial Management (included in the state voters pamphlet) used data provided by the Distilled Spirits Council to estimate the average private markup as 45 percent.
Add in the liquor retail and distributor fees, and the private markup could be 67 percent once the new system is up and running, OFM says. The current state markup of 51.9 percent is set to drop to 39.2 percent by July 2012.
At the lower rate, our “monopoly” system has a lower markup than the “free enterprise” systems elsewhere. Our prices are higher because our booze taxes are higher, taxes that stay under I-1183.
Given that the measure is written for Costco and the campaign is funded by Costco (with a record $22.5 million cash and in-kind as of Monday), Costco must think it will be able to offer lower prices, perhaps with private-label brands such as Kirkland. But to be the price leader in the market, Costco and big chains don’t have to be cheap, just cheaper than competitors.