Initiatives could allow liquor sales at up to 22 local businesses

October 19, 2010

By Warren Kagarise

Liquor profits pour about $300,000 into city coffers

Like the Costco Wholesale outposts in dozens of other states, Washington warehouses could add Kirkland Signature vodka and dozens of other store- and name-brand spirits to store shelves — if the electorate approves a historic change to state liquor regulations next month.

The decision to redo state liquor regulations appears on the November ballot in the form of dueling initiatives, 1100 and 1105. Issaquah-based Costco is the biggest backer behind Initiative 1100.

The measures aim to close state-run liquor stores and roll back Prohibition-era policies to allow hard liquor to be sold in grocery stores, gas stations and other retailers.

“This has been an ongoing effort for 20 years to modernize some antiquated regulations that go back more than 75 years,” Joel Benoliel, Costco senior vice president and chief legal officer, said last week. “The world has changed since, almost literally, the horse-and-buggy days, when Prohibition ended.”

Washington and 17 other states still control liquor sales and distribution.

Like past clashes related to state liquor rules, questions about public safety and underage drinking dominate the debate.

“Having state employees sell Smirnoff and Jack Daniel’s is not making Washington a safer state,” Yes on I-1100 spokesman Ashley Bach said.

Proponents of the state-run system said the government has time-tested fail-safes in place to prevent the sale of alcohol to minors.

“State employees don’t have an incentive to sell to minors — private ones do,” Washington State Liquor Control Board spokesman Brian Smith said.

Protect Our Communities — a politics-make-strange-bedfellows coalition of beer and wine distributors and public safety officials formed to defeat initiatives 1100 and 1105 — said passage of either measure could lead to hard liquor at every grocery store and gas station, not to mention increased drunken driving and underage drinking.

“It’s far too high a cost for a little bit more convenience. How inconvenient is this now?” Protect Our Communities spokesman Andy Grow said.

Under the current arrangement, hard liquor is available at a single state store in Issaquah. Protect Our Communities estimates up to 22 businesses in the city could offer hard liquor if the initiatives pass.

Other potential impacts of the measures concern leaders in some cities and counties, because the measures call for changes to how the state collects revenue from liquor sales.

Issaquah Finance Director Jim Blake said the 2011 municipal budget includes $210,000 from projected liquor profits and $110,000 from estimated liquor excise tax revenue.

“We don’t want to just take it out based on some voter initiative, because you never know whether it’s going to pass or not,” he said in a Sept. 28 presentation to the City Council.

The city received $336,329 in liquor dollars during the 2010 fiscal year, state figures show.

Initiative backers described the concerns as overblown, and said the state could increase liquor-related profits due to increased booze sales.

Costco seeks overhaul of liquor system

I-1100 aims to eliminate the so-called three-tiered liquor control system set up to separate the manufacture, distribution and sale of the hard stuff.

The measure calls for a ban on quantity discounts to be repealed. Under I-1100, Costco — a company renowned for large sizes and large discounts — could buy directly from liquor manufacturers and, due to the absence of price controls, could pass on reduced prices to consumers.

The measure aims to allow sellers to purchase liquor on credit and warehouse booze — both banned under the current system.

I-1100 calls for a 51.9 percent markup on hard liquor to be eliminated, but for liquor taxes to be kept in place.

“It’s time for the state to focus exclusively on prevention of abuse, on education, on enforcement of laws, and leave the sales and marketing to people who do that best,” Benoliel said.

If the measure passes, private liquor sales could start in mid-2011. Passage of the measure could also lead to the shutdown of 315 state liquor stores and a Seattle distribution center. The closures could put more than 900 employees out of a job. The state-run stores should close by the end of 2011.

The job losses, plus the reduced revenue for local governments, concern the I-1100 opponents at Protect Our Communities.

“We’re concerned that these initiatives are too risky and that they go too far, that they would imperil public safety and crucial public services, that they would reduce state and local revenues at a time when state and local budgets are already extremely constrained,” Grow said.

I-1105 offers different approach

I-1105 also calls for state-run stores to be closed and for the liquor retail system to be privatized — but requires a licensed distributor to sell liquor to bars, restaurants and retail outlets. Many bars and restaurants use a distributor, but I-1105 requires the extra layer.

Charla Neuman, spokeswoman for pro-1105 group Washington Citizens for Liquor Reform, said distributors “make it possible for a startup to get its toe in the market, whereas otherwise they might not be able to compete with the big companies.”

I-1105 also calls for quantity discounts on liquor, but not on beer and wine.

Under the measure, the state could lose the overhead costs of maintaining a system of liquor stores and net more tax revenue as liquor becomes more available and sales increase.

The measure calls for the state markup to be removed, but does not offer a plan to replace the lost revenue. Instead, I-1105 aims to scrap existing liquor taxes and direct the Legislature to levy a new liquor tax.

Protect Our Communities contends the Legislature is tax-averse and does not seem eager to add another tax.

“That is nonsensical — that the Legislature is going to choose to raise taxes in the current political environment,” Grow said.

Neuman dismissed concerns related to another measure on the November ballot, I-1053 — a proposal backed by initiative author Tim Eyman to restore a tougher legislative majority for tax increases. The measure could make the mandated liquor tax changes difficult.

“It’s ludicrous to think that the state would let the private sector sell liquor tax-free,” Neuman said.

Sobering debate

Though both measures aim to overhaul Prohibition-era liquor laws, initiatives 1100 and 1105 differ in many ways:

How could the measures affect taxes?

Both initiatives aim to eliminate the 51.9 percent markup the state puts on liquor sold through state stores. Backers of both initiatives said the state should pull in more money under a privatized system, due to increased sales taxes and licensing fees, and decreased costs of running liquor stores and distribution centers.

  • I-1100 calls for a web of excise and sales taxes on liquor to be kept in place. The taxes bring in almost $222 million to the state each year.
  • I-1105 calls for repealing the taxes and instructing the Legislature to institute a new tax to make up for the lost revenue and then some.

Where does the money come from?

I-1100 backers had raised about $6.2 million, and I-1105 supporters had raised about $2.4 million, by Oct. 17, state Public Disclosure Commission filings show.

Issaquah-based Costco, Safeway and Wal-Mart back I-1100. Large, out-of-state liquor distributors back I-1105.

Opponents of the initiatives have raised about $8.8 million to defeat the measures. Both initiatives face opposition from beer industry associations concerned about losing market share, and public employee unions concerned about employees losing jobs if state liquor stores close.

What if both measures pass?

The question is difficult to answer. The state has no mechanism in place to address contradictory or overlapping ballot initiatives. If both measures pass, the outcome could be left to the Legislature or the court system to decide.

Warren Kagarise: 392-6434, ext. 234, or wkagarise@isspress.com. Reporter Caleb Heeringa contributed to this report. Comment at www.issaquahpress.com.

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