Report says state will lose money if liquor initiatives pass

State and local governments stand to lose hundreds of millions of dollars if voters pass either of two initiatives on the November ballot putting Washington state out of the liquor business, according to analyses by the state's Office of Financial Management (OFM).

The reports, released on Wednesday, paint a far different picture from most of the scenarios analyzed in a state auditor's report earlier this year, which predicted revenue boosts if the liquor business were privatized.

The OFM reports also conclude that consumption of hard liquor would go up.

Initiative 1100, which is backed by Costco Wholesale and other large retailers, would reduce state and local revenues by up to $277 million over the next five years, OFM said.

Initiative 1105, which is funded by large distributors, would decrease revenues by as much as $730 million — a bigger bite because that proposal also would eliminate the state's liquor tax.

Backers of both initiatives say the state Legislature could raise taxes to make up for any deficit. Initiative 1105 recommends a new, simplified liquor tax that — along with other aspects of the measure — it says would increase revenue by $100 million beyond what the liquor board now projects.

The OFM reports conclude both measures would increase liquor sales in Washington by 5 percent, based on sales growth experienced in Alberta, after the Canadian province privatized its liquor stores.

Liquor sales would increase partly because the number of sales outlets would multiply as grocery and convenience stores that currently sell only beer and wine put liquor on their shelves. Both the state auditor and the new OFM reports estimate that 3,357 outlets would sell liquor, compared to 315 liquor stores now.

Lower liquor prices also would boost sales, the new reports said.

Rick Garza, deputy director of the Washington State Liquor Control Board, said the initiatives are more costly than scenarios presented in the earlier auditor's report partly because they eliminate the state's markup on liquor, which accounts for about 23 percent of a bottle's price to the consumer.

In its report earlier this year, the auditor made up for the loss of the markup — which translates into $75 million for the state's general fund and $47 million for local governments — by assuming the state would increase liquor taxes to compensate, Garza said.

"That's the way to do it if you're not going to impact local governments," he said.

The liquor board employs about 1,200 people. About 930 would lose their jobs if liquor distribution and retailing is privatized, the state auditor estimated.

The initiatives' backers dispute findings in the new OFM reports.

"We don't have an exact figure to throw back at them, but we're casting doubt on the whole report, because they basically talked to the State Liquor Control Board, which is not an unbiased party in this and are trying to preserve themselves, and we feel we weren't brought into the process," said Ashley Bach, a spokesman for the group Yes to 1100, which is supported by Costco Wholesale and other large retailers.

OFM's reports did not account for additional tax revenues that would be paid as liquor sales went up, he said.

The state also could increase revenue by having the liquor-control board focus on enforcement activities such as catching people who smuggle low-cost liquor into Washington from Nevada and California, Bach said.

"That's a huge problem, and the state has basically ignored it," he said. "Everyone has a story of people bringing in liquor from a low-cost state. That could save millions of dollars a year."

Initiative 1105's plan for plugging the hole is more direct. It would eliminate a complex web of liquor taxes now in place, and suggests the Legislature make up for the shortfall with a new, simplified tax.

That tax, plus other taxes and fees in Initiative 1105, would add $100 million in revenue, said Bob Stevens, a 40-year liquor-industry veteran who consults with the Bellevue-based distributor Odom on the voter measure.

OFM did not include the initiative's new tax in its report because there were no specific numbers for it, said legislative director Julie Murray. "We include impacts actually from an initiative, because that's what becomes law."

Initiative 1105 calls for the liquor board to recommend a new tax rate. It is backed by $2.2 million from Odom Southern Holdings, Odom's partnership with Southern Wine and Spirits, and another distributor, Young's Market Co., which is based Southern California.

Initiative 1100 has attracted $1.2 million in funding from Costco, Safeway and others.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com