Successful liquor initiatives could cost state, local coffers millions

If voters choose next week to get Washington out of the liquor business by passing Initiatives 1100 or 1105, state and local governments could lose anywhere from $51 million to $146 million a year in revenue.

Right now, Washington's $945 million alcoholic-beverage business is self-supporting. A slice of the money — about $574 million — pays for the whole system, from buying the liquor to paying store clerks to employing gun-carrying officers who enforce state laws in restaurants, bars and grocery stores that sell wine and beer.

Most of the rest goes to the state and local government general funds.

Although the Legislature does not technically decide how much to charge for liquor, it tells the Liquor Control Board when it needs more money, and prices go up.

For example, last year the Legislature directed the liquor board to raise an additional $80 million, so the board increased the markup, which is like a profit margin. It rose from 39.2 to 51.9 percent, and is scheduled to return to 39.2 percent next July.

Under I-1100, whose primary backer is Costco Wholesale, retailers would replace the state markup with their own — presumably smaller — profit margins.

If voters approve I-1105, which was crafted by liquor-distribution companies, the state would lose even more money because that measure eliminates state liquor taxes.

The state received $302 million from the liquor business in fiscal 2010, and it could lose up to $17 million of that money if I-1100 passes, according to the state's Office of Financial Management.

That office calculated how much the state and local governments could lose from each initiative. It's not as simple as subtracting the markup and tax losses because those governments would collect more income from sources such as additional liquor licenses.

In fliers handed to Costco customers, the Issaquah-based chain says the impact on local governments is lower than the state's fiscal office predicts.

Costco CEO Jim Sinegal says that, in regard to I-1100, worries about how state government will fill the hole are overblown.

"What the state might lose per year in liquor income represents less than one day's spending under the state budget," Sinegal wrote in the October issue of the chain's member magazine.

Local governments

Last year, cities and counties received $69 million from the liquor system. The fiscal office figures local governments would lose more than half of that, although it's impossible to know how each city or county budget would be affected.

King County received $1.8 million from the state's liquor business last year. It's a large chunk of money, said Metropolitan King County Councilmember Julia Patterson, who chairs the budget and fiscal management committee.

For comparison, she said, "that amount of money could restore all the domestic-violence-prevention services that the executive has proposed to cut from the budget."

"Instead, the money will potentially go into the pockets of private industry," she said. "I wonder how much of that they will contribute to their domestic-violence shelters."

The $7.5 million Seattle received last year went into its general fund.

The city's budget director, Beth Goldberg, told the City Council that initiatives 1100 and 1105 could decrease revenue by up to $4 million in 2011 and up to $7 million in 2012.

With so many other initiatives potentially affecting Seattle's budget, it is impossible to predict the impact of a single measure, said Mark Matassa, a spokesman for Mayor Mike McGinn.

"There's a lot of pain involved in closing the $67 million shortfall this year, and another several million on top of that would hurt, no doubt," Matassa said.

Cuts to state revenue

The fiscal office figures that I-1105, by eliminating state liquor taxes, could cut state revenue by up to $104 million a year.

The liquor distributors behind I-1105 say that was never their intent, and point to language in the measure that calls for new liquor taxes to make up for any loss to the state and local governments.

Enacting new taxes, however, could be messy.

That's particularly true if Initiative 1053 passes, requiring any state tax increase to be approved by two-thirds vote of the Legislature.

To address that sticky issue, the distributors asked the law firm Perkins Coie to explain how lawmakers could institute new taxes under I-1105 without a two-thirds vote. Essentially, Perkins Coie argues that any such taxes would not be "new," because they would not result in higher state tax revenue.

Either way, state lawmakers are worried about filling the budget hole if I-1105 passes.

"The bottom line is the revenue goes away, the taxes go away," said Sen. Ed Murray, D-Seattle, who sits on the Senate Ways and Means Committee.

Not easy

Even without the two-thirds requirement, "raising taxes was not an easy thing this session," Murray said. "The only thing that would give me a little hope is, there are reasons to raise taxes on something as dangerous as alcohol as a way to control consumption to some extent."

He thinks Republicans might pass new liquor taxes for that reason, if not for budget concerns.

Under either initiative, the state Liquor Control Board's role would shrink dramatically.

Without liquor stores and a distribution center, the board would have about 930 fewer employees and a much smaller budget.

Right now the liquor board spends $17 million on licensing and enforcement.

Those costs would probably increase, as it would have more retailers and distributors to license and regulate.

If I-1100 passes, licensed retailers could start selling liquor next summer, and the state would stop selling it by Jan. 1, 2012. Under I-1105, licensed retailers could sell liquor next fall, and state stores would close by April 1, 2012.

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