Liquor plan scraps 2 taxes, leaves $47 million hole

Gov. Bob McDonnell's staff today dropped two proposed taxes on retail and wholesale liquor sales, leaving a shortfall of more than $47 million in state revenues if Virginia ends its monopoly on spirit sales.

The revised plan, endorsed today by a gubernatorial subcommittee on government reform, would eliminate the proposed 2.5 percent optional tax on restaurant alcohol sales and a 1 percent tax on wholesale liquor sales

The changes won the support of the Virginia Hospitality and Travel Association, which had lobbied against the so-called "cocktail tax" that the administration initially had proposed at 4 percent as a way to make privatization of liquor sales revenue neutral to the state.

But the changes also will make the plan a harder sell in the General Assembly, which McDonnell and his staff said today would not be called into special session unless the votes are there to approve privatizing the liquor business.

Sen. Mary Margaret Whipple, D-Arlington County, cast the only vote against the plan because of the hole it would create in the state budget, which she estimated at as much as $70 million a year if the admniistration's projections of increased sales are wrong.

"From the beginning, we were assure that the general fund revenue hole would be replaced," Whipple said. "That is something that was extremely important to many, many legislators."

The administration came up almost $22 million short when it rolled out its plan on Sept. 8 without an additional 1.5 percent tax  that had been proposed on restaurant alcohol sales. "Now you've gone in the wrong direction again," she said.

Other commission members contended that Virginia needs to get out of the liquor business, regardless of whether privatization would replace all of the revenues generated by the Department of Alcoholic Beverage Control -- $231 million last year.

"We're looking at this too much from a money point of view and not enough from a governance point of view," said Gil Shelton, a retired banker and business consultant from Caroline County.

The governor's revised plan also creates a fourth tier of retail licenses for small dealers with less than 3,000 square feet of space. One hundred of those licenses would be reserved for the smallest dealers. The new tier would not expand the total number of licenses that would be issued, which is capped at 1,000. Instead, those licenses would come from the 250 licenses reserved for convenience stores and drug stores.

Bidders who win licenses in three of the four categories all but the largest, big-box retailers could pay for their licenses over a period of three to five years.

The state would not loan money to any bidder, but the option "will allow small businesses the opportunity to compete, but will still maximize value to the commonwealth," said Eric Finkbeiner, the governor's senior policy adviser. The state would charge licensees an unspecified interest rate for taking advantage of the payment plan.

The plan would maintain a proposed excise tax, paid by wholesalers, of $17.50 per gallon. The administration could have filled the revenue hole by raising the tax to $22.50 a gallon, but that would have risked opposition from the liquor industry and anti-tax organizations that say the charge is too high already.

(This has been a breaking news update. An earlier story on the governor's comments regarding a special session is posted below.)

11:29 a.m.

Gov. Bob McDonnell said today he will not call a special session of the General Assembly to consider ABC privatization unless he has the votes to pass it.

"We will do a count in the near future and see where we are," he said on the "Ask the Governor" show on WRVA radio.

He said  his predecessor, Gov. Timothy M. Kaine, called two special sessions to deal with transportation and they turned out to be a waste of time and money.

MCDonnell said the privatization plan has "so many moving parts" it has run into complications, but added, "in due course it will pass."

Today, a gubernatorial subcommittee is scheduled to vote on the privatization plan. It is expected to receive a new proposal for the state to finance the cost of liquor licenses for small businesses and convenience stores.

On another issue, McDonnell was asked about a pay raise for state employees. He said workers will get a 3 percent bonus in December, but added Virginia is still in "tough fiscal times and I don't see any long-term pay raise in the future."

(This has been a breaking news update. Check back for more details as they become available.)