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Supporters of liquor privatization look forward to 2013 legislative session

Supporters of liquor privatization look forward to 2013 legislative session

Idaho Freedom Foundation staff
July 10, 2012
Idaho Freedom Foundation staff
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July 10, 2012

An initiative that would have privatized the distribution and sale of liquor in Idaho failed to gather enough signatures to be placed on the November ballot, but supporters of the effort are already planning to work with the 2013 legislature in the hope of achieving the same goal.

Two different groups expressed interest several months ago in sponsoring a ballot measure. The Northwest Grocers Association (NWGA) met with Idaho officials in late December to determine the steps they would need to take in completing a privatization initiative, before deciding to wait. Ultimately, the Idaho Federation of Reagan Republicans (IFRR), a group based in north Idaho, came forward a month later to announce their own initiative effort, but that too was abandoned after the Idaho attorney general's office released its report on the text of the measure, expressing legal concern regarding some of its provisions.

"The report thought there were certain constitutional issues with the structure of our initiative," said Jeff Ward, president of IFRR. "We pretty much disagreed with the attorney general, but we didn't have the resources to mount a legal discussion. We could have gone ahead and done the initiative, but we just thought that it was too big a hurdle."

The report contended in part that the Idaho Constitution designates the legislature as having regulatory authority over liquor, so an initiative attempting to change liquor regulations might be unconstitutional. Ward said, though, that most courts have upheld the idea that voters are acting as the legislature when they engage in the initiative process.

Although voters won't have a chance to consider the issue this fall, both groups are hoping that next year's legislative session will be receptive to liquor privatization.

"Idaho is still, in my view, prime for privatization," said Joe Gilliam, president of NWGA. "I'm just not sure in what form. Our intent is to continue to work with the legislature and see if there's a legislative solution."

Liquor privatization has gained traction recently in Idaho largely because of a similar effort in neighboring Washington, which privatized its state-controlled liquor industry in May. That state's experience, however, may provide both an example and a warning for Idaho. According to the Tax Foundation, a national nonprofit that analyzes tax policy, Washington's privatization amounted to a disguised tax hike. By retaining the state's already high 20.5 percent sales tax on liquor and $3.77 liter tax for liquor, and adding new fees of 17 percent for retailers and 10 percent for distributors that end up incorporated into retailer markup, many consumers have found that they pay more for privatized liquor sales than they did previously in state-controlled stores. Supporters contend that those added fees were a necessary provision, so that the state would not lose revenue from the liquor it no longer sold.

"The first thing they wanted was the government out of the business, and the second thing they wanted was to be revenue-neutral," Gilliam said. "Price was never really a big issue to the voters. Price was not included on the initiative at all, and it still found huge favorability."

The Tax Foundation ranks Idaho as having the 10th highest liquor taxes in the nation, at $11.28 per gallon, although still falling below Washington, Oregon and Utah. Idaho Liquor Division Director Jeff Anderson took issue with that ranking, however, pointing out that it includes both wholesale and retail price markup in the tax calculation. Because the state conducts all liquor sales, any profit it makes on those sales is effectively counted toward the full excise tax figure.

"Taxes are very low on distilled spirits in Idaho," Anderson said. "If a state is capturing a wholesale and retail markup, yes, you're going have a higher rate. We wouldn't be serving our temperance mandate if we didn't mark up the products. The prices are generally set by the suppliers, and our prices are generally MSRP (manufacturer suggested retail price) or lower for virtually everything. Now, we don't do blow-out sales like you'll find in some other markets, but we think we have a stable price structure that's fair and competitive with surrounding states, and it's fair for the consumer." He said that if liquor is privatized, retailers will mark up the price of liquor to earn a profit, just as the state does now.

Although the promotion of temperance is a common rationale for state involvement in liquor sales, and would seem to fit well with those legislators who have religious backgrounds that prohibit or discourage the consumption of alcohol, Ward said that he approaches the issue from a different perspective.

"I'm an evangelical Christian myself, and the argument to me is, as a citizen of the state of Idaho, I'm in the liquor business," Ward said. "I don't want to be in the liquor business. And I think that argument works on a lot of levels, for evangelical Christians and Latter-day Saints, that by the state being the sole purveyor of hard liquor, you are actually making the citizens of the state—whether they like it or not—part of the liquor business. Reagan Republicans are strongly in favor of reducing the size and scope of government, and controlling a commercial business like liquor seems to us to be a huge, glaring area that we can attack."

Ward said that he expects to see an even more conservative legislature elected in November, which may signal a new set of possibilities for reining in the scope of government regulation during the coming year.

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