Shut Up and Swallow
How We Ended Up with Two Flawed Liquor Initiatives and Why They're Our Only Hope
Washington is one of just 18 states in the country that control all retail sales and distribution of liquor, and it's been this way since prohibition. There are only 22 liquor stores in the city of Seattle—or one liquor store per 27,364 residents. Bars and restaurants are each allotted only one store they are authorized to buy liquor from, and the stores themselves run on a child's curfew, some of them closing as early as 6:00 p.m. on busy Friday and Saturday nights. Clearly, the state has no concept of happy hour.
And if a liquor store runs out of something a restaurant needs to make its customers happy? Maker's Mark, for example? Until that assigned store gets a new shipment of Maker's, that restaurant is shit out of luck. If the liquor store that's been assigned to a restaurant closes early, but another liquor store across town is still open? Again, that restaurant is shit out of luck—going to another store is against the rules of the Washington State Liquor Control Board (WSLCB). If the state doesn't carry a product that a restaurant's customers want or if it discontinues a product? Once again, shit out of luck.
To say nothing of how difficult it is for an adult to buy a bottle of liquor after 5:00 p.m. on a Sunday: There isn't a single liquor store in the state with its lights on.
Obviously, our legislators in Olympia should've gotten Washington State out of the liquor business long ago. A state auditor's report released in January showed that the state could make as much as $277 million in additional revenue over five years by privatizing the sale of liquor, based on an estimate that the number of liquor outlets statewide would jump from 315 to 3,357. Neighborhood grocery stores and convenience stores and gas stations would suddenly have the ability to sell booze until 2:00 a.m., as they do with beer and wine. Bars and restaurants and everyone else could buy liquor like adults—at the store, with their groceries—and they could do it past 5:00 p.m. on Sundays, like they do in most states.
We've had the opportunity to change our archaic liquor laws, but our elected representatives have dragged their feet like dancers in a clubfoot ballet—shuffling around, sidestepping, and ultimately shooting down privatization bills every legislative session for the last 13 years. Some bills have proposed sweeping changes, while others would've allowed more private stores to contract with the state to make liquor slightly more available. But the legislature hasn't budged.
There are reasons they drag their feet—bills failed due to a split Democratic caucus, intense pressure from the state employees' union, and teetotaling moralists on the right.
Money is also an issue. The state makes a lot of revenue off the markup of selling liquor and on the taxes it tacks on top of the markup. Last year, the state made $360 million in revenue off of liquor markup and taxes. That money goes directly into the state's general fund and toward city budgets to pay for things like health care, foster care, and road maintenance.
It also pays for the WSLCB, which in addition to liquor sales is in charge of liquor regulation and enforcement. (Yes, it's weirdly contradictory that the same body is in charge of promotion and regulation, like someone offering you a drink with one hand while preparing to slap you in the face with the other for being a goddamned lush.) The money the state reaps selling liquor is also used to penalize private businesses that don't follow its strict rules. For instance, the state stupidly penalizes nightclubs that let musicians drink on stage during a show.
Getting the WSLCB out of the liquor-retailing business would allow it to focus on what it does effectively (safety and enforcement—the WSLCB has a 94 percent compliance rate for not selling alcohol to minors) instead of what it does poorly (retail liquor from drab, Soviet-bleak stores).
But the contradiction serves a certain harmony. "We pay for ourselves in the markup," says Brian Smith, spokesman for the WSLCB. "Without it, we can't run enforcement, licensing, alcohol-awareness programs, or the liquor control board."
Nevertheless, things look like they're going to change for the WSLCB—whether it likes it or not.
It's about time.
The legislature's inaction on liquor reform is why we now have not one but two initiatives on the ballot this November seeking to get the state out of the liquor business. Each of them is problematic, but both of them appear to have a good shot at passing—both are polling at more than 50 percent. And in spite of their problems, if both passed, that wouldn't be such a bad thing—because having to reconcile them would finally force Olympia to
One of them, Initiative 1100, is heavily supported—and largely funded—by Costco. Of the two, it provides the most dramatic changes to our system. Right now, the state regulates liquor manufacturing, liquor distribution, and liquor sales. I-1100 would privatize sales and allow any business to become a distributor, for a fee. Current distributors "can stay in business, but they'll no longer have the monopoly the state currently provides them," says I-1100 spokesperson Ashley Bach. By June 2011, the liquor control board would start accepting liquor applications from private businesses that already carry beer and wine, and open up licensing options to new retailers. Costco is behind the initiative because it allows big retailers—like Costco—to become distributors as well as retailers. This means they can buy directly from wholesalers and then turn around and sell liquor to other liquor stores, restaurants, bars, and individual customers.
The Washington Restaurant Association, the Independent Grocers Alliance, and the Seattle Nightlife and Music Association (SNMA) have all endorsed I-1100 because "it's the most open market, it provides the most choice," says Pete Hanning, owner of the Red Door in Fremont and president of the SNMA.
But small-scale Washington wineries and microbreweries see things differently. The Washington Brewers Guild calls I-1100 "the greatest threat the Washington craft brewing industry has experienced in a decade." They say that with I-1100, craft businesses will be pushed off the shelves as selection is choked out in favor of volume. "It repeals all current wine distribution laws that significantly impact small wineries," says Annie McGrath, spokeswoman for the Washington Wine Institute. "We've got some pretty great laws on the books for wineries that open up access for small guys to get into the marketplace—a retailer can't require a winery to pay for shelf space or advertising or menu printing, for example. This initiative repeals all these key protections." (On the bright side, you'd be able to buy a bathtub full of Maker's Mark at Costco for a song. Whereas a bottle currently costs $34 in Washington liquor stores, the same bottle in California—which has a model closer to I-1100—costs only $20.)
But that discount to consumers comes at a cost to the state. The state's Office of Financial Management (OFM) estimates that I-1100 could cost Washington up to $85 million in revenue over a period of five years, and local municipalities as much as $192 million. (Everyone's calculations are confusing and contradictory—depending on whom you talk to, the state will either lose millions or make millions by getting out of the liquor business.)
The other initiative, 1105, is backed by distributors and preserves the state's three-tiered buying system (distributors buy booze, beer, and wine from wholesalers across the state and country; retailers then buy from distributors, who deliver all over the state) while privatizing retail sales. Charla Neuman, spokeswoman for I-1105, says, "If you are both a distributor and a retailer"—like Costco seeks to become—"you can charge yourself much lower prices than other companies buying from you," putting competing small businesses at a disadvantage. Unlike I-1100, Neuman says, I-1105 "protects small businesses." (Perhaps, but it's also true that back in the era of prohibition, when the three-tiered system was created, distributors were the mob. I-1105 essentially preserves a moblike monopoly on distributing booze, which is why it's being funded by distributors to the tune of $2 million.)
I-1105 could cost the state up to $520 million over five years and municipalities as much as $210 million, according to the OFM. If those numbers prove to be accurate, this would translate into huge hits to education, health, and social-services funding, among other things.
The municipality of Seattle could lose as much as $7 million annually. "If either initiative passes, we lose money," stresses George Emerson, an economist with Seattle's Department of Finance and Administrative Services. Last year, Seattle received $7 million from liquor markup and taxes, according to Emerson. The city uses this money to fund law enforcement, road improvements, and social services.
"The OFM is completely bogus," counters Neuman. "1105 will not cost the state money."
It's true the state's numbers aren't completely accurate—the state won't speculate on how much money in liquor taxes will be generated once more stores are selling more booze, or how many more liquor licenses the state will be able to sell. Additionally, under I-1105, stores would be required to give the state 6 percent of gross sales—revenue that would go into the state's general fund—for five years after they obtain their license.
Of the two, I-1105 is the better policy. It doesn't repeal laws that help craft breweries and wineries, and it contains wording that ensures privatization would "generate at least the same annual revenue for the state and local jurisdictions as under the current state control system, as well as at least an additional one hundred million dollars" over a five-year period. (The campaign contends their measure will bring in $130 million over five years.) The initiative outlines how this will be achieved: by instructing the WSLCB to set new liquor-license fees; by having the WSLCB recommend a new, higher liquor tax (in order to offset the liquor markup the state will lose); and from the sheer quantity of new liquor retailers selling more booze (which means more liquor being taxed).
Meanwhile, the I-1100 campaign doesn't dispute the fact that its initiative will cost the state money. "We're not saying for sure that the state's going to come out ahead," says spokesman Bach. "We believe there are a lot of ways that the state can make up the money." The surest way would be by raising taxes.
"If we're losing money on the markup, we'll have to set the liquor taxes higher, so that the state comes out revenue neutral," says state representative Ross Hunter (D-48), who is the chair of the House Finance Committee. Here's Hunter's problem with the scenario: If Tim Eyman's Initiative 1053 also passes this November—an initiative that would require a nearly-impossible-to-achieve two-thirds majority in the legislature to raise any taxes—legislators would be hamstrung. The legislature would be unable to raise liquor taxes until the 2013 session, when it could theoretically suspend the Eyman initiative. Until then—amid the state's recession-era budget shortfalls—the state would lose out on $101 million annually in liquor-tax revenue, on top of the markup we're set to lose.
"Whatever people think philosophically about privatization, these initiatives are too risky, they go too far," says Sandeep Kaushik, spokesman for Protect Our Communities, the campaign working to defeat both I-1100 and I-1105. Beer and wine interests have pumped over $4 million into Protect Our Communities' efforts. Clearly, beer and wine companies are concerned with competing on grocery shelves with liquor. However, Protect Our Communities' basic argument is that these initiatives pose a public-safety risk. "I-1100 makes Washington the most deregulated hard-liquor state in the country," says Kaushik. "When you have well over 2,000 convenience and neighborhood stores, mini-marts, and gas stations that are able to sell liquor until 2:00 a.m., and less money for enforcement, there are public-safety issues."
But in spite of being potentially disastrous in the short term for the state budget and potentially disastrous from a public-safety standpoint ("Roughly 1 in 20 teenagers succeeds in buying liquor in our state, but that number jumps to roughly 5 in 20" in states that are privatized, says Smith of the WSLCB), odds are that one or both initiatives will pass. During a recent SurveyUSA poll sponsored by KING 5, 59 percent of voters said they were certain to approve I-1100 and 54 percent were certain to vote yes on I-1105. (The poll was conducted with 618 likely voters and had a margin of error of 4 percent.)
And if either or both initiatives pass, the state and local municipalities can always fix the disasters that arise. Cities could follow California's lead and pass ordinances to restrict liquor-store hours of operation, the state could limit the number of liquor licenses a chain could have like New Jersey does, and cities and counties could enact land-use regulations governing where liquor could be sold. The legislature could also toughen up the state's DUI penalties. Arizona has some of the most relaxed liquor laws in the country—it still allows drive-through liquor stores—but a first DUI offense includes having an interlock device installed in your car for a year.
What happens to the law if both initiatives pass?
A fucking mess ensues. "There is no rule in the state to dictate what happens when two [similar] initiatives pass at the exact same time," says Dave Ammons, spokesman for the secretary of state's office. But it might actually force the legislature to do its job. "The legislature or the courts must figure out what to do," Ammons explains. "They could conceivably adopt an approach to say that the most popular of the two would prevail, or the legislature could try to harmonize the two." Ammons says that the legislature would need a supermajority—or two-thirds approval in both houses—to mesh the two, as stipulated in the state constitution.
The legislature refused to act on this issue when it had the chance, but it would not be able to ignore the will of the voters. And after nearly a century of dealing with a crappy system, the public sentiment is that something needs to change—even if change comes in the form of a mess that needs to be cleaned up later. After all, if neither initiative passes, the legislature may take that as a sign to keep doing nothing and leave an archaic liquor system in place. Now voters are left with no choice but to play chess with a sledgehammer. It'll be the legislature's job to pick up the pieces.