Analysis: Governor's plan may involve liquor money, hospital debt

A week-and-a-half after Gov. Paul LePage strongly hinted at a plan to call a special legislative session that would set Maine "on the right track for the next 10 years," the subject of any possible special session remains a mystery.

But rumors are swirling that LePage plans to pay off the state's approximately $150 million in hospital debt by re-leasing the state's wholesale liquor business or selling it outright. If he does, the Republican governor will continue a practice started in 2004 by his Democratic predecessor. 

On Friday, the governor's spokeswoman would neither confirm nor deny that LePage was close to finalizing a deal that would pay off the hospital debt.

But Jeffrey Austin, vice president of government relations for the Maine Hospital Association, said his group has been working with the governor's administration for the past month or two on the approximately $460 million in Medicaid money owed to Maine's hospitals. The state is responsible for about one-third of that, or about $150 million. Once Maine pays its share, the federal government would pay the rest.

If LePage does plan to pay the hospital debt, re-leasing or selling the state's wholesale liquor program would likely give it more than enough money.

Like many other states, Maine took control of hard liquor distribution and sales within its borders in the 1930s, after the end of Prohibition. For decades hard liquor could only be brought into Maine by the state and sold in state stores operated by state employees.

But while the profit could be good, not everyone wanted the state to stay in the liquor business forever. In the 1970s, Maine began closing some liquor stores, and in the 1980s then-Gov. Joe Brennan, a Democrat, started talking about privatizing the program.

In 2003, then-Gov. John Baldacci brought privatization to the forefront again. Augusta lobbyist Severin Beliveau had made an offer on behalf of one of his clients to buy out the liquor business, and Baldacci wanted to do it. The state, he said, could get $125 million badly needed to help fill a large budget gap.

Republican Peter Mills, then a member of the State House, said he was "incredulous" at the plan. He pointed out the state could earn a lot more than $125 million over the years if it just held on to the liquor business.

He was right. Analysis showed the business could bring in $260 million in just a decade.

Mills' efforts helped shift Baldacci's plan from a sale to a lease.

By 2004, all state liquor stores were closed and private stores were licensed to sell hard liquor. The state leased its warehouse and wholesale distribution rights for 10 years to a Massachusetts company. A later dispute and settlement resulted in a partnership between that company and a Maine company to create Maine Beverage Co.

As part of the deal Maine Beverage Co. would operate the warehouse and distribute liquor to the licensed stores for 10 years. Maine would retain oversight, setting the price at which stores could purchase alcohol, the price at which consumers could buy it and which products could be sold. 

Maine got $125 million for the lease and an annual piece of the profits. Last year Maine's piece was $8 million.

The lease runs through June 2014.

Gerry Reid, director of the Bureau of Alcoholic Beverages and Lottery Operations, called Maine Beverage Co. "a great partner doing a good job."

"We are in the middle of assessing our opportunities and options for the period of time after that (lease)," he said. "That's part of my job, to do the best job for the state of Maine taxpayers as I can. Some of the stuff that was in the press the last couple of weeks, I think, is just some reaction to the people who know that that's going on. I'm not at liberty to discuss anything in any detail about that."

A state-requested analysis by Deloitte and Touche in 2009 pegged the fair market value of the state's liquor business at $378 million. Mills believes it has likely increased in value in the three years since.

"It strikes me that liquor sales are a reasonably stable commodity," he said. "Allen's Coffee Brandy just seems to be chugging along."

If the value has increased, another 10-year lease could be worth three times or more what the state got in 2004.

An outright sale could bring even more, and it wouldn't be the first time a state relinquished all control over liquor. The state of Washington this summer privatized its entire liquor business. Seventeen states currently maintain some measure of control over liquor sales or distribution.

But Mills, now the head of the Maine Turnpike Authority, cringes at the thought of Maine giving up all liquor rights, just as he did in 2003.

"Oh my god, that would be horrible," he said.

He believes it would be a good idea for LePage to re-lease warehouse and wholesale distribution rights, with money going to hospitals. Such a move would pay a debt and bring the hospitals federal money. He would like to see some strings attached though.

"It would be a shame if that money wound up in the bonus pool to hospital CEOs," Mills said.

He'd like to see a requirement that hospitals use some of the money to change the way they manage patient care and costs.

"He has the power of the purse," Mills said. "He could say, 'You know what? You don't cooperate, maybe you'll get it three or four years from now. You want it today, here are the conditions.'"

It remains unclear whether LePage plans to propose a re-lease or sale and give that money to the hospitals. But Austin at the Maine Hospital Association said a plan to pay off the hospital debt is in the works.

He hopes to hear of a finalized plan next week.

"Nobody's promised next week, but I think we're getting there," he said. "We're cautiously hopeful."

ltice@sunjournal.com

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Comments

Victoria Alexander's picture

Mainecare debt

One point that seems to get consistently lost when the subject of paying the Mainecare bill is discussed is that the state owes for services rendered. Imagine having a business where people could come in and use your services and then decide, or not, to pay you. How long would you be able to keep your doors open? If paying tolls was optional, who would pay for the highway? Many hospitals have deferred necessary maintenance because they have not been paid by Mainecare. Before we assume that money is going to CEO bonuses it would be important to understand the facts.

CLAIRE GAMACHE's picture

The government is not broke?

So after all these months of hearing how broke the State of Maine is we find out the governor had a secret stash. He wants to give it to the hospitals, probably to soften the blow they will suffer when he turns down all that federal money for the ACA. The way the law is written, the federal government will pay less to the hospitals but they will make it up from the people who are now on charity care who will then be insured. When the governor rejects the funds the hospitals will take a double hit: payment cuts and more charity care. Well there are also other things we could use that money for, like restoring funds to Head Start and to the schools, and restoring health care and meds to people who have lost the "privilege". And then there's the heating oil crisis that is looming for this winter when some people will be mighty cold. Much better to put the money into hospital CEO bonuses though, right governor? The next time he tells us how broke the government is we should remind him his pants are on fire.

PHILIP LAINE's picture

Maine got $125 million for

Maine got $125 million for the lease and an annual piece of the profits. Last year Maine's piece was $8 million.
The $125 million balanced the budget in 2004.
When the state was in the liquor business about $27 million a year went to the general fund. With privatization Maine only got $8 million last year to the general fund. Someone made out on the deal.......it wasn't the state of Maine.

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