Dem's liquor deal better but not good enough

The tactical maneuvering over the state's liquor contract took an interesting turn Monday when Democrats proposed incorporating the hospital debt into their proposal.

This mirrors a goal first proposed by Gov. Paul LePage and shows that the governor's insistence on paying the hospitals is gaining traction with the public.

But while questions have been raised about the constitutionality of the governor's proposal, the Democratic plan is still not an acceptable alternative.

The hospitals are owed about $186 million, and paying that would allow them to collect a nearly $300 million match from the federal government.

The governor's plan calls for issuing revenue anticipation bonds to raise about $200 million to immediately settle the hospital debt.

The original Democratic plan did not include any provision for paying the hospitals.

The revised Democratic plan, presented by Sen. Majority Leader Seth Goodall, D-Richmond, would require bidders for the state's liquor contract to come up with $200 million within the next biennial budget and $100 million by June 30th of 2014, a month before the new contract goes into effect.

Goodall claims his bill is better because "it doesn't borrow money to pay for debt" while the governor's plan does.

Technically he is right about paying no interest on the hospital debt. That's because the state would simply front that money from other account balances to pay the hospitals.

The state can only do that because it anticipates getting the $200 million upfront payment from the successful liquor bidder.

And certainly anyone putting up $200 million is going to build that interest expense into its contract with the state. In effect, the state would be paying interest.

The new hospital plan does nothing to change the most onerous aspect of the Democratic proposal.

Requiring bidders to come up with an initial $25,000 just to bid and $200 million in the first year effectively eliminates all competing bidders other than Maine Beverage Company, the company holding the existing contract.

The "Maine" part of Maine Beverage is actually a clever misnomer.

The small company established to do business here is a  wholly-owned subsidiary of Massachusett's Martignetti Beverage Co., one of the largest liquor wholesalers in the country. Its original deal with the state 10 years ago was financed by Lindsay Goldberg, a Wall Street private equity firm with more than $10 billion under management.

That deal netted its investors an estimated $195 million in profit after the state guaranteed them a 37 percent profit margin.

Those are loan-shark type numbers, and we don't need another deal like that.

Two Maine firms, Dirigo Spirit Co. and All Maine Spirits, have shown interest in bidding under the governor's proposal, but they have said coming up with $200 million in cash is asking too much.

So, under Goodall's bill, the field would likely be thinned to one bidder, who would then be free to write themselves a very advantageous contract with the state.

Again, in any negotiation, more bidders guarantees a better deal. With one bidder we will get the kind of deal we got 10 years ago.

Despite the Democratic hospital concession, the governor's approach to the liquor contract is still best: strip out the loan requirement and simply have people bid on the services required, like logistics, administration and marketing.

Requiring the bidder to provide us with a $200 million loan upfront eliminates competing bidders and puts Martignetti and Lindsay Goldberg in the catbird seat.

Let's give Maine bidders a fair chance and, we hope, avoid the shark tank.

rrhoades@sunjournal.com

The opinions expressed in this column reflect the views of the ownership and the editorial board.

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Comments

Steve  Dosh's picture

Dem's liquor deal better but not good enough

Rex 13.03.13 noon somewhere in VA on AMTRAK ®  . .
. .What you say makes good sense ?
Personally, i don't smoke , drink , use Zumba ® therapy or gamble in Maine ( or elsewhere ) so have at it you guys and girls
Sin taxes should go toward some sort of health , education or welfare support and reform . Tools are anachronistic . The pubic works projects are usually paid for already . h t h ? /s , Dr. Dosh :)

Steve  Dosh's picture

. .er l o l , tolls ;)

. .er l o l , tolls ;) Guys are tools ?

CLAIRE GAMACHE's picture

A better deal

Seems to me there are two big IFs being bandied about. The governor claims that he can get a deal where we will be selling way more liquor cheaper so making lots more money. Given his record so far it seems to me he is way more cheerleader here than prophet. That being the case, I would be against taking out a bond to pay the hospitals up front. Why should the Maine taxpayer take on all the risk? If the governor is right, we could pay the hospitals when we get paid. The governor has already made the case that we cannot afford to borrow money and who borrows money to pay their bills in the hope of a windfall coming their way? The second IF has to do with an up front payment. It is assumed that Maine will lose a whole lot of money if we take that because we did in the past. What is to stop us from being paid a percentage? If we sell more than we expect we would get more money. Why can't we craft a different deal with the same company than we did in the past. And why assume that the company we had before is not as good as the new ones? It seems to me that the different companies have locked in their champions and no one is looking at what is the best deal for the Maine taxpayer.

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