AUGUSTA — The company that has operated Maine’s wholesale liquor business since 2004 pledged Wednesday to help the state repay the $186 million it owes its hospitals while guaranteeing the state at least $32 million in annual revenue in exchange for continuing to operate the business for another 10 years.
swiftly declined the offer from Maine Beverage Co. CEO Dean Williams, responding that the state could negotiate a better deal through a new liquor contract and that his administration sought an open bidding process.
In a letter sent to LePage earlier Wednesday, Williams said the state would assume the least amount of risk possible by allowing his company to continue operating the state’s wholesale liquor business.
Maine is one of 17 states that control the distribution of hard liquor within their borders. The state leased that business to Maine Beverage Co. in 2004 in exchange for a $125 million upfront payment and an annual cut of profits until 2014.
“We could step up to the plate, pay a lot more than we have in the past and try to continue this really great relationship,” Williams said Wednesday afternoon.
Williams’ letter came two weeks after LePage announced his proposal to repay the state’s $186 million hospital debt and fund the repayment by renegotiating its wholesale liquor contract to direct a larger portion of liquor profits to state coffers.
State officials have estimated Maine can earn $30 million in profit annually from liquor sales under those more favorable terms. Under LePage’s proposal, the state would direct the entire $30 million annual sum toward paying down revenue bonds the governor hopes to issue this year to repay the hospital debt.
The state has earned about $8 million annually in recent years under its profit-sharing contract arrangement with Maine Beverage Co., Gerry Reid, who directs Maine’s Bureau of Alcoholic Beverages and Lottery Operations, said earlier this month.
In addition to boosting the state’s liquor revenue share, Reid has laid out plans to lower some retail prices and allow liquor retailers higher profit margins in an effort to grow Maine’s spirits business. The lower retail prices would help Maine recoup a portion of the $30 million in spirits sales Reid says the state loses annually to neighboring New Hampshire. The $30 million in sales, he said, amount to $11.6 million in lost profits.
In his letter to LePage, Williams of Maine Beverage Co. offered to guarantee the state $32 million in revenue annually plus a $4 million to $6 million annual share of profits. He also pledged to work with state officials to reduce the amount of liquor sales Maine loses to New Hampshire, though Williams said he didn’t think Maine was losing as many sales to New Hampshire as Maine officials estimate.
Maine Beverage Co. is a partnership between the Martignetti Cos. of Norwood, Mass., and New York-based private equity group Lindsay Goldberg. Martignetti Cos. also supplies liquor to New Hampshire’s state-run retail outlets.
To help the state repay its hospital debt, the company also offered to pay the state the entire $186 million sum up front so the state wouldn’t have to issue, then gradually repay, a revenue bond.
“That upfront cash paid to the state is not a future liability as is a revenue bond,” Williams wrote. “The state is not required to repay us. If the wholesale liquor business fails to perform the risk is ours.”
Williams said his letter was an effort to start negotiations with the LePage administration before the administration published a new, open request for bids.
In his reply to Maine Beverage Co.’s offer, LePage wrote, “We firmly believe there is more value for the state in the wholesale liquor operation than your proposal outlines. To ensure my administration gets the best deal for the state, we intend to undertake a fair, open, and competitive bidding process for various services related to the wholesale distribution of liquor.”
Williams on Wednesday said it was premature to say whether his company planned to respond to the state’s forthcoming request for bids.
Rep. Seth Berry of Bowdoinham, the House Democratic leader, called Maine Beverage Co.’s deal “a serious offer,” but said the state should evaluate all its options before settling on a new liquor deal.
“Certainty is a very good thing, but it is not the only offer we should entertain,” he said.
Senate Republican leader Michael Thibodeau of Winterport called for an open bidding process after “a fire sale on our wholesale liquor contract that didn’t result in the best deal for our state” in 2004.
“We need to make sure we maximize the revenue stream created by the next liquor contract,” he said in a prepared statement.