Maine explores ways to recapture liquor revenue

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AUGUSTA – Those in the business of selling liquor in Maine may be missing out on as many as 200,000 cases, or $30 million worth, of hard liquor sales a year.

That’s how much liquor is being consumed in Maine but being purchased somewhere else — mostly New Hampshire, according to Gerry Reid, the director of Maine’s Bureau of Alcoholic Beverages and Lottery Operations.

On Monday, Reid briefed lawmakers on the Legislature’s Veterans and Legal Affairs Committee on a proposal that would, if it works, cut that figure in half.

“If people consume our products in Maine, we want them to purchase them in Maine,” Reid said. “It’s as simple as that logic.”

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And the way Maine captures back some of that business is equally simple — lower liquor prices by as much as $4 a bottle on some of the most popular brands.

“It is a substantial opportunity to claw back value for our citizens,” Reid said.

He said he was conservatively estimating the state could gain back about 100,000 cases in sales with the changes. The result would also mean more sales and alcohol excise tax revenue for the state.

But that idea is only a small part of a bigger proposal by the administration of Gov. Paul LePage that would rework the way Maine runs its wholesale liquor business and could ultimately yield up to $35 million a year in new revenue for the state’s General Fund.

Maine, like New Hampshire, is one of only 18 states nationwide that control the price and importation of hard liquor. It sells the liquor via licensed vendors, who take a share of the profits, at state agency liquor stores.

Currently, Maine is in the last year of a 10-year contract that saw it lease the wholesale distribution of alcohol to a third-party vendor. The deal struck under the administration of former Gov. John Baldacci was done to close a state budget shortfall. In essence, in 2004 the state leased away its liquor business for about $125 million in cash that was made in three payments.

Reid told lawmakers Monday that, if that were paid in equal portions over the 10-year period, the state would have received about $12.5 million year. He said based on actual 2011 figures the cost of running the current distribution system is only $7 million, but it took in more than $36 million.

Reid and LePage’s administration are hoping for a change in state law that would allow competitive bidding for the business in hopes of recapturing most of that profit. 

The proposal would not only lower the price of some popular liquor brands such as Jack Daniels and Captain Morgan, it would provide larger profits for state agency liquor stores. Reid said their current margins fall far below industry standards.

Reid also attempted to allay some fears that cheaper booze would lead to greater alcohol abuse, noting that the price reductions would only be on the largest sized bottles of liquor, those 750 milliliters up to 1.75 liters.

“We would not make any price reductions on small sizes,” Reid said. “We also would not reduce price one penny on value products.” Reid used the example of Orloff vodka.

“It’s a very, very big product in the state of Maine. It’s a relatively low-priced product,” Reid said. “We see no strategic need to reduce the price of that any more. It’s already a great value to the consumer.”

Meanwhile, only about 500 of the 2,800 products offered in Maine would see price reductions, he said.  

“Which I think should give you some confidence this is quite selective,” Reid said.

Alcohol consumption rates nationwide, despite varying price ranges for products and growth in per capita consumption, are fairly consistent, Reid said.

“It suggests, while it doesn’t prove, that price per ounce or price per serving is not a big driver of internal consumption within a state,” he said.

The contract currently in place doesn’t expire until June 2014, but several changes to state law are necessary in order to allow the state to put out for bid the portion of the work it wants to replace under a new contract. 

Reid told lawmakers work needs to be done this session. While Reid did not suggest what the state would do with the new revenue Monday, LePage has proposed that some of the money be used to help finance bonds that would pay off the state’s $186 million debt to its hospitals.

Committee lawmakers had several comments and questions for Reid Monday.

One from Sen. John Patrick, D-Rumford, focused on whether the state might be able to get the same amount of money it’s looking for from the contract, “upfront.”

“With the same type of contract we have right now?” Patrick asked.

Reid said the proposal before lawmakers does that.

“It gives us everything we have without paying as much for it,” Reid said. “What it doesn’t do is what I call the private sector loan, which it doesn’t deliberately because that is always costly.”

Reid said the way the state maximizes the value of the enterprise is to rebid it in a way that allows private interface but not private financing.

Others also question whether Maine was doing enough to enforce its current liquor laws, which largely prohibit the importation of alcohol for retail sales.

Rep. Diane Russell, D-Portland, said a current supplemental budget proposal from LePage leaves vacant a liquor enforcement agent opening and that part of the losses in sales to New Hampshire might be recaptured with better enforcement.

Reid said lowering prices would be key to keeping consumers in Maine for liquor purchases. 

“I understand the idea of prevention versus getting sick,” Russell said. “But I do think there needs to be a bit of both, and I’m concerned that we continue to see, every time the budget comes, the first thing to go is liquor enforcement and gambling enforcement, and we are a revenue-generating committee, and we need to be cognizant of that and protect that for the long term.”

After the hearing with Reid, Rep. Mike Beaulieu, R-Auburn, said he was hopeful Maine could do better than Reid’s conservative estimates regarding New Hampshire.

“It’s an interesting proposal, but I would like to think we could do better than recover just 100,000 cases in sales,” Beaulieu said. He also said he agrees with some of his colleagues that they need to take a look at the value of enforcement.

“We’ve talked about boots on the ground in order to prevent some of these businesses from buying from New Hampshire if you were able to double check or at least check more often,” Beaulieu said.

sthistle@sunjournal.com

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