A House Divided: The Crumbling of Antiquated Liquor Laws

A house divided against itself cannot stand.
–Matthew 12:25

It seems appropriate to open here a little bit biblically, since what we’re about to talk about has as its roots the puritanical principles of the Prohibition Era, roots that have withered and died in many places around America, yet have lingered in Washington State. These anemic roots are the liquor laws that are simultaneously and paradoxically both nourishing and stunting the public’s consumption of liquor, beer and wine. But, there are exciting developments that may change that very soon.

The Problem

All sale of alcoholic beverages in the state are controlled at least in part by the Washington State Liquor Control Board (WSLCB), who’s “mission is to contribute to the safety and financial stability of our communities by ensuring the responsible sale, and preventing the misuse of, alcohol and tobacco.” To do this, however, in addition to licensing and enforcing rules surrounding the sale of beer and wine, the WSLCB requires liquor to be sold exclusively in State-run stores, ostensibly to ensure that minors are unable to buy liquor (the WSLCB boasts a 90% turning away of minors attempting to buy alcohol, as opposed to an estimated 80% in other stores), to maintain moderate liquor consumption through limited access (the WSLCB operates just 315 stores statewide), and through alcohol awareness campaigns.

The fly in the ointment is that while ensuring moderation and preventing “misuse,” the state also makes a pile of money through both the profit margin and taxes on liquor sales ($332 million in 2009). This was brought to light last Christmas when the WSLCB decided to open a number of additional stores in high-traffic malls during the Holiday season in order to generate extra revenue to compensate for a shortfall in the State’s coffers. So, it would appear, that moderation is a crucial moral position considering the health and safety of society unless there is a budget deficit, in which case, drink up!

According to the WSLCB, for each bottle of liquor you buy at a sanctioned liquor store, the price of the bottle is composed of:

33%	State Tax
28%	Markup (Gross Profit)
14%	Federal Tax
25%	Distillery Price

Get that? Between the markup of the bottle and the tax on the bottle, the State makes 61%. Part of that goes into the State’s general fund, and the rest goes to awareness campaigns that warn of the evils of alcohol.

To sum up, the “house is divided” in that the WSLCB simultaneously has two contradictory motives, ensuring moderation and driving revenue, and in both cases providing direct competition with the private beer and wine sellers it oversees (liquor stores also sell beer and wine). It is incongruous to forcibly limit accessibility to alcohol, fund educational campaigns about the dangers of alcohol, all the while earning a huge, healthy profit from its sale.

The Solution

A new Initiative of the People has come into play that seeks to eliminate the disparity between the WSLCB’s mission and operation while opening up the market for private businesses. This is I-1100. On July 12, Secretary of State Sam Reed certified I-1100 to appear on the November ballot.

I-1100 is sponsored by Modernize Washington, which, through the initiative, aims to support small businesses, allow the state to focus on education and enforcement, and to create private sector jobs.

The nuts and bolts of this Initiative is essentially the privatization of liquor sales–allowing private businesses to sell liquor, while leaving control of licensing, enforcement and taxes in the hands of the Liquor Control Board. Let business people do business, and let government govern. Section 1 of I-1100 explains it’s purpose:

Sec. 1. (1) The people of Washington state desire that the liquor control board focus on its core mission of education and enforcement to protect the health, welfare, and safety of the citizens

(2) In order to strengthen the agency to more effectively educate the public, combat abuse, collect tax revenue, and enforce state liquor laws, the Washington state liquor control board will stop selling liquor and end its prohibition-era monopoly on selling distilled spirits. The state will license the sale of distilled spirits to strictly regulated vendors who are already proven to be responsible sellers of beer and wine.

(3) This act will improve regulations to prevent abusive and underage drinking, enforce licensing regulations, and collect taxes for the state’s general fund.

There’s ample debate, of course. Many are whooping and hollering about the benefit this initiative will bring to businesses and consumers (profit in the private sector and increased accessibility and convenience for us), while others are decrying the initiative as a threat to public safety and to the revenue pouring into the state needed for important programs (according to the WSLCB, “Cities and counties receive more than 18 percent of this money. The money returned to local governments is used for prevention programs, law enforcement support, affordable health care coverage and health benefits for children and pregnant women, and many other related programs and services”).

In my mind, the best part of this initiative is the breaking of the iron grip the WSLCB has on the sale of liquor.

As Cameron Fries explained to readers of WINO back in September 2008, when Prohibition ended in 1933, laws were set into place to prevent the mob (who thrived on bootleg liquor sales during the ban) from becoming legitimate businesses by preventing collusion between retailers, distributors and producers, all of which were essentially monopolized by organized crime syndicates. No single entity could produce, distribute and sell liquor–they could only do two of the three to prevent a monopoly on liquor trafficking by the mob.

But, isn’t the WSLCB’s practices just as bad? They have a monopoly on liquor sales, they make money off of other alcohol sales by their “competitors” (beer and wine retailers), they have strict control on the licensing that allows these competitors to operate, and yet can expand or retract their own footprint on a whim whenever they want to make some extra cash for themselves, even at the detriment of the private business owners trying to make their way in the world. It stinks of the classic “protection” offered to small businesses by the mafia–give us a cut and you can do business free of harassment, but refuse our “services,” and we will ruin you. And, like the murderous mob boss who attends church every Sunday morning, the WSLCB spends money on public health campaigns and programs warning about the dangers of its own wares.

Separating sales and enforcement would not only allow businesses to make money and increase convenience for the consumer, but it would allow the WSLCB to focus on what it claims is its mission statement (public safety) without the conflict of profit motive.

I-1100 clearly spells out the responsibilities and liberties of all parties.

The board has the power to make regulations, in accordance with the provisions of the administrative procedure act, chapter 34.05 RCW, to implement this title. Because the board will no longer be selling liquor, regulations adopted by the board must be to enforce the licensing requirements of this title, the collection of tax on liquor, the prevention of underage drinking of liquor and alcohol abuse, and managing the board and its employees.

It goes on to say that the Liquor Control Board will:

(4) Accept and deposit into the general fund-local account and disperse, subject to appropriation, federal grants or other funds or donations from any source for the purpose of improving public awareness of the health risks associated with alcohol consumption by youth and the abuse of alcohol by adults in Washington. The alcohol awareness program shall cooperate with federal and state agencies, interested organizations, and individuals to promote alcohol awareness;

(5) Perform all other matters and things to carry out the provisions of this title, and shall have full power to do every act necessary to the conduct of its business. However, the board shall have no authority to regulate the content of spoken language on licensed premises where wine and other liquors are served and where there is not a clear and present danger of disorderly conduct being provoked by such language.

This last part I find interesting. Essentially, it’s saying that while the WSLCB can spend all kinds of money warning people about the dangers of alcohol, it can’t hinder private businesses from actually trying to sell the stuff. The government can educate, and the businesses can promote.

Other points of interest:

• The WSLCB cannot advertise liquor itself, but can adopt rules about the form and location of private advertising to the sole extent that it has a demonstrable effect on alcohol abuse and underage drinking.
• Fees from liquor licenses can only be used for the administration of issuing these licenses and for education programs about misuse and underage drinking. Essentially, they can’t jack up these fees in order to bolster the State’s general fund.
• The Initiative specifies that any distiller can also act as a distributor and/or retailer with no additional fees. This does away with the odd post-Prohibition laws we discussed above. This bill later raises the issue again by striking out the previous verbiage that the separation of the three tiers is important, and replaces it with, “The historical total prohibition on ownership of an interest in one tier by a person with an ownership interest in another tier, as well as the historical restriction on financial incentives and business relationships between tiers, is unduly restrictive.”
• Among all the different licenses specified for the sale of liquor by particular types of businesses, there are ones designated for hotels and motels, which will allow them to sell small bottles of liquor to be consumed in the rooms of registered guests. What’s funny is that it explicitly states, “No license may be issued to a motel offering rooms to its guests on an hourly basis.” I guess the idea of of getting boozed up with a hooker in an hourly “no-tell motel” is too much even for Modernize Washington.
• The Initiative states that “Nothing in this act is intended to restrict the authority of cities and counties to enact or enforce land use regulations governing where liquor may be sold.” So, for example, a city can still decide that it is inappropriate to have a bar next to a school.
• The WSLCB must dissolve its liquor stores by December 31, 2011, and any unsold liquor at that time must be sent back to the vendor or sold at auction.
• The tax on liquor (unopened bottles) would be a flat 10% of the selling price.

Not surprisingly, Costco, the giant retailer in the Pacific Northwest, has been the largest advocate of this proposed Initiative. It has handed over $350,000 in campaign contributions, and spent another $107,000 in payroll and miscellaneous expenses associated with the collection of petition signatures in its stores. I-1100 would benefit Costco by eliminating the three-tier system and allow Costco to buy alcohol directly from producers rather than distributors, thus bringing the price down. Removing the mandatory 28% markup would also allow for competitive pricing. Costco has waged war on State liquor laws before–most recently, last summer–with only moderate success.

So, this November, you will get a chance to vote. Will you vote to retain Prohibition-era laws that hinder private business, inconvenience consumers, preserve a State monopoly on the sale of goods, and muck up the mission of the Liquor Control Board, or will you vote in favor of I-1100?

The choice is yours.