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Off the Wagon: Why ABC Privatization is a Bad Idea

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During his campaign for governor in 2009, Gov. Bob McDonnell vowed to reform and restructure the Commonwealth’s government. Shortly after being sworn into office, Gov. McDonnell signed Executive Order Two, establishing the Governor’s Commission on Reform and Restructuring. According to the administration, the purpose of reform and restructuring is “to ensure that duplicative, outdated, unnecessary and ineffective services and service delivery methods are eliminated and that state revenues are dedicated to the core functions of government.”1 One of the governor’s reform proposals is to privatize the retail operations of the Department of Alcoholic Beverage Control (ABC).

To determine the desirability of this policy, this brief considers three questions: 1) Is Virginia ABC an inefficient government agency and a cost to state taxpayers?; 2) What are the possible economic consequences of the privatization of the sale of spirits?; and 3) What are the possible social consequences of the privatization of the sale of spirits?

This brief will show that far from being ineffective and a cost to taxpayers, Virginia ABC is a well-run agency that is a consistent source of government revenue. Further, based on previous studies, opening the sale of spirits to the private market most likely will not benefit the consumer in terms of competitive pricing and product variety. In addition, it is likely that substantially reducing the control of spirit sales will disproportionately affect lower-income and minority communities in terms of the social costs associated with the increased availability of distilled spirits.