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Originally published May 24, 2011 at 10:01 PM | Page modified May 25, 2011 at 4:29 PM

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Danny Westneat

Westneat: I'll drink to billions for state

If the state gets out of the liquor business, it's now accepted it should sell out, not just give it away for free. But a sticking point has been: How much is this liquor business that we all own really worth? The answer: far more than anyone thought.

Seattle Times staff columnist

quotes Even this kinda stinks. Costco is overwhelming the state with money in order to... Read more
quotes I am happy to support this and get the state out of the liquor business. I do not care... Read more
quotes psst...This is a secret so don't tell a soul. The price of booze across the border in... Read more

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If the state gets out of the liquor business, it's now accepted it should sell out, not just give it away for free.

But a sticking point has been: How much is this liquor business that we all own really worth?

The answer: It's worth far more than anyone thought. Or at least more than anyone was saying.

We now know this because Costco and the grocery stores have come up with a new, eye-popping offer to end the state-run monopoly on liquor sales.

It's one we shouldn't refuse. But I'll get to that in a minute.

All this started last year, when two voter initiatives were floated to shutter the state-run liquor stores. To me, it seemed the state was being asked to hand a business with $900 million in sales over to private stores, and get nothing for it but a big pain in the budget.

So I have been nattering on since with: Why not sell it instead? Maybe auction off liquor licenses, as other states have done. Or make private stores pay big fees for the right to sell the hard stuff.

After voters rejected both initiatives, the groups behind them came up with a better offer in March: $400 million for getting the state out.

Not bad, I figured. Especially compared with zero. But that bill died in the Legislature when lawmakers calculated, correctly, that liquor sales are so profitable the deal was still a money loser for the state.

So if $400 million wasn't enough, what is?

Would you believe quadruple that?

The groups, led by Costco, last week filed a new initiative, aimed at the November ballot, with some astounding figures in it. They now propose to pay a billion more over 10 years than they offered just two months ago.

Costco's new measure says that any private store selling liquor must pay the state a whopping 17 percent of its liquor sales, every year, into perpetuity. Companies wholesaling liquor would also pay big fees.

It adds up to an estimated $750 million in a five-year period, just in licensing fees. In 10 years it would be more than $1.5 billion — nearly quadruple the $400 million figure.

All this is over and above the $3 billion the state is projected to collect in liquor taxes and fines during that same decade (all the taxes would remain the same).

Apparently there's gold in that there booze. This is more money to the state than was predicted under even the most optimistic privatization scenarios, as studied last year by the state Auditor's Office. If these estimates are correct — they're based on current liquor sales — the state could make more money by getting out of the liquor business than by staying in.

I asked Costco to explain.

"There's just tremendous profit in liquor," says Joel Benoliel, Costco's chief legal officer. "That's why the state has held onto its monopoly for 78 years. Even with these fees, this is a business model that we feel we can make work."

Benoliel said Costco was stung by the criticism that it had tried to fleece the state. But he said the company also listened to it, and responded.

"We agree that what we proposed last year was a flawed design," he said. "This is a great deal for the state. It can still reap the profits it needs to pay for crucial services, but it no longer would have any of the costs of running liquor stores."

It's also a better deal than the one the Legislature is considering to privatize just the warehouse side of the system.

This initiative would eliminate about 900 government jobs. But it keeps the state as the liquor-law enforcer. It also bars gas stations and convenience stores from selling liquor.

Both Costco and the groceries insist they can sell liquor for less than the state, even with these humongous fees for the privilege of doing so.

So is the price finally right?

In March I wrote: "Last year's offer to pay zero — that was an insult. Four hundred million makes the hurt go away. Now double that and maybe we'll have something to drink to."

Well, let's drink, because they doubled it, and then doubled it again. There was never much reason for the state to be in liquor but the money. Now it can make more of that by getting out.

Danny Westneat's column appears Wednesday and Sunday. Reach him at 206-464-2086 or dwestneat@seattletimes.com.

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