Fergus Column: Sell State Liquor Stores Lock, Stock & Bottle

Here's some irony: A state liquor commissioner gets pulled over for DWI and Gov. Lynch ends up with the political hangover.

Trouble at the State Liquor Commission begs the question: Just why is NH one of 18 states in the alcohol sales and distribution business anyway?


- Fergus Cullen, fergus@ferguscullen.com

Sell State Liquor Stores Lock, Stock & Bottle


Monday, May 3, 2010  New Hampshire Union Leader ===============================

            Even before he had to fire a state liquor commissioner for getting arrested for drunk driving and refusing a breathalyzer test this week, Gov. John Lynch was reconsidering why the state is in the liquor business in the first place. This latest liquor commission hangover ought to reinforce his doubts and encourage elected officials to auction off the liquor stores lock, stock, and bottle.

            Speaking at a Chamber of Commerce event in Rochester last week, Gov. Lynch confirmed a report that he had quietly looked into selling or leasing the state's underperforming liquor monopoly. The catch, the governor indicated, was how the loss of federal tax exemptions would affect profit margins if a private entity were to take over the retail liquor stores.

            New Hampshire is one of 18 states in the alcohol sales and distribution business, a historical accident dating back to the end of prohibition in 1933. The state operates 78 stores and had nearly $500 million in sales in the last fiscal year. Net profits came to 25 percent, yielding $121.5 million for the state's general fund.

            The fact that the liquor operation makes money isn't a reason to keep it. It's a reason to sell it. Proven profitability gives the system value to potential buyers. It is likely that experienced retailers from other states or private equity groups would compete to take the business over, confident they can make it even more profitable.

The more government tries to do, the less it does well. When the state runs liquor stores (or sells ski lift tickets at Cannon and Mount Sunapee), it distracts state government from its core missions.

Home Depot could probably make some extra money selling Bob the Builder toys in a display near the checkout, but they don't. Successful businesses know that the main thing is to keep the main thing the main thing. They focus. Surely Gov. Lynch, the Harvard MBA and former CEO of furniture maker Knoll, understands this concept.

Streamlining government by shedding functions distant from government's core mission is a political winner, too. Virginia Gov. Bob McDonnell campaigned last year on a plan to get his state out of the liquor business. Gov. McDonnell simply argues that selling Jack Daniels whiskey is not a core function of government.

Paying government workers to stock wine racks also fails the Yellow Pages Test. If experienced private companies can be found in the phone book doing the same work a government agency performs, entrepreneurs ought to deliver the service instead.

New Hampshire prides itself in limited government, but sometimes that idea is more honored in the breach than in the observance. If you want to visit Hampton Beach, state employees will collect your toll and empty your parking meter. In contrast, Indiana leased its toll road for nearly $3.8 billion, and Chicago has signed a 75 year lease on its parking meters in return for a $1.1 billion up-front payment.

            Selling the state liquor stores could net New Hampshire a large one-time windfall, which should not be used to plug a temporary budget shortfall or fund operating costs but rather go toward a long-term need like paying off bonded debt early or funding retirement liabilities. The state can continue to get annual revenue from liquor taxes, licensing fees, or leases. Other states have seen an increase in the amount of liquor-driven revenue after they privatized. Local communities stand to add valuable commercial property back onto their grand lists as well. The state's regulatory role in the sale of hard alcohol can continue unaffected.

Although it's not a moral issue, one needn't be a teetotaler to be a least a little uncomfortable with the idea of the state peddling liquor along major highways even as state police patrol for drunk drivers. The fun-loving folks who made the hilarious "Granite State of Mind" parody video that went viral on YouTube a couple weeks ago weren't the first to mock this juxtaposition.

White House Chief of Staff Rahm Emanuel famously said a crisis should not be wasted. The recession and the end of stimulus money is an opportunity for states to streamline government by focusing on core services. Selling the liquor operation should be back on the table this legislative session. If it fails now, candidates of both parties should run on the idea this year.


Fergus Cullen, a freelance columnist for the New Hampshire Union Leader, can be reached at fergus@ferguscullen.com.