Privatizing Idaho’s Liquor Stores : What’s the Harm ?

Privatizing Idaho’s Liquor Stores: What’s the Harm?

Ted R Miller, PhD

PIRE

miller@pire.org

410-381-1197 or 240-441-2890

NO CONFLICTS OF INTEREST

Funding: Robert Wood Johnson Foundation Public Health Law Project

State-Owned & State Contract Retail Stores (11 States & Arguably AL)

Per Adult Apparent Consumption of Alcohol(Alcohol Gallons per Adult)

AK30

CA2.52

ID34

IN26

MI29

IL35

WI34

LA37

AR28

MO32

IA22

MN30

VT2.96

NH4.57

CT 2.52RI 2.77

MA 2.78

ME28

NY28

PA34

VA36

WV34

OH30

NC30

FL29

GA28

AL33MS

34

KY24

TN 32

ND46

SD29

NE27

KS38

OK33

TX38

CO32

NM29

AZ28

UT17

MT40

WY42

NV33

OR33

WA354

AK3.14

CA2.52

ID2.44

IN2.39

MI2.43

IL2.60

WI3.25

LA2.98

AR2.11

MO2.67

IA2.57

MN2.71

NJ 2.55

DE 3.46

MD 2.48

DC 4.21

ME2.72

NY2.30

PA2.43

VA2.37

WV1.99

OH2.41

NC2.25

SC2.64

FL2.80

GA2.27

AL2.26MS

2.57

KY2.04

TN 2.11

ND3.44

SD2.93

NE2.73

KS2.23

OK2.19

TX2.55

CO3.00

NM2.81HI 2.87

AZ2.56

UT1.52

MT3.08

WY3.12

NV3.87

OR2.81

WA2.58

Private Stores

State ContractMixed

State Owned

Source: Spirits volume, DISCUS; Wine and Beer, Adams Handbooks.

Arch-Conservative Governors Want to Privatize Everything They Can

Budget crises serve as an excuse Privatizing WA cost Costco $27M ID, OH, PA, VA, AL actively in play History of bargain-basement prices 3 libertarian analyses claim state

control has no effect on consumption or harm

Refuse to disclose their funders

Those Analyses Are Shell Games

All 3 analyze “control” states including states with state monopolies only on wholesale sales to retailers

All 3 use language & testimony & op-eds that cause readers to assume control states have retail sales monopolies

They do not

6 of their 18 “control” states have no retail controls

Of their 8 “full control” states, PA & UT really are; they have stores run almost entirely by state employees; 3-4 contract out retail sales to a few tightly controlled outlets, & 2-3 exercise no control over retail sales or contract with all comers

In 2 of their “moderate control” states (NC & VA), all spirits are sold at retail by government employees. They class ID as moderate control.

Why Does the Private Sector Want to Buy Idaho’s Liquor Business at Fire Sale Prices

Annual Sales Profits

$143 M

$50 M

Objectives of My Idaho Study

Estimate Consumption impact of privatization Resulting harms Costs of those harms to state

government

METHODSModified a privatization model I helped develop for Sweden (Norstrom et al, Addiction, 2010)

New CDC Community Preventive Services Task Force systematic review

44.4% rise in consumption of a beverage (e.g., wine) when sales of that beverage are privatized

No effect on sales of other alcoholic beverages

48% Is Too Simplistic & Mainly Based on Wine

States are starting from different places Some states dictated how much to increase

the number of alcohol outlets; outlet density affects consumption

Consumption rises because private stores are more numerous, open more days/hours, advertise more, run price promotions

Some states still regulate that

To Estimate Effects on Outlet Density

Gruenewald et al. (ACER, 1992): likely outlet rise of 314% once the dust settles

How Does Density Effect Consumption Gruenewald et al. (US, ACER, 1992, 1993):

spirits consumption rises by 1% for every 10% rise in outlet density

Implicitly includes rise due to change in sales hours, advertising, & prices

State employees are incentivized to enforce; private vendors profit from lax enforcement

Retail monopoly on liquor reduces underage binge drinking and impaired driving deaths

(Miller et al., Acc Anal & Prev 2006)

Binge Drinking Alcohol-Involved Fatal Crashes

9.9%

5.5%

% Alcohol Consumption = Spirits

ID US

26%

32%

5.6% Alcohol Consumption Rise If Privatize (21.6% Rise for Spirits)

Adult Underage

5.0%9.9%

19.0%

37.6%All AlcoholSpirits

% Consumption Increase

Underage22%

Adult78%

Drinks per Year Consumed in Idaho by Underage Customers

Before After

100 M110 M

That’s 60 More Drinks/Year per Youth Aged 14-20

Legal Drinker Underage

1.8

4.7

Why Does Hard Liquor Appeal to Kids?

Tall 6-Pack

Wine Liquor

7.7 6.6

21.1

Standard Drinks per Container in ID

What’s the Harm?

Alcohol Abuse Cost $704B in 2009

Other Injury28%

Public Order/Supply0.3%

DWI18%

PropertyCrime

1%

Violence17% Illness

36%

Alcohol Abuse Cost $704B in 2009

Other Resource3%

Work24%

Medical9%

Criminal Justice3%

Quality of Life61%

Underage Drinking Cost $62B in 2009

Violence57%

DWI Crashes16%

Property Crime 8%

Risky Sex 8%

Other Inj3% Poisoning 1%

Treatment4%

FAS2%

Assumed average societal harm per drink consumed applies to increased consumption

Separate calculations for adult & underage consumption

Conservative; assumes the added drink is no more likely to be over the blood alcohol limit than the average drink when less was consumed

$195 Million Annually in Societal Harm If Idaho Privatizes

Other Injury27%

Public Order/Supply0.3%

DWI17%

PropertyCrime

1%

Violence17%

Illness36%

Risky Sex1%

Crime-Related Costs Dominate the $9 Million State Government Bill

Medicaid17%

Income & SalesTaxes 13%

Criminal Justice70%

Costs of Retaining Privatization

Govt: loss of liquor & corporate income tax revenue from all private sales & sales tax from added sales

Society: loss of pleasure from consuming additional alcohol – used an upper bound estimate: cost = the purchase price of all added alcohol that adults would have drunk when their BACs were less than .08

Legal Drinker Underage36% >.08

100% (21.6% of

all added)

% of added drinkingthat is legally questionable

Other consumption lacks standing Cost = 50.2% of the purchase price

of sales foregone Coincidentally that equals the 50%

profits a privatized alcohol industry would have earned on the legal and illegal sales

Societal Return on Investment if Retain Monopoly Liquor Sales = 12.6:1

Costs Benefits

$15.5 M

$195 M

Each $14 bottle of spirits not sold saves $88

Medical Other Re-

sources

Work Quality of Life

$9 $6

$21

$52

Ethanol tax rates on beer & wine are equalized in Idaho

If ethanol in liquor was taxed at the same rate as in beer & wine, tax would be $1.40/gallon

With privatization, ID legislature would choose a tax rate

Gov’t Return on Investment from Retaining the Liquor Monopoly, by Tax Level Legislated

Alcohol Tax (also pay 6% sales tax)Per Gallon Per Fifth

Return on Investment

$1.50 (= beer & wine) $0.30 5.65

$2.25 $0.45 4.7

$3.00 $0.60 4.0

$5.00 $1.00 2.9

$10.00 $2.00 1.7

$15.00 $3.00 1.2

$18.93 $3.97 1.0

Limitations

Model has not been validated Conservatively assumed mean harm per

drink applies Except for underage drinking, used national

harm rates rather than state-specific rates; did adjust to state-specific prices, tax rates, & Medicaid cost matching rates

Conclusion

Since Idaho’s retail liquor sales are run by state employees and contractors whose profit does not rise as sales rise, privatization will greatly increase alcohol consumption

If the state privatizes, Idaho residents will suffer $195 million/year of harm and the state budget is likely to suffer