How Wash. fared when state stores died

TUMWATER, Wash. - Lisa Jones, a bank teller, received a rude awakening after she and other Washingtonians voted to dismantle their state's liquor system. The first bottle of gin she bought at a supermarket had a cheap shelf price - until taxes at the register added $7.

But, a year later, the appeal of one-stop shopping has her hooked.

"I actually think I end up buying liquor more often," said Jones, putting a bottle of Burnett's gin in her basket with the cat food, cereal, and frozen fries as she and her 13-year-old son wandered the aisles of a cavernous Fred Meyer superstore. "It's so easy when you know it's going to be right there with the rest of your groceries. I don't love the prices, but I love the convenience."

As Pennsylvania mulls liquor privatization, with many legislators trying to get a bill to Gov. Corbett by June 30, people here say the Keystone State would do well to look at how a year-old private system has fared in Washington:

Access to spirits exploded, with the number of liquor licensees going from under 400 to almost 1,500. Liquor sales rose.

Prices went up, too - thanks to new taxes that were part of the referendum. Some voters grumbled that they missed the fine print.

While the state is struggling with billion-dollar budget deficits, its revenue from post-privatization liquor sales has climbed at a pace that exceeded projections.

Customers have flocked to stores across the border in Oregon and Idaho, where liquor always cost less but is now even cheaper by comparison.

Fears that privatization would cause a spike in alcoholism and alcohol-related crimes have not been realized - aside from an uptick in shoplifting. Even so, Julia Dilley, an epidemiologist at the University of Washington, said, "We think alcohol consumption has increased." She is collecting data to see if alcohol-related hospitalizations and traffic crash rates have changed.

More than 700 state liquor store clerks lost their jobs when privatization came. Most were still out of work as of February.

To be sure, the state-run system here differed from the one in Pennsylvania. Washingtonians could buy beer or wine in supermarkets and other stores. Hard liquor was sold only in state stores.

The political battlefield is different, too. Washington voters can change laws via referendum, an option not available in Pennsylvania. And the successful drive to privatize was funded largely by one Washington-based retail chain.

The bill pending in Harrisburg would add no new liquor taxes. Good move, advises Washington Sen. Tim Sheldon, a Democrat who sponsored privatization bills for two decades. He said new taxes confused the issue.

"This can, and should, be done without raising taxes and costing people more money," he said.

But if Pennsylvania does go private - leaving Utah as the only state still in the liquor business - Washington officials warn that the transition may not be smooth.

Rep. Christopher Hurst, head of a committee charged with overseeing the system, said the rollout set off heated battles among retailers, restaurants, and state officials who implemented the changes.

"From a consumer point of view, it was kind of anticlimactic," Hurst said. "There was so much hype that when it finally happened, it turned out to be much ado about nothing. But politically, people are at each other's throats about how this is all supposed to work. ... It will be years before this is settled."

The old liquor system dated to 1916, when Washington became one of the first states to adopt Prohibition. In 1933, it was among the first to repeal those laws, cementing its reputation as a state open to change. (Last year, the state legalized same-sex marriage and recreational marijuana use.)

But for decades, attempts to retool the liquor system went nowhere. Two privatization bills failed as recently as 2010.

Then came Costco Wholesale. The chain poured almost $23 million into a 2011 campaign to privatize, the largest such single-donor contribution in state history.

Advocates said the change would lead to competitive pricing and more state revenue. Supermarkets printed ads predicting new prices (without including the taxes). Sixty percent of voters said "yes" to Initiative 1183, allowing stores of 10,000 square feet or more to apply for a liquor license.

Then there were the taxes. The Washington initiative had liquor wholesalers pay an additional 10 percent tax on all sales, and added a 17 percent retail tax on spirits sold to bars or restaurants - all on top of existing levies.

The taxes shocked many residents, even those who voted yes. Many had expected prices to fall, and customers were confused by stores that displayed pretax prices. Bars and eateries, meanwhile, dealt with the added taxes by raising the price of a drink.

"A lot of people knew the taxes were there, but didn't fully understand what that meant," said Daren Nies, manager of the Mill Creek Pub in Battle Ground.

Brandon Smith, 37, owns the Dublin Down Irish Pub in Vancouver. He voted yes because he envisioned a competitive market, in which tavern keepers like him could buy directly from manufacturers or stores. But it didn't work out that way - the new taxes made it too expensive to buy from stores.

"We feel lied to," he said.

Bruce Beckett, government affairs director for the Washington Restaurant Association, said privatization exposed the extent of the state's liquor taxation. "The public never had any idea they were paying this level in taxes," Beckett said. But he noted that prices "have already started moderating, and I believe they will continue to do so."

Meanwhile, the initial sticker shock has been a bonanza for stores across the Oregon border. At the Rainier Liquor Store, a small clapboard building in a logging town on the Columbia River an hour north of Portland, Christmas came early last year. Sales have surged anywhere from 20 percent to 89 percent monthly, and Rainier went from being ranked 94th to 44th in statewide sales, said Oregon liquor agent Traci Brumbles. On Fridays, the lot fills, cars park down the road, and customers line up out the door.

"There are still days when we shake our heads and say, 'What is the reason for being so freaking busy?' " said Brumbles, an Oregon liquor agent for 12 years.

She suspects some customers - such as those who buy by the gallon - are bar owners. The store fields calls from customers as far away as Seattle who can no longer find specialty items in their local stores.

Pre-privatization, many Rainier customers already made the seven-minute drive from Longview for the sake of lower prices. As with alcohol brought into Pennsylvania from Delaware or New Jersey, those who bring booze back to Washington are supposed to pay taxes on it. As in Pennsylvania, the law is largely unenforced.

At State Line Liquor Store in Jantzen Beach, Ore., on the river near Portland, manager Rob Babin said his sales were up more than 30 percent.

"We're ecstatic," he said. "Ninety percent of our clientele are from Washington and always have been. We're just getting even more of them."

Babin lives in Washington and voted against privatization. "It didn't benefit anybody in my state," he said. "People kept saying liquor would be cheaper. A lot of them just didn't read the fine print."

As for customer convenience, nearly everyone rates privatization a success. Supermarket shoppers can grab a fifth of vodka, a six-pack, or a bottle of wine along with milk and eggs (or in superstores such as Costco or Fred Meyer, TVs and patio furniture). Shoppers interviewed said they were satisfied with the change. Some noted that the prices are not significantly higher than before privatization. In response to customer gripes, many stores have also started displaying tax-inclusive prices.

One complaint: Selection is often more limited. Whereas state-run stores carried thousands of items, supermarkets may shelve a few hundred.

The change also hurt some smaller stores, which cannot price liquor as low as chains that do bulk purchasing. And competition has a price: Practically overnight, liquor stores near supermarkets went from having great sales to closing. Since the state auctioned off its 167 stores, 46 have closed.

Owners of independent stores, such as T Bros. Liquor Lodge in Olympia, are counting on their variety of hard-to-find items to keep them afloat. The store boasts more than 2,000 kinds of liquor, wine, and beer, in a city with no big-box stores in sight.

"We knew the sales weren't going to be what they were before," said co-owner Andy Thielen. "But it's tough. We're doing more business than any store in town, and we're still barely paying our bills."

It has been tough on the former state liquor-store clerks as well. Of more than 700 laid off after privatization, 490 remained jobless by February, said Brian Smith, spokesman for the state liquor board. "Some of these people had worked in stores for decades," said Tom Geiger, a spokesman for the clerks' union. "The fact of them losing their jobs was something that didn't really get through to the public until it was too late."

(His Pennsylvania counterparts aren't about to let that happen - the union for 3,500 State Store clerks is spending up to $1 million to bash Corbett's "reckless" privatization plan in radio and TV ads.)

Many smaller stores found themselves ill-equipped to deal with a rise in shoplifting of alcohol. As they scrambled to beef up security, the Washington Association of Sheriffs and Police asked the state to require that stores report such thefts.

Still, despite border-crossing, sticker shock, and theft, as of May, the state had collected 10 percent more in liquor taxes than in the previous year, exceeding expectations. Liquor sales rose more than 5 percent.

Beckett, of the restaurant association, believes the system made progress in its first year. "I don't think anyone appreciated that all this wouldn't happen smoothly right away," he said.

Smith, of the state liquor board, agrees. "The people of Washington have very mixed feelings about what they got," he said from a conference room in the board's Olympia office, as he waited for a media horde to descend for the release of new guidelines governing the state's burgeoning marijuana industry.

"People didn't necessarily get what they expected," he said. "They expected that once you got the state out, everything would run more smoothly. . . . But I think that once we start ironing out some of the problems, we'll probably be a model state to look at in terms of the effects of privatization."

Hurst, the legislator tasked with that ironing-out, was more blunt.

"My advice to Pennsylvania is that they should craft the legislation very carefully," he said. "Don't leave any ambiguities in the language. All they need do is look at the mess we've gotten ourselves into in this year."