In an informal briefing before a state legislative committee, Gerry Reid said increased cash flow to the state’s coffers would come from ending a contract the state awarded in 2003 allowing a private company exclusive rights to import and distribute hard liquor in Maine.
That contract, which expires in 2014 and is expected to be renegotiated by June 2013, has long been eyed by lawmakers, Republican and Democratic alike, as a potential source of new state revenue.
Reid was briefing the Legislature’s Committee on Veterans and Legal Affairs, which has jurisdiction over alcohol and lottery sales, in advance of a briefing planned for Friday before the Appropriations Committee.
Some have speculated that Gov. Paul LePage is eyeing that money, as well, as he looks to pay off the state’s debt to Maine hospitals, estimated at between $150 million and $190 million.
Continued growth in alcohol sales looks promising, and if the state were to renegotiate or take back the wholesale alcohol contract it could stand to gain an additional $41.5 million in gross revenues.
Reid said he would suggest using some of that money to lower the price of alcohol in Maine, benefiting consumers and those who sell alcohol at the retail level.
“It’s important to understand how we are trying to manage the difference for all our stakeholders,” Reid said. “We are going to adjust our retail prices down.”
He said retail prices in Maine were as much as $2 to $7 per bottle more expensive than in New Hampshire, due in large part to a three-way slicing of the revenue among the state, the wholesaler and the retailer.
“… the state of New Hampshire is essentially one stakeholder,” Reid said. Under his preliminary proposal, wholesale prices would be reduced and retail prices would be capped at a percentage increase that is favorable to retailers. He said bars and restaurants would also benefit because their costs would be reduced, but there would be no changes requiring them to charge less for hard liquor.
By conservative estimates, Reid said, Maine loses about 206,000 cases of liquor sales to New Hampshire each year because of the price differences. He said some estimates place that sales loss as high as 400,000 cases, which equals $10 million to $20 million in lost revenue.
Reid said he has reviewed the operational budget of Maine Beverage Co., the company that holds the wholesale contract, and it makes about $36 million a year in profit, after paying about $7 million a year in operating costs.
Maine is one of 18 states that reserve the right to import hard alcohol across state lines. In the throes of a state budget crisis in 2003, the state negotiated a $125 million, 10-year contract with Maine Beverage. Since then, lawmakers have argued that the contract should be renegotiated as a steady uptick in alcohol sales has increased its value.
Reid’s plan would be to not renew the Maine Beverage contract, “or anything like it,” he said.
“We would not do that,” he said. “And by the way, I have nothing but goodwill toward our current wholesale partner; they are good people, they are doing a good job. They just get paid too much.”
Reid said he believed the state could do what Maine Beverage does now for less or contract with a third party that would do it for less.
“The numbers I’ve given you just assumes we can do it for that $7 million, not better, so I’m not assuming we can do it any better,” he said. “I’m just assuming that we can do it for the same costs that our partner down the street does it for.”
Reid said Maine Beverage was not yet aware of his plan and that he was going to inform them of it Friday morning. Reid is also expected to brief the Legislature’s Appropriations Committee on the plan Friday, he said.
Maine Beverage Co.’s Chief Financial Officer George Woods said he was not aware of any plan the state had and was unable to comment on it. He said the company’s CEO, Dean Williams, was not available for comment Wednesday.
Reid asked lawmakers on the committee not to discuss the proposal until he had a chance to speak with Maine Beverage and the members of the state’s Liquor and Lottery Commission.
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