EDITORIAL

Bottoms up: LePage aims for best bargain on liquor deal

Posted Feb. 02, 2013, at 1:14 p.m.
Last modified Feb. 02, 2013, at 3:25 p.m.

Gov. Paul LePage could have jumped at Maine Beverage Co.’s offer to guarantee at least $32 million in revenue each year in exchange for being able to continue operating the wholesale liquor business. But he wisely, and politely, said “no.”

Instead, he said, he wants to stick to his plan and enter into a fair and open competitive bidding process to find an entity to manage the administration, warehousing, shipping and trade marketing involved in the state’s wholesale liquor activities. The current contract expires June 30, 2014.

In addition to a fair process, though, he wants a better deal. And the odds are he can get one.

Some might have been tempted to accept Maine Beverage’s proposal. In return for the 10-year contract, the company pledged to help the state repay the $186 million it owes hospitals, while guaranteeing the state at least $32 million in annual revenue. It also promised to work with state officials to reduce the amount of liquor sales Maine loses to New Hampshire.

There’s nothing wrong with the company making the offer, and it has operated Maine’s wholesale liquor business well over the past 10 years. But Gerry Reid, director of Maine’s Bureau of Alcoholic Beverages and Lottery Operations, is correct: There’s more money in the business than what Maine Beverage is offering.

The spirits industry is a stable one and has grown slightly despite the economic downturn. And the cost per year of wholesale operations in Maine is relatively small: about $7 million, or 5.4 percent of sales. In 2012, Maine Beverage earned $45.9 million; of that revenue, the state’s cut was about $8.6 million, Reid said.

Bumping that share up to $32 million annually would obviously be a welcome raise. But considering past revenue totals, Maine most likely can do better. The state should issue a request for proposals — because then it can see the various options available in the marketplace. Maine Beverage has an equal opportunity to participate, and LePage, in his letter declining the company’s offer, invited Maine Beverage to submit a bid.

Only when the LePage administration knows all its available options can it make the right decision. Much is on the line: LePage wants to use the liquor revenue to pay the debt the state owes its hospitals — triggering a $298 million match from the federal government — and have money left for things like transportation, wastewater infrastructure and general fund reserves.

It’s important to learn from the past and approach the matter with an eye toward maximizing return over the long-term.

About 10 years ago, Gov. John Baldacci needed to fill a $1.2 billion budget gap. So he proposed to sell the state’s liquor business, which had been generating a steady source of annual revenue. Then-Sen. Peter Mills — now executive director of the Maine Turnpike Authority — was shocked by the idea. Sensibly, he submitted an amendment to make the deal a 10-year lease, not a sale.

Maine got about $125 million upfront in 2004 to help fill the structural gap, plus about $8 million per year. Maine did need the money at that moment, but it proceeded to lose out on millions over the following years.

LePage’s recent refusal of Maine Beverage’s offer shows he’s focused not on what he can get now — and quickly — but what will benefit the state in the long run.

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