Legislators push for details on Maine liquor contract options

Posted March 18, 2013, at 2:46 p.m.

AUGUSTA, Maine — Lawmakers on the panel charged with determining a path forward for Maine’s wholesale liquor business quizzed the state’s alcoholic beverages director Monday, asking him how soon the state could strike a new deal, whether it could periodically revisit the terms and how the state could crack down on marketing alcoholic beverages to children.

But the Legislature’s Veterans and Legal Affairs Committee didn’t appear to move closer to a particular approach for renegotiating the state’s wholesale liquor contract during the first session held to work out the details of two bills proposed to rework the liquor contract and use the increased proceeds to pay back Maine’s $484 million hospital debt.

“I’m not going to spend 10 years of my life looking back, like some people, thinking we should have done this differently,” said Rep. Diane Russell, D-Portland. “I’d like to know at the end of the day that we explored every option, that every option was on the table and that we really did fight for the people to get the best deal.”

The committee is considering two approaches to striking a more profitable deal for the state on its wholesale liquor business and using the proceeds to repay Maine’s hospitals for a Medicaid debt that stretches back to 2009.

Gov. Paul LePage, who has made the issue the cornerstone of his legislative agenda this winter, unveiled his plan in January to pay down the state’s hospital debt using a revenue bond backed by the state’s future liquor profits. Gerry Reid, who directs the state Bureau of Alcoholic Beverages and Lottery Operations, has said the plan involves realizing more value from its wholesale liquor business by negotiating more favorable contract terms for the state, lowering retail prices to make them more competitive with neighboring New Hampshire’s, and allowing agency liquor stores higher margins on liquor sales.

A competing proposal from Sen. Seth Goodall of Richmond, the Senate Democratic leader, requires an upfront payment — $200 million by June 30, 2015 — from the contractor who wins the 10-year bid to operate the state’s wholesale liquor business. Under the plan, Goodall says the state can rely on the upfront payment revenue to pay off the hospital debt by Sept. 30 of this year. Maine’s share of the hospital debt is $186 million, which would trigger a $298 million matching payment from the federal government.

The Veterans and Legal Affairs Committee held a daylong hearing on the two bills last week and plans to resume work on them Friday.

The state’s liquor business has grown and improved its operations since it was leased out to the current contract holder, Maine Beverage Co., in 2004, said Rep. John Schneck, D-Bangor. Given the data available on the business’ performance, the state should easily be able to define what it wants from a vendor in a request for bids and almost be assured of favorable returns, he said.

“It could almost run on autopilot,” said Schneck. “It’s a long-range deal, and because we know how the market’s operating, we can forecast this thing very easily and whatever targets we set with the contract should be easily obtainable for both parties.”

Reid said there’s little risk that the state’s liquor business will underperform his conservative expectations for growth. It would take natural disasters, new taxes on alcohol or major limits on advertising alcoholic beverages to make a dent in consumer demand, he said.

“The consumer is relatively inelastic. You really have to be dumb to mess up this business,” he said. “That’s not to say someone can’t do it. It’s a low-risk business.”

But it could still be advantageous for the state to be able to revisit the terms of the 10-year contract periodically, every two years, for example, to make sure Maine is still getting the best deal possible, Schneck said.

“I don’t see any reason why there couldn’t be some period for adjustment, so every two years, the parties look at where we are and negotiate going forward,” he said. “In terms of the last contract, it would have been very, very beneficial to the taxpayers.”

The state in 2004 leased out the wholesale liquor business in exchange for a $125 million upfront payment and an annual cut of profits that has amounted to about $8.5 million in recent years. Democrats and Republicans have agreed the state could have struck a better deal a decade ago.

As state officials look ahead to a new liquor deal, lawmakers Monday recommended investing in enforcement of the state’s liquor laws, substance abuse programs and education efforts to prevent alcohol abuse. Russell, the Portland Democrat, suggested writing language into a contract with a new liquor operator to crack down on the marketing of alcoholic beverages to those younger than 21.

“We need some sort of leverage to address terrible marketing practices and to address pulling stuff off the shelves that has no business being on the shelves,” she said.

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