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

1. 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

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

3. 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

4. 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

5. 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.

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

7. Objectives of My Idaho Study Estimate • Consumption impact of privatization • Resulting harms • Costs of those harms to state government

8. 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

9. 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

10. To Estimate Effects on Outlet Density • Gruenewald et al. (ACER, 1992): likely outlet rise of 314% once the dust settles

11. 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

12. Retail monopoly on liquor reduces underage binge drinking and impaired driving deaths (Miller et al., Acc Anal & Prev 2006)

13. % Alcohol Consumption = Spirits

14. 5.6% Alcohol Consumption Rise If Privatize (21.6% Rise for Spirits)

15. % Consumption Increase

16. Drinks per Year Consumed in Idaho by Underage Customers

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

18. Why Does Hard Liquor Appeal to Kids?

19. Standard Drinks per Container in ID

20. What’s the Harm?

21. Alcohol Abuse Cost $704B in 2009

22. Alcohol Abuse Cost $704B in 2009

23. Underage Drinking Cost $62B in 2009

24. 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

25. $195 Million Annually in Societal Harm If Idaho Privatizes

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

27. 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

28. % of added drinking that is legally questionable

29. 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

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

31. Each $14 bottle of spirits not sold saves $88

32. 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

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

34. 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

35. 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