February 1, 2013

Bill Nemitz: Booze battle looming for 2014 election

By Bill Nemitz bnemitz@pressherald.com
Columnist

Here's a can't-miss prediction for Maine's 2014 gubernatorial race: Before it's all said and done, we're going to hear a lot about booze.

Sorry, inquiring minds, we're not talking about who drinks what and how much -- although, come to think of it, that might not be a bad way to compare and contrast Republican Gov. Paul LePage, independent Eliot Cutler and former Gov. John Baldacci (or whoever else emerges as the Democratic nominee).

No, this ready-mixed campaign fight will center on a soon-to-expire state liquor contract that for almost a decade has had one thing in common with that perennial Maine favorite, Allen's Coffee Brandy.

Both are really, really sweet.

"We firmly believe there is more value for the State in the wholesale liquor operation than your proposal outlines," LePage wrote this week in response to Maine Beverage Co.'s eye-popping offer to pour as much as $380 million into state coffers in exchange for another 10 years as the keeper of Maine's spirits.

This compared to the estimated $185 million the company has paid Maine taxpayers since 2004 for the sole right to make our winter nights a little less chilly. A deal that last year alone, according to state figures, netted Maine Beverage an estimated $37 million in profits after the cost of the liquor and other expenses.

"To ensure my administration gets the best deal for the State," LePage continued, "we intend to undertake a fair, open and competitive bidding process for various services related to the wholesale distribution of liquor. We certainly hope Maine Beverage will be one of the bidders at that time."

Count on it, Governor. Count on it.

From a political perspective -- which, unlike a business perspective, focuses only on the numbers that make you look good and/or your opponent look bad -- the looming liquor debate comes down to one basic question: Back in 2004, when the Baldacci administration privatized the state's liquor business to raise some much-needed cash, did Maine get hosed?

LePage sure thinks so. In a recent weekly radio address, he called the deal a "bargain basement, shortsighted 10-year sell-off in 2004 of one of the state's most reliable revenue streams -- our liquor business."

It seemed (at least to Baldacci & Co.) like a good deal at the time: For handing over all aspects of the state's liquor operation to Maine Beverage, the state government got an upfront payment of $125 million. That cash infusion went immediately toward helping to draw down a staggering $1.2 billion shortfall in the state budget.

In addition to the $125 million payment, the 2004 deal called for a 50 percent split of revenues over a set ceiling between Maine Beverage and the state -- netting Augusta another $65 million or so over the 10-year period that ends in June of 2014.

Last month, LePage announced that he would pay off the state's $186 million Medicaid debt to Maine's hospitals by issuing revenue bonds -- then pay the bonds back with cash from a new-and-improved liquor contract.

That, in turn, led to this week's unsolicited overture to LePage from Maine Beverage President and CEO Dean Williams. The offer, an intoxicating mix of digits and dollar signs, clearly was intended to give the governor the whirlies.

"In return for continuing our partnership with the State of Maine (through June of 2024), Maine Beverage will guarantee the state an average of $32 million annually for 10 years," Williams wrote.

That's, gulp, $320 million. On top of that, Maine Beverage tossed in $4 million to $6 million a year in profit sharing -- meaning a total of $360 million to $380 million over the 10-year period.

But wait! There's more!

As an "alternative" to the state borrowing money to pay back the hospitals, Williams proposed, Maine Beverage would sweeten the mix with an upfront cash payment to cover the $186 million hospital bill.

That would proportionately reduce Maine Beverage's annual $32 million to the state, Williams noted, but it would also make the hospital bill go away without any borrowing on the state's part.

As Williams put it, "The risk (of covering the $186 million with future liquor sales) is ours."

To which LePage replied, "We must decline your offer."

Say what?

"We like the guys at Maine Beverage -- we really do. They're good guys," said Gerry Reid, director of the Maine Bureau of Alcoholic Beverages & Lottery Operations, in an interview Thursday. "It's just that they're paid more than we want to pay."

Put more simply: Now that everyone knows just what a money-maker this booze business can be, the state wants a bigger shot. A much bigger shot.

Which brings us back to the politics.

Contacted Thursday, Baldacci made no apologies for the deal he struck all those years ago. And the fact that today's numbers make the 2004 numbers look like a watered-down martini, he maintained, simply reflects what happens when government gets out of the way and lets the private sector do its thing.

(Maybe, maybe not. According to liquor bureau director Reid, the annual 2.5-to-3.5-percent growth in liquor sales under Maine Beverage lags slightly behind average sales growth among the 18 states that control their liquor markets.)

The current 10-year contract "has been a learning experience," Baldacci conceded. But what's important now, he said, is "to say, 'OK, can we do a better job at getting money out of the lease?'"

As the saying goes, yes we can.

Just as we can expect, should Baldacci end up running against LePage next year, a 15-second TV spot depicting two bottles -- a big one with "LePage" and "$380 million" stamped on its label, and a little one with "Baldacci" and "$185 million" on its label. Asks a very sober voice: "Who's the better businessman?"

Whoa ... what did I just say?

I need a coffee brandy.

 

Bill Nemitz can be contacted at 791-6323 or at:

bnemitz@pressherald.com

 

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