Retailers, Wholesalers Would Privatize Liquor Stores But Might Shoot Each Other Along the Way – A Tale of Two Initiatives

Costco employees collect signatures at the Tumwater store Tuesday.

UPDATED 2 p.m. June 2 with information about ballot-title challenges to I-1105.
UPDATED 1 p.m. June 3 with hearing date for ballot-title challenges.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, June 1.—Washington’s retailers and liquor distributors are in a race to junk the state’s liquor stores, and if one of them gets close to the finish line, you sort of expect the other to begin shooting.

            It’s one of the strangest contests in this initiative-heavy year. Until you read the fine print, you might think the distributors and retailers are on on the same side. Each of them is running an initiative that would junk the state liquor-store system. And each would replace it with a wide-open system like that of California, where every supermarket and convenience store has a liquor section.

            But the retailers want a system that would let them bargain directly with manufacturers and get big discounts. The distributors want a system that forces everyone to buy from distributors.

            And so each has its own initiative. The contest promises to be one of the nastiest and costliest of the year, and the union-backed opposition campaign can thank its lucky stars that the business interests didn’t get their act together. Suppose both initiatives make the ballot, said Gabriela Quintana, campaign coordinator for the Keep Our Kids Safe Coalition. That spells trouble for both. “Two initiatives will probably confuse people when they go to vote.”

            Costco Behind I-1100

            The two initiatives are I-1100 and I-1105, strikingly similar in their approach but with that all-important difference in the distribution rules. I-1100 is backed by the big retailers and got an enormous publicity push last week when Costco and the Washington Grocery Association announced their support. The signature tables started appearing outside big-box stores over the weekend. At Costco stores they are actually manned by employees.

            Meanwhile, I-1105 is a little slower out of the starting gate. It’s been stuck in the state elections office while the ballot title has been reviewed. Two last-minute challenges to the ballot title were filed Tuesday, the final day for challenges, and a court hearing has been scheduled for next Wednesday. Only when the ballot title is clear can sponsors begin collecting signatures.

            Both campaigns will have to collect 241,000 signatures by July 2 – normally an all-but-impossible task in such a short period of time. But with millions of dollars at stake and signature gatherers available for hire, it wouldn’t be wise to count either one of them out.

            Blood in the Water

            Why the rush?

            After what happened this year, it was probably only a matter of time before business interests launched an initiative – as a preemptive strike against the Legislature.

            Lawmakers have been talking about junking the state’s 315 liquor stores almost since they launched the system 77 years ago. But this year, amid the state’s multi-billion-dollar budget crisis, the talk was more serious than usual. A couple of the bills even got hearings. And though Democratic leaders put the bills to death, as they always do, because the state-employee unions oppose them, there was a big difference this time around.

Lawmakers were talking about a new approach that would have forced retailers to pay big bucks for the right to sell booze. A new report from state Auditor Brian Sonntag says the state could make as much as $350 million over five years by selling a limited number of liquor franchises to the highest bidder in each market.

The plan would have become reality under a bill sponsored by state Sen. Tim Sheldon, D-Hoodsport. Essentially, under Sheldon’s plan, the state would have made a lot more and the retailers would have paid a lot more. Wide-open sales would mean a net increase to the state of only $86 million, according to the auditor’s estimate. So the cost of the state’s inaction this year could be as high as $264 million.

Yet Sheldon said he wishes the initiatives well. Certainly the Legislature might have taken him up on the $350 million idea someday, he said – there is no good reason for the state to be in the booze business, and the state could save plenty by eliminating the 900 union jobs at the state liquor stores. But the initiatives might be the only way to get something done in the near term, given the power that unions have in the Legislature.    

“I hope they make the ballot,” he said. “It’s probably the most important thing we could do for government reform. Instead, all we did this year was cut a few boards and commissions, and said, ‘Look what we did for you.’”

            The Other Side's Fault

Costco is careful to say it didn’t start anything. Initiative 1100 was actually filed April 16 by the mysterious T. Song, who doesn’t return telephone messages, on behalf of an organization called Modernize Washington, whose shadowy existence appears to consist of a single webpage. Exactly where the money came from is hard to say – the campaign disclosure documents show a few personal contributions; the big corporate checks haven’t kicked in yet. But perhaps the most important detail to be gleaned from the campaign records is that the effort has had professional management from the very start. Its manager is Sharon Gilpin, a veteran of many Seattle-area political campaigns over the last two decades.

The distributors followed with their own initiative on May 7.

And once the distributors got in, Costco had to get in, too, said chief legal officer Joel Benoliel. “We didn’t have a lot of options, and this one was already filed.”

It should be noted that Costco spent four years challenging the state’s beer and wine laws in court, finally losing in the 9^th Circuit Court of Appeals. A key point in the suit was the fact that the distributors occupy a special place in state law, and retailers can’t go around them to negotiate discounts with manufacturers. Costco maintains the arrangement drives up costs. I-1105 would maintain the same system. “Under 1105’s version of privatization, there would still be a monopoly,” Benoliel said. “It just wouldn’t be controlled by the state.”

Mystery Shrouds I-1105

It’s a little harder to tell what’s going on with I-1105, because the campaign hasn’t launched yet. No paperwork has even been filed with the state Public Disclosure Commission, though the campaign does have the expected website, with the usual Twitter and Facebook functions all set to go. But it’s easy to tell there’s money behind this one, too. The initiative was filed by Charla Neuman, who says she represents Neuman Navigation, a small independent Tacoma firm. Yet her caller ID indicates that she is calling from Strategies 360, one of the state’s biggest and oldest public affairs firms, long associated with campaign consultant Ron Dotzauer.

Neuman said the participants in the coalition will be announced when the campaign kicks off, sometime very soon. And certainly they will include more than just liquor distributors.

One big difference, she said, is that 1105 would raise about $100 million more for the state, by requiring liquor retailers to pay six percent of gross receipts for the first five years. I-1100 doesn't provide a specific revenue source. Neuman also said the initiative gives the state Liquor Control Board more discretion in awarding licenses – it’s not quite as wide-open as I-1100 – though the language appears a bit vague, merely requiring it to develop criteria for licenses.

“We don’t think there should be a liquor store on every street corner, the way there are Starbucks,” she said. “Nothing I see in 1100 imposes any restriction.”

            Nastiness Lies Ahead

Here’s an indication of how nasty this all might get. Already an anti-1105 campaign has filed paperwork with the Public Disclosure Commission. And the people behind the “No on 1105” committee are the same people who are behind I-1100.

There’s a more traditional opposition campaign, too, backed by those you might expect. The Keep Our Kids Safe Coalition has support from the United Food and Commercial Workers Local 21, which represents the liquor store workers, but also from agencies like the Church Council of Greater Seattle. The more liquor outlets there are, and the more affordable liquor becomes, the worse off society will be, Quintana said.

The auditor’s report estimated that under a wide-open California-style system, the number of outlets would increase tenfold, to 3,300.

Of course, the coalition also is concerned about the union jobs as well. For now Quintana's group is watching to see whether anything makes the ballot -- nothing really will kick in until then.