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Malloy: Liquor Laws Need (Partly) Free Market Fix

The governor wants liquor stores to better compete with surrounding states, both for the sake of consumers and Connecticut's tax revenues. Not everyone is on board.

Flanked by cases of Budweiser, Four Loko and even Arizona Iced Tea, Gov. Dannel P. Malloy toured the sprawling headquarters Dichello Distributors in Orange. The company serves more than 3,000 bars and stores in Fairfield, New Haven and Middlesex counties and it’s no coincidence that Malloy stopped by on Tuesday. 

In an attempt to update Connecticut’s liquor laws and remove restrictions imposed by state government, Malloy talked up his plan to have Connecticut compete with surrounding states.

“They’re eating our lunch,” said Malloy, referencing the money lost to out-of-state alcohol sales. “They’re literally eating our lunch.” 

Connecticut’s regulation of alcohol sales would make most free-market enthusiasts shudder. Price controls make it illegal to sell alcohol below a certain price. The blue laws make it illegal for business owners to sell alcohol on Sunday except at a bar or restaurant. Other laws forbid package stores from selling snacks – even peanuts.  Currently, it’s even forbidden for one person to own more than two package stories.

Malloy wants to change all this and more. 

Liquid Revenue

Malloy’s plan would allow the free market to play out (with one key exception) more than the laws currently allow. He describes the modernization plan as a good thing for consumers, with prices for a case of beer projected to drop $2-$5 and wine bottles from $2-$7. Malloy also sees the law changes as a panacea for some of the state’s fiscal woes.

With Connecticut facing a $145 million deficit in 2012, alcohol sales are seen as a way to help close that gap. Officials hope to raise $8 million a year in additional revenue through the proposed law changes. A study cited by Malloy estimates that Connecticut is losing $570 million in sales [note: the study itself could not be found at the time of publication but will be added later].

Edward Crowley, who oversees 215 employees as president of Dichello Distrbutors, agrees with Malloy.

“The state of Connecticut wins because we keep tax revenue within our borders from sales, keeping them from our neighboring states,” he said at a press conference after the tour.

Medallions Not Just for Olympians

While most of Malloy proposed changes favor opening the market up, a medallion system that would cap the amount of alcohol sellers in the state has a different intention.

Malloy said, “As we modernize, and as we become far more pro-consumer in pricing, how do we retain value for a set of current license holders?”

His solution is a system that rewards existing liquor store owners with a medallion that provides financial incentives while potentially limiting competition. If someone else would like to open a store, they would have to purchase the medallion from someone else at a market price or else they won’t be able to start the new business.

The maximum number of medallions - which are essentially permits - is up to the legislature to decide if they adopt the laws. As past examples in history show, there could be unintended consequences if the cap is set below the demand of consumers.

In New York City, a medallion system has been in place since the 1930s.  In 2011, scarcity forced the price of a taxi medallion up to $1 million. In Washington D.C., there’s an ongoing debate as to whether medallions should be issued to taxis. This is what D.C.’s chief fiscal officer determined in a study:

There is broad consensus among economists that such restrictions allow a small group of private citizens—those who are among the first round of recipients of medallions—to earn windfall profits at the expense of consumers and drivers without medallions. Evidence from other jurisdictions suggests that limiting entry into a taxicab market leads to a decline in overall service.

When asked about the possibility of exhorbitantly expensive medallions, Malloy doesn’t see similar issues arising in Connecticut.  He said liquor stores per capita are the highest in the country already.

“How many more liquors store do we want to have per capita than every other state?” Malloy said.

Opposition from Small Stores

While Malloy’s plan has the support of beer wholesalers in the state, the Connecticut Package Store Association opposes allowing liquor sales on Sunday.

“The overhead of adding hours and days increases costs to retailers making it worthless to open. Any revenue gain would best be described as blood money, as the public and personal unintended consequences of this proposal become known. Stores sell six days a week, 72 hours a week. If a person cannot obtain alcohol in this time, availability is not the problem,” wrote the association on their website.

Grocery stores, which are already open on Sundays, would be given the advantage since selling alcohol that day comes at no additional cost to them.

The organization also doubts the state’s project revenue increases. To make $5 million more in taxes, the group says there would have to be an additional consumption of 5 million more gallons of beer, 300,000 bottles of wine, 100,000 bottles of spirits or a “combination of these" to generate that much revenue.

i_wish_i_had_a_brain February 19, 2012 at 04:32 AM
Blue laws are such a drag... Besides Malloy is correct. Folks who want a drink will either drive to New York or Rhode Island. This hurts Ct. buisnesses.

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