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Ohio Gov. John Kasich counts on liquor consumption to bring jobs
Tuesday, March 22, 2011
By Reginald Fields, The Plain Dealer

COLUMBUS, Ohio - The success of Gov. John Kasich’s plan to recruit new business to Ohio will hinge heavily on just how much Ohioans drink alcohol.

Kasich last week unveiled his state budget proposal, which includes a plan to lease the state’s liquor distribution operation -- which of late has drawn record profits -- and use the cash to fund his private economic development machine.

Since floating the idea earlier this year, the Republican governor says there have been plenty of potential takers. In fact, Ohioans’ propensity to consume more than ever, according to recent figures, has influenced the governor’s idea most.

“Over the years people drink more. It’s just a natural revenue stream,” Kasich said last Tuesday while outlining his proposal, drawing a smattering of laughter from reporters. “So, everybody wanted to buy it. Everybody was interested in it.”

But the governor says he isn’t making the liquor sales operation available to the open market. Instead, he’s keeping it in-house. Kasich has created JobsOhio, a private economic development corporation that will eventually replace the Ohio Department of Development and take over that agency’s main role of job recruitment and retention.

The governor intends for JobsOhio to be part venture capitalist, spreading around seed money for business in return for a piece of future profits, and part marketer, promoting the virtues of running a company here and bringing jobs to the Buckeye State.

To do that, JobsOhio needs start-up money and steady cash to sustain itself, and Kasich knows he cannot tap taxpayer dollars alone to foot the bill.

“When the economy is going down you have less money to invest in job creation. That’s the time you need (money) the most,” said Mark Kvamme, a venture capitalist who is Kasich’s director of job creation and architect of JobsOhio. “So, we need a sustainable funding source to make this happen.”

Here’s how drinking more liquor could help the Republican governor bring jobs to Ohio:

Q. How much will JobsOhio pay to lease the alcohol operation, and where will it get the money?

A. Kvamme said the deal will be for a 20- to 25-year lease for a price that will be determined when the transaction occurs, likely on Jan. 1, 2013. Over that many years, based on today’s liquor sales, Ohio could rake in more than $6 billion in profit. Figuring out a fair market price for a lease covering the next quarter century with that amount of profit potential will be a key item to watch.

In the meantime, JobsOhio plans to grab $1.2 billion soon to help Kasich balance the state operating budget right now by issuing revenue bonds backed by future liquor profits.

The up-front money will be split: $700 million to pay down existing liquor backed bonds to clear the way for the operation to be taken over by JobsOhio and $500 million in one-time money to Ohio’s general revenue fund to help balance the state’s budget.

Q. How much money does Ohio make from liquor store sales?

A. Ohio controls the licensing, manufacturing and sale of all spirituous liquor (containing more than 21 percent alcohol) in Ohio through 452 privately run state liquor stores.

In fiscal 2010, the Ohio Division of Liquor Control reported a net profit of $228.8 million, an increase of $4.6 million over the previous year. The 2009 figure at the time was a record.

Or, to look at it another way, Ohioans purchased 10.8 million gallons of booze last year. Yes, another record.

Q. Will liquor control employees lose their jobs?

A. No. For now the division will remain under the Ohio Department of Commerce, but its fiscal transactions and other day-to-day operations will be transferred to JobsOhio.

Q. Would JobsOhio also take over issuing liquor permits to bars and restaurants and other places where alcohol is sold and consumed on the premises?

A. No. Permitting and license enforcement will remain under a separate division at commerce.

Q. Why not make leasing the liquor operation available on the open market to potentially increase revenue?

A. Kasich said that he wants Ohio to be able to continue controlling the day-to-day operation of liquor sales, which would not be guaranteed if he sold it to the highest bidder.

For example, by controlling the operation in-house, Kasich can direct liquor profits for public purposes such as job creation or to aid the general revenue fund. This approach also guarantees JobsOhio can take what it wants from the profits for its own operating procedures.

Q. How will JobsOhio use the liquor profits?

A. It is expected to use the money to help companies either start up or relocate to Ohio. But instead of giving loans, JobsOhio could ask to be partial owners or investors in the business and thus gain equity in companies.

“The profits from this will go back into supporting job growth, not government growth,” Kvamme said Tuesday.

Q. Will selection or prices change at the liquor stores?

A. Certainly not between now and January 2013 when the transfer of the operation from commerce to JobsOhio is expected to become official. After the transfer is official, Kvamme said changes are not likely.

In other states where liquor sales are private it has been reported that liquor and wine selections are more plentiful. And in some cases prices are higher. But Ohio would not bring in a private operator under Kasich’s plan.

Q. Will any stores be added or closed?

A. Again, not between now and January 2013. And Kvamme said no drastic changes should be expected after that point. In other states where liquor sales are private, stores are thought to be more visible.

Q. So, privatizing state liquor sales is not that unusual?

A. Not at all. Thirty-two states already in some way privatize their liquor sale operations. Ohio is among the other 18, known as “control” states, that do not.

However, in just the past year, nine control states -- Pennsylvania, Virginia, North Carolina, Mississippi, Idaho, Utah, Washington, Vermont and now Ohio -- have introduced legislation or voter referendums or otherwise started discussions about privatizing liquor sales to raise money.

What is different about Ohio’s approach is that Kasich wants to lease one state entity to another state entity -- albeit a privately run one.

Read it at the Cleveland Plain Dealer


 
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