State Auditor Doug Hoffer is questioning why the state is in the business of selling liquor, a substance that it also regulates.
Hoffer’s office issued a report Monday that examines the impact of privatizing the state’s liquor distribution system. The auditor’s report also suggested ways the Department of Liquor Control could increase its profitability without privatization.
Hoffer questioned why the state still distributes liquor 80 years after the end of Prohibition.
“We license and regulate tobacco, but we don’t sell it,” Hoffer said in an interview. “It’s hard to see how selling liquor is a core function of state government.”
Michael Hogan, commissioner of the Department of Liquor Control, said Hoffer’s report was “fair,” but he disagreed with the auditor on the benefits of privatization.
“There are some things in the report that we could do, and are doing,” Hogan said. “But time has proven [this system] works. I don’t think it’s a broken system.”
Hoffer’s report acknowledges that privatizing liquor sales would be revenue “neutral,” meaning it wouldn’t increase or decrease the state’s earnings from the sale of spirits in Vermont.
Hoffer said the state’s role in the distribution of liquor and in the enforcement of licenses constitutes a “dual mission.” The state is interested in the money generated through liquor excise taxes but at the same time is focused on regulating its consumption.
The state reported about $70 million in liquor sales in 2013, according to the auditor’s report. That resulted in $30 million of revenue for DLC, which sent about $18 million into state coffers after deducting its operating costs.
Hoffer’s report included recommendations that DLC perform analyses to determine the right number of stores and locations; study the size and efficiency of its warehouse; review its pricing policies; and examine its inventory control methods.
Hogan said some of those recommendations are underway and others require money for which the department has not budgeted.
DLC has budgeted $30,000 for a study of warehouse size and efficiency in FY 2016, if approved by the Legislature, Hogan said. He also said a new point of sale (POS) system will be rolled out in the spring that will help the department gather better sales information.
Hogan said much of his department’s work is focused on educating servers, inspecting licensees and protecting public safety, but acknowledged that those functions could continue regardless of whether the state controls the distribution of liquor.
Hogan and Hoffer agreed that privatization could lead to higher prices, and Hogan said it could lead to fewer choices for consumers. Hogan said an increase in liquor outlets, such as allowing sales in big box stores, could result in more retail theft and increase the access to liquor among minors.
Hoffer said privatization would create competition for liquor licenses, which are now virtually permanent.
“Store locations never go out for bid,” Hoffer said. “Periodic bidding can lead to different outcomes. As it is, stores take no risk … the state sets the prices and provides the inventory.”
Hogan said he was not aware of any planned legislation to privatize liquor sales.