Liquor deal may cost state $100M Lawmakers say losses not disclosed

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AUGUSTA – The Baldacci administration’s plan to privatize the state’s wholesale liquor business will cost taxpayers about $100 million in lost revenue over the next 10 years, officials confirmed Sunday.

Under the deal announced Friday, Martignetti Co. of Norwood, Mass., will pay the state an estimated maximum of $165 million for the exclusive right to wholesale liquor in Maine for the next decade.

The state currently earns a net profit of $26 million a year and stood to have made $260 million over the next 10 years. That does not include projected savings from shutting down the last of the state-run retail liquor stores, according to lawmakers.

Rebecca Wyke, Gov. John Baldacci’s finance commissioner, said Sunday that Martignetti will pay the state $125 million before the end of the current fiscal year on June 30. In addition, the company will split its profits 50-50 with the state after it reaches a “base profit.”

Wyke estimated that the state would collect $25 million to $40 million in profit over the 10-year term of the deal. She could not say Sunday what the company’s base profit would be.

The deal with Martignetti, a longtime liquor dealer, is the first such partnership of its kind in Maine and the first time since the end of Prohibition that the state will turn over liquor distribution to the private sector, state officials said.

Wyke said the public, the Legislature and the media were “absolutely” told that the state would be giving up $100 million in ongoing revenue under the plan.

“This was very well debated and aired,” she said.

But ranking lawmakers strongly disagreed, arguing that few legislators realized or were told that the governor’s plan would cost the state $100 million in lost revenue.

“It was sold to the Legislature as a break-even proposition,” state Rep. Joseph Bruno, R-Raymond, said Sunday, “or else I don’t believe we would have agreed if we knew” the financial consequences.

Wyke and Baldacci spokesman Lee Umphrey both dismissed the House minority leader’s comments as politics “in an election year.”

State Rep. Peter Mills, R-Cornville, agreed with Bruno that few lawmakers knew the full ramifications of the proposal. And those who did know, Mills said, did not speak up because they could not offer other ways to find the $125 million Baldacci booked in the current budget in anticipation of closing the deal.

Privatizing the wholesale liquor business was crucial in helping Baldacci balance his first two-year budget and still keep his promise not to raise taxes.

“I always thought it was a bad deal, but I couldn’t get anyone to listen to me,” Mills said Saturday. “We could use that [ongoing] liquor revenue. That was ours to control. They gave away the profit, and [Martignetti] will be paid handsomely for what they do. I just thought that was awful.

“What are we going to sell off next?” Mills asked, “The sales tax?”

Mills said the deal could have been much worse because the administration’s original language would have sold the monopoly rights in perpetuity, something that “astonished” Mills.

A ranking member of the Appropriations Committee, Mills said he “threw a temper tantrum” at 1:30 a.m. the day the committee was trying to close the budget last year, warning Baldacci that he would “do everything in my power to defeat this budget” unless the governor agreed to a time limit on the liquor deal.

Mills said he ended up rewriting the legislation at the last minute after Baldacci aides brought the committee a final revised budget that still did not include a time limit.

“I can only tell you my frustration was immense,” Mills said. “I thought the whole thing made no common sense. I kept screaming, ‘We’re going to give up $26 million a year? We’re going to give away a monopoly forever? What are we doing?'”

Wyke denied that the administration intended to sell off the business for a base bid of $125 million. She said the budget language intentionally was written to be flexible so the administration could make the best possible deal. She conceded that Mills “had a moment,” and that he got the administration to add the 10-year limit to the law.

House Speaker Patrick Colwell, D-Gardiner, also disagreed with Mills and Bruno about what rank-and-file lawmakers understood about the proposal – and the potential revenue loss.

Colwell was certain that both party caucuses were told the state would lose money, but he was unsure whether the hard numbers were discussed.

“I believe we discussed that,” he said. “I’m pretty sure.”

However, Colwell initially thought Sunday that the deal announced Friday with Martignetti contained a provision that somehow would bring the state an additional $100 million in profits, keeping the treasury whole.

“I guess I didn’t understand” the Martignetti proposal, he said.

Colwell said the decision over leasing the liquor business was never about money, anyway. “It was always a philosophical discussion about whether the state should be in the liquor business,” he said.

The law does not allow private companies to set liquor prices, so the state will continue doing that. The state also will decide which products can be sold in Maine, according to Wyke. All Martignetti will do is buy and distribute liquor, rather than the state.

As late as 1998, former Gov. Angus King, like other governors before him, rejected selling or leasing the wholesale operation. Although he was in the midst of his own budget problems and wanted to get the state out of the liquor business, King said he could not justify giving up the annual revenue.

Rank-and-file lawmakers typically take their cue from the committees of jurisdiction, Colwell said.

“We rely on the committee process” to ask the hard questions and get the answers, he said.

Wyke conceded that Baldacci probably would not have made the liquor deal “if money was pouring in.” But faced with a budget deficit and a public that did not want either higher taxes or fewer services, the governor had no choice, she said.

“Everyone knew we were willing to give up a significant amount of money into the future” in order to get a quick infusion of cash to balance the current budget, Wyke said.

The administration now has 10 years to find ways to replace the liquor profits so the state is not dependent on the money, she said.

“I feel very comfortable with the decision we made,” Wyke said. “It’s a great proposal.”

Bruno was insistent, however, that lawmakers were misled and asserted that Baldacci has only delayed making hard budget decisions by using some $300 million in one-time money to balance the budget.

“They fooled the Legislature” about the liquor proposal, Bruno said. “They ramrodded that budget through, false assumptions were made, and we didn’t have a proper amount of time to review it.

“I think Maine is suffering for that.”