November 14, 2024
Editorial

Bar Fight

Several readers have written in to question the many numbers surrounding the state’s lease of its wholesale liquor business, including those in an editorial Wednesday repeating the Baldacci administration’s assertion that it would turn a profit on the lease. As usual, readers made several good points.

Gov. Baldacci’s office defends its claim that Maine would see a net benefit of nearly $60 million over 10 years through the lease by receiving $125 million up front plus added taxes and revenues based on profits over the next decade. The current revenue stream to the state from its wholesale business is $26 million. Readers handy with calculators have said the governor’s team has confused present and future values; the governor’s office replies, “The tools we use for comparison purposes have to reflect that we will use money differently than a business will,” so the objection is out of place.

UMaine economics Professor Ralph Townsend and a couple of other readers don’t accept this and their case is persuasive. They explain it this way: The net present value of continued state control over the wholesale business is $191 million; the net present value of the lease is between $170 million and $180 million, plus the benefit of being able to use the money now and the removal of risk that something might happen to the revenue stream. Looked at that way and with the interest rate used by the state (6 percent), the deal is more or less a wash. With a more likely lower interest rate, the deal gets worse for the state.

Professor Townsend likens the lease to the Martignetti Co. treating the liquor wholesaler as a bank. For receiving money up front and a small amount of money every year, the state agrees that the wholesaler will annually collect the $26 million plus whatever else it can raise through sales for 10 years. It is the rough equivalent of a loan at 8 percent interest, not an especially good rate he says, which is understandable because Martignetti is not designed to be a bank.

If all of this makes you want to take a drink, you have company. An editorial should always have an opinion, so here’s one in the form of a prediction: The administration will hear more about the leasing business and headaches will ensue.


Have feedback? Want to know more? Send us ideas for follow-up stories.

comments for this post are closed

You may also like