Strapped States Look To Alcohol For Shot Of Cash

Enlarge this image toggle caption Lisa Poole/AP Lisa Poole/AP

Most states are confronting budget deficits big enough to drive a person to drink. Now, some of them are turning to a good, stiff drink to help generate new tax revenue.

Fiscally strapped states and local jurisdictions have been beating back entrenched political opposition and moral objections to permit Sunday alcohol sales as a generator of new tax revenue.

As state legislatures were gaveled into session in January, Connecticut, Indiana and Texas became the latest to take up legislation that would lift bans on Sunday sales at "package" stores, which sell alcohol that must be consumed off site. (Proposed legislation doesn't affect restaurants, because most are licensed to sell alcohol for consumption on site every day of the week.)

Across the country, more elected officials are targeting so-called vices, such as cigarettes, for tax hikes as a politically safer alternative to raising property and income taxes.

Since 2002, 14 states and numerous municipalities have repealed their "blue laws" banning Sunday alcohol sales in efforts to spur revenue growth for their governments. Now, 36 states allow such sales.

Connecticut, Indiana and Georgia are the only states that currently ban Sunday sales of all three types of alcohol — beer, wine and liquor. The newly elected governor of Connecticut has publicly lent his support to overturning the ban.

"It's the only industry in the state of Connecticut that we tell cannot do business on Sunday. It's really, truly about retail fairness, not alcohol consumption," state Rep. Kathy Tallarita, who sponsored the legislation there, says. "The bonus to that is there's money to be had from it and we have a budget deficit. And consumers overwhelmingly support it."

In addition to hampering tax collections, advocates say, the ban is anti-competitive and unfairly prevents businesses from meeting consumer demand on Sunday, the second-busiest shopping day of the week.

Who is standing in the way? Liquor store owners. Really.

Unlikely Source Of Opposition

Owners of package stores have formed powerful lobbies at the state level to block legislation that would repeal blue laws.

In Indiana, for instance, opponents say repeal would lead to a proliferation of alcohol sales and likely increased sales to minors, underage drinking and drunken driving. They cite a state analysis that has found that expanded sales would generate little new tax revenue.

In addition, opponents say a law change would grant greater leeway to grocers, convenience stores and other retailers without requiring them to follow the same strict regulations that govern liquor stores. For example, package stores can't admit any customers under age 21, and their employees must be specially trained and licensed.

"I get calls from people thinking we're going to be for this. But, in Indiana, this would be a bad idea," says John Livengood, president of the Indiana Association of Beverage Retailers. "The liquor store industry was essentially created by the Legislature to sell alcohol. We think the way we sell alcohol is the best way. We see ourselves as part of the regulatory process."

Livengood says supporters of Sunday sales "want to treat it like milk and cookies."

Of course, supermarkets and mini-mart chains would provide traditional liquor stores with unwelcome competition. Such companies operate on a scale large enough that they could quickly take away business from the predominantly family-owned concerns that Livengood's organization represents. Livengood cites a study estimating that expanded alcohol sales would immediately help bigger retailers and drive up to 25 percent of Indiana's package stores out of business, in part because they can't afford the higher operating costs of opening on Sundays.

"If one liquor store opens on Sunday, they all have to open just to maintain their market share," says University of Maryland economist Peter Morici. Grocery and convenience stores are likely to gain market share, he says, "because they are already open on Sundays and don't bear any additional costs."

Big Fiscal Benefits To Ending Bans

The first blue laws date to Colonial times and were motivated by religious objections. After the 21st Amendment repealed Prohibition in 1933, many states enacted or strengthened their existing bans on Sunday alcohol sales. Those restrictions have largely remained in place, particularly in the Bible Belt, until recently.

In Texas, for instance, roughly 353 of 460 counties and cities have voted to repeal "dry" ordinances since 2004, according to the Distilled Spirits Council. A November voter referendum that passed in Dallas is undergoing a court challenge. Several cities in Mississippi have gone "wet." And in Georgia, new Gov. Nathan Deal has pledged his support for repeal.

The trade group Distilled Spirits Council of the United States, which has led the repeal effort nationwide, cites a report showing that each state that approved Sunday sales between 2002 and 2008 experienced at least a 5 percent increase in annual tax revenue.

Plenty of states could certainly use the extra money. The Center for Budget and Policy Priorities estimates that 44 states project budget gaps for fiscal 2011 exceeding a total of $125 billion.

It's no coincidence that the states mulling over Sunday sales legislation are facing huge shortfalls: Texas projects a gap as wide as $27 billion for its upcoming two-year budgeting period; Connecticut estimates a deficit of roughly $3.5 billion; and Indiana — where Republican Gov. Mitch Daniels' record of fiscal discipline has made him a potential presidential contender — is facing a $1 billion budget gap.

Advocates say states with bans also miss out on collecting sales taxes on other consumer spending.

"When people go across state lines to buy a case of beer, they are taking their entire shopping list with them. So we think the losses are probably higher," says Grant Monahan, founder of Hoosiers for Beverage Choices, which is pushing for the law change in Indiana. The proposed legislation, which died in committee last year, also would end liquor stores' exclusive right to sell cold beer.

"This is an issue of customer convenience and price competition in the marketplace. I'm under no illusions. This is a tough battle," Monahan says.

When New York state began its efforts to repeal its blue laws in the early 2000s, Steve Glamuzina, who owns a liquor store in the Buffalo suburb of Williamsville and presided over the Empire Liquor Store Association, opposed the effort.

"I was like, absolutely not. I don't think it was fear of competition; it was based on concerns about losing sales revenue with an extra day of business," says Glamuzina. But his attitude changed once the law was repealed in 2006.

"I was blown away when we opened on Sunday," he says. "It's still the only day of the week when I have a line of people at the door for us to open."