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Distilled spirits dilemma

Distilled spirits dilemma

State control vs. privatization poses implications aplenty

As one of the 18 states that opted to put distilled spirits entirely under state control at the end of Prohibition in 1933, Oregon got itself into the booze business via the Oregon Liquor Control Commission.

Along the way, it inherited an obligation to serve the public. Thus, the Oregon Liquor Control Commission has gradually over the years, albeit it sometimes begrudgingly, made adjustments to better meet the needs of an evolving society.

In the beginning, sterile green-front stores housed a clerk behind a bare counter. Upon request, he would hand a list of available merchandise to a prospective customer.

Not a single bottle was in public view in those days. All the merchandise was kept on shelves in back.

Today's state-run liquor stores are a far cry from those of the dreary old days. Many sport the colorful look and self-service systems of modern convenience stores. A few even sell wine and beer in addition to distilled spirits.

But more about that later.

Now 84 years of age, the OLCC is beginning to pursue avenues of retooling itself while still retaining a framework wherein it perform all the functions, including importation, storage, distribution, regulation, enforcement and retailing.

That, however, produces a bizarre construct that sometimes operates at cross purposes.

On the one hand, it promotes and facilitates the sale of controlled substances. On the other, it screens, investigates and punishes on-site service providers to ensure all regulations are followed in the service of those substances.

In recent years, the OLCC has come under increasing criticism regarding its alleged inability or unwillingness to simultaneously respond to the needs of both consumers and licensees.

This shouldn't be surprising in today's frenetic business world, where the expectation of immediacy has reached a fever pitch.

Consumers want everything right now. They are disappointed, even resentful, when they can't get it.

Lack of product diversity is a common complaint.

Just because a given item is not a large volume seller is no reason, some argue, that it should be allowed to run out of stock. Bars owners criticize the inability to regularly obtain some specialty ingredients required for exotic cocktail recipes whose popularity has increased tremendously in recent years.

Distillers lament the lack of support for new products. They say it is difficult to get OLCC purchasing personnel to buy and stock as yet untested items at all, much less in adequate quantities.

OLCC representatives counter that retail agents consistently stock as many as 1,900 items on their shelves, and have access to an additional 2,200 via catalog ordering from a central warehouse in Portland.

If restaurant and bar owners have particular needs, retail agents will be glad to work with them, the agency says. Of course, licensees have to pay for everything up front in Oregon, though.

Some people ask why the OLCC doesn't just change its way of doing business. They would like to see it follow the California model.

Private companies handle sales and marketing while the state handle regulation and enforcement. It's a natural and logical division, they argue.

That sounds good, except for one thing.

The OLCC is not allowed to redefine and remake itself. That power rests solely with the state Legislature, and more specifically, with its influential House Business and Labor Committee.

If the committee were persuaded a change from public to private liquor wholesaling was in the state's best interests, it would make a recommendation to the full Legislature and a bill would be drafted.

However, even successfull passage of a bill through both chambers, capped by the governor's signature, wouldn't be enough. A vote of the people would be required.

On Sept. 12, the committee, co-chaired by Chris Garrett, D-Lake Oswego and Bill Kennemmer, R-Clackamas, reviewed a rather revealing report prepared by OLCC staffers.

At the beginning of June, neighboring Washington began implementation of its voter-approved liquor privatization measure. The report focused on the impact.

To the shock and dismay of customers — even though they had been forewarned — prices rose an average of 25 to 30 percent under privatization. As a result, Washington residents began flocking across the border in droves to make purchases in their cheaper — and sales-tax free — neighboring state to the south.

On average, sales at OLCC stores near the border increased more than 35 percent during June, July and August. Even stores lying further inland profited, averaging gains of more than 8 percent.

In the 84 years of its existence, the free-market system in California has worked out ways to keep prices below those of Oregon and still turn a profit.

But every state is different, as is every state's tax system, and it hasn't worked out that way so far in Washington. That, naturally, has dampened enthusiasm in Oregon for a radical U-turn.

The OLCC is recommending Oregon stay the course, so to speak. In the meantime, it is promising to continue evaluating some experimental ventures, one involving the carrying wine and beer in selected state stores.

The OLCC logged $350 million in net income in the 2009-11 biennium, and is projecting an increase of 6.5 percent, or $59.6 million, for the 2011-13 biennium. That money would, of course, be hard to replace.

This is the kind of accounting that Oregonians, socially progressive but fiscally conservative by tradition, Oregonians can buy into — at least for now.

Karl Klooster can be reached by e-mail at kklooster@newsregister.com or by phone at 503-687-1227.
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Distilled spirits dilemma

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