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Municipal Research News - Liquor Privatization Initiatives - MRSC left "bone dry"
Liquor Privatization Initiatives - MRSC left "bone dry"
Between 1945 and 1999, the motor vehicle excise tax was the fund source that cities used to fund services received from the Municipal Research and Services Center (MRSC). That era ended when the voters passed Initiative 695, abolishing the motor vehicle excise tax. Although Initiative 695, which repealed this tax in 1999, was found unconstitutional, the 2000 legislature decided that the people had spoken and repealed this tax, replacing it with a $30 license fee.1 Cities urged the legislature to continue funding MRSC and to replace funds lost with a small fraction of the cities' distribution of liquor profits.
This year there are two initiatives that could adversely affect local government funding, including most of the monies used by MRSC to provide services to cities and counties. The purpose of this brief article is to alert local officials that our funding is once again at risk and that we will be seeking an alternative way to fund MRSC if one or both of these initiatives pass in November.
This article is provided for informational purposes in response to questions received from local officials. It is not intended to express support or opposition to the initiatives.
Liquor Receipts - Profits and Taxes
Since cities and counties are responsible for the policing of liquor establishments located within their limits but are precluded from taxing them because of the state liquor monopoly,2 state law provides that a share of the state-collected profits and taxes be returned to cities and counties to help defray policing costs.
Liquor board profits consist of the difference between revenue generated by the Washington State Liquor Control Board and the board's expenditures, specific revenues collected for a dedicated purpose, and administrative fees attributable to specific licensees that serve hard alcohol. Revenues are generated from sales at state liquor stores, taxes collected on wine and beer manufacture and distribution, licensee fees, alcohol related permit fees, penalties, and forfeitures.
Liquor profits are divided among the state, counties, and cities. Fifty percent goes to the state general fund, 10 percent goes to counties, and 40 percent goes to cities. The county and city amounts are distributed on a per capita basis on the last days of March, June, September, and December. An additional small amount is distributed to border cities and towns and Point Roberts.3
The state receives 65 percent of the liquor excise tax collections, with cities getting 28 percent and counties getting 7 percent.4 These funds are distributed on a per capita basis on the last days of January, April, July, and October.
How would the initiatives impact these distributions?
I-1100 would maintain the liquor excise tax but would repeal the liquor profits distribution, because the system would be privatized and profits would go to the retailers.
I-1105 would remove both the liquor excise tax and liquor profit distributions. I-1105 has intent language in Section 101(1) that the privatization of liquor sales and distribution "not result in revenue losses to state or local governments" and then more prescriptive language in Section 101(3) directing the Liquor Control Board to recommend to the legislature "a rate of taxation that, along with other spirits-related revenue sources, would project to generate at least the same annual revenue for the state and local jurisdictions as under the current state control system..."
Note that if I-1053 were also to pass, it would be far more challenging to enact new or replacement tax rates on liquor sales. I-1053 would require a two-thirds affirmative vote by the state legislature to adopt new taxes or user fees.
What are the impacts on local government?
According to estimates in MRSC's Budget Suggestions for 2011, the distributions of liquor profits and excise taxes to cities and counties are as follows:
The Office of Financial Management is required to develop a fiscal impact note detailing the way an initiative impacts state and local governments. The fiscal note for these initiatives was due by August 10, 2010.
MRSC Funding
Nearly all the funding for MRSC is derived from liquor profits and taxes. The city portion of MRSC's programs and services is funded from a small share of the cities' distribution of liquor profits, and the county program is funded from the counties' share of liquor excise taxes. You might ask why MRSC is funded in this manner. The conceptual approach that has been used historically to fund MRSC is to tap a fund that is collected by the state and distributed back to local government. This produces a program that is owned by local governments for the purpose of meeting critical needs of local government. An appropriation is made to a state agency - formerly the Municipal Research Council and now the Department of Commerce - to contract for the provision of specified services by a qualified provider. MRSC, and its predecessor, the University of Washington Bureau of Governmental Research, has been that provider for 76 years. This approach insures that all cities and counties share in the funding of services.
If one or both of these initiatives pass, MRSC will need your support. We are currently identifying options to fund MRSC, and if you have any suggestions, please pass them on.
We think that MRSC is a model of government efficiency:
- By pooling resources, local governments gain access to services they could not afford to provide alone. MRSC is a national model of intergovernmental cooperation providing efficient, shared services.
- MRSC saves money for local governments in Washington State by providing quality and expert advice and research.
- Liability is reduced through timely advice.
- MRSC serves as a clearinghouse for examples of successful solutions, saving local government time and money while enhancing the quality of local service delivery.
For further information about these initiatives, please see out website http://www.mrsc.org. We will be posting information about the impacts of the initiatives, links to important documents and news articles, and editorials and opinions.
1Ch. 2, Laws of 2000, 1st sp. sess.
2"Locally Shared Liquor Profits and Taxes," (source unknown) July 27, 1962, mimeographed copy in MRSC files.
3RCW 66.08.190(1)(a) and RCW 66.08.195.
4RCW 82.08.160 specifies that 35 percent of the total tax collected under RCW 82.08.150 must be deposited in the "liquor excise tax fund." Per RCW 82.08.160, 80 percent of the monies in the liquor excise tax fund is distributed to cities. (.35 x .8 = .28) Twenty percent is distributed to counties. (.35 x .2 = .07)
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