The state’s top liquor official on Wednesday contradicted statements made by Gov. Paul LePage on Tuesday in which the governor said the state planned to take back management of state liquor sales, while bidding out a contract to a private company to handle only distribution.
The Bureau of Alcohol and Lottery Operations Director Gerald Reid said on Wednesday that the state will seek a contractor to handle administration, distribution and marketing of the state liquor operations. The contract would begin in July 2014.
LePage had said the state would handle the administrative duties of the contract currently being performed by a private firm. His comments were made during a news conference in which he outlined a plan to pay off $186 million in Medicaid debt to Maine’s 39 hospitals by issuing a revenue bond secured by future liquor sales.
LePage on Tuesday called the decision 10 years ago to lease the liquor business to a contractor “an enormously bad decision.”
“I do not intend to do that in the future,” LePage said, noting that the contractor manages liquor sales from a small office in Augusta with nine employees.
LePage said the state wanted to “take back the management” of the liquor contract. A news release from the governor on Tuesday said “the state will retain operational control over liquor sales starting in the summer of 2014 when the current 10-year private contract expires.”
However, Reid on Wednesday said the state doesn’t want to manage the day-to-day operations of the liquor business.
“The language of taking back the management is very misleading. We want to purchase from the private sector the same services — order processing, accounts payable, accounts receivable, shipping — the same as we do today,” Reid said.
What would change is the structure of the contract and how much money the state collects from liquor sales, Reid said.
Adrienne Bennett, a spokeswoman for LePage, said the governor was giving a broad overview of the contract on Tuesday.
“We are ensuring that we are getting a better result for the state,” Bennett said. “The governor gave a 10,000-foot view.”
When asked to clarify what the duties of the contract would include, Bennett said the “RFP is for what Gerry said,” referring to Reid’s characterization. An RFP is a request for proposals.
When asked to clarify the differences between Reid’s description of the contract and the governor’s comments on Tuesday, Bennett said it was “disengenuous” to say they were contradictory.
Under the existing 10-year contract forged in 2004, the state received an upfront payment of $125 million. It also gets a small portion of revenue sharing. The state has made only $185 million on liquor sales in the last decade, the governor said Tuesday.
The contract’s fair market value was pegged at $378 million in a 2009 report by financial services firm Deloitte & Touche.
Pending legislative approval of contract changes, the state will seek bids in April or May for the liquor contract that will be structured without an upfront fee. The state also will seek a greater portion of the revenue than it now receives, and will not guarantee the vendor a minimum profit margin.
The company that holds the contract, Maine Beverage Co., now gets a guaranteed gross profit of 36.8 percent of annual sales.
If the bids are unacceptable, the state could take over administration of the liquor operations and hire a firm to perform only distribution, Reid said. Although the state liquor board could handle the administrative tasks of running the state liquor business, it prefers not to, he said.
“We prefer not to take back the management. We prefer to have a private contractor do it,” Reid said.
In a briefing before the state Legislature’s Veterans and Legal Affairs Committee on Wednesday, Reid distributed a presentation that said the state would seek bids for a contractor to provide “operations, administration and trade marketing.”
Maine Beverage, which has nine employees to handle administration, currently has a subcontract with Pine State Trading to distribute liquor to stores throughout the state.
Maine Beverage, owned by Massachusetts-based Martignetti Cos. and New York private equity firm Lindsay Goldberg & Bessemer, did not respond immediately to requests for comment. The company previously said it would be interested in submitting a bid for the new contract.
Dirigo Spirit Co., formed by Auburn businessman Ford Reiche, also has expressed interest in bidding. Other potential bidders have not emerged publicly.
“Dirigo Spirit Company has long been advocating for a revised state liquor contract, one that is more fair to Maine taxpayers, retail and on-premise liquor resellers. A revised contract will generate increased and much needed revenue for the state of Maine that is currently being forfeited under the current contract,” Reiche said in a statement.
“The current contractor is 100 percent owned by New York and Massachusetts interests, and their ten year engagement with the state has cost Maine hundreds of millions of dollars unnecessarily. Dirigo Spirit Company supports a revised contract under which the state would retain the majority of the revenue, while partnering with a Maine-based company to manage logistics and marketing,” Reiche said.
In addition to collecting more money from liquor sales, Maine officials are also hoping to lower retail prices to make the state more competitive with New Hampshire. The state also wants to pay higher commissions to agency liquor stores, Reid previously said.