Higher-than-expected liquor sales in Maine during the first year under a new state contract will provide taxpayers with a $46 million operating profit, state regulators said Thursday.
Most of the money will be used to repay bond debt service.
The profit stems from $155.5 million in liquor sales during the 2015 fiscal year that ended June 30, a 4.6 percent increase over the year before, the Maine Bureau of Alcoholic Beverages and Lottery Operations reported. It was the first year that the marketing, distribution and warehousing of the state’s liquor business was handled by Pine State Trading Co.
Pine State, based in Gardiner, last year won two concurrent 10-year contracts – one to handle the marketing and the other to handle distribution and warehousing of liquor in Maine. The state said at the time that it expected to receive $450 million in profits over the 10-year life of the contracts. The fiscal year 2015 profit puts the state on target to surpass that amount.
Under the contracts, the state pays Pine State roughly 4.7 percent of gross sales for warehousing and distribution, and 2.25 percent for marketing that began in October 2014. For fiscal year 2015, the state paid Pine State roughly $9.5 million, according to Kimberly Smith, associate commissioner for the Maine Department of Administrative and Financial Services.
Maine didn’t profit nearly as much under its previous 10-year liquor sales contract, and the successful first year under the new deals is good news for the state.
In September 2013, Maine pledged its future profits from the sale of liquor as collateral for a $220 million revenue bond that Gov. Paul LePage’s administration used to repay $183.5 million in outstanding debt to Maine hospitals. The 39 hospitals had been operating without full reimbursement from the state’s Medicaid program since 2009. The state’s repayment, in turn, triggered a federal payment of $305 million.
The $46 million from liquor sales will be used for debt service payments on the revenue bond. Additionally, it will fund a range of previously selected programs, according to a bureau news release:
n The Department of Environmental Protection’s Clean Water State Revolving Fund, which provides low-interest loans to municipalities for the construction, expansion and rehabilitation of wastewater treatment facilities, received $3.5 million.
n The Department of Health and Human Services’ Drinking Water State Revolving Fund, which provides money to improve and protect public water systems, received nearly $1.8 million.
n The state’s General Fund received $9.7 million.
n The Department of Transportation received $603,920.
“The strong performance of Maine’s spirits business comes as no surprise,” Richard Rosen, commissioner of administrative and financial services, said in a written statement. “Now that the state has reclaimed the revenue stream, we’re seeing an added value to both the state and Maine consumers. The stellar financial performance of the spirits business allows the state to make investments in these important infrastructure projects without having to borrow money for them. The citizens of Maine should be proud of the leadership demonstrated by Governor LePage to make his vision a reality.”
The $450 million in profits that the state expects to receive over the next decade is more than double the $190 million received under the previous 10-year contract held by Maine Beverage Co.
In 2004, desperate to close a $1.2 billion budget deficit, the administration of Gov. John Baldacci privatized the state’s liquor business, handing the contract to distribute liquor to Maine Beverage for an upfront payment of $125 million.
That contract guaranteed Maine Beverage, owned by Massachusetts-based Martignetti Cos., a gross profit of 36.8 percent of annual sales. From 2004 through 2014, the company collected about $339 million in gross profits, after revenue sharing, according to data provided by the state.
The state said it received about $190 million over the 10-year contract, including the upfront payment of $125 million. The fair-market value of the Maine Beverage contract was pegged at $378 million in a study done in 2009 by Deloitte & Touche.
With the Maine Beverage contract winding down, LePage vowed to get a better deal for the state. Maine Beverage offered a guaranteed $320 million to extend its contract with the state without a bid process, but LePage rejected it and proposed the idea to use the liquor contract to pay back Maine’s hospitals what they were owed.
Whit Richardson can be contacted at 791-6463 or at:
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