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John Hood's Syndicated Weekly Column

Perdue Picks Poker Over Liquor

Jan. 28th, 2011
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RALEIGH – I had an admittedly unorthodox reaction to Gov. Beverly Perdue’s announcement last week that she would not propose privatizing North Carolina’s government-run liquor stores.

The governor sided with a large, diverse array of interest groups opposing the idea: local politicians who want to keep the revenue and patronage, beer and wine wholesalers who don’t want increased competition for consumer dollars, and cultural conservatives worried about the possibility of increased alcohol abuse and addiction. Perdue also downplayed the potential revenue gains from privatization.

These factors may have played a role in her decision. But I suspect the main reason Perdue said no to privatizing the ABC stores is that she is preparing to say yes to legalizing and taxing video poker. She probably figures, probably correctly, that it would be difficult to pick two big political fights, both with moral and economic implications, at one time.

If the governor was going to choose between the two controversial ideas, it should be no surprise that she picked video poker.

The reason both ideas are on the table in Raleigh this year is that the state faces a $3.7 billion budget hole for 2011-12. Video poker offers the promise of a larger revenue take for state government in the short run, since it would move an industry from the untaxed shadows into the fully taxable light and any proceeds from the sale of ABC stores would have to be shared with localities.

Furthermore, if I’m right about what Gov. Perdue is going to propose next month, the new video-poker business would end up looking a lot like the current liquor business: monopolized and controlled by the government. If she thinks the current ABC system successfully mixes the goals of maximizing revenue and controlling consumption, she might think a strategy of legalizing video poker, placing it under the tight control of the state lottery commission, and claiming the profits as government revenue would be similarly successful.

This is no idle speculation. I submit that Perdue has been sending signals for months now that she was more willing to consider video poker than ABC privatization as a revenue source for 2011-12. While she has expressed moral reservations about making liquor more accessible to consumers via the privatization route, she obviously isn’t implacably opposed to gambling – as lieutenant governor she cast the tie-breaking vote in the state senate to create the North Carolina lottery – and has said only that if “you are going to have” video poker in the state “it has to be controlled.”

For months, the talk around Raleigh was that the real battle on video poker in the coming year wouldn’t be about whether a legalization plan would be proposed but instead what the plan would look like.

The state’s current video-gambling industry consists mostly of small family-owned businesses or partnerships operating “internet sweepstakes” outlets. The General Assembly has tried a couple of different times to stamp out these private competitors to the state lottery. But the operators have changed their games accordingly. There are also legal challenges underway against the latest prohibition law.

One option would be to repeal such prohibitions and simply have the state and localities regulate the private, competitive industry and reap tax revenue from it. The other option, the one I think the Perdue administration is actively considering, would be to legalize it but exclude most of the current operators by giving the lottery commission a monopoly on video gambling in the state – a monopoly it would likely award by contract to a major national player in the industry.

My own view is that the state should both privatize the ABC stores and legalize video poker – but only if both industries are going to be completely private, with the government’s involvement being only to tax them like any other private business and regulate them like any other private business (to protect consumers against fraud).

But I want to maximize the freedom of North Carolinians, not maximize the size and power of North Carolina government. Perdue and I have different goals here.

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Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.