Notes from the Old Noank Jail – PATCH Blog
Posted on February 27, 2012 at 6:46 pm
As a follow up to the Liquor Store changes that are being considered in CT, in a rather desperate attempt to raise money for the State by Governor Malloy, I have received further financial analysis information from Mr. and Mrs. Edgerton of Universal Package Store. What follows here is a 3-part Blog, consisting of (1) Basic Comments, (2) an Analysis of Data and (3) References to substantiate comments, data and sources.
Basic Comments
CT State officials have claimed that proposed changes to CT State liquor laws will both decrease prices and increase state revenue.
An 8% increase in alcohol consumption is needed for revenue neutrality if claims made by Brian Durand, a spokesman for the State Office of Policy and Management, on price decreases are correct.
A 10-15% increase in alcohol consumption is actually needed if both price decreases and revenue gains for CT, as suggested by the Governor’s office, are to occur.
This places the State in the unusual position of promoting consumption of a product known to increase costs to public health and safety without having done a full economic analysis of public costs and benefits. It reminds us of the existing situation where the state is ALREADY promoting…and receiving revenue from… gambling at (so far) two Casinos and a state operated Lotto system. Health care, theft and embezzlement issues relating to gambling activity are well substantiated.
Analysis of Data
Brian Durand recently stated that proposed changes to Connecticut’s liquor laws will reduce beer prices to consumers by $2.00 to $5.00 per case. At the same time, the Governor’s Office suggests that these rule changes will also increase State revenue by $6.2 to 11.4 million and increase jobs in the State. Claims of decreasing prices and increasing revenue seem to be at odds with one another. Below is some “beer math,” looking at what it will take for this to happen.
As an example, let’s take a 24 pack of Budweiser, advertised this week at our local Big Y at $17.99. At this price the State makes $0.54 in excise tax ($0.24/ gal x 2.25 gal) plus $1.14 in sales tax ($17.99 x 6.35% sales tax). Add this together and the state makes $1.68 on the sale of this 24 pack of Budweiser.
Brian Durand was quoted by the New London Day as saying customers will save $2.00 to $5.00 on a case of beer. Taking his smallest suggested savings (of $2), this will reduce the cost of the 24 pack of Budweiser to $15.99. The State still makes $0.54 in excise tax, but now only makes $1.01 in sales tax. The new total is $1.55, a reduction of $0.13 or about 8% going back to the State.
If Brian Durand is correct, beer sales will need to increase by 8% just for the State to break even. This assumes the low end of his suggested savings range. At the higher end savings (of $5.00) the State would need to increase sales by 18% to break even, using the above calculations.
In January of 2011, the State Department of Revenue Services estimated that allowing sales on Sunday would increase sales by only about 2.8%, well below the 8% needed to offset Mr. Durand’s expected price decreases.
The Governor’s Office has issued far more optimistic estimates of sales increases than those released the Department of Revenue Services, suggesting that state revenues will increase in the range of $6.2 million to $11.4 million. This would be 172% to 317% greater than the Department of Revenue Services estimate!
Excise tax makes up about 1/3rd of the revenue returned to the state from the sale of alcoholic beverages, with sales tax making up the remaining 2/3rd. We can utilize this value to estimate how much more alcohol the Governor expects people in the State of Connecticut to drink !
Without accounting for any price decreases, sales increases of 3.8% to 6.5% are necessary to realize the Governor’s estimated increases in revenue. Increased excise tax revenue, which is expected to make up about 1/3rd of the Governor’s suggested increase in tax revenues, is $2.1 to 3.6 million. The State Office of Policy and Management and the State Office of Fiscal Analysis project alcohol excise tax revenues of about $55 million per year between (Fiscal Years) FY2012 and FY2016.
Putting these figures together, it appears that the Governor is actually expecting sales to increase by 3.8 to 6.5%, about 50% to 100% greater than the estimate provided by the Department of Revenue services last year. This is before accounting for the price reductions Mr. Durand suggested would occur.
In order for both the Governor’s expected revenue increases and the State Office of Policy and Management expected price decreases to come about, alcohol sales and consumption in the State of Connecticut would need to increase by about 12 to 15%. The price decreases, suggested to occur by the State Office of Policy and Management, require at least an 8% increase in sales just to break even and an additional 4 to 6% increase in sales are needed to see the revenue gains claimed by the Governor’s office.
This is an amazing reversal in State policy; increased revenues from higher excise taxes had previously been proposed to enhance public good by decreasing alcohol consumption. Now we’re told that it’s in the State’s best interest to actually increase alcohol consumption by 12-15%.
It would seem that the police and hospitals might have more activity with such an increase.
References
Brian Durnand recently said that proposed changes to Connecticut’s liquor laws will reduce beer prices to consumers by $2.00 to $5.00 per case.
The Governor’s Office suggests that these rule changes will increase State revenue by $6.2 to 11.4 million and increase jobs in the State.
http://www.theday.com/article/20120226/BIZ02/302269936/1017
The State Department of Revenue Services estimated in 2011 that allowing sales on Sunday will only increase sales by 2.8%.
Excise tax makes up about 1/3rd of the revenue returned to the state from the sale of alcoholic beverages, with sales tax making up the remaining 2/3rd
http://www.cga.ct.gov/2011/ofarpt/2011OFA-0489.htm
The State Office of Policy and Management and the State Office of Fiscal Analysis project alcohol excise tax revenues of about $55 million per year between FY2012 and FY2016.
Connecticut alcohol taxes are significantly higher than neighboring states
http://www.cga.ct.gov/2011/rpt/2011-R-0252.htm
Increased revenues from higher excise taxes had previously been proposed to enhance public good by decreasing alcohol consumption.
This ends my blog on this subject. Thank you for taking the time to read it. If you agree with the conclusions, then please contact your local representatives and most especially the Governor’s office and refer them to these figures. Ed J
noankjail 