COLUMBUS -- Ohio moved closer to handing over the profits of its lucrative liquor wholesale operation to a new private economic development corporation Monday with the bipartisan approval of key contracts.
"Everyone agrees that the status quo, or doing things the way we have done over the last several decades, clearly wasn't sufficient, wasn't getting the job done," Rep. Jay Hottinger (R., Newark) said. "I think all Ohioans -- Democrats, Republicans, independents alike -- are hopeful this is going to be a very successful venture."
One Democrat, however, did vote "no" on all three related proposals before the largely legislative Ohio Controlling Board. Rep. Clayton Luckie (D., Dayton) objected after questioning minority contracting and what would happen should JobsOhio fail to pay its debt.
Under the deal, JobsOhio will pay the state $1.4 billion in cash, plus 75 percent of additional profits if sales improve more than 3 percent a year, to lease the state's reliably profitable liquor operation for 25 years. It will then turn around to contract with the state Department of Commerce to continue running the department as it has, promising that the consumer will see no change.
The state would retain ownership of its monopoly, and the profit stream would revert to the state once the lease expires or future General Assemblies and governors opt to terminate it. The state insists, however, that it would not assume any of JobsOhio's debt.
Mr. Luckie cited a provision that could allow JobsOhio to go to court to force the state to raise wholesale prices of liquor if sales don't cover payments on $1.5 billion the non-profit corporation is expected to borrow to pay the state and give itself some seed money. "Liquor profits have increased in this downturn, but what if they go the other way?" Mr. Luckie asked. "Who is responsible for making up the shortfall?"
David Goodman, director of the Department of Commerce and a former Senate member of the controlling board, said the provision ensuring that prices high enough to cover debt service is no different than the rule the state now faces for its own bonds backed by liquor profits.
In 2011, Ohio's liquor wholesale operation sold about 1,500 products through 450 licensed retailers. It racked up a record $794 million in sales, profits from which, after other obligations were met, funneled $153 million to the state budget.
One contract provides for $2.8 million from the state budget to compensate JobsOhio for taking over some of the job-creation functions of the current Department of Development. The agency expects to reduce its workforce by up to 40 percent and save the state an estimated $60 million to $70 million in annual operating funds.
Another contract calls for JobsOhio to set aside $280,500 to help pay Commerce's Division of Liquor Control to run the wholesale liquor operation for it.
After expenses, JobsOhio expects to have about $100 million a year left to dangle in front of companies thinking about relocating to Ohio, existing firms looking at expansion, or to keep those being tempted by competing states.
Of the $1.4 billion in up-front cash from the transaction, the state would have $500 million to add to the state budget. It would use $750 million to pay off economic development bonds now backed by liquor profits and $150 million to pay for Clean Ohio brownfield reclamation projects funded by liquor profits under a provision of the state constitution.
Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.
First Published January 31, 2012, 5:19 a.m.
