"Gov. Kasich’s Jobs Plan: Drink More Booze, Hand The Profits To A Private Development Company"
Part of Kasich’s plan for financing his new, privatized development agency (of which he will be chairman) includes leasing the state’s liquor stores to JobsOhio, which will then use the money to run its operations. Kasich claims that this will work because Ohioans are increasing their alcohol consumption:
The success of Gov. John Kasich’s plan to recruit new business to Ohio will hinge heavily on just how much Ohioans drink alcohol. Kasich last week unveiled his state budget proposal, which includes a plan to lease the state’s liquor distribution operation — which of late has drawn record profits — and use the cash to fund his private economic development machine.
“Over the years people drink more. It’s just a natural revenue stream,” Kasich said last Tuesday while outlining his proposal, drawing a smattering of laughter from reporters. “So, everybody wanted to buy it. Everybody was interested in it.”
Whether Ohio’s best “natural” asset is its booze intake is up for debate. But all jokes about Ohio’s increasing drunkenness aside, a deeper look at the numbers indicates that Ohio is getting the short end of the stick on this deal. As Ohio Budget Watch found, Kasich’s plan involves the state selling about $7 billion in expected revenue from state liquor stores to JobsOhio for just $1.5 billion:
Profits on liquor sales generate $228 million for the state of Ohio every year. JobsOhio is set to take over liquor sales oversight and own that revenue stream. They, in turn, will sell 30 years worth of that revenue — worth around $6.8 billion — to a group of investors (recruited by a Wall Street firm, who will of course take a cut) in return for a lump sum payment to the state. According to the administration, they expect to receive about $1.5 billion in return for this $6+ billion in state revenue.
And because JobsOhio doesn’t actually have any money to pay even the $1.5 billion, it will “turn to Wall Street to issue bonds to finance the deal.” As Plunderbund noted, “Wall Street, which obviously expects a return on its investment, won’t finance the deal unless Ohio (i.e. Kasich) is willing to allow them to essentially buy a twenty to thirty year revenue stream for pennies on the dollar.” Thus, Kasich is selling his state’s liquor stores at fire-sale prices, even as it faces billions in deficits.
Cross-posted on The Wonk Room.