1. The Fiscal Impacts of Expanded Spirits Retailing in New Hampshire Summary Findings Brian Gottlob PolEcon Research bgottlob@poleconresearch.com February 7, 2012

2. What We Did  Analyzed more than a decade of monthly spirits and wine sales in NH.  Analyzed 38 years of, economic, demographic, and alcoholic beverage sales data for all 50 states and the District of Columbia.  Completed a thorough (and accurate) review of impacts in other states where retail wine and spirits expansion has occurred.  Benchmarked (compared to other states) NH’s alcoholic beverage control system on:  Sales and sales growth trends  Revenues and transfers to the state’s general fund  Developed a detailed model to estimate fiscal impacts based on different variables and user-supplied assumptions.  Determined results empirically, not politically or ideologically. 2

3.  More spirits per capita are purchased in New Hampshire than are purchased in any other state, including “license” states that allow spirits to be sold at private retail outlets.  NH’s alcoholic beverage control system transfers more revenue to the state’s general fund on a per capita basis than does any state in the nation. In addition, a higher percentage of those revenues are generated from profit margins compared to sales and excise taxes.  Sales of spirits at private retail outlets in New Hampshire would come primarily at the expense of sales at state-operated retail spirits and wine outlets and the State of NH would earn about 33% less on each bottle of spirits sold to a private retailer as it makes on a retail sale to consumers at its state-operated outlets.  Conservatively, the fiscal impact of expanding retail sales is expected to be an annual net loss of between $13.4 and $16.8 million to the state’s General Fund.  Neither increased sales volumes from expanded retailing nor increases in other state revenues associated with expanded spirits retailing will come close to making HB 1251 revenue neutral to the state. What We Found 3

4. The Basic Fiscal Calculus of HB 1251 is Simple:  On average, the state will earn 1/3 less (than it earns on a spirit sale at a state-operated store) on every sale it makes to a private sector retail spirits outlet.  To be revenue neutral, total spirits sales in NH would have to increase by between 22 and 28 % over levels that are already the highest - by far - in the nation. 4

5. Only D.C. Comes Close to NH’s Volume of Spirit Sales Per Capita (age 21+) Source: Alcohol Policy Information System, National Institutes of Health, PolEcon Calculations 5

6. New Hampshire’s Alcoholic Beverage Sales and Distribution System Returns More Revenue Per Capita to the General Fund Than Does Any State in the Nation Source: U.S. Census Bureau, State and Local Government Finances, 2008, PolEcon (Does Not Include Sales Taxes Not Administered Through State Liquor Commissions) 6

7. -Spirits and Wine Profits, Licenses, Fees, and Taxes Are the 4 th Largest Source of NH’s General Fund Revenue -They Are a Larger Portion of General Revenues in NH Than They Are in Any Other State Source: U.S. Census Bureau, PolEcon Calculations 7

8. The More Private Sector Spirit Sales Draw From State Store Sales the Larger are the Negative Fiscal Impacts of the Proposal 8

9. To Achieve Revenue Neutrality, Spirits Sales Would Have to Increase 22 to 28% Over Levels That are Already the Highest (by Far) in the Country

10. Conclusions:  NH’s extraordinary volume of spirits sales suggests that sales are not constrained by state control. Any sales increases will be small and could be eliminated by price increases.  NH depends more of its alcoholic beverage control system for revenue than does any other state and NH’s system returns more revenue to the general fund per capita than does any other state.  Most sales by private retailers will come at the expense of state-store sales and the state will earn about one-third less on each sale to a private retailer as it does on a sale at a state-operated store.  Some increase in “convenience” sales may occur at private retailers (above those that come at the expense of state-store sales) but price increases could easily eliminate these sales gains.  Our baseline scenario estimates net annual fiscal impacts of between -$13.4 million and -$16.8 million but risks for larger state revenue losses are significant.  Revenue neutrality can only realistically be achieved by instituting a “gallonage” or selective sales tax on spirits sales – neither would be popular or politically feasible at this time.  The higher the percentage of NH’s spirits sales that come from private retailers the less flexibility NH will have in its ability to generate needed revenues, putting pressure on the entire fiscal system. 10