Ohio leaders reach agreement to privatize profits from liquor sales

1/23/2012

EDITOR'S NOTE: The Department of Development corrected information regarding how much funding JobsOhio would receive from the state general fund.

COLUMBUS — Ohio’s new private economic development corporation will pay a lump sum of $1.4 billion plus a potential share of future profits to lease the state’s wholesale liquor sales monopoly for the next 25 years.

As a result, most of the future profits from the sale of liquor in the state, expected to be in the neighborhood of $100 million a year, will provide the lifeblood for the non-profit JobsOhio for its job-creation efforts.

Negotiated agreements announced Monday will require the approval of the state for any tax credit and other financial incentives using public funds, but the liquor profits would no longer be considered public funds. JobsOhio would not to spell out how it uses those funds beyond an annual report.

“I want this to be a framework for 25 years that is truly unique to the state of Ohio that gives us an advantage no other state has,’’ said Mark Kvamme, president of the JobsOhio and its interim chief investment officer.

“It has to have a long-term aspect to it,’’ he said.

But while the proposed contract envisions a 25-year lease, the arrangement could be ended by passage of legislation by the future General Assemblies and governors. Tim Keen, Gov. John Kasich’s budget director, said the state would get back the wholesale liquor system and its profits but would not assume any of its debt.

JobsOhio is expected to go to the bond market to borrow an estimated $1.5 billion to meets its $1.4 billion, upfront obligation to the state plus provide some early operating money. Those bonds would be backed by future liquor profits which continue to set records.

But should the state decide to shutter JobsOhio prematurely, its assets would essentially be liquidated just like any other private corporation, Mr. Keen said.

To date, JobsOhio, which was incorporated in July, has operated on an upfront appropriation of $1 million from the state budget plus donations from unidentified private corporations. Mr. Kvamme said JobsOhio has spent just $200,000 of the $1 million state appropriation.

JobsOhio will also receive about $2.8 million from the state to pay for what were previously state-run economic development programs that it will assume from the Department of Development. Meanwhile, Development will be renamed the Ohio Development Services Agency to reflect the many programs if does operation, such as home weatherization, that have little to do with economic development.

The largely legislative Ohio Controlling Board, which gives one last glance to appropriations before money is released, will be asked next week to approve three contracts. One transfers the $4.8 million in Development funds to JobsOhio.

The others spell out the agreement for the Department of Commerce to continue to run the liquor system on JobsOhio’s behalf and the receipt of nearly $300,000 over two years to cover “extraordinary’’ expenses related to the liquor business.

Commerce Director David Goodman said consumers and liquor retail licensees should see no change in the wholesale system.