Plan Would Send State Liquor Profits to JobsOhio

Gov. John Kasich is shifting control of profits from Ohio's lucrative wholesale liquor operation to his privately run job creation agency.

The in-house deal calls for the non-profit group -- JobsOhio -- to pay the state $1.4 billion up front, money it will raise from the sale of bonds backed by future liquor sales. In turn, JobsOhio will use liquor proceeds -- which totaled a record $794 million in 2011 -- for the next 25 years for its operating expenses.

It is a risky transaction unlike any other across the country but if done right, could make Ohio a trailblazer as states continue to look for creative ways to spur job growth.

"This model that we are creating in the state of Ohio is one that's going to be studied across the country," the Republican governor said on Monday. "If we do it right, it will be one that will be envied."

Kasich announced soon after taking office in January 2011 that he was dismantling the Ohio Department of Development and shifting its key job functions to the soon-to-be created JobsOhio. He then persuaded his friend Mark Kvamme, a California venture capitalist, to move to Ohio to run JobsOhio.

The idea is to replace the traditionally slow-moving government approaches to job creation with JobsOhio's faster-paced, business-minded practices, such as loaning money to start-ups in return for equity in the companies it helps.

"We felt it was very important for JobsOhio to have a long term revenue stream to give companies comfort that what is going on here in Ohio is long-term," said Kvamme, the group's president and interim chief investment officer. "So the 25-year lease was an integral part of this."

The $1.4 billion agreement calls for Ohio to collect $500 million for its general revenue fund, money already factored into the current state biennial budget, $750 million to pay off existing liquor revenue backed bonds, and $150 million to continue "Clean Ohio" environmental programs for the next three years.

The state will also get a deferred payment of 75 percent of any liquor profits above a baseline three-percent growth in sales over the previous year.

That's way too low an asking price for Ohio to settle on for such a profitable asset, said one policy analyst.

"The overall concern would be the same: this $500 million in a one-shot deal isn't a whole heck of a lot of money for a liquor enterprise that earns the state hundreds of millions each year," said Jon Honeck, of the Cleveland-based Center for Community Solutions public policy group.

Honeck issued a report last June for the center, shortly after Kasich first announced he was seeking to transfer liquor sales to JobsOhio for a $1.2 billion price tag. Honeck calculated that liquor sales over the next 25 years could generate between $9.5 billion and $12.7 billion.

The state has repeatedly set liquor sales records over the past decade, even while the economy was souring.

He said the newly added deferred payment helps but still falls far short of making this a fair transaction for Ohio residents because there is no guarantee the state will collect anything if liquor sales taper off or grow more slowly.

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