Since the end of Prohibition, voters in Texas communities have considered the question of whether to elect to be “wet” and allow alcoholic beverage sales or “dry” and prohibit sales of beer, wine, and distilled spirits. Counties, justice of the peace precincts, and municipalities all qualify to exercise local option elections, making the current liquor laws in Texas confusing and extensive. Not only can the political subdivision vote on whether to allow liquor sales, but also what types of liquor will be allowed to be sold and whether it can be sold for on or off premises consumption.

A key issue in such elections is often the likely effect on the economy and local tax receipts. The economic and fiscal implications of wet/dry status are notable. My firm, The Perryman Group (TPG), recently released a study of the overall effects of the alcoholic beverages industry on business activity in the state of Texas. In addition, we looked at the effect on representative communities of switching from dry to wet.

The numbers are big. We found that the alcoholic beverage industry supports some $36.6 billion in total annual spending and more than 300,000 jobs in Texas. It is also a notable source of tax receipts, generating $2.067 billion per annum to the State and $0.622 billion each year to local governments stemming from the total alcoholic beverages industry.

Of those amounts, the distilled spirits segment accounts for an estimated $10.7 billion in annual spending and in excess of 90,000 jobs as well as a significant portion of tax receipts ($596.7 million to the State and $181.5 million to local governments each year).

The substantial benefits of allowing alcoholic beverage sales are available to communities of all sizes and income levels. We found that retail sales in wet regions are higher than in dry locales (after adjusting for other factors such as income). Moreover, even when factors such as income patterns, general economic conditions, and overall retail trends are accounted for, our analysis indicates a statistically significant increase in retail sales following a change from dry to wet.

To get an idea of the range of these benefits, we measured the likely economic impact of the alcoholic beverage and distilled spirits segments on a representative community. This allows for an approximation of current effects or likely gains for a locale electing to change from dry to wet. TPG developed three representative examples.

Results for a representative small, 25,000-person community with per-capita income 10% below the state average indicate that the net impact of sales of alcoholic beverages totals almost $19.0 million in annual spending in the local economy, $10.8 million in output, and 185 jobs. The distilled spirits component of these effects is more than $5.8 million in annual spending, nearly $3.3 million in output, and 55 jobs.

For a town with a population of 100,000 with average incomes equal to the state as a whole, the impact of alcoholic beverage sales includes $90.1 million in annual spending, $50.8 million in output, and 863 jobs. Distilled spirits account for $27.8 million in yearly spending, $15.5 million in output, and 264 jobs.

A community with a population of 150,000 and per-capita income levels 20% above the Texas average generates even larger effects on annual business activity of $134.1 million in spending, $79.7 million in output, and 1,366 jobs. For distilled spirits, these effects are $43.2 million in spending each year, $25.3 million in output, and 440 jobs.

In those areas which preclude alcoholic beverage sales, the prevailing reason tends to be concern over the associated social costs. It should be noted, however, that while dry areas do not permit the sale of alcohol, they have little or no ability to impact the consumption of alcohol. Residents of dry areas simply have to drive to a neighboring wet area to buy alcohol. Also, many cities within partly wet counties are dry, and residents can drive outside the city limits or to a neighboring city to buy alcohol.

Thus, although some may see restricting sales as protecting the area from the legitimate social problems that can occur from abuse, the economic reality is that it is only an inconvenience for residents. In essence, “dry” areas tend to incur the social costs, but deny themselves the offsetting benefits.