McDonnell Promotes ABC Store Privatization

Brent Finnegan -- August 26th, 2010

Gov. Bob McDonnell visited Harrisonburg Thursday evening to promote his plan to get Virginia out of the liquor business. The governor told the audience of several hundred assembled in JMU’s Festival building that it’s high time that the state government sell off its ABC stores, and put money from liquor store licenses toward transportation needs.

“There are 332 state-run ABC stores in Virginia under our monopoly-controlled system,” McDonnell said, noting that there are far more stores per capita in states without state-run liquor stores. “Under our proposal, we think it ought to go to maybe anywhere from 800 to 1,000 stores to maximize the amount of money we make on the licensing fees.”

McDonnell insisted that having more liquor stores does not equal a rise in alcohol-related crime. “There’s no material difference [between privatized and state-run liquor store states] in rates of binge drinking or DUIs.”

McDonnell ABC Privatization Town Hall Meeting

Scott Wawner, VP of sales for Eagle Distributing, a local beer distributor, spoke out against the plan. “There is an important distinction between beer and wine and hard liquor. Spirit alcohol is much more potent and it takes much less to cause serious intoxication and impairment,” Wawner told McDonnell during the Q&A portion of the evening. “You’ve said that selling alcohol is not a core responsibility of government. I would argue that safeguarding our quality of life and public safety are core responsibilities of government.”

“We do have a good system,” McDonnell responded. “The question is; can we do it just as well and just as safely without having any of those [negative aspects] in a private-sector system? The answer is clearly yes.”

The governor produced quotes from former Governors Warner and Kaine that seemed to support divesting the state of its ABC stores. McDonnell asserted that the move could add more than $500 million to Virginia’s transportation coffers at the point of sale, and more than $100 million per year after the sale. However, Warner himself has called McDonnell’s estimates for privatization “wildly optimistic.”

Earlier this month, the Washington Post reported ABC stores currently contribute $248 million in profits and taxes to the state. Some experts are skeptical that privatization could improve on that figure.

According to an analysis by the [Distilled Spirits Council of the United States], overall government collections on a gallon of liquor would have to reach $25 in Virginia to match the state’s current revenue. That would make taxes in Virginia five times the average in other privatized states.

McDonnell did not claim that ABC privatization would fully or even mostly fund the state’s transportation needs. “This is just one idea that will in part help us find transportation,” he said. “We’re going to have a lot of other ideas in the next session of General Assembly that I’m going to ask the legislators to consider.”

McDonnell is expected to officially unveil his ABC plan in more detail on September 8.

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69 Responses to “McDonnell Promotes ABC Store Privatization”

  1. Annie says:

    I think this is short sighted. This is just a look towards the government garnering fast and easy money in the short-term without regard to long-term consequences. We could see seedy looking liquor stores on various corners and villages in our community. These stores usually have neon or ugly hand painted signs advertising liquor. I’ve always appreciated that Virginia did not look like Maryland and DC in this regard. There would additional enforcement costs to assure these establishments continue to be run according to the new regulations. I think the effort to make this run smoothly and correctly would be better directed towards the issues that are currently not working/funded properly like Transportation.

    The current ABC system is working. If it’s not broke, don’t fix it.

       0 likes

    • Danielle says:

      Annie, Virginia ABC laws prohibit signage that can be seen from the outside of a building. If a bar has neon beer signs, for example, they can’t be seen by someone walking or driving by. That also eliminates the huge beer advertisement posters hanging outside of bars and liquor stores. That’s why VA doesn’t look like Maryland and DC.

         0 likes

  2. John says:

    Iowa and West Virginia in the United States and Alberta Canada have privatized their ABC retail stores and experienced a significant loss in revenue. Iowa tried to increase the wholesale cost of liquor to offset the revenue loss from state-owned retail stores. They experienced a high rate of business failures among the initial private liquor store owners. The state was forced to lower the wholesale prices resulting in a loss in revenue.

    West Virginia privatized their retail liquor stores and experienced a substantial loss in revenue.

    Alberta Canada privatized their retail liquor store operation. They experienced a loss in revenue and an increase in consumption and public health problems.

    While these three government entities have turned the retail liquor sales operations over to the private sector, they are far from success stories from revenue, public health and public safety standpoints.

       0 likes

  3. To be honest, I don’t feel too strongly about this issue one way or another.

    Really, I just want ABC stores to be open on Sunday and ’till midnight on Friday and Saturday.

       0 likes

  4. Emmy says:

    This is one of the very few things I agree with this man on. Privatize! There is no reason that the state needs to be in the business of selling liquor.

       0 likes

    • Bazrik says:

      Just curious Emmy – why do you feel so strongly about this? I’m not challenging, I think I’m just missing something here – isn’t the added revenue for the state a good thing?

         0 likes

      • Lowell Fulk says:

        I’m curious as well.

        I personally can think of a hundred and nineteen million reasons per year against privatization. Especially in such a down economy. Are you willing to cut the services that will lose funding?

        And yes Bazrik, the revenue generated is a good thing for Virginia. Just ask the folks in Public Safety and the court and criminal justice systems, and the Sheriff’s department how having their budget cut, again, would impact their operations.

        Ask your local school officials what less funding will do, after budgets have already been laid bare.

        And make no mistake, if privatization occurs, the profits I write of will be gone as state revenue. That money will not be made up by raising taxes elsewhere, by a General Assembly and Governor who have promised the voters to never, ever raise a single tax. The effects will not be gradual, as the speculated windfall achieved has been promised for transportation.

        I don’t approach this debate from a philosophical position, but from one of pure pragmatism. I am not offended by a very well run enterprise which has been in place for longer than 70 years and which amounts to an endowment of dependable revenue for state support of mental health and substance abuse programs and local governments. This is a business decision, and as such should be made based upon long term considerations after honest study, and not as a quick fix gimmick response to the present shortfall and in order that politicians can avoid dealing with transportation in a meaningful way.

        Know this: This is not an experiment, and cannot be undone when things don’t work as promised. Once done, it is done…

        Oh, and by the way, I do partake every once in a while in the sweet nectar harvested by the Kentucky and Tennessee Bourbon Bee. ;o]

           0 likes

        • Bazrik says:

          Heheh. I do love that bee…

          Thanks Lowell for a well thought out response. Great info!

             0 likes

        • Dave Briggman says:

          Lowell, I’m not going to necessarily disagree with the cuts Constitutional officers are sustaining across Virginia, however, in Don Farley’s Sheriff’s Department it is not uncommon to see him paying $60,000 to a civil process server, who could have been a supervising road deputy, or, paying someone like Bob Alotta, who was his amateur “webmaster” but was classified as a “correctional officer”, while he was teaching classes at BRCC…

          I’ve seen a Farley budget, where you often have multiples in a family making quite a bit of money off of the taxpayers.

          I’m with Brent…I don’t care one way or the other whether the state or private business sells the alcohol drug, though I kind of don’t see the logic in the state controlling all alcohol sales — as well as the criminal prosecutions for alcohol abuse.

             0 likes

  5. John says:

    Much of the profit and taxes from the sale of liquor by Virginia ABC stores is earmarked for the mental health, mental retardation and substance abuse programs as well as contributions to local governments. If Virginia ABC retail operations were privatized, these programs would likely suffer a substantial budget loss since the supposed “windfall” of $300 to $500 million would go to transportation.

       0 likes

  6. Adam Sharp says:

    I’d hate to see liquor privatization occur simply because ABC isn’t consumer-friendly.

       0 likes

  7. Randall See says:

    This should be an easy one. Of course the state has no business running retail stores and selling liquor. As a free adult it offends me that the government says I can’t buy liquor on Sunday. The ABC regime in an old idea that needs to go the way of Blue Laws and segregated lunch counters.

       0 likes

  8. Gene Hart says:

    I am all for ABC deregulation, not just privatization. My concern is that the McDonnell plan will simply set up a large distributor/big retailer oligarchy in place of the current governmental monopoly. The selling of spirits is not a proper governmental role IMO. I don’t expect the private sector will automatically do it “better” (whatever that means in this context) I just don’t see that the government should run this business (even if done well and efficiently) any more than it should run a grocery store monopoly.

    That said, there is no way that privatization will even approach producing or replacing the revenues the ABC monopoly currently provides the Commonwealth. Selling the idea as a way to raise revenue is farcical. The real discussion should be how do we equitably raise replacement funds once ABC stores are not a funding source. For transportation the logical answer would be an increased gas tax. To replace the funding for other programs I believe consistent broad based revenue sources would be most appropriate.

    Of course, such ideas may only get you to 27%. Just saying.

       0 likes

  9. John says:

    Virginia Department of ABC is responsible for enforcement of the laws and regulations for the manufacture, distribution and sale of beverage alcohol. Some estimates state that there could be 3,000 to 4,000 retail outlets that would sell liquor if privatized and left to open market forces. In one of the current proposals, there would be one liquor store for every 10,000 citizens which would result in more than 700 liquor stores and Governor McDonnell’s current proposal is for 800 stores. There are currently approximately 330 ABC stores. An ABC agent can monitor approximately 100 to 125 licensees. Using a 700 to 800 privately owned retail store projection, the increase in liquor retail outlets would require an increase of at least seven ABC agents. At a cost of $80,000 to $100,000 annually to support an agent, that relates to an increase of approximately three quarters of a million dollars per year.

       0 likes

  10. MF says:

    This idea that the private sector can do things “better” is nonsense.

       0 likes

    • Frank J Witt says:

      REALLY MF ?

      When was the last time you ate in a government run restaurant, or bought clothes in a government run clothing store or maybe you can fill me in about how GREAT our Postal Service is doing financially? Oh yeah, how’s that housing market thing, or perhaps show us the improvements of Government Motors..isn’t FORD doing it BEST ?

         0 likes

      • David Miller says:

        Frank, your point about government running restaurants and retail in general is a decent point worth making. I think we just have to say that although government is not great at everything it does, having some enterprises run wholly by the government is best. Examples are roads, water, elec (for city residents we have it great!), telephone and internet should be public, etc. The trick really is to take into account the points made like decent wages currently paid to ABC staff, tax increases this will cause, accountability for liquor sales (not high on my list but it is for many) etc. This discussion can be waged without disparaging the real positive things that government does

           0 likes

        • David Miller says:

          and by best I mean in the public’s best interest. Imagine Halliburton running our police force!

             0 likes

        • DebSF says:

          And the private sector isn’t so very uber-successful. The Small Business Administration (SBA) reports that two-thirds of new employer establishments survive two years, and 44 percent survive four years.

          The Post Office always comes in for a ton of grief, and I don’t quite get it. We subsidize the Post office to the tune of about $22.50 per person per year. That’s the price 2 movie tickets and a Diet Coke on a Friday night. For that, I can send a letter to PA for less than 50 cents. I’m not sure privatization would be a better deal. Most first-world countries directly fund their postal delivery systems through their governments.

             0 likes

          • Frank J Witt says:

            Deb, most of the failures is from not planning properly…mostly not knowing your customer base prior to opening your purse strings to get your business up and running.

            Alot of people will promise you alot of support until you open and a year down the road, they “forget” about you and your business. Then, if you are not in step with your community and it’s wide array of likes and dislikes, you are up the creek. It doesn’t matter what you are selling, if you can’t meet the changing demands (including lower prices) you are in trouble…and YES, I know about supply prices going up but there has to be a line you start with and a built in cushion which should allow you to flex your pricing in times of trouble.

            As for the PS, it is a deal to send a letter, but that deal is killing the PS. Their employees, along with the ABC store employees are great people, but stop and look at their wages, benefits and retirement compared to the average NON government employees pay ect…’nuff said.

               0 likes

    • Dave Briggman says:

      MF, then explain how TurboTax and all of the other “income tax services” are all ready to accept and process itemized federal tax returns, but the IRS, a single entity, won’t be able to get their system up and running until mid-February at the earliest?

         0 likes

      • MF says:

        Because the IRS is not in some competition with Turbo Tax. Turbo Tax is only processing tax returns, IRS has many other functions that are more important then keeping up with Turbo Tax. I would hate to see some private organization like Turbo Tax be responsible for actually getting tax dollars from citizens. I am sure that if it was really important to do the IRS could be ready now.

           0 likes

        • Dave Briggman says:

          You’re joking, right?

          The sole function of of the IRS is to collect taxes and distribute refunds…countless efile companies have updated their software with the proper coding to process itemized returns…there’s only ONE agency that actually processes them and they haven’t got their ONE system ready?

          And I bet you want this very same government controlling your healthcare, don’t you?

             0 likes

          • bazrik says:

            Hi Dave – on a complete tangent – just checked out your website, noticed you’re publishing cell numbers, addresses, examples of signatures from Division of Child Support Enforcement employees. Why? Is it retribution? I’m curious, and thanks for fielding the question.

               0 likes

  11. I support privatization in principle. However, I am concerned about the revenue issue. To make up the revenue would require some tax increases, and the General Assembly has made it clear that they are just not going to pass any tax increases. So, there will be this nice once upon a time bonanza from the sale, but then a serious decline in revenue starting just two years down the road when we are already having bad budget problems, despite the recent small surplus.

       0 likes

    • David Miller says:

      That’s the trick Barkley, run the state into the ground pursuing their extreme ideology and then invariably get voted out because the general public rejects their extremism (hence the I’m a moderate campaign that McDonnell had to put on). Then when Democrats actually try and govern the state responsibly, they’ll have to raise taxes to fix the holes left in the budget by tricks like these. Then comes the great “They’re gonna raise your taxes” talking points cash out.

      btw, isn’t the recent “surplus” a loan from the VRS?

         0 likes

      • Brooke says:

        Yup, a loan that will “come due” after he’s out of office. :-( It’s Gilmore and “ending the car tax” Part Deux.

           0 likes

        • Lowell Fulk says:

          Well put, Brooke and David.
          “Enron” bookkeeping once again.

          Governor Allen promised that by privatizing much of the operations of VDOT that more could be done with less. Actually, it has cost more, and service continues to suffer more each year. Now we have a hundred billion dollar back log of real transportation needs, and rather than face the situation like big boys and girls, we’re going to sell off a profitable asset…

          This will probably happen. People are too easily distracted to pay much attention to the actual business operations of government.

             0 likes

  12. David Miller says:

    Frank, I doubt that people who work for the Postal Service make too much money but just for curiosity sake, what is their pay like.

    btw, I don’t think anything is killing the PS except for people lobbying against funding it.

       0 likes

  13. Joe says:

    so pretty outlandish comments on here. Especially from the folks that think the Govt can run businesses better then the private sector.

    The Govt simply has no business running a liquor store, let alone having a monopoly on it.

    Those concerned about renvue aren’t thinking clearly. First off, once again the Govt has no business creating revenue from running a liquor store. Secondly, they make up the renvue in more jobs created by letting individuals open their own stores.

       0 likes

    • Not if the new stores created do not pay taxes, and we know the legislature is not going to raise the taxes. That is agains God’s will, right? So, it is total short-sighted b.s. Wow, Gov. McDoneell gets this big pot of cash to do stuff and make himself look great and wonderful, only to starve the Commonwealth in the future with nobody smart enough to remember that it is his fault.

      And as for efficiency or inefficiency of the liquor store industry, is this all that important?

         0 likes

  14. Joe says:

    God’s will? Not sure what you are talking about.

    Nor am I sure what raising taxes has to do with it.

    The new businesses will be required to pay taxes, income, sales, etc etc.

    the new employees will have to pay the same taxes.

    You’ll have more people paying taxes, which increases revenue.

    and yes, how efficent something is, is very important. The private sector is less likely to waste money. Because it’s their money, unlike in the public sector which just takes more from it’s citizens.

       0 likes

  15. Becky says:

    Virginia ABC just awarded the Strong Families/Great Youth Coalition a nice sized grant to work on ways to reduce underage drinking in Harrisonburg and Rockingham County. I’m not sure a private company would have done that.

       0 likes

  16. Joe,

    To get back the lost revenue from the ABC stores, there will need to be some serious increases in liquor taxes. The increased income and garden variety sales taxes from the new establishments will not come close to covering the lost revenues.

       0 likes

  17. David Miller says:

    Unless sales increase, long term tax revenues will decrease. I’m not sold on privatizing ABC stores during a recession, for me its a matter of timing. Right now is not the time to pursue hyper-conservative ideology, be it privatization or stripping of civil rights. Right now our leaders should be focused on job creation and economic expansion. Any arguments that insinuate that privatizing ABC stores will increase revenue should be heavily sourced, otherwise its talking points rinse repeat.

       0 likes

  18. Joe says:

    you guys forget about the tax you’ll get from the stores and the income tax you’ll get from more employees working at those stores.
    Right now, I’m not sure how many ABC stores there are, but according to what I have read we can expect there to be twice as many private stores….more people working, more taxes and less people collecting from the welfare system or unemployment.

    besides…we haven’t even addressed how unethical it is for the Govt to run a monopoly in the booze business….let alone run a business at all.

       0 likes

    • I don’t think that’s correct, Joe. Here’s the way I understand it:

      Current stores would be allowed to apply for licenses. In other words, grocery stores, convenience stores, wine shops — stores that already have employees and wouldn’t need to hire more workers for the additional products — they would be the ones most likely to apply for licenses.

      So, while there may be some exclusive liquor stores under this plan, more licenses would not necessarily mean more jobs. I guess we’ll know more on September 8.

         0 likes

  19. David Miller says:

    The fact of the matter is this

    Unless you increase liquor sales, tax revenue will remain the same or decrease because sales tax is regressive, the expanded competition will drive down prices and therefore drive down sales tax revenue.

    Unless the new licenses stipulate wages for liquor sales force (which they won’t) then income tax revenue will decrease as well because most liquor sales outlets will hire at minimum wage.

       0 likes

    • Joe says:

      actually your tax base will increase, regardless. you’ll have more people employed, and more people running a business.

         0 likes

      • David Miller says:

        Joe, how will you have more people employed?

           0 likes

        • Joe says:

          there will be more stores…like double the current amount I have been told.

             0 likes

          • David Miller says:

            says whom?

               0 likes

          • Joe says:

            The Government, and a post above.

               0 likes

          • David Miller says:

            just reference it for me because I don’t see it.

               0 likes

          • Lowell Fulk says:

            Joe,

            I understand what you’re getting at, but you are incorrect in your calculations.

               0 likes

          • Joe says:

            how am I incorrect? if there are more stores, and estimates i have heard have been nearly twice as many, then why woudln’t there be more people working? the Govt would get income tax from those employees, they would also get more sales tax because more people working means more income, means they buy more things, plus the business owners would have a ton more taxes, not just in income, but different businesses taxes.

            the assumption that, the Govt has no other way to make money is simply incorrect. it’s following the same concept that when we cut taxes, on the Federal level, the Govt gets an increase in revenue, as it did under the Bush admin. Actually, setting new records for revenue after the Bush tax cuts.

               0 likes

          • Lowell Fulk says:

            Joe,
            Currently there are approximately 322 locations which sell distilled spirits in the state of Virginia. Stores if you will. What is being proposed is not 800 “stores”, but 800 plus “outlets” which will offer the sale of distilled spirits in Virginia.

            Your beginning premise that doubling the number of outlets will necessarily double the number of employees which will increase tax revenue is a demonstratively false assumption. If, as you reason, the number of employees simply doubles, your reasoning falls short in light of the claim that savings can be achieved by competitive free market employment forces, by hiring folks who will be less costly. Hiring twice as many people at half the cost would result in no more wages being paid, or taxed. Revenue neutral… Premise debunked…

               0 likes

          • Lowell Fulk says:

            The argument that more people will be employed and therefore the tax base will be increased ignores the reality of retail business almost entirely.

            If Seven Eleven (as a readily recognizable example of a convenience store) decides to add to their product offering, they thus proceed with expectation that they will most likely be able to do so without the necessity of adding employee numbers to a great extent. Most likely they will simply replace a current offering of less profit value while maintaining the current number of employees.
            The same applies to big box store and chain examples such as Wal-Mart or Kroger.
            Existing employees will be expected to deal with added or changed product line.

               0 likes

          • David Miller says:

            “estimates i have heard have been nearly twice as many, then why woudln’t there be more people working?”

            Estimates by whom? Mr. Joe you’ve avoided all of my points. Do you dispute any of them and with what specific data, not hearsay, do you counter?

               0 likes

          • David Miller says:

            btw “it’s following the same concept that when we cut taxes, on the Federal level, the Govt gets an increase in revenue, as it did under the Bush admin.” Ludicrous! Literally factually inaccurate.

               0 likes

  20. David Miller says:

    “besides…we haven’t even addressed how unethical it is for the Govt to run a monopoly in the booze business….let alone run a business at all”

    A recession is no time to give away revenue streams, regardless of our opinions on the enterprise issue.

       0 likes

  21. Lowell Fulk says:

    Well, first of all, since when don’t they? This very subject is discussion of a fact: Virginia has been conducting this “business” for some 76 years.

       0 likes

  22. Lowell Fulk says:

    Please elaborate (since you made the accusation) of how Virginia is unethical in how the business is operated.

       0 likes

    • Joe says:

      Well, one monopolies are unethical. VA has a monopoly on booze in VA.

      but more importantly, GOVT, has no business running a business. That’s for the private sector. I mean, using your logic, shouldn’t the Govt also get in the grocery business, since they can make money off selling bread? why not the shoe business? where does it stop?

      Regarding the points out the more employees….as I understand Wal-Mart, 7-11 won’t be able to sell, only specialized stores. Right now you say there our 300+ outlets, and there will be 800-1000, much more then double. So how many people are currently working at the ABC stores? plus how many more agents will we need to regulate tripling of stores? how much will we charge to get a lience?

         0 likes

      • Joe says:

        furthermore, i doubt it will be revenue neutral, i believe the state can collect more.

        and just because they have been doing it for 76 years doesn’t mean it’s been ethical. the entire time, it’s been wrong.

           0 likes

        • David Miller says:

          estimates i have heard have been nearly twice as many, then why woudln’t there be more people working?”

          Estimates by whom? Mr. Joe you’ve avoided all of my points. Do you dispute any of them and with what specific data, not hearsay, do you counter?

             0 likes

          • Joe says:

            Mr. Miller, it’s in the article, it’s been mentioned by a number of posters…scan the article.

            however, if what Mr. Fulk and Brent have said, about how Wal-Mart, 7-11 etc can get the permits to sell, then I might be off a little on my figures.

            My understanding is private liquor stores. I got confused because part of people against it believe there is going to be a liquor store on every corner….it seems those against it are coming at every angle and don’t really have a clue…it’s hard to argue with people like that.

               0 likes

  23. David Miller says:

    Fair enough, fyi then

    I don’t personally support avoiding this issue in the long term. I do feel that a recession is the incorrect time to discard a revenue stream. That being said I’d love to hear from people that think that this decision will increase revenue for the state and analyze their facts. As of yet I have not seen that argument made with actual facts

       0 likes

  24. Lowell Fulk says:

    Well, time to kick this subject back into discussion.

    Seems that the privatization of ABC may be somewhat different than what was being put forward by its proponents.

    Click here for more information

    Some evidently have a better understanding of how things work than others…

       0 likes

    • Chris F-B says:

      “Industry insiders hope restaurants will conclude that the price benefits of privatization will mean they’d come out ahead, even after paying the new tax, but some restaurant owners have already said they are unconvinced.”

      So the argument for privatization is that the assumed decreases in liquor prices will more than make up for the proposed additional taxes.

      Is there any evidence that prices would actually drop in private stores?

      Does anyone know how much current ABC stores mark up their prices?

      Currently, I’m not seeing any reason to privatize, other than blind adherence to “free market” and “small government” ideology.

         0 likes

  25. David Miller says:

    Plain and simple. The proposal by McDonnell raises taxes. The DNR today reports that McDonnell is championing a 4% tax on all mixed beverage sales. This is the only way he has proposed to balance this sale. If you think that raising taxes is the answer then I’m all ears Mr. McDonnell

       0 likes

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