RICHMOND -- Virginia Gov. Bob McDonnell's plan to privatize Virginia's liquor stores cleared its first hurdle Thursday, but only after his policy staff proposed changes that would reduce how much money the sale would generate each year for the state.

A committee within McDonnell's Government Reform Commission approved the proposal, which would end the state's 76-year monopoly on hard alcohol.

Under the plan, the state would close its 332 liquor stores and auction 1,000 retail licenses to private vendors, generating $458 million that McDonnell said he would invest in transportation projects.

Before the committee voted, Erik Finkbeiner, the governor's senior policy adviser, unveiled significant modifications to the plan, first unveiled on Sept. 8.

Those changes include eliminating a proposed tax on wholesale licenses and another optional fee for restaurants, even though it would reduce annual revenues to the state by $26 million.

That change came after heavy lobbying by the hospitality and restaurant industry.

When Sen. Mary Margaret Whipple, D-Arlington, questioned the lost revenue, Finkbeiner countered that reforms being made in other areas of state government could replace the revenue lost from liquor sales.

Gilbert Shelton, a member of the reform commission, also urged the committee to focus not on the lost revenue but the more important principle of getting the state out of the business of selling liquor.

Former Virginia Gov. George Allen called the plan to put the liquor revenues into transportation "innovative and beneficial," though he too played down the revenue reduction.

"Worrying about how much revenue the government can keep from liquor sales is a distraction from the larger cost savings of privatization," he said.

Other changes include setting aside 100 licenses for Virginia stores with fewer than 50 employees and allowing those stores to pay for the licenses over a period of three to five years. There would also be incentives encouraging private liquor retailers to hire current Alcoholic Beverage Control employees.

McDonnell had said he intends to call a special General Assembly session in November to vote on the liquor store sale, though he now says he would call such a session

only if he had the votes in the House and Senate to pass the reforms.