A wise man once called alcohol the cause of, and solution to, all life’s problems. There may be no place where that’s more true than Pennsylvania these days, where alcohol is once again the cause of a fight in Harrisburg, and where privatization supporters herald it as the solution to a whole host of the Commonwealth’s problems.
The case for privatizing liquor and wine sales is devastatingly simple: The state shouldn’t sell booze. I get that. I hate having to stop at two different stores when I’m in a boilermaker makin’ mood. And I think a lot of Pennsylvania’s liquor laws are stupid, like the weird minimum volumes at beer distributors (which are changing) and our ludicrous liquor licensing system.
When it comes to privatization and the promise of better booze choices, my heart and gut say yes. But my head and liver say no.
Like a barrel-aged bourbon, my views on this matter have matured. We’ve inherited today’s system from our Old Granddad-drinking great-grandparents. This is a system no one would have ever designed on purpose, not unless they hated drinking and wanted to make it as difficult as legally possible to get drunk. Which is exactly what happened: When prohibition ended, Pennsylvania was governed by Gifford Pinchot, an outspoken dry who famously said the new PLCB’s mission was to make acquiring alcohol “as inconvenient and expensive as possible.”
When it comes to privatization and the promise of better booze choices, my heart and gut say yes. But my head and liver say no. Like a barrel-aged bourbon, my views on this matter have matured.
As a result, we’re one of two states—Utah, full of tee-totaling Mormons, is the other—that controls the retail and wholesale distribution of liquor and wine.
But there are another 17 so-called “control” states where a government agency controls the wholesale distribution of liquor and wine. And 13 of those also handle the retail side of liquor sales. So if you want some hard booze in Virginia, you have to head to the Department of Alcoholic Beverage Control, or ABC, store.
Until recently, Washington was one such state that controlled distribution and retail for hard liquor (but not wine, which you could get by the bottle at bars and grocery stores). In 2011, they privatized their liquor stores. To compensate for the lost revenues from hawking hooch, the “No, not DC” State imposed annual fees and charged large sums for retail liquor licenses.
As a result, liquor prices actually rose in Washington. One-third of the stores that opened under the first 167 licenses auctioned off by the state have since closed, unable to pay off the loans they took out to afford a license. Washington’s overflowing fees soaked up all the newly-privatized stores’ profits, leaving the owners there high and dry.
But Pennsylvania’s privatization plan doesn’t charge enough. Unlike in the Evergreen State, which has renewing annual fees, Pennsylvania House Bill 466 would charge retailers a one-time payment of $450,000 to sell liquor and wine. After that, the recurring fees and surcharges drop significantly. The bill’s fiscal note estimates a one-time $1.167 billion windfall —which would mostly go to the state’s General Fund—and $38.2 million annually in permit and licensing fees.
Let’s be Cristal-clear about what this means: Pennsylvania is giving up substantial annual profits for a one-time increase in funds.
Liquor prices rose in Washington after privatization. Washington’s overflowing fees soaked up all the newly-privatized stores’ profits, leaving the owners there high and dry.
For the fiscal year that ended June 30, 2014, the PLCB’s operating income (revenues after taxes and operating expenses) was $148 million. Of that amount, $25 million went to the state police; $2.5 million for addict programs; and the rest was PLCB profit: $123.7 million. The PLCB and the governor get to decide how much net profits to dump into the General Fund, and last year PLCB distributed $80 million to the General Fund and kept the rest.
Using this as a reasonable estimate, that amounts to $120 million each year just from selling booze—over the last few years, the PLCB has built up a comfortable $77 million cash cushion that shouldn’t need more stuffing anytime soon.
The proposed legislation would give us a one-time influx of cash, followed by a fiscal hangover that would set in around 2030, and keep getting worse. Twenty years on, Pennsylvania will have collected a half a billion dollars less under HB 466 than under the current operations. If the legislature adopts Governor Wolf’s proposals to make state stores more competitive and bring in an estimated $185 million in additional profits a year, then the trade-off looks even worse (admittedly, of course, there is a good chance that $185 million will be as illusory as pink elephants, but some bump can be reasonably expected).
HB 466’s proponents say that the $1.167 billion is needed to plug the budget deficit. But deficits are annual affairs, so using one-time funds to fix deficit gaps is kind of like drinking your hangover away—you’ll feel better for a little bit, but you’ll pay for it later (if you don’t believe me, just ask the Philadelphia School District).
Even if you used the $1.167 billion to help pay down our nearly $50 billion pension debt, the annual amortization savings would only amount to about $105 million a year—$15 million a year less than we get now.
And, sadly, the current, revenue-reducing proposal’s assumption of lower liquor prices is specious. Pennsylvania buys more liquor and wine than anyone else in America, which means the PLCB gets some decent discounts. A privatized field will mean losing those discounts. It also means the most likely wholesalers to step in will be outside companies, siphoning profits away from Pennsylvania.
Maintaining the current level of state revenues while privatizing the system requires a delicate balance. The current bill resembles me leaving a bar at 3 A.M. more than it does a gymnast. And like any post-last-call trip to the Republican, it’s a terrible idea.