Privatize Pennsylvania’s Liquor Stores? Why not . . . Could provide $2 Billion Revenue for 2011

Should Pennsylvania sell the state liquor control system to help balance the state’s budget?

For years, there has been discussion about the privatization of Pennsylvania’s state liquor stores.  Having moved here from California, it was an adjustment for me to Pennsylvania’s liquor stores; it seemed a rather ineffective, antiquated way of doing business.  The state’s monopoly on liquor stores removes the convenience, efficiency and competition that would be created in a private marketplace – I was mystified why the system remained ‘status quo’.

Apparently, there is now renewed interest in the privatizing concept of the state’s 621 liquor stores by Governor-elect Corbett.  It is believed that by leasing the state liquor stores, there would be $2 billion up-front revenue gain in 2011.  A projection of 850 businesses would be created by the privatizing the state-run stores and that number does not include the new jobs that would be created by the expansion of the wine and liquor industry in Pennsylvania.

House Bill 2350 was introduced last spring by State Rep. Mike Turzai (R – Allegheny) which calls for the auctioning of 750 retail licenses and 100 wholesale licenses “to the highest responsible bidder with a reserve based upon the fair market value” to replace the current state-run system of liquor stores.  This bill is set to expire on Nov. 30 but it is possible a similar plan will be introduced next year.

At first thought, one could wonder what happens to the state employee jobs in the liquor stores but those jobs should not go away.  The liquor stores will continue to exist and they will continue to need employees – the difference is that the state will not have the employees on the payroll but rather the jobs shift to the private sector.  It is also possible that there could be an increase in private jobs with the change, depending on the demand.

I have long thought that the state’s monopoly on liquor sales needs to change.  Look at UPS and FedEx vs the Federal post office.  Private companies have a profit motive to deliver products at a price the consumer desires and with the convenience that the consumer demands.  Look at the way the postal costs have continually risen over the last decade.  Why should sales of liquor in Pennsylvania be any different? 

The liquor store debate is a problem of two dimensions. First, let’s consider ridding the state of this government controlled monopoly, its associated abuses and watch prices reflect true free market conditions. Second, the state could cash in on the value of this government monopoly by selling it. Pennsylvania’s government always needs money and the proceeds of the sale could be thrown at the most needy — in the instant case, the state budget.

What do you think — should Pennsylvania sell the state liquor control system to help the state’s budget issues?

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10 Comments

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  1. Replace the State monopoly with a Corporate monopoly? You’ve got to be kidding. Let’s move to a free market system, with independent stores, and chain stores, beer & wine available in grocery stores, etc. You know, like most of the other states in America.

    [Reply]

    Pattye Benson Reply:

    Corporate monopoly . . . ? I thought that privatizing would mean independent liquor stores and beer & wine in convenience stores & groceries. Are you suggesting that all the state liquor stores would be sold to the highest single bidder – and not sold as individual stores? If that is the case, than I have misunderstood. Could you please clarify?

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  2. Here’s what I read:
    Under Mr. Turzai’s plan, liquor stores and liquor wholesalers would bid for licenses, which number 850 for liquor stores and 100 for liquor wholesalers, and would net the state anywhere from $2 billion to $6 billion for the General Fund. No single entity could own more than 10 percent of the licenses. The state would also collect fees on license transfers and renewals.

    Given the limit of 10% to a single entity, wouldn’t that prevent a corporate monopoly? I’m assuming I Barg knows more than I can find? Please advise :)

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  3. Here is an idea (a variation on one proposed by Sam Katz way back when he ran for Governor):

    Instead of being short-sighted, why not sell the Liquor Stores and use the estimated $2 Billion in a trust fund that provides on-going revenue to the state rather than blow it all at one time?

    Fix the budget hole by cuts, shifting of resources, the revenue this $2 billion trust would generate, etc..

    Katz proposed this idea with the sale of the turnpike and using the ongoing revenue for property tax relief.

    [Reply]

  4. Pattye,

    I am surprised that you are embracing the conservative principle of privatization by seeming to favor breaking up the government liquor monopoly.

    Obviously the liquor control board is a relic; one that was created at the end of Prohibition in an effort by legislators to control the consumption of alcohol. It seems that its time is finally coming to and end.

    As for your comments about the United States Postal Service, I think you criticize to quickly.

    You complain about Postal costs having risen over the last 10 years. Please be aware the cost of postage is set by the Postal Rate Commission (an independent body), and that the price of the First Class Stamp has pretty much kept pace with rate of inflation. In addition, the Postal Service does not receive any tax dollars, and, therefore, must subsist on its own revenues.

    As for the Postal Service’s efficiency, when compared to FEDEX and UPS, you should know that Congress has unfairly handicapped the Postal Service with burdens that do not apply to any other Federal Agency. These include:

    (1) the requirement that the Postal Service prefund retiree health benefits to the Civil Service Retirement System (this costs the Postal Service about $5 billion a year).

    (2) subjecting the Postal Service to civil fines for OSHA violations. All other Federal Agencies merely receive a written notice of safety violations.

    (3) subjecting the Postal Service to Sarbanes Qxley compliance costs. This is particularly perplexing because the Sarbanes Oxley Act was passed in response to the Enron scandal, and was designed to ensure transparency to protect shareholders. No privately owned company must comply with Sarbanes Oxley, nor must any other Federal Agency. Why then, must the Postal Service comply, when it has no shareholders and is already subject to Freedom of Information Act requests? Because FEDEX and UPS lobbied Congress to make Sarbanes Oxley apply in order to further handicap the Agency.

    Remember also, that if you privative the Postal Service, you will probably see the end of universal service. Why keep Post Offices open in every town in North Dakota, Alaska and West Virginia, when the profitable thing to do would be to close them down?

    Well, you won’t be seeing the privatization of the Postal Service anytime soon, because it is one of the few Federal Agencies explicitly authorized by the United States Constitution (See Article I, Section 8, Clause 7). Thus, to privatize the Postal Service would likely require an Amendment to the Constitution, and they are very rare indeed.

    [Reply]

    Pattye Benson Reply:

    I’m not sure why the surprise – I don’t think our state government should be in the business of selling alcohol. Customers could benefit from lower prices, longer hours and wider selection at privately-run liquor stores. In addition, the state could recapture business that’s pouring across our borders to lower-cost, wider-selection states like Ohio, Maryland, New Jersey and Delaware.

    As for our postal service — just today, the US Postal Service reported more than $8 billion in losses for the 2010 fiscal year! Would seem to me that there is a need for changes to legislation, regulations and labor contracts in the postal service.

    [Reply]

    Mr. Roboto Reply:

    The surprise comes from your willingness to embrace free market capitalism.

    As for the Postal Service, $5 billion of that $8 billion loss would be eliminated if Congress eliminated the prepaid retiree healthcare requirement. No other Federal Agency nor no private corporation is mandated to make this payment.

    As for why I am sticking up for the Postal Service: I like to make nice with any Federal Agency that knows where I live and sends a represenative to my house every day. : )

    [Reply]

    Pattye Benson Reply:

    Should not be a surprise. As a small business owner, I understand all too well the difficulty attached to competing with the ‘big guys’. (small historic bed & breakfast vs corporate hotel chains, Hilton, Hyatt, etc.) I would argue the merits of a free market system built by entrepreneurship and small business. . . and leave the government’s role to police, defense and the legal system. Healthy competition improves the quality and quantity of consumer goods and services and forces business owners to find ways (sometimes creative & ‘thinking outside of the box’ ideas) to differentiate themselves from other companies to gain significant market share levels.

  5. FYI The State store system is a self supporting system… it does not take 1 penny from the state of Pennsylvania. for its operations …..its revenue funds the salaries, health care and retirement packages of its employees…….
    yet it generates millions of dollars in revenue each year….not to mention its strict policy of not serving underage customers….if its not broken why fix it…..
    a one time windfall is not going to solve the states budget problems ….this idea would only create more unemployment and I venture to say a rise in underage drinking related accidents….

    [Reply]

    mike Reply:

    You are entirely correct. 400 million in taxes and 100 million in profits this past year.

    [Reply]

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