Should selling of liquor in Pennsylvania continue as a state-controlled monopoly or should prohibition end?

Should the Pennsylvania State Liquor Board be abolished?

Did you know that aside from Utah, Pennsylvania is the only other state with complete government control of wine and liquor?

Things are once again heating up to privatize the state-owned liquor stores. One of Gov. Corbett’s campaign talking points was the privatization of the state store system and it continues to move in that direction.

On one side we have many state government jobs at risk with the abolishment of the Pennsylvania State Liquor Board and the selling off of the 620 liquor stores. United Food and Commercial Workers union represents the 3,500 state liquor store employees whose jobs are in jeopardy if the state privatizes the wine and liquor stores.  But couldn’t one argue that the state employees might well stay employed with the privatization . . . privately owned liquor stores still require employees and ex-state liquor store employees would be a match.  

On the other side, there are those in favor of privatizing wine and liquor stores who suggest that the competition will lower prices and increase selection for the consumer. And why wouldn’t that be good for Pennsylvanians? How many of us currently drive to Delaware when we need cases of wine . . . ?

House Majority leader Mike Turzai R-Alleghany is driving the privatization and has a proposal scheduled for the end of the month to sell the liquor stores.  There are approximately 1,200 liquor licenses in Pennsylvania – how much revenue would selling the licenses produceIt is estimated that the revenue could be as high as $2 billion.  Just this week, I read that the Pennsylvania State Liquor Board reported for 2010, a 4% increase in sales to $1.96 billion!

As an aside, I noted a proposed local connection to the liquor control board.  According to a Daily Local article, Gov. Corbett has nominated Skip Brion, chair of the Chester County Republican Committee to the state liquor board.  At this point, it is unclear whether Brion will resign from his political leadership role in the county.

What do you think?  Should selling of liquor in Pennsylvania continue to operate as a state-controlled monopoly or after 75 years, should prohibition end?

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16 Comments

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  1. How much did LCB net last year. i believe in the neighborhood of $500 mil. In the time of budget cuts, should we sell an asset that brings in that kind of revenue/profit?

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  2. Pattye,

    You say that the State Stores generated $1.96 Billion in sales last year. Do you know how much net profit the Stores made in 2010?

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    Pattye Benson Reply:

    The record $2 billion in liquor sales was for fiscal 2010-11 year — the 4% increase in sales netted $497 mllion in profit and tax revenue.

    So . . . looking at that windfall amount for the state treasury, do you think the government should get out of the wine and liquor business? Or, should the state privatize the state store system?

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    Mr. Roboto Reply:

    I normally frown on the government getting involved in business enterprises; especially if the government entity in question has created a monopoly and will not allow any competition from the private sector.

    The private sector is generally (though not always) more efficient at running a business enterprise, and thus more capable of delivering a better product or service at a lower cost and with more choices than the government.

    There are some economic sectors, however, where government involvement makes sense or is essential. The areas involving national defense, law enforcement and public safety are examples where government needs to play the lead role. It also makes sense in instances where a needed product or service would not be available absent government participation.

    What about our State Liquor Stores? Should they remain a government run monopoly?

    Clearly the sale of wine and spirits are not products that require government involvement to make them available to the public. After all, 48 other States (sorry Utah) have shown us that the private sector is more than capable of delivering us this product. . .and at a much lower cost.

    Then there is the public safety argument. Both State Store supporters and old guard puritans argue that State Stores reduce the level of alcohol consumption, especially underage drinking. I honestly can’t say whether or not this argument has much merit because I have seen conflicting studies concerning this topic. However, if State control of the liquor industry did result in a significant reduction alcohol consumption, then why does the Commonwealth permit privately owned beer distributorships, as well as privately owned bars?

    Finally, there is the financial cost benefit analysis. It is estimated that the Commonwealth will generate $2 Billion from the privatization of the liquor industry.

    However, Anon makes a valid point in his/her post that the Commonwealth is making a profit off of the State Stores, and he/she questions whether or not we should keep this profit stream during these tough economic times. In other words, should we kill the goose that lays the golden egg?

    To answer this question, we need to look at just how much net profit the Commonwealth earns each year from the State Stores and compare that with the anticipated $2 Billion that privatization will generate.

    Pattye says that the State Stores generated $497 Million in combined net profits and taxes in 2010. The critical question is: how much of this $497 Million represents net profits and how much represents taxes?

    Why does this matter? Well, because as Citizenone correctly points out in his/her post, the Commonwealth should continue to earn about the same amount in tax revenue with a privately run liquor industry as it does under the current state controlled industry.

    Thus, we need to know what the net profits were in 2010 to be able to ascertain whether or not it makes sense to privatize.

    The answer is that the State Stores generated $144,200,000 in net profits. How did I arrive at this figure? Well, Pennsylvania imposes an 18% sales tax on alcohol. If the State Stores had $1.96 Billion in sales last year, then that means those sales generated $352,800,000 in taxes.

    Subtract the $352,800,000 in tax revenue from the $497,000,000 in combined net profits and taxes, and that leaves us with $144,200,000 of net profits.

    Thus, the question that must be answered is: Does it make more financial sense to receive $2 Billion today through privatization, or is it better to continue to operate a business that will give us $144 Million a year in profits that would not be realized from privatization?

    Ultimately, I come down in favor of taking the money and running. So yes, mark me down as being in favor of privatization.

    Still, the State Stores do deserve a great deal of credit for their efforts to make themselves more relevant and customer friendly in recent years by offering more brands and discounts, introducing the Chairman’s Selection, and keeping stores open on Sundays. So it will not be that much of a loss if this current effort to privatize should fail.

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  3. Let’s examine the $500 million each year that state stores provide to the state. Most of this revenue (about $400 million) is from state alcohol taxes and state sales taxes. This $400 million would be collected regardless of whether the liquor business is privatized or not.
    .
    The rest—considered “state stores profits”—is really just based on the markup on the price of liquor, or an implicit tax on consumers at the government-run stores. This revenue would be replaced by taxes under a license scheme. Lawmakers will set tax rates—either using the current liquor tax structure or replacing it with a different alcohol tax, such as a gallonage tax—and can set the rate to match current revenues from taxes and state store markup and still offer lower prices.

    Additionally, by relying on private vendors, the state will collect corporate income taxes and other business taxes from operators, that government stores don’t pay. And by improving service, selection, and reducing prices, Pennsylvania can recapture some of the revenue we give to Delaware.

    http://www.commonwealthfoundation.org/research/detail/impacts-of-liquor-privatization

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    JohnRz Reply:

    Google “liquor tax delinquent” and it’s easy to see the CF is lying when they say we will get the tax money anyway. As for Delaware folks in SEPA shop for everything there due to low taxes. Privatizing liquor won’t stop that. Until we close the “loophole” and make them tax their own people they’ll continue to feed off Pa. business. But, like taxing the shale the Concentration of Wealth Foundation will fight that, because they want to do whats best for us.

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    citizenone Reply:

    JohnRZ,
    .
    Are you trying to convince us that because an insignificant number of private operators are delinquent on their tax transfers to the state we should not privatize? You’ll have to do better. I’m sure there are also an insignificant number of department stores, hardware stores and grocery stores that are tax delinquent. Should we ask the state to take over all retail stores?
    .
    You are mistaken if you think low price is the reason peopled drive to Delaware. It’s the selection. Many times PA is less expensive.

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    JohnRz Reply:

    I guess you didn’t actually do the search. The number is hardly insignificant. Texas has a constantly updated web page devoted to the subject. The worlds largest liqour store, according to Guinnes, recently was busted.

    citizenone Reply:

    C’mon John,
    .
    You are saying the amount of delinquent taxes is significant. Significant compared to what? What percentage of the Texas total liquor tax is delinquent? Give us some data to support your position; not a phrase to google!

  4. To further clarify the liquor taxes going forward. The proposed bill would eliminate the 18% tax and instead institute a per-gallon tax, a ‘gallonage tax’ used by 33 other states. I’m unclear what the average tax rate for the gallonage tax would be but I would guess it would be less than the 18% currently levied.

    As for the 5,000 state liquor board employees – the proposed privatization bill also includes assistance for these employees in the way of a tax credit for private companies that hire them. I can’t think of anyone better to hire for a private liquor store than someone who is an ex-State Liquor Board employee & the proposal would place an incentive on the private liquor stores to do just that.

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    JohnRz Reply:

    Gallonage taxes are so common because liquor lobbiests push for them. They never adjust for inflation. If you put a one cent per ounce tax on chocolate back when a Hershey bar cost a nickle you would still only get one cent now that they sell for a buck or more. Don’t be fooled by this.

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  5. Not sure what happens to the state liquor store pensions? Isn’t that the hidden cost of running the stores anyway? And I may be cynical, but I cannot imagine that any private store would be inclined to hire a state employee — the work rules for a state job are somewhat less “productive” than a private job.

    In a perfect world, the experience would translate, but in the real world, the attitude might as well.

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  6. I have no problem with the gubba-mint taxing alcohol sales, but cannot understand what business it is for the state to be in the distribution business. This is just an anachronism and only Pa and UT have failed to recognize this.

    The loss of employment of the workers should not be a consideration. Those who suggest otherwise are like those who say we need to keep tolls on roads so the toll collectors will have jobs. Good experienced sales staff would find work with private distributors.

    I also wonder about the state requirement that beer be bought by the case only in beer stores, but you can buy two six packs in a “tavern”. Who came up with that gem?

    M.A.

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    Pattye Benson Reply:

    I too have wondered about the limit on 2 6-packs of beer when purchased from none beer distributors. It used to be that it was only certain bars sold beer by the 6-pack and generally the price was inflated :) Now some of the grocery stores – Wegmans and recently Whole Foods in Devon are selling beer. But it is continues to be regulated, 2 6-packs only. And I don’t understand why Wegmans can sell beer but not wine. Was it OK for beer to be sold but not wine??

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    Dave Reply:

    I believe that Wegmans basically holds a liquor license that a bar would hold. They can serve alcohol on-premises, and they are allowed limited take-out sales. Think about it – you cannot buy beer or liquor to take home at your neighborhood bar.

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  7. I really appreciate having this issue aired in this forum Pattye and the responses are interesting and full of great information. The different perspectives also show how complicated the problem is and how difficult it will be to change.

    The fundamental problem is that the state has no business selling alcohol. Regulating and taxing it yes, of course, but selling it?

    We could stimulate the economy in PA by releasing this to the private sector, increasing the number of liquor licenses and ensuring that not all of the licenses end up in the hands of big conglomerates. Require an ID for every purchase and add a fee for enforcement – that will cover the underage purchase problem.

    It’s time to step into the 21st century.

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