Governor’s Decision to Veto Liquor Privatization Makes Bad Business Sense
The Pennsylvania General Assembly recently sent Gov. Tom Wolf legislation, that I co-sponsored, which would have gradually removed government from the sale of wine and spirits. Unfortunately, the governor vetoed this pro-consumer legislation for reasons that do not make much economic sense.
The legislation would have phased out state-run stores after first ensuring that an area has adequate private-sector service; allowed beer distributors to expand their businesses to sell liquor and wine; authorized private wine wholesalers to sell products to Commonwealth customers; and expanded licensees holding restaurant or hotel permits to obtain wine and liquor permits.
Moving the government out of the liquor business would have generated more than $200 million each year on top of current tax revenues from the sale of alcohol. These funds could have gone toward educating children across the Commonwealth, rather than propping up an antiquated state store system.
In a written statement that accompanied his veto, the governor said that selling the state stores makes “bad business sense.” A Massachusetts Institute of Technology graduate and former businessman, surely the governor understands that any organization that must rely on the passage of laws by any legislature to change its basic operating procedures has a failing business plan.
The reality is that under government control of wine and spirits, profits are down, expenditures are up and assets are plummeting.
While gross sales have increased from $1.14 billion to $2.24 billion over the last 14 years, transfers to the General Fund, or what the Pennsylvania Liquor Control Board (LCB) calls “profits,” have averaged about $93 million. In the last three years, while the LCB has boasted “record sales,” transfers to the General Fund have remained the same at about $80 million a year. The reason for the growing gap between increasing sales and stagnant “profits” is due in part to the state store system’s ballooning expenses and depreciating assets.
Operating expenses during the past 14 years increased by 77.3 percent, while the inflation rate was 33.6 percent. During that same timeframe, the LCB’s liabilities increased by 335 percent while its inventory increased by only 40 percent.
Moreover, the governor referenced the common misconception that Pennsylvania is making a lot of money from its state store system. It is not.
Most of the LCB’s revenue is derived from taxes; the Commonwealth would continue to collect tax revenues in a privatized system. The rest is the relatively small, and decreasing, profit margin transferred to the General Fund.
The governor also warned of “higher prices and less selection” in a privatized system. But basic economics hold that increased competition among businesses leads to increased benefits to consumers – including greater selection, lower prices and more convenience.
Under Pennsylvania’s current state store monopoly, the only competition comes from privatized stores in neighboring states. According to a report by the Distilled Spirits Council of the United States, Pennsylvania residents crossing into bordering states to purchase wine and spirits accounts for $313 million in losses from retail revenue to Pennsylvania.
If we had a private system that better served the public’s demands, we could recapture those sales and tax revenues. That makes good business sense.
There’s a reason that Pennsylvania is one of only two states in the nation (the other being Utah) that maintains full control of the wholesale and retail sales of wine and spirits. If moving away from our current government monopoly makes “bad business sense” as the governor claims, why are other states not modeling their liquor sales after Pennsylvania?
The Commonwealth’s liquor monopoly persists despite the fact that public opinion polls continually show that Pennsylvanians want to move away from our current Prohibition-era system. Privatizing the sale of wine and spirits would have accomplished that and granted consumers their desire for greater choice and convenience.
By vetoing legislation to move government out of the alcohol business, the governor prevented Pennsylvania from progressing into the 21st century and ignored the will of the people.
Representative Doyle Heffley
122nd District
Pennsylvania House of Representatives
Media Contact: Jonathan Anzur
717.260-6610
janzur@pahousegop.com
RepHeffley.com /
Facebook.com/RepHeffley