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Fontana Discusses Liquor Privatization Proposal

Privatization could result in job loss and reduce revenue from profits and taxation, Fontana says.

The current state store system that Pennsylvania has in place began in 1933 after the ending of Prohibition. Many attempts to privatize our system have occurred over the years with the earliest effort taking place during the Thornburgh Administration in 1983. Governor Ridge continued with the privatizing endeavor throughout the 1990s and Governor Corbett has been the most recent advocate. Up until this point, all attempts by these administrations have failed.

Last week, Governor Corbett announced a proposal to privatize the state’s liquor system. Under the Governor’s plan, the more than 600 state-owned liquor stores would be opened up to the free market with the Commonwealth auctioning off up to 1,200 wine and liquor licenses to a variety of retail businesses. Current beer distributors, which are now limited to selling cases and kegs of beer, would be eligible to apply for these enhanced licenses to allow them to sell wine, liquor and smaller amounts of beer like six packs. An unlimited number of licenses for groceries and other retail outlets would also be available to permit a store to sell just wine and spirits.

The Governor estimates that the plan would generate approximately $1 billion over the next four years. Specifically, $575 million from selling wholesale licenses, $224 million from the auctioning of the 1,200 licenses to replace the current state stores and $112.5 million from the licenses to expand offerings for existing beer distributors. The plan would maintain the current tax structure for alcohol sales, including the Johnstown Flood Tax.

The Pennsylvania Liquor Control Board (LCB) would retain regulatory authority over liquor in the state, and enforcement would be increased, including higher fines for serving minors, under the Governor’s proposal. Additional money from license surcharges and increased fines would be allotted to the Pennsylvania State Police’s Bureau of Liquor Control Enforcement.

Proceeds from the selling of the various licenses will be earmarked for public schools in the form of a learning block grant. Schools will be given the choice to decide whether they want to use the money for school safety, early learning, individualized learning or an educational program called STEM (science, technology, engineering and math courses).

Consequently, such a privatization plan will result in the loss of good, family sustaining jobs and a reliable revenue stream for the Commonwealth. The closing of the more than 600 state stores will leave an estimated 5,000 employees without a job. Additionally, after the initial sale of licenses, many anticipate that privatization will impact the state budget negatively by reducing the overall revenue from profits and taxation in the out years. Some rural lawmakers are concerned that this proposal would leave some residents with less accessibility and fewer options as state stores in those areas would close.  Another concern is that this will provide increased access to alcohol for underage youths without the trained LCB employees monitoring attempted purchases

With so much uncertainty behind this proposal, I believe our efforts should be focused on improving and modernizing Pennsylvania’s liquor store system. Several proposals were advanced in the General Assembly last session that would begin reconstructing the way Pennsylvania’s state store system operates. These were good first steps and we need to continue with that approach.

There is a reason why so many attempts to privatize have failed. Rather than dismantling the current system, we need to find ways to grant the LCB more flexibility so that they are able to make stores more efficient, consumer-friendly, profitable and competitive while at the same time maintaining controls over things like underage drinking and purchasing of alcohol as well as protecting existing jobs in this current poor job market. In addition to providing flexibility to our state stores, we can also assist local beer distributors by adopting real package reform such as allowing the sale of six-packs.

I find it puzzling how an Administration who has cut funding for education so severely in the last two budget cycles has chosen to link the sale of liquor stores to money for a new program that will be left without funding at the end of the four year phase-in period under this plan. This particular proposal is not a viable long-term solution that is in the best interests of Pennsylvanians.

 

Senator Wayne D. Fontana

42nd Senatorial District

www.senatorfontana.com

https://twitter.com/WayneDFontana

Albert Brooks February 06, 2013 at 01:06 PM
A reply in two parts: The good Senator has to realize that there aren't 5000 people who work for the PLCB and of those that do a third are part time. Not exactly a job to sustain a single person let alone a family. Also, as stated the regulatory and licensing portions would remain and have to grow due to the increase in licenses issued and establishments. that would need to be checked. Sales in terms of total dollars need only go up by 17% to more than make up the $80M that the PLCB returned to the state last year. With double the number of liquor stores, a large increase in places that can sell beer and wine and the decrease in border bleed due to the greater convenience this will easily be met. That isn't taking into account the licensing fees or business taxes paid either. As long as the state does not make the same mistake Washington did by tacking on extra fees the increased competition will result in benefits for the consumer. Will the end result be state controlled locked down same pricing everywhere? Of course not, like other items it will depend on the market and demand. I don't hear the Senator complaining about price differentials of other products. .
Albert Brooks February 06, 2013 at 01:07 PM
Since PA does not rank very well in binge drinking (7th worst - CDC), DUI, 35th (MADD) with 1 being the best). Ranks worse then 5 of the six border states in alcohol-attributable deaths per 100,000 residents (CDC), Ranks higher than 5 of 6 border states in the percentage of traffic fatalities related to alcohol use (CDC) and has more alcohol-related traffic fatalities per 100,000 residents than four of six border states (CDC). One can easily say that the system we have isn't doing a very good job and a change is warranted. The PLCB is responsible for training employees of bars and restaurants already if you say that they can't be trusted to check IDs you are saying that the PLCB isn't doing their job. As stated by the PLCB itself their stores aren't checked for under-age sales like other businesses which serve alcohol so any claim they make about being superior is unjustified and unproven. Modernization IS Privatization
John Spoon February 06, 2013 at 01:52 PM
State store locations are based on population and demand. I hardly believe that rural areas are going to be up in arms over it, they're the ones who could benefit from this. Also all of those state store workers wont be without job, most will have a chance to get hired back. Based on what I've experienced some shouldn't even have jobs there since they lack customer service skills and basic knowledge of the products. By doing this PA can stop the bleeding from residents going to OH/NY/NJ/WV/MD to buy the same alcohol at a considerably lower price. The state should never have been in the alcohol business. the time is now for change. Just because it failed before doesn't mean the idea was bad, just the plan was.
Spiltpop February 06, 2013 at 06:10 PM
Improve the system, improve hours, location, purchase options and selection. Retain the jobs No They won't get decent pay or benefits from the private retailers. And, most retailers will not hire them. Does Giant Eagle or Rite Aid have a need for a clerk dedicated to liquor sales? No. Isn't it amazing that the same people who were happy to whine about "job creators" and the 47% of lay-abouts can't wait to take away good jobs from people? Confusing. I'd like more choice in the stores, but will the liquor aisle in most retail places be any better? And, the education funding is a carrot that will rot and die at the first opportunity. The state should not have started it's own retail operation, but losing the jobs and the long term revenue stream when our leaders tell us we should be worried about the loss of jobs and the lack of revenue seems to be a bad idea. Keep the system, improve it and look at the possibility of selling off when the economy in PA is better able to deal with the issues a sale will cause.
Albert Brooks February 06, 2013 at 06:25 PM
The manpower costs are too high. In June 2000 there were 692 stores and now there are 605. There are also 40% more admin people in the PLCB now as then. One third of the PLCB jobs are part time now. Total sales only has to increase by 17% to more than make up the $80M the PLCB gave to the general fund and with double the outlets, thousands of beer/wine stores, less border bleed due to convenience, license fees and business taxes the private sector will provide far more then the PLCB ever could.
Joseph February 06, 2013 at 09:11 PM
>> The closing of the more than 600 state stores will leave an estimated 5,000 employees without a job. The stores will be auctioned off. Will they not need employees? Will the Commonwealth not attempt to place state employees at new positions within government? >> Additionally, after the initial sale of licenses, many anticipate that privatization will impact the state budget negatively by reducing the overall revenue from profits and taxation in the out years. What is the expected number of out years? I would expect the auction to bring in enough revenue to cover at least a few out years. And lets be honest... the operating profits from PLCB is peanuts-- on the order of $50 million (on $2 billion in sales) when taxes bring in over $450 million. >> Some rural lawmakers are concerned that this proposal would leave some residents with less accessibility and fewer options as state stores in those areas would close. Again... state stores will be auctioned off. If they do not get bought, then chances are there's not a good market, i.e., there shouldn't be a state store there in the first place.
Joseph February 06, 2013 at 09:13 PM
>> Another concern is that this will provide increased access to alcohol for underage youths without the trained LCB employees monitoring attempted purchases This is absolutely absurd. This is a matter of enforcement. Besides according to the 2011 SAMHSA report, neither PA or UT, which are the only two states left with state-controlled liquor sales have the lowest rates of underage alcohol purchases or drinking*. * States with the lowest incidence of underage youth illegally purchasing their own alcohol included New Mexico (2.5 percent), Idaho (2.6 percent), and Oregon (2.6 percent). Southern states had some of the lowest rates of underage drinking (Alabama, Arkansas, Georgia, North Carolina, South Carolina, Tennessee and West Virginia).
Joseph February 06, 2013 at 09:14 PM
Will we finally be able to have wine delivered from out of state?
M. R. Birkos February 07, 2013 at 01:51 AM
Here are the last four states that privatized elements of their liquor sales. Iowa went private with retail operations of wine in 1985, and liquor in 1987. West Virginia privatized liquor retail operations in 1991. Both states earned less than $20 million each. Operational costs were greatly reduced, but the expected windfalls never materialized. In 1986, Iowa earned $71.6 million. In 1987 - $43.6 million. Cash flow did not return to pre-privatization levels until 2004. They chose to retain wholesale operations, because they would have lost $60-70 million/year. http://www.pennlive.com/editorials/index.ssf/2010/12/dont_toast_yet_to_pa_liquor_st_1.html: http://voices.washingtonpost.com/virginiapolitics/2010/09/as_we_reported_this_weekend.html: In 2004, Maine earned $125 million for a 10 year lease of their wholesale rights, but since, has lost over $100 million due to revenue sharing with the wholesale distributor. http://www.mainebiz.biz/article/20110725/CURRENTEDITION/307259998: In 2012, we know that Washington only earned $150 million for wholesale rights, $30.8 million for their existing stores, and a new liquor/wine/beer license only costs $166.00. They went from 300 to nearly 1,500 retail outlets, and unit sales only increased by 8%. Last month, the governor’s windfall estimate was $1.6 billion. Today it is $1.0 billion. Ironically, the governor’s billion dollar number and the market comparables are both deal killers.
Jay Panoli February 07, 2013 at 03:09 AM
It has nothing to do with jobs, drinking and driving, or whats best for PA residents. The only reason PA is still way behind the times on privatization is Democrats do not want to lose any union support when it comes time to vote. The Democrat machine in Pa is more than happy to constantly hold our state back in order to win elections. So funny when democrats are suppose to be about moving forward and progressive change except when it means an old antiquated system suits them and their union buddies just fine. Such hypocrites.
Joseph February 07, 2013 at 03:38 PM
The government tends to be very bad at improving anything. Look at the arguments here... losing jobs, losing stores in rural areas, etc. These are both counter-productive arguments to improving revenue. Look at the post office-- a monopoly-- that is bankrupt due to government's inability to evolve to the environment. Lastly, most of the revenue from the PLCB is from taxes, not sales profit.
Spiltpop February 07, 2013 at 09:58 PM
privatization is overrated. fails miserably more than it succeeds.
Albert Brooks February 07, 2013 at 11:08 PM
Considering the by far the vast majority of businesses are private ones that is an idiotic thing to say.
Spiltpop February 08, 2013 at 07:51 PM
Speaking of idiotic, privatization of government and non-profit services fail more than they succeed. Perhaps you don't know much about the topic. But, come to think of it, most private businesses fail in general, just as most fail to serve well when they try to take over government services. The successes in business are the exception. But, that wasn't the point of this particular article.

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