Liquor store loan? Don’t bank on it
Have your trips to the liquor store been leaving your wallet a little lighter?
That’s because the Pennsylvania Liquor Control Board, the agency behind our state-run liquor system, recently raised prices on 422 wine and liquor products. While no one wants to pay more to buy wine for dinner, it’s the reason for these price hikes that’s worrisome.
The PLCB, it turns out, failed to meet net revenue goals and is now more than $350 million in the red.
Given these sorry finances, Gov. Tom Wolf’s plan to borrow more than $1 billion against PLCB revenue to balance the budget makes little sense.
Under Wolf’s plan to “monetize” our liquor system, the state’s General Fund would receive a one-time, $1.25 billion cash infusion and then use future liquor “profits” to repay the loan-which could take as long as 20 years.
As “proof” of the state’s ability to repay, the Wolf administration pointed to the PLCB’s $210 million transfer to the state’s General Fund last year-an amount “far in excess of the annual amount necessary to make payments on this loan.”
But the truth is, the PLCB had to withdraw $114 million from its reserves to make this payment.
In other words, the PLCB’s net income-or supposed “profit”-wasn’t enough to make its payment to the state.
Banking on future profits of a debt-ridden agency is risky at best, downright ridiculous at worst. What’s more, past attempts to generate more revenue from the government monopoly have fallen flat.
Last year, for example, the state legislature passed a law to “modernize” antiquated liquor stores. In addition to letting restaurants (and grocery stores with restaurant licenses) sell bottles of wine, this law let government-run stores “operate more like a business.”
Modernization was supposed to boost liquor sales-through longer store hours, coupon offerings for customers, and flexible pricing-generating millions in additional revenue for the state.
But PLCB numbers show this modernization has been a financial flop.
Alcohol sales revenue grew a mere 3.8 percent-due to inflation and economic growth, not a better business plan.
That’s less growth than the prior two years.
Meanwhile, gross profits rose a meager $16 million, while operating expenses grew by $30 million. That’s not the trend lenders will want to see.
Far from a bankable asset, the PLCB is an unaffordable regulatory monstrosity whose extinction is far overdue.
Instead of trying to manipulate this broken system to fill the budget hole, it’s time to get government out of the liquor business entirely. Modernization was a financial failure.
Monetization is an even riskier bet.
The solution is privatization.
This year, the state House passed multiple bills to let private sector stores sell wine and spirits. These proposals include creating licenses for wine and liquor retail stores and privatizing the PLCB’s wholesale operations.
These changes would begin to deliver the competition, choice, and convenience consumers want while helping erode the border bleed that costs Pennsylvania business and revenue.
For example, new regulations require restaurants to pay the full cost up front for special liquor orders, days before they are allowed to pick up these orders at state-run stores.
In contrast, private wholesalers might deliver directly to restaurants.
Furthermore, in a 2011 survey, the PLCB found 45 percent of residents in Philadelphia and the surrounding counties purchased wine or liquor outside the state, costing Pennsylvania $220 million in sales and taxes in the southeast alone.
The House proposals could improve convenience and generate hundreds of millions of dollars, including both up-front and recurring revenue, while reducing the operating costs of the PLCB. Such revenue would help address the still-unbalanced state budget.
It’s a win-win scenario.
Wolf’s plan, however, is a major loss.
Tying the PLCB to a long-term loan would make privatization efforts vastly more difficult. Instead, state government needs to get out of the booze business before its financial problems become even more dire.
Liquor privatization would do just this, while giving Wolf the “recurring revenue” he demands.
More than 66 percent of Pennsylvanians want to see an end to the government-run liquor stores. It’s time we give consumers what they want, improve convenience for all Pennsylvanians, and protect families from unnecessary tax increases.
Benefield is vice president and COO of the Commonwealth Foundation, Pennsylvania’s free-market think tank.