Gov. Wolf Proposes Using Debt-Ridden Agency to Pay Down Debt

In a press conference yesterday, Gov. Wolf announced a plan to borrow from future PLCB “profits” to pay off last year’s budget deficit. Under the governor’s plan, the state’s General Fund would get a one-time $1.25 billion cash infusion and use future PLCB profits to make payments on this loan.

The governor believes leveraging the agency to pay down debt is a fiscally responsible course of action. It’s not.

Although the PLCB made an unusually large transfer to the General Fund last year, the liquor control board had to draw on its short-term investments to find this money. Why? Because net income wasn’t enough to make this transfer. In fact, as I noted recently:

Overall, the PLCB’s fiscal health deteriorated [last year]. The board reported falling $114 million further in the red, ending the year with liabilities exceeding assets by more than $352 million.

If the PLCB could manage its own debt and pay off the new loan, which could take up to 20 years according to Wolf, it would require a reduction in the PLCB’s periodic transfer to the General Fund—a point conceded by Budget Secretary Randy Albright (paywall). 

To cover these losses, lawmakers would have to raise additional revenue elsewhere to make up for the PLCB’s transfers. The convoluted and risky proposal should crumble under its own weight. Unfortunately, the PLCB is open to the idea, although it has yet to discuss the vague proposal.

The plan has yet another downside: delaying or even permanently preventing privatization. Leveraging the agency’s profits to pay down a loan would mean lawmakers are less likely to accept any efforts to disrupt the PLCB’s revenue stream to avoid defaulting on a loan.

The optimal budget solution is to completely privatize the liquor system and use the proceeds to pay down the current deficit. But the governor refuses to bend on this issue. And taxpayers may bear the costs.

Gov. Wolf is, however, right about one thing: the critical need for a balanced budget.

While Wolf has claimed he needed to act because of others’ inaction, the truth is more complicated. When the legislature sent him an unbalanced budget, Wolf ignored his legal obligation to bring spending in line with revenue. Neither Wolf nor the legislature is a victim of anything other than their own mistakes.

Instead of relying on a dysfunctional agency to fix a dysfunctional budget, Gov. Wolf and lawmakers should embrace the obvious ways to balance our budget without raising taxes and banking on liquor profits that are hardly a sure thing.