Tapping Indebted PLCB to Pay Down Debt a Risky Bet

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 proposal, the state’s General Fund would get a one-time $1.25 billion cash infusion and use future PLCB revenue to make payments on this loan.

Are PLCB profits a bankable solution to the deficit? In a word: No.

“Despite its wholesale and retail monopoly on liquor, the PLCB has been on shaky financial footing for years,” commented Bob Dick, senior policy analyst for the Commonwealth Foundation. “Just last year, the agency did not have enough net income to make its annual transfer to the General Fund. To fulfill that obligation, the PLCB was forced to draw down on its short-term investments.

“In fact, the PLCB recently reported falling $114 million further in the red, ending the fiscal year with liabilities surpassing assets by more than $350 million. Wolf’s convoluted and risky proposal should crumble under its own weight.”

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.

To cover these losses, lawmakers would have to raise additional revenue elsewhere to make up for the PLCB’s transfers.

Wolf also tried to shift the blame for the budget morass to tax-averse House Republicans, but 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.

“Wolf’s plan has another downside: Dedicating PLCB revenue to a long-term loan would delay or even permanently prevent privatization,” continued Dick. “Instead of relying on a dysfunctional agency to fix a dysfunctional budget, lawmakers should reduce horse racing subsidies, transfer dormant shadow budget reserves, and enact true liquor privatization to balance our budget without raising taxes.”

Bob Dick and other Commonwealth Foundation experts are available for comment. Please contact Jonathan Reginella at 717-943-1796 or [email protected] to schedule an interview.

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