The PLCB’s Relentlessly Unimpressive Business Model
If you enjoyed a glass of wine or shot of liquor during Sunday’s thrilling Super Bowl, chances are your beverage of choice passed through the Pennsylvania Liquor Control Board (PLCB).
Why? The PLCB has a near monopoly on the sale of wine and liquor, making Pennsylvania one of the most restrictive “control states” in the country (with the exception of Utah). CF has extensively documented the problems with this state-run enterprise, including the invitation for corruption and its poor financial position. The latter is getting worse, according to a recent financial report.
The PLCB ended the year with a negative balance of $352 million, up from $238 million just last year. According to the report, this is partly due to the unusual transfer of cash to the General Fund. But it’s also the product of higher benefit obligations (ex. pensions), which continue to submerge the PLCB in a sea of red ink.
The system’s promoters will likely point to the record retail sales and a net income increase as two bright spots for the PLCB. But the former isn’t impressive in light of the near monopoly (even after Act 39) on the Pennsylvania market. If the state-run system had genuine competition, its sales figures would decline.
But what about the PLCB’s net income increase? In the proper context, it spells trouble for the booze bureaucracy. In 2016-17, the agency’s net income was $104.9 million or $1 million more than the prior year. However, this represents an 18 percent decline from the 2012-13 fiscal year. The increase itself is misleading, as it was due to a 139 percent increase in license fees, not superior management of the state-store system.
Net income would have declined in absence of the fee increases because of the PLCB’s growing operating expenses. Since FY 2012-13, expenses have risen by almost 27 percent. But sales have been unable to keep pace. These troubling trends will lead to a deterioration in the agency’s finances if left unaddressed.
The way forward is simple: privatization. Policymakers can avoid a debt debacle and raise additional revenue by allowing entrepreneurs—not government officials—to serve Pennsylvania’s consumers.