Liquor Privatization: Time to Push Again
A Pennsylvania grocery or convenience store can be a confusing place. Out-of-state visitors are puzzled when they first encounter separate checkout lines for alcohol and non-alcoholic items. Last-minute party planners are often caught off guard by quantity limits. Such are the effects of Act 39, a change to Pennsylvania’s liquor control laws that passed three years ago this month.
The press generally described Act 39 as a major liberalization. The truth is, Act 39 was a mixed benefit, giving the Pennsylvania Liquor Control Board (PLCB) monopoly more power to increase prices even as it permitted some limited private sales of beer and wine. The PLCB remains one of the most restrictive in the country and it continues to cost Pennsylvanians both time and money.
Before the passage of Act 39 the PLCB was obligated to charge consumers a simple 30 percent markup on the unit price at which it had acquired a product. Today the PLCB has full pricing discretion over all the most popular liquor and wine varieties.
In theory the PLCB could have used its new flexibility to lower prices, but in practice shelf prices haven’t fallen, and there have been some notable increases. The PLCB’s profitability hasn’t improved much either. Profits are up but this is simply because sales are up: gross margins have barely improved.
This unimpressive financial result raises the question, why does the PLCB exist? Is the board supposed to be offering Pennsylvanians bargain prices on alcohol? If so, it isn’t doing that. Is it supposed to use its monopoly powers to maximize profit? If so, if isn’t doing that either.
In addition, the PLCB’s finances appear set to deteriorate. Three years ago, the PLCB had $540 million of retirement liabilities on its books. Those liabilities have since been re-stated, doubling in the process: as of June 2018 they were reported at $1.2 billion. The PLCB’s negative net position, the gap between total liabilities and total assets, is more than $1 billion.
Even leaving aside liabilities and just looking at cash flow, the PLCB’s current level of remittances to the state don’t appear sustainable. Over the last four fiscal years the PLCB has transferred $582 million to the state General Fund, but earned only $451 million.
Three years of evidence suggest that, even with some reforms, the PLCB regime remains inconvenient, expensive, and barely profitable. The main purpose of the PLCB, it seems, is to maintain the board’s thousands of employees on the union rolls. Union jobs seem to be the main concern for opponents of House Bill 1346, a bill proposed in the current session that would allow some retailers to source wine from wholesalers other than the PLCB. For the sake of those jobs it appears some politicians are willing to let Pennsylvania’s odd alcohol regime persist forever. A well-designed privatization would be a better alternative, providing a smooth transition for current employees while eliminating a major financial liability and consumer annoyance.
Act 39 delivered some conveniences but it is a far cry from the full privatization Pennsylvanians have said for years that they want. It is time to push again for privatization.