Dispelling the Myths About Alcohol Privatization

Editor’s Note: This commentary first appeared in the Philadelphia Inquirer.

When Governor Corbett announced his intention to privatize Pennsylvania’s liquor stores, the beneficiaries of the status quo came out in force. Case in point: On Wednesday, liquor store union boss Wendell Young IV and members of the UFCW 1776 shouted over business leaders speaking in favor of privatization in the Capitol Rotunda. 

The friends of government-run liquor stores have to resort to such tactics as they have neither public opinion nor facts on their side.  Here are just a few of the myths they use, and the reality they choose to ignore.

Myth #1: There’s no real support for privatization.

Consumers choose convenience. More than 60 percent of Pennsylvania residents support getting government out of the booze business. This is broad-based, bipartisan support-including the majority of union household. And the people who use the PLCB are even more fed up: a full 77 percent of weekly PLCB customers support privatization.

Myth #2: The PLCB is a reliable source of revenue for the state.

The PLCB wants you to believe that without them, the state’s revenue would dry up. The truth, however, is that more than 80 percent of the PLCB’s $500 million in “profits” is generated from taxes and the rest is taken out of the pockets of Pennsylvania consumers and taxpayers through “markup” charges. Privately-owned liquor stores would produce the same revenue-or more-as private companies pay additional taxes and licensing fees to the state.

Myth #3: Shoppers aren’t crossing the state’s borders to buy their booze.

Not even the PLCB can back this one up. A PLCB-conducted survey showed that 45 percent of residents in Philadelphia and its surrounding counties purchase some or all of their alcohol outside of Pennsylvania. This border bleed equals more than $180 million in lost sales, and more than $40 million in lost state tax revenue annually from just a handful of counties.

Myth #4: The PLCB pays for itself. It has no debt.

No matter how you skin it, the PLCB is in the red. The agency ended the 2012 fiscal year with negative $9.8 million in net assets. That’s right: It finished the year owing more in liabilities than the agency had in assets. These losses are due in no small part to years of mismanagement, including wine kiosk failures, government-branded wine labels, and inventory systems that couldn’t count correctly.

Myth #5: Privatization failed in other states.

Washington’s experience says otherwise. Prices in that state increased because of significant jumps in state taxes that accompanied privatization. Yet despite this increase in taxes and prices, sales of liquor in Washington have increased following privatization (spirits sales were up 2.9 percent by volume in the four months after privatization), reducing border bleed and bringing more revenue into the state’s coffers. 

Myth #6: Privatizing the state stores will eliminate thousands of family-sustaining jobs.

Actually, ending the state-run monopoly will create thousands of additional jobs across the state and unleash millions of dollars in new business investment.  Expanding existing grocery and convenience stores and creating new wine and spirits stores would result in tens of thousands of additional jobs across the state. The Governor’s plan allows beer distributors to expand their already safe and reliable businesses, creates hundreds of new wine and liquor outlets, and enables grocery stores to expand to sell wine and beer to meet the needs of consumers.

The current proposal to get government out of the booze business also provides benefits for current PLCB employees such as training and education grants, tax credits for businesses to hire displaced workers, and a civil service hiring preference.

Privatizing the PLCB is the right move. The fears about the effects of such a policy may be well-intentioned (or self-serving, in some cases), but the benefits that the state stands to reap show that they’re also unjustified. And once the Legislature moves ahead with a plan, we’ll all be able to toast to it.

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Katrina Anderson is Senior Policy Analyst & Director of Government Affairs for the Commonwealth Foundation.