Public Benefits from Private Liquor

Commonwealth Foundation joins Reason in call for LCB privatization

HARRISBURG, PA — The Commonwealth Foundation joined with privatization experts from the Reason Foundation to discuss the potential divesture of the Pennsylvania Liquor Control Board.

Presenting before the Senate Policy Committee, Geoffrey Segal, director of government reform for the Reason Foundation and an adjunct scholar with the Commonwealth Foundation, offered an overview of the benefits of privatizing the state liquor stores.

“Privatization of the LCB would likely benefit the consumers of Pennsylvania through increased choice and lower prices,” stated Segal. Segal added that most states outside Pennsylvania currently allow liquor sales in private stores.

Furthermore, Segal noted that state revenue would not decline with liquor store privatization. “Taxes on wine, beer and spirits don’t go away with privatization,” said Segal. “Those revenues will continue to flow, if not go up, with increased sales.”

Geoff Underwood, a senior policy fellow at Reason, discussed Pennsylvania’s model of liquor sales compared with other states. Underwood noted that all other states employ some model of regulating and licensing private vendors to manage wholesale and/or retail sales of alcoholic beverages.

Underwood expanded upon the gain in revenue for the state, noting that in addition to current taxes on liquor sales, privatization efforts would increase corporate and property tax collections on liquor stores. He added that, “recently converted states—Iowa, West Virginia, and Alberta—experienced growth in the number of stores and the number of state residents employed, each as high as 300%, increasing each state’s tax base while shrinking unemployment.” He also observed that Pennsylvania is losing business to neighboring states because of higher alcohol prices.

Underwood further commented on the potential windfall for privatization, noting that updated estimates of a divesture of the LCB wholesale structure would net $1 billion, while a sale of the retail structure could generate $700 million. Thus, LCB privatization could reasonably net the state $1.7 billion in a one-time influx of capital that could be utilized for tax relief.

Underwood addressed many of the concerns related to social impact of privatization, including underage drinking, driving under the influence, and alcoholism. Underwood stated, “there are no dramatic differences between control states and license states. Equally, there have been no dramatic shifts in consumption, underage drinking, drinking and driving, and alcoholism attributable to privatization in Iowa, West Virginia, and Alberta.”

Underwood noted that privatization would allow the state to limit the number of licenses provided to retailers, continue to charge an ad valorem or excise tax on liquor, and continue to enforce liquor regulations. Underwood went on to detail several options for privatization, including full divesture of all operations, divesture of retail sales only, gradual transition to private stores, and public-private partnerships in current LCB operations.

Matthew Brouillette, president of the Commonwealth Foundation, concluded by noting, “While special interests may suggest otherwise, liquor store privatization benefits the people of Pennsylvania and poses no threat to public safety.” Brouillette added that the Commonwealth Foundation is working with Reason to produce a full study on alcohol policy in the states, which will be completed later this year.

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EDITORS NOTE: The complete testimony of Mr. Segal and Mr. Underwood can be found at Reason Liquor Testimony

The Commonwealth Foundation, www.CommonwealthFoundation.org, is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.

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