The Pennsylvania Liquor Control Board

By Alfonso Gambone, Jr.

As Pennsylvanians we are accustomed to the state's control of all aspects of wholesale and retail liquor sales but it is important to remember that the Pennsylvania model is foreign to all but one other state in the union.

A privatized system would recapture these lost sales and improve profitability while at the same time reducing price, creating jobs and allow Pennsylvanians to realize an overall better shopping experience.

While Pennsylvania's wholesale operation is managed through private contractors, the retail operation within the state is maintained exclusively by state employees spread across 613 state run retail stores. While former Governors Thornburgh and Ridge each developed privatization proposals, each plan failed to pass through the state legislature.

The Pennsylvania Liquor Control Board (PLCB) employees nearly 5,700 full and part-time employees, which in addition to overseeing approximately 20,000 liquor licenses and permits, operates the Commonwealth's more than 600 liquor stores. Over the last 10 years however, revenue has grown at a rate of 3.5% while expenses have grown at a rate of 5.5%. In addition to expenditures for information technology, individual stores, and warehouses, the PLCB's personnel costs are, as a percentage of total sales, significantly higher than other Control states in the country.

While the goal of privatization is to allow the free market to promote convenience and competition, it will also assure that the fiscal impact of liquor sales within the Commonwealth do not negatively affect taxpayers. It is possible to achieve the economic goals while protecting Pennsylvanian families through strict enforcement measures and reasonable regulations. The majority of PLCB revenue comes from markups on goods and state taxes. Much of this revenue supports the PLCB's operating expenses which would include its personnel costs. A market system would generate ongoing revenue from licensing which means that taxes and markup would not be as high to attain fiscal neutrality for the state.

Fiscal neutrality occurs when taxes and government spending are neutral with neither having an effect on demand. It creates a condition where demand is neither stimulated nor diminished by taxation or spending. PLCB pricing policies have a significant impact on retail prices of wine and liquor. In addition to price, the inconvenience associated with state liquor stores contributes to a concept known as "border bleed". "Border bleed" occurs when Pennsylvanians, dissatisfied with the lack of convenience and price, travel to neighboring states to purchase alcoholic beverages. It is estimated that "border bleed" accounts for significant lost sales to the Commonwealth in the range of 10% to 30% of total sales in the state.

A privatized system would recapture these lost sales and improve profitability while at the same time reducing price, creating jobs and allow Pennsylvanians to realize an overall better shopping experience. Proceeds from the sale of wholesale and retail liquor license could generate between $1.1 billion and $1.6 billion for the Commonwealth. These proceeds could be devoted to infrastructure improvements which would translate into long term economic development and immediate job creation. In addition to stimulating our economy the proceeds could also reduce the overall tax burden on Pennsylvanians. In closing, the economic and the social benefits of liquor sale privatization are clear; it affords Pennsylvania the best opportunity to improve the current liquor system while optimizing the financial benefit to Pennsylvanians.