Legislators Have No Choice but to Get Alcohol Reform Right
By State Rep. Justin Simmons (R-Lehigh/Northampton)
Pennsylvania is facing a massive budget deficit estimated at more than $1 billion in the coming fiscal year. Sadly, a deficit of this magnitude requires drastic action.
Traditionally, policymakers charged with figuring out how to shore up budget gaps look to either raising taxes or cutting spending to find revenue. But, tax increases are never popular and often stifle economic growth, putting thousands of jobs at risk. If spending is cut, important programs are thrown by the wayside and valuable government services are diminished. Neither option is appealing.
While generally there are few win-win options to reducing budget deficits, in Pennsylvania there is one course of action more than 60 percent of voters already agree upon. No taxes would be raised and no government programs would be cut. What is this magical public policy alternative? Alcohol reform – done right.
Any comprehensive alcohol reform plan should begin with the privatization of both wine and spirits, as well as privatization of the wholesaling function. By doing so, the state would rid itself of the expense of operating the beverage alcohol distribution system.
The Pennsylvania Legislature has debated how to reform the Commonwealth’s alcohol distribution system for several years now. One comprehensive reform has already come out of the House, but the Senate, thus far, has only offered a proposal that would slightly modify how wine is sold. The Senate plan would actually cost the state Treasury an estimated $20 million annually – not the kind of comprehensive reform that voters want and certainly not an option during a time of massive budget deficits.
By contrast, the House plan, as detailed in House Bill 790
, would divest the state of all operating responsibility and shift the cost of selling wine and spirits to private operators. The state would only have to collect tax receipts. House Bill 790 proposes selling wholesaling licenses. The state fiscal note estimated that doing so would generate one-time fees of $573 million. Alternatively, leasing wholesale rights to private operators for 5 percent of wholesaler gross revenues would yield between $85 million and $103 million on an annual basis.
There are also big one-time fees to be generated from the sale of retail licenses. Again, the House Bill 790 fiscal note estimated that licensing fees to be paid by beer distributors, restaurants and grocery stores would bring in approximately $540 million. The average retail license under the state’s fiscal note would sell for approximately $230,000. This figure is reasonable given that spirits-only licenses in West Virginia sold for an average of $220,000 – and these licenses were only valid for 10 years.
While tremendous upfront revenues may be generated from House Bill 790, there are also likely to be big gains from on-going new business. In fiscal year 2012-13, the Pennsylvania Liquor Control Board (PLCB) returned $520 million in taxes and profits to the state Treasury. The added convenience from increased availability is projected to match this amount and generate as much as $105 million more in incremental tax revenue annually.
Thus, in the first full year of implementation, House Bill 790 would generate as much as $1.2 billion in new state revenue. Even if only half of these revenues were realized, it would still go a long way toward filling the state’s budget gap.
In the absence of a real (full) privatization plan, the state should consider modernizing some aspects of how the PLCB operates. One of the most obvious moves would be to allow PLCB stores to open statewide on Sundays. It is projected that statewide Sunday sales would generate $20.6 million in new tax revenues and profits for the state. Additionally, many wine connoisseurs cannot get their favorite brands shipped into the state. Allowing direct shipping of wine to consumers would generate another $5.6 million.
No doubt the state is facing daunting budget problems. Getting alcohol reform right can painlessly help fill some of the holes.
Representative Justin Simmons
Pennsylvania House of Representatives
Media Contact: Andy Briggs