Policy Documents

Research & Commentary: Pennsylvania Liquor Privatization

June 12, 2012

The Pennsylvania House is considering a bill that would privatize the state’s liquor sales. Currently all liquor sales in Pennsylvania are done in state-run stores. Other than Pennsylvania, only Utah retains total government control over both wholesale and retail liquor sales within its borders. 

Pennsylvania House Bill 11, first proposed last year by House Majority Leader Mike Turzai, would end the current state-run system and auction off licenses for 1,600 independently run stores. The proposal would give beer distributors the first opportunities to apply for licenses (the first 1,050) to sell wine and spirits. That provision was recommended by the House Liquor Control Committee. After the initial offering, the remaining licenses would be auctioned off to the highest bidders on a county-by-county basis. 

HB 11 also would eliminate the 1936 Johnstown Flood Tax and replace it with a per-gallon alcohol tax. In addition, the plan would allow distributors to sell beer in large packs such as six or 18 packs, with no limit on the number of packages sold in a transaction. All of this is a significant change from the current system, in which sales locations are severely limited and no more than two packs can be sold at a time. 

Opponents of the reforms argue they will lead to lost revenues and increases in alcohol consumption and accompanying social costs. Other critics argue privatization could cost thousands of good-paying jobs in the Liquor Control Board; union supporters were especially critical of the proposal. Polls conducted by Quinnipiac University in 2011, however, show more than two-thirds of Pennsylvanians favor privatization. 

The sale of the new licenses could go a long way toward closing Pennsylvania’s budget gap. In a report commissioned last year by Gov. Tom Corbett, the Office of the Budget found auctioning off both the Liquor Control Board’s 600-plus retail stores and wholesale liquor operations could raise as much as $1.6 billion. In addition to this one-time windfall, the introduction of market competition means annual revenue from alcohol sales taxes likely would increase as well, with initial revenues currently projected at $350 million. 

Proponents of the plan note private alcohol sales do not increase illegal drinking. A recently released report from the Virginia Institute for Public Policy comparing binge drinking rates for 12- to 25-year-olds and general alcohol-related deaths in states with varying degrees of control over alcohol sales or with private licensing found “no statistically significant relationship” between the two. 

The following articles offer additional information about liquor sale privatization and Pennsylvania House Bill 11.

Historic Vote on Pa. Liquor Store Privatization Planned This Week
http://philadelphia.cbslocal.com/2012/06/11/historic-vote-on-pa-liquor-store-privatization-planned-this-week/
Tony Romeo writes about the proposal to privatize liquor sales in Pennsylvania. Romeo speaks with Rep. Mike Turzai, the bill’s sponsor. 

The Failure of Government-Run Liquor Stores
http://www.commonwealthfoundation.org/research/detail/the-failure-of-government-run-liquor-stores
The Commonwealth Foundation examines how government-run liquor stores have performed nationally, arguing the state-run stores are a failure and Pennsylvania should move toward privatization. 

Liquor Privatization Analysis: Final Report
http://www.budget.state.pa.us/portal/server.pt/community/liquor_privatization
This report, commissioned by the Governor’s Office and issued in October 2011, analyzes the current operations of the Pennsylvania Liquor Control Board and the potential for privatization of the LCB’s wine and liquor wholesale and retail operations. The report also evaluates various approaches to privatization. 

Research & Commentary: Privatization
http://www.budgetandtax-news.org/article/28305
The Heartland Institute examines privatization and identifies some of the benefits it can provide if done correctly: “Privatization has been successful in streamlining government services, reducing costs, and creating more private-sector jobs.” 

Government-Run Liquor Stores
http://www.budgetandtax-news.org/article/30146
The Commonwealth Foundation considers what might happen if Pennsylvania allowed liquor stores to be run by the private sector: “Divestiture of Pennsylvania’s state liquor stores would represent a financial windfall to the state, while posing no threat to public safety, as it would not result in the social ills many opponents of privatization fear.” 

Current Pennsylvania Wine & Spirits Distribution Structure
http://www.pahousegop.com/Display/SiteFiles/109/OtherDocuments/000_3TieredDistribution.pdf
This chart prepared by the Office of the Majority Leader illustrates the current distribution structure of alcohol in Pennsylvania and the structure proposed under HB 11. 

Impaired Judgment: The Failure of Control States to Reduce Alcohol-Related Problems
http://www.virginiainstitute.org/pdf/ABC-revised-version-final.pdf
The Virginia Institute for Public Policy finds control of liquor sales has no significant impact on alcohol-related deaths or youth binge drinking rates. 

Privatizing “Yellow Pages” Government in Pennsylvania
http://reason.org/files/pennsylvania_yellow_pages_privatization.pdf
The Reason Foundation and Commonwealth Foundation apply the “Yellow Pages test” to Pennsylvania’s services. The premise: “If a service can be found in the Yellow Pages of a phone book, government should consider buying it rather than using taxpayer dollars to hire and manage public employees in order to deliver it.” 

House Bill 11 Fact Sheet
http://www.pahousegop.com/Display/SiteFiles/109/OtherDocuments/000_HB11_FactSheet.pdfA concise look at the facts about licensing, tax reform, opportunities for displaced employees, and alcohol safety programs. 

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.