Policy Documents

Research & Commentary: Pennsylvania Liquor Privatization

Elizabeth Henderson –
August 1, 2011

Pennsylvania House Majority Leader Mike Turzai recently introduced House Bill 11, which would privatize the state’s liquor sales. Currently Utah is the only other state that retains total control over both wholesale and retail liquor sales within its borders.

The Pennsylvania bill would end the current state-run system and auction off licenses allowing 1,250 independently run stores. The bill also would eliminate the 1936 Johnstown Flood Tax and replace it with a per-gallon alcohol tax. Recent polls conducted by Quinnipiac University show more than two-thirds of Pennsylvanians favor privatization.

Opponents of the reforms argue they will lead to lost revenues and increases in alcohol consumption and accompanying social costs. Proponents of the reforms say the opposite may actually be true. The modest $90 million annual average the Liquor Control Board (LCB) transfers into the General Fund each year is an inflated figure. Profits are generally much lower, with the difference derived from the LCB’s operational accounts. Since FY 2006–07, $155.3 million of the LCB’s “profits” presented to the General Fund have been financed in this way.

Researchers from the Reason Foundation estimate the initial sale of the state’s wholesale and retail liquor stores would raise $1.7 billion for the General Fund. This one-time payment alone would go a long way toward closing Pennsylvania’s budget gap. With the introduction of market competition, continuous annual revenue from alcohol sales taxes likely would increase as well, currently projected at $350 million.

Private alcohol sales do not increase illegal drinking. The Virginia Institute for Public Policy recently released a report 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. The report found “no statistically significant relationship” between the two.

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

Turzai Legislation Gets Pennsylvania Out of the Alcohol Business
http://pahousegop.com/NewsItem.aspx?NewsID=11973
Pennsylvania House Majority Leader Mike Turzai issued this press release detailing the background, reasoning, and reform ideas behind House Bill 11. “This is a proposal whose time has come,” Turzai said. “It’s time to put Pennsylvania in step with the rest of the country.”

Research & Commentary: Privatization
http://www.budgetandtax-news.org/article/28305
This Heartland Institute Research & Commentary examines privatization and outlines 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 House Bill 11.

Let Free Market Rule in State Liquor Business
http://www.timesleader.com/business/Let_free_market_rule_in_state_liquor_business_Ron_Bartizek_Business_LOCAL_07-17-2011.html
Ron Bartizek of The Times-Leader explains why the state should divest its government monopoly of alcohol sales and allow the market to work. He concludes, “I’d rather deal with my choice of 1,250 entrepreneurs than with one government monopoly.”

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

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

Privatizing “Yellow Pages” Government in Pennsylvania
http://reason.org/files/pennsylvania_yellow_pages_privatization.pdf
This report by the Reason Foundation and Commonwealth Foundation applies the “yellow pages test” to Pennsylvania’s services. The premise is that, “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.”

For further information on this subject, visit the Budget & Tax News Web site at www.budgetandtax-news.org, The Heartland Institute’s Web site at www.heartland.org, or PolicyBot, Heartland’s free online research database, at www.policybot.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Director of Government Relations John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.