New plan to sell Pennsylvania LCB

Proponents say privatizing state liquor stores would fill budget gaps
 
 
HARRISBURG -- Two Republican governors failed in their efforts to privatize the state liquor store system, but now a GOP legislator from Bradford Woods has decided to give it another try.

State Rep. Mike Turzai is hoping that an approaching financial crisis, which could leave the state $7 billion short within a couple years, will let him succeed where Govs. Dick Thornburgh and Tom Ridge fell short.

On Wednesday, Mr. Turzai outlined his new push to get the state out of the business of selling liquor and wine. He would privatize most operations of the state Liquor Control Board, which has existed since 1933. It buys wholesale liquor and wine in large quantities and then sells it to the public through 621 state-owned stores. The Turzai plan wouldn't change beer sales.

The LCB, which has 4,000 employees and has allies in the state Legislature, is expected to put up a strong fight against the privatization move. Opponents think underage youths would have more access to alcohol if it's sold in private stores.

But Mr. Turzai told reporters, "Government should not be in the business of selling alcohol. Pennsylvania has an antiquated system that results in higher prices and less selection for consumers. It is time to update the way wine and spirits are sold in this state."

Gov. Ed Rendell, a Democrat, reacted warily. Spokesman Gary Tuma said the governor would "carefully examine the details of any proposal," but added that Mr. Rendell "does not believe there is a political consensus in Harrisburg in favor of privatizing the state liquor system."

He said Mr. Rendell also is concerned about losing the $100 million or more that the LCB turns over to the state general fund each year.

But Mr. Turzai said that only Pennsylvania and Utah still have state ownership of wine and liquor sales. He wants to create a system of 750 (give or take) state-licensed but privately owned retail liquor stores, along with 100 privately owned wholesalers. No one person or company could obtain more than 10 percent of the state liquor licenses.

Retailers and wholesalers would have to obtain their state liquor license at an auction, which he estimates would raise at least $2 billion for the state.

Mr. Turzai would use that one-time windfall to ease the looming crisis from a projected $5 billion increase in costs, by mid-2012, for pensions for thousands of retired state workers and retired public school employees. The state also will lose $2 billion in federal stimulus funds next year, he said, and state revenues for the current 2009-10 fiscal year could fall $1 billion below estimates by June 30.

"There's no sense in letting a financial crisis go to waste," he quipped.

Auctioning off liquor licenses "would go a long way in (resolving) the looming pension crisis tsunami we face," said Rep. Jim Christiana, R-Beaver. "Generating this amount of revenue -- without a tax increase -- is a win-win for hard-working Pennsylvania families."

In addition to the one-time auction revenue, Mr. Turzai wants to make a major change in the way alcohol sales are taxed. Instead of the 30 percent markup currently levied by the LCB and the 18 percent "Johnstown Flood tax" imposed (since 1936) on liquor and wine sales, he wants impose a "gallonage tax" that is used on wine in 35 states and on spirits in 26 states.

"The gallonage tax rate would range between $2 and $6 per gallon for wine and spirits," he said. "Most wine would be assessed at the $2 per gallon rate and most spirits would be assessed" at a higher rate.

And instead of having restaurants, taverns and clubs pay the state's 6 percent sales tax when they buy wine and spirits from the LCB, the sales tax would be added to what customers pay when they buy drinks at restaurants or bars. Mr. Turzai said this new system could produce as much as $400 million a year for the state, and more than make up for what the LCB now contributes annually to state coffers.

The LCB would license the private establishments and continue to run an existing "responsible alcohol management program" for the retail store employees, who would have to be at least 21 years old. Mr. Turzai said LCB employment would obviously shrink but didn't know by how much.

Any LCB workers who lost their jobs would get assistance for other civil service jobs and be eligible for continuing education funds.

The LCB is now run by a three-member board, chaired by P.J. Stapleton, a lawyer, and by Executive Director Joe Conti, an ex-state senator. The privatization issue "is something that comes up every so many years," Mr. Stapleton said. "It generally happens when there is a difficult budget time for state government."

He said the LCB "enforces the liquor code and operates the business the best we can. I think we do a fine job of both tasks. The decision to privatize is not ours, but the Legislature's and the governor's."

He said he thinks that when people "examine this issue closely, they will see there is great value in the system that exists today -- value to the commonwealth, to taxpayers and to consumers."

Officials of the clerks union couldn't be reached Wednesday but strong opposition is expected from it.

Mr. Turzai said he knows privatization efforts have failed in the past, but thinks legislators now would prefer erasing red ink by auctioning off liquor licenses than by raising taxes.

Despite some people's doubts, he wants to get discussion started now. But if Mr. Rendell, a Democrat, or the Democrat-controlled state House won't move on his privatization effort this year, Mr. Turzai is hoping that a Republican will win the race for governor in November, which could improve the chances for the privatization move in 2011.