Privatization of Pennsylvania’s liquor: The better alternative to a broken system

By Nick Voutsinos / Columnist

As much as I dislike most of the policies Pennsylvania Gov. Tom Corbett has proposed and passed, there is one thing he has done that I do like a lot: He has revitalized the discussion on liquor privatization and has laid out a plan that could change the state for the better.

I’m not a fan of this just because it would mean easier access to alcohol, but because the state-run system is completely broken and archaic.

For instance, the tax on wine and spirits here in Pennsylvania came about as a reaction to the great Johnstown, Pa., flood in 1936. The Johnstown Flood Tax — as it was aptly named — was used to help rebuild the devastated city. And it worked: Taxes acquired from the consumption of alcohol helped rebuild the city of Johnstown decades ago. However, the Johnstown Flood Tax, retaining its name, still exists today, and it currently costs taxpayers of the state more than $160 million each year.

That could rebuild Johnstown 10 times over.

Granted, the money collected from this tax today could go toward some great things. Not only could the money help fund flood insurance for unfortunate towns, but it could also benefit state infrastructure, social programs and education. Unfortunately, it doesn’t. The majority of the money made goes back into the pockets of the Pennsylvania Liquor Control Board, which functions like any other company but without the worry of competition.

Pennsylvania Wine & Spirits stores generated approximately $2.2 billion in sales in 2012-2013, and approximately “70 percent of the PLCB’s revenue is spent on the purchase of wine and spirits and the transportation and warehousing costs associated with the distribution of the product,” according to their website.

Yet despite the monopoly over this highly demanded product, the Pennsylvania Liquor Control Board has been in debt for the past three years. In the 2011-2012 fiscal year, this debt reached more than $9 million. Perhaps this is because the money the board collects from taxpayers and consumers goes toward promoting alcohol consumption and at the same time also goes toward an education campaign against it.

One quick example: The board spent $100,000 on creating an iPhone app that compares the cost of a bottle of wine in Pennsylvania to the same bottle in New Jersey or Delaware. And then the board invested in having breathalyzers in every Wine & Spirits store. The breathalyzers, themselves, and the training that came with them cost millions in taxpayer dollars.

As a result, 61 percent of Pennsylvanians are in favor of ending the board’s control over liquor sales. And rightly so, because aside from being wasteful, the board has also been historically marred by corruption and scandal. For example, over the past year, the agency has been under fire for the sale of eight private, in-house brands of wine and vodka that were produced in total secrecy and then sold in Wine & Spirits stores. The board spent significant resources to promote these mysterious brands, and board CEO Joe Conti and other agency officials offered inconsistent explanations when the brand’s origins came into question. This prompted an expensive internal investigation into the board’s activities by the State Ethics Commission. Furthermore, in 2012, the Philadelphia Inquirer released a report detailing multiple high-ranking board officials, including Conti, accepting gifts from vendors. The report noted that he and other board members accepted invitations to golf outings, tickets to sporting events and free wine and liquor: the same wine and liquor paid for by our tax dollars.

Therefore, members abusing their power have undermined the board’s intended role as an ethical regulator, which will hopefully lead us to the privatization of liquor sales in Pennsylvania. Until then, Pennsylvania is one of the two remaining U.S. states with an exclusive, state-government-run monopoly on the retail sale and wholesale (distribution to bars, restaurants and hotels) of wine and spirits, according to the Commonwealth Foundation.

Some states that have privatized liquor consumption have made out lucratively. For example, the state of Iowa has estimated its treasury to be $95 million richer than it would have been had it decided not to privatize state stores in 1986, and due to annual license fees and wholesale markups, Iowa estimates that it makes almost $15 million more a year than it would have made had it not privatized.

Accordingly, it is in Pennsylvania’s best interests to follow in the rest of the country’s footsteps and ditch its dilapidated system for the uncomplicated, and likely more profitable, alternative. The majority of voters agree it’s just up to our elected officials to finally do something about it.

Write to Nick at [email protected]