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Capitol Hearing Kicks-Off Privatization Debate

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Pennsylvania Liquor Store

The Number of Retail Liquor Outlets Would Roughly Double Under Rep. Turzai's Privatization Plan

House Majority Leader Mike Turzai (R-Allegheny) was the only testifier on the Liquor Control Committee’s agenda Thursday, but Chairman John Taylor (R-Philadelphia) stressed that this hearing was the first of many.  “The goal of Chairman Santoni and I is to get the information on the table, and have everybody have the opportunity to have their say,” Taylor said. 

The committee is expected to receive additional testimony during a series of statewide hearings.  Taylor said each additional hearing will likely focus on one particular area of the privatization debate, such as fiscal impact, consumer impact and/or social impact. 

Dante Santoni

State Rep. Dante Santoni (D-Berks)

Minority Chairman Dante Santoni (D-Berks) welcomed the public vetting process.  “I expect that what we will learn is that our current system, with some changes under the umbrella of the PLCB, can address the concerns of most Pennsylvanians,” Santoni said, suggesting that the numbers behind privatization wouldn’t add up in the end. 

Rep. Turzai says the auctioning off of 1,250 retail liquor licenses would generate significant upfront revenue, but emphasized that it’s time to move into the 21st century. “Should the entity promoting wine & spirits be the same entity that polices those sales?  Doesn’t that inherently constitute a conflict of interest?”

Turzai went into great detail on his bill, which is reportedly 100-pages long, though it wasn’t publicly posted as of Wednesday afternoon.  Union members – who oppose privatization – were well represented in the capitol hearing room, just as they were at Rep. Turzai’s news conference earlier this month. 

Back in June, the Quinnipiac University Polling Institute asked Pennsylvania voters about the liquor store privatization issue, in the context of balancing the state budget.  69% of Pennsylvanians supported the idea.

Bill Would Get Pennsylvania Out of the Booze Business

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State Rep. Mike Turzai

House Majority Leader Mike Turzai Discusses his Privatization Plan at a Capitol News Conference

Spirits are high as House Majority Leader Mike Turzai (R-Allegheny) mounts a new campaign to privatize Pennsylvania’s liquor stores.  “We should not be in the business of pushing alcohol sales… while at the same time being the agency that is charged with law enforcement,” Turzai says, referring to the current control system.  In fact, Pennsylvania and Utah are the only two states that exercise complete control over their liquor systems. 

The Turzai plan (HB 11) would auction off 1,250 retail liquor licenses to the highest responsible bidders in the private sector.  750 of those licenses would be for outlets with at least 15,000 square feet of retail space, while the remaining 500 licenses would be for smaller retailers.  “We will absolutely maintain the tax revenue structure for the General Fund,” Turzai told reporters at a capitol news conference.  “In addition, with the auctioning of the retail licenses and the sale of the wholesale licenses, we will absolutely make an upfront value.” 

Rep. Turzai estimates that upfront windfall to be up to $2-billion dollars.  The bill does not discuss how to spend that cash.  Turzai says there will need to be a policy discussion on that, but points to state pension obligations and transportation infrastructure as two possibilities. 

The Pennsylvania Liquor Control Board (PLCB) currently operates about 644- wine & spirits stores.  All bottles receive a 30% markup and a handling fee, on top of the 18% Johnstown Flood Tax.  The Turzai plan would replace those levies with a “Gallonage Tax.”  Though – as alluded to in the earlier quote – Turzai believes the state will still collect $400 million dollars in taxes, each year.    

Governor Tom Corbett does not believe Pennsylvania should be in the business of selling liquor and wine.  He made that point clear when speaking to reporters on Tuesday.  But, he had not yet seen Turzai’s proposal.  “If we’re not to be in the business, how do we get out of it and where does it go, and where does the state get revenue.  That all has to be taken into consideration,” Corbett said.

Privatization supporters will tell you that Pennsylvania consumers would benefit from the competition.  They say privatization would lead to better selection, prices and convenience.  But, opinions are mixed. 

Wendell Young

UFCW Local 1776 President Wendell Young Opposes Privatization

One of the biggest critics of privatization is Wendell Young, president of the United Food and Commercial Workers (UFCW) Local 1776, which represents about 3,500 employees at Pennsylvania’s wine & spirits stores.  Young believes privatization would be a loss from day one.  “Pennsylvanians end up getting hosed with the cost of privatization, while the ones that buy the licenses end up with the profit that the state currently enjoys,” Young has said.  He contends that Pennsylvania has the best of both worlds right now: low consumption and high returns.  Young also believes that privatization would cost 5,000 wine & spirits store workers their jobs.

How About Another Round of Liquor Store Privatization Debate?

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Debate over state control of wine & spirits stores could be on tap, this fall, at the capitol.  House Majority Leader Mike Turzai (R-Allegheny) is already seeking co-sponsors, and could unveil his latest bill soon.  Supporters say Pennsylvania shouldn’t be in the booze business in the first place.  In fact, Pennsylvania and Utah are the only two states that maintain complete control over their alcohol and wine systems.  “That points to how antiquated, absurd and un-American this issue really is,” says Jay Ostrich, director of public affairs for the Commonwealth Foundation.

Ostrich says Pennsylvania consumers would be better off.  “They’re seeking better choices and better prices, more economic and personal freedom.  We believe liquor freedom, through privatization, will certainly give them just that,” he tells us. 

But opponents say privatization doesn’t make financial or social sense.  “The current system raises a lot of money for the state.  There’s a lot of very strong evidence that we get more, because of the state’s monopoly of wine & spirits distribution, than states where it’s privatized,” says Stephen Herzenberg, executive director of the Keystone Research Center.  Herzenberg points to research that suggests privatization would lead to more excessive consumption of alcohol.  “The way we do it here helps reduce alcohol abuse and related social problems,” he says. 

Herzenberg also stresses that no reliable estimate exists for the up-front revenue the state would receive if its 644 liquor stores were privatized.         

The bill that Rep. Mike Turzai introduced last year would have created a new tax and fee structure.  It would have started by nixing the Pennsylvania Liquor Control Board’s 30% markup and the 18% Johnstown Flood Tax.  His plan called for a new “gallonage tax” instead.  Full details of this year’s proposal aren’t yet available, but Turzai does have two new developments working in his favor: 1) his caucus is now in the majority, and 2) new Governor Tom Corbett does not believe the state should be in the business of selling liquor and wine. 

The Pennsylvania Liquor Control Board wouldn’t be completely out of the picture, if wine & spirits stores were privatized.  “We have an obligation to regulate and tax, but we don’t have to own and operate,” Turzai said in an interview with Radio PA this spring.  Meanwhile, the PLCB reported record sales for the fiscal year that ended on June 30th.  Nearly $2-billion dollars in sales brought in nearly $500-million dollars worth of tax revenue and profit transfers for the state.