Do the Lessons of Washington State’s Liquor License Auction Apply to PA?

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Earlier this week Washington State officials auctioned off 167 liquor licenses for a total of $30.75 million, an average of $184,000 per license, according to media accounts. The highest winning bid was $750,100 for an individual store in south Tacoma whereas the cheapest store license went for just $49,600 for an outlet in Spokane.

Already, anti-privatization advocates are drawing parallels to Pennsylvania’s liquor license system.

The United Food and Commercial Workers Local 1776 released a statement saying that the result of Washington State’s liquor license auction “makes it clear that Pennsylvania lawmakers should reject – once and for all – House GOP Leader Mike Turzai’s reckless scheme to dismantle the Pennsylvania Liquor Control Board.”

Turzai has claimed that an auction of 1,250 Pennsylvania licenses would generate $2 billion, which works out to more than $1.6 million per license or nine times what Washington State’s auction generated last week.

The UFCW Local 1776 noted in their press release that “if Pennsylvania were to go down the same path as Washington [in terms of average license sale], the state would realize $230 million for an auction of 1,250 licenses – less than half of what the current system generates in a single year.”

Given that the PLCB generates $530 million a year in taxes and revenue for the state’s general fund, even if PA licenses sold for double the average market value in Washington State, the revenue would still not generate the single year numbers for the current system.

Furthermore, the PLCB employs 5,000 Pennsylvanians—jobs that would be put at risk in a privatization flurry.

“Mike Turzai has been telling his colleagues for two years that an auction in Pennsylvania would generate anywhere from $2 billion to $6 billion. Just do the math and you’ll see that it’s a fantasy,” said Wendell W. Young IV, President, UFCW Local 1776.  “Licenses just do not sell for that amount anywhere in the country – not in any of our neighboring states or in Washington.”

UFCW is working with both Democratic and Republican lawmakers in both chambers to modernize the PLCB. Senate Bill 1287 would allow the PLCB to operate more like the retail and wholesale business that it is. The bill provides flexibility in pricing, procurement and personnel.

“This is common sense legislation that would help the PLCB generate at least $70 million in new revenues for the state. Mike Turzai needs to recognize that it is time to move on and strengthen this valuable asset,” Young said.

Turzai’s colleagues have already rejected two of his schemes to privatize, most recently when members of the House Liquor Control Committee gutted his bill before sending a completely rewritten version to the House floor.

“Turzai’s plan is irresponsible and unreliable. This discussion should end now. It is time to modernize the PLCB,” Young said.

About Jake Sternberger

Jake Sternberger is a recovering/relapsing political professional who has been a contributor to Keystone Politics since 2011. Sternberger covers campaigns and elections for KP, drawing from his experience working on local, county, congressional, and statewide PA races doing field, oppo, comms, and as CM. He is currently a law student. Email: jakes@keystonepolitics.com Twitter: @JakeSternberger
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12 Responses to Do the Lessons of Washington State’s Liquor License Auction Apply to PA?

  1. vernon says:

    Washington state auctioned the “right” to apply for a license, not the license itself. It is a big, big, difference!

  2. Lew Bryson says:

    Except that Washington’s stores were liquor only; and the state didn’t have a monopoly; and Washington’s population is about half of Pennsylvania’s; and apples aren’t oranges.

  3. Nathan Benefield says:

    As Lew already noted, the Washington state licenses were for liquor only. PA liquor stores have a monopoly over both liquor and wine – and guess what, a wine monopoly is pretty valuable. You also have to consider that the Turzai plan would a one-time license fee to own that license right forever – whether or not you think that a good idea, it does make the license much more valuable.

    You must also realize that the UFCW lies about the “cost of a license” that would be needed to generate the estimated up-front revenue. They refuse to account for the fact the PA would also privatize the wholesale distribution of wine and liquor (something Washington has already done), most estimates but the value of wholesale privatization equal to or greater than the value of retail privatization.

    They also fail to mention that the up-front estimates include selling of the current PLCB inventory (which is about $300 million itself).

    And most ridiculous is the claim that the state would lose $500 million each year by privatizing – since almost all of that money is from taxes on wine and liquor. And guess what? The taxes would still be there under a private system.

    As much as you seem to denounce the “top 1%” here, I can’t believe you take 2-percenter Wendell Young at his word.

    • Jon says:

      Wow, they get to own the license forever in the new bill? That’s horrible! So uncompetitive. They should have to re-bid for it every few years, that way the public captures the regulatory surplus.

  4. JohnRz says:

    There would have to be a whole lot more than the difference between apples and oranges to reach Mike Turzai’s original $2.3 million estimate. I’m sure the House Majority leader wasn’t happy with how this went. Otherwise he would be pointing out the differences and juggling the numbers to use it as proof of his wild claims.

  5. JohnRz says:

    Bet Turzai has some right wing think tank like the Commonwealth Foundation do it for him. That way he keeps his hands clean when the numbers don’t work out.

  6. Philly Chris says:

    The stores that were auctioned off still have the ability to sell wine, so let’s not act like these stores can just sell liquor.

    UFCW just reaffirming what anyone can look at. Licenses just do not sell for anything more than around $200,000 on average. Look it up. Revenues went down in West Virginia and Iowa when they privatized, and it looks like they have never caught up to their previous revenue collections when inflation is factored in. Facts are facts, you can’t argue actual numbers. Also, if the bill is still the same as it was last time, two wholesalers can control the entire market. How much extra money is really coming in from 2 wholesalers? Other states that allow this have the same exact thing happen, where 1 or 2 wholesalers control the whole market.

    Not to mention reports from Washington have said that prices are actually going to go up in this privatization plan. Look that up too. And what about the cost of losing 5,000 people who work for the state? That’s a cost that has to be taken into account.

    It just doesn’t make any sense to privatize right now. Let’s improve the system, increase the profitabilty of the agency, and save this idea of privatization off for another time.

    • Jon says:

      Ok, so why have auctions then? Why not just set a flat rate of $500,000 for a liquor store license, and just not restrict the number of liquor stores? They should do the same thing with restaurant liquor licenses – a flat fee, with no cap. There’s no good reason to cap the number of restaurant licenses, and the state would raise a lot more money if they were selling thousands more of them at a flat rate.

      • Philly Chris says:

        Because who is paying $500,000 for a liquor license, especially out in central PA? Like I just said, even when you cap them (which actually would drive up the value), they aren’t selling for $200,000. Privatization of liquor stores just isn’t a money maker. It hasn’t been anywhere in the country. Never has happened, and most likely, never will.

        If you want to discuss if the state should be in the business, and go philosophical, ok. But when it comes to money, privatizing the PLCB doesn’t work.

        • Jon says:

          Maybe not in Central PA, but a lot of those stores are money-losers for the PLCB. There’s more stores out there than the market can actually support. By contrast, I think you’d probably see more liquor stores in Philly, Pittsburgh and the Lehigh Valley if they removed the cap on licenses. I don’t know if it would get you more money than what PLCB brings in to the general fund, and I also don’t really care. There’s about $5 billion worth of weak claims in the state budget that could be used to fill the gap. There’s about $4 billion in tax exemptions for fossil fuels we could close, for instance, that would bring in 8 times PLCB’s revenue.

  7. Ed H. says:

    Another problem with the dumb idea of privatizing liquor stores I
    PA (btw, nice work on putting the facts out there Philly Chris!)
    http://keystoneresearch.org/publications/research/road-less-traveled
    Public health and safety.