PA is “Stuck With” Nutty Alcohol Monopoly Because Brian Sims Doesn’t Want to Vote to Change It

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This was a real cop-out answer Rep. Brian Sims gave Randy LoBasso on alcohol reform:

“Here is the truth of the matter,” says state Rep. Brian Sims (D-Philadelphia). “If you and I were going to sit down and rewrite our state’s constitution right now, we would never, ever put Pennsylvania in charge of selling liquor in the state. But it is so engrained in our system right now that I don’t think that selling it off for a billion dollars is going to see us recapture enough revenue in the long run to make it worthwhile.”

The amount of revenue we’re talking about is small. The PLCB contributes $105 million to the general fund every year. In the past 3 years, its operating profit was around $72 million. They’ve actually been contributing more to the budget than they are even earning.

For example, in fiscal year 2009-10, the state claims that it took $105 million in “profits” from the liquor board. This would suggest that the PLCB’s 2009-10 operations were in the black to the tune of $105 million.

But the liquor board’s actual operating profit in 2009-10 was $72.56 million.

It still transferred $105 million in cash to the state, but the $32.4 million difference did not come from its 2009-10 profits. That was in fact the year that PLCB’s rainy day fund went below zero.

Let’s be generous and say that their operating profits get back to $105 million. Maybe it’s just the recession.

That’s $105 million, out of a $27 billion budget. That’s a lot of money, but compared to the size of the budget it is pretty small. A politician who actually wanted to reduce barriers to entry and redesign this market in a more consumer-friendly way would have no difficulty coming up with some pay-fors. Raising the very-low beer tax a bit would probably do the trick:

What Brian Sims really means is that he just doesn’t want to do it:

“[Privatization] almost virtually eliminates an entire union,” says Sims. “More than 5,000 really quality union jobs. And I think more importantly, the revenue that we see from the sales of liquor is just simply not going to be made up with one single sale. We get four, five, six years out, and then we have a massive budget gap again. And then what do we sell off to make up for that?

“I think this is the system that we’re stuck with,” he says. “But the system has worked really well for us.”

The whole point of alcohol reform is that this separate wine and liquor sector shouldn’t exist anymore, and the job of selling alcohol should fall to the supermarkets, convenience stores and bars and restaurants. So it’s true this would mean a cut in compensation if people went from working in a state liquor store to working at Target. And you’d expect to see that happening more in low-population areas in the middle of the state, where many liquor stores operate at a loss because there’s no market.

But that’s not what would happen in Brian Sims’s own district. Since Brian Sims presides over some very nice Philadelphia neighborhoods, his district would likely see an influx of fancier niche liquor stores – stores that pay at the higher end of the retail wages scale since their workers have to be knowledgeable about wine.

Printing more tavern licenses in order to reduce the cost, which is unfortunately not on offer in the Corbett plan, would unquestionably be a net job creator in Brian Sims’s district. Giving more restaurants the ability to cross-subsidize their food with booze would give them a nice cash flow cushion, and allow them to pay workers better and take more risks with the menu.

Increasing consumer choice and lowering barriers to entry to selling alcohol would be a huge win for consumers in the bigger metros – a majority of the state’s population, and far far more people than the 5000 (at most) who would be inconvenienced by closing the state stores.

The only reason that the majority of consumers are “stuck with” this arcane alcohol market is that the politicians whose districts would actually benefit from a more competitive alcohol market, like Brian Sims, don’t want to vote for it. They’re feeling more heat from special interest group pressure than from their districts’ consumers, so they’re taking the cowardly way out. As Lincoln proved, we’re never actually “stuck” with any policy regime, no matter how entrenched it is. It’s difficult to overcome the political economy of a problem like this, but the first step is wanting to do it, and the most important thing Brian Sims is saying here is that he doesn’t want to do it. It’s too bad. If all the people whose districts would be better off would vote for the bill, it would pass easily.

This entry was posted in Miscellany.

27 Responses to PA is “Stuck With” Nutty Alcohol Monopoly Because Brian Sims Doesn’t Want to Vote to Change It

  1. David says:

    The state should not be involved in any retail business. I’ve lived in several states and PA is the only one with this arrangement. Privatize the business and create more distribution jobs, competition and cease state funds going to support non-profitable locations.

  2. Rich says:

    You are mixing and matching issues here. The backward licensing issues is different than selling the stores. You’re saying to sell profitable stores because we don’t have a competitive market, or because you agree with Corbett on scope of government complaints, which I don’t. You’re essentially saying we should sell profitable stores and give away good paying jobs so that we can get better liquor laws. I say you keep the stores and the jobs, and just liberalize liquor licensing to allow competition into the market.

    • Albert Brooks says:

      The only way state stores would remain in a dual market is if the state still controlled the wholesale cost something that “getting the state out of the liquor business” isn’t compatible with. A state of 13 million should not be held from progressing by 3500 clerks. Change isn’t easy and some can’t adapt but it is time for the retail side of the PLCB to go the way of buggy whip makers and fade into history.

    • Jon says:

      I think it’s the same issue. Without any compelling public health rationale, I don’t think the state has any business regulating *who* is allowed to sell alcohol. There is no plausible public interest in having the government run liquor stores. That is a job that the private market can handle perfectly well. That’s the whole point of alcohol regulations – we’re worried that the market might provide *too much* alcohol, so we want to keep that in check. I’d rather do that entirely on the demand side, through gallonage tax, advertising bans and Do Not Serve lists. I see no reason that grocery stores shouldn’t be allowed to sell beer, wine and liquor.

      • Rich says:

        So let grocery stores sell, go ahead. Why does that mean the state sells? I’m hardly looking at this from the regulatory side, but the simple revenue side. There’s no reason to sell something making money. Let both sell, and if it takes down the state stores, sell off. Makes more sense than taking a one time cash infusion.

        • Albert Brooks says:

          It is pretty much a given that the state stores wouldn’t be able to compete on convenience and if the state isn’t the wholesaler on price either for the major brands that would be carried by supermarkets. It would cost more to keep them open with declining revenues then to just put them out of their misery like it should have been done decades ago.

          • Rich says:

            What does “on convenience” even mean? I find the PA state stores more convenient than the private NJ stores. As long as the PA state stores exist, they’ll be the big wholesale buyer, setting the market. So let the private market in, it probably won’t compete.

          • Jon says:

            By convenience I mean being able to buy beer, wine and liquor at the places you already shop, like the grocery store and convenience stores, without having to go to a separate alcohol-only store. The trouble with opening up the market but keeping the state stores open too is that they won’t close them when the businesses fail. They’ll keep open money-losing stores. They already do that it rural areas and its insane.

          • Rich says:

            Jon, you’re still arguing that it’s run poorly, or that the laws are bad. The correct solution is keep the stores, close the rural ones, let everyone into the market, and the state will still win, it is the largest wholesale buyer. As long as the system can stay profitable, there is no reason to give away the higher wages.

          • Jon says:

            I disagree. This is not something the government should be doing. If it were any other business selling and regulating the same product, you and every other liberal would be throwing a fit. But because its labor, all the usual instincts go out the window. It’s stupid. Labor is straight up wrong about this issue, and the state needs to get out of this business.

        • Jon says:

          But why? Many of the rural stores lose money. Nobody’s willing to close those down even when they fail, even Republicans like Joe Scarnati who would cop to being free marketeers. In the bigger metros where most people live, private stores will do a better job. I don’t see why we shouldn’t just find the $100 million somewhere else in the budget or raise the beer tax a bit.

    • Jon says:

      Policy issues aside, this issue is really just about basic human freedoms. There’s no reason most adults need to be treated like children. Most people handle alcohol responsibly and making them jump through all these stupid hoops is insulting. Especially since there’s no better reason for it than base rent-seeking.

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  5. Albert Brooks says:

    The private market sells drugs, guns, cars and in most states alcohol. Why are they able to do that when PA can’t? Is is because we don’t know how or is it because of an entrenched patronage filled bureaucracy and labor union looking after their own interests and not those of the citizens?

  6. Ed H. says:

    Washington State privatized and saw costs go through the roof in the private wine and spirits stores. Plus, seeing chain supermarkets being the main seller of beer reduces choices of different brands for consumers.

    • Jon says:

      No it doesn’t. *Most* consumers will have more choices than they have now. If there’s a market for more craft beer brands then there are now, and there will be, then people will open specialty stores that have more brands than the supermarkets.

      • Rich says:

        What evidence is there for that? When I go to private stores in Jersey, I find less craft beers than I do at PA distributors. On a more pressing level, truth is that craft beers are a fringe concern- most people drink the mainstream brands.

        • Albert Brooks says:

          OK, let’s look at spirits then. Not so niche.
          http://plcbusersgroup.org/2011/08/selection-report-2011-08-06.html

        • Jon says:

          Craft beers are growing in market share. Huge growth actually. It’s like the joke about the $5 bill on the sidewalk. If there’s a really a market for a broad selection of craft beer, somebody’s going to seize the profit opportunity to sell it. There are good reasons to be skeptical about markets’ abilities to deliver *socially desirable* outcomes, but not about their capacity to organize delivery of consumer goods. They are extremely good at that.

    • Albert Brooks says:

      Also, sales and tax collection is ahead of what it was in Washington which triggers the reduction on the added on tax from 17% to 5 % in 2014 and the reduction in some of the fees. Since what is proposed in PA doesn’t have the increase in taxes and fees that Washington added on the situation here will be different. We didn’t copy Washington State, we learned from it.

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  9. Gerard says:

    The premise of having a state controlled industry is ridiculous, anti-democratic, and almost anti-free market. However, there are ways around it, just as everyone and everything, manages to find ways around unenforceable laws. HOWEVER, you can still vote with your dollar. In 2013, I made the resolution to stop purchasing liquor and beer in the Commonwealth of PA. Luckily I live within short distance of DE and NJ and can purchase a broader range of beer, wine, and other alcoholic beverages at a cheaper price within these states. 28% tax plus 8% sales tax in Philadelphia County??? Get real. Hurt PA where its state-business practices hurt, in its wallet. Don’t want to support those unions that employ people that work there-purchase out of state as I do!