Washington State Alcohol Privatization Was Pretty Successful

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I don’t recommend that advocates of alcohol liberalization spend too much time debating alcohol privatization in Washington state, since if people don’t like Washington’s regulatory framework, there are 47 other better-than-Pennsylvania market designs to choose from. Seems like some folks would have you believe there are only two choices – state monopoly or licensing cartel dystopia. Personally I’m for the California approach where everybody gets to sell everything.

The main lesson to take away from Washington state’s privatization of alcohol  is that a plan designed to maximize revenue is going to result in a more inconvenient framework than we’re all hoping for. Charging too much for the licenses will result in higher prices. Add a bunch of new taxes, and some of that will be passed along to consumers.  The lesson is that we shouldn’t be making alcohol reform pay for alcohol reform. We can raise the money from elsewhere in the budget.

On balance though, Washington’s partial liberalization of alcohol sales has been basically successful. I fully endorse the veracity of this fact-check by the Commonwealth Foundation:

In 2011, voters in Washington State approved a ballot measure to privatize the state wholesale and retail liquor monopoly, allowing private retailers to sell liquor. Unlike Pennsylvania, wine was already privately sold in Washington. Here are a few facts regarding the impact of privatization.

Myth: Privatization in Washington led to an increase in liquor prices.

Fact: Prices in Washington increased because of new taxes, not privatization. Intending to raise state revenue, the ballot measure created a new 17 percent retail license fee for all spirit sales revenue with an annual retail license renewal fee of $166, plus a new distributor license fee of 10 percent of yearly revenue (which would drop after three years) with a yearly renewal fee of $1,320 per distributor license. And if these taxes and fees do not generate enough revenue for the government in 2013, distributors would have to pay another one-time fee.

These new taxes and fees are being passed on to consumers in the form of higher prices, which only proves the point that businesses don’t pay taxes, only people pay taxes.  The liquor privatization bill passed by the Pennsylvania House last month kept liquor taxes unchanged to remain revenue neutral.

Myth: Government revenue declined after Washington privatized its liquor stores.

Fact: Washington’s liquor tax revenue increased after privatization. The state collected more than $185 million in spirit taxes so far this fiscal year (through March 10), an increase of 12 percent over the prior year total when the state government still controlled liquor stores. For the year to date, revenue totals exceeded expectations by nearly 5 percent.

Myth: Since privatization, residents flock to border states for their liquor.

Fact: Liquor sales are up in Washington. According to the Clark County Columbian, “In the first four months of private liquor sales, Washington consumers bought 7.9 percent more booze for total sales of $263 million, up 23 percent from $214 million during the same period last year.” And that trend has continued. Liters of liquor sold through January 2013 are 4 percent higher than at this point in 2012. Despite the higher taxes, consumers are realizing the benefits of competition and convenience.

Myth: Liquor privatization will increase social problems.

Fact: If government liquor monopolies made residents safer, Pennsylvania would be at or near the top in social outcomes. In reality, we rank higher than the national average in binge-drinking and underage drinking. We also rank higher than most bordering states in alcohol-related deaths per capita.

The West Seattle Herald compared crime statistics in two areas before and after privatization. It may be too early to draw conclusions, but they found that alcohol-related crimes were down after privatization.

 

This entry was posted in Miscellany.

53 Responses to Washington State Alcohol Privatization Was Pretty Successful

  1. Aaron says:

    I have to ask – because, while I respect your position, I’m much more wary of privatization than you are – you say we shouldn’t try to make alcohol reform pay for itself, but if you acknowledge it would cost the state money, shouldn’t that make it less of a priority? We have a system with unionized, public workers making wages they can take care of their families with, and it’s a system that actually makes the state money to be spent on social programs. As a progressive, that seems like a win-win to me. So what left-wing argument nullifies those points in favor of privatization? Maybe in an ideal world where I could checklist which services are private and which are public, I would have alcohol on the private list, but with so many areas handled by the private sector that I think should be handled by the public sector, I’m okay with us having this service be handled publicly.

    • Jon says:

      There’s about $100 million a year that we’d need to replace. By my count, there’s about $5 billion in spending through the tax code and various giveaways that are either malign or useless. That’s not counting wasteful projects at DCED and in the RCAP fund, and there are also quite a lot of those. So I don’t think that it would be hard at all to replace that money. The left wing argument is the view that buying consumer products where you want is a basic human freedom, and unless somebody can point to a very compelling reason why we should all be treated like alcoholics or children, and denied the right to buy booze in the grocery store like in other states, then we should be allowed to do that. I’m for unionizing more private grocery stores. But I’m not buying the unions’ rent-seeking arguments that we should keep overpaying retail workers. There’s a long tradition of anti-monopoly thinking on the left that I think progressives would take up if this were a regular business vs business fight, and the presence of an organized labor position in the mix wasn’t confusing everyone.

      • Aaron says:

        All that wasteful spending in the budget/tax code could also be used to restore funding to things like education or reinstating programs like General Assistance and adultBasic. If we could put together a fantasy progressive budget/tax code, we’d still be losing money for social programs by privatizing alcohol sales. I think most workers are underpaid, so I don’t see these unionized workers as overpaid, I see them as properly paid, with others needing to catch up. And unless my hunch here is totally off, having some workers paid more than others is the first step to bringing everyone up to parity, so not having some workers paid more than others makes it a slower process to bring everyone else up to the same level of a livable wage.

  2. Albert Brooks says:

    Great post Jon but you’ll have to roll it up and put it in a steel pipe before you can beat sense into the union that this is better for the citizens.

    Aaron – The total non-tax contribution of the PLCB was 3 tenths of 1 percent of the budget. If sales increase 17% by dollar value the state will be making more then the PLCB has EVER contributed and that isn’t counting license fees, business taxes, not being on the hook for underfunded retirement, the increase in jobs (yes total jobs will increase no matter what the union says – they probably won’t be union jobs but it isn’t the states function to provide those).

    • Aaron says:

      You seem to be making the point that alcohol privatization would pay for itself, but my question to Jon was based on his premise that it shouldn’t have to, which gave me the impression that he thinks it would be difficult for it to. I’m not sure what you mean by the state’s “function,” but the state certainly provides union jobs, and I think the more of those that are around, the better for PA.

      • Albert Brooks says:

        I’m saying that the state is not a jobs program unto itself that isn’t it’s purpose when the private sector has shown it can provide the same product and does in the majority of the states. As Jon said in a different article. “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.”

        I do think that the change will pay for itself and I believe Jon’s point is it doesn’t have to. They (the legislature) could lower the Flood tax or reduce the entry cost but I don’t see that happening myself.

        • Aaron says:

          But isn’t it government’s job to take socially desirable outcomes into account when making these kinds of decisions, especially from the progressive perspective?

          • Albert Brooks says:

            That is why they regulate and license. It is not a desirable goal to try and increase sales while at the same time trying to limit or control the outcome. That is just working against yourself and that isn’t good business or maximizing social goals. The PLCB spends more on advertising then they do on education for example.

          • Jon says:

            That’s another good point. I want a functioning PLCB! An agency whose one and only job is to control the public harms related to problem drinking, binge drinking and addiction. The most damning thing about the state monopoly is that PA has nothing to show for it when it comes to public health outcomes.

        • Jon says:

          I want to strongly agree with Albert that the state is not a jobs program. The state’s job is providing public goods and public services. I think that PA badly under-provides public goods, particularly public education. That’s why I’m a liberal. I don’t see the direct sale of alcohol as the government’s business at all. It’s not just an ideological thing for me though. I might have a different opinion about what to do if I didn’t also think that liberalizing this market would help many more people than it would harm, but I do think it’ll be a net benefit even though it’ll mean a pay cut for a very small fraction of PA workers.

      • Jon says:

        I don’t really want to speculate about the budget impact until the Independent Fiscal Office has scored the House bill. The PLCB’s contribution to the general fund from alcohol sales is about $100 million. That’s what they’re required to give the general fund. Their actual operating profits the past 3 years have been around $72 million. They’ve been giving more than their operating profits. I think doubling the number of store licenses as the House bill does will create a lot of jobs, although a bit lower paying, and the state will collect a lot of wage and business tax revenue from that.

        I think more jobs would be created and more revenue collected if they unwound the tavern license cartel and liberalized beer sales. Craft brewing jobs are the kind of manufacturing jobs Democratic politicians say they want more of, and it’s a sector where you can go from being a self-taught home brewer to eventually owning a beer company, so there’s some nice upward mobility there, like Democratic politicians say they want. And of course restaurants who can sell alcohol can pay their workers more, and can offer more job security than restaurants who, improbably, have to make all their profits from food alone. And if we saw a lot of new restaurants open, and stay open because they have high mark-up item to smooth the business cycle a bit, that would mean more revenue for state and local governments, and a nice economic development boost for PA’s many struggling older downtowns.

        So I think that while it’s tough to know how the budget impact will shake out until we get an official score from IFO. I don’t think it would be difficult to replace the money, and I believe there’s a lot to recommend it as a pro-growth structural reform. I personally think that the single best thing the state can do to improve equity and job growth is help revitalize the state’s older central city economies. I think that would help many more people than the 3500 or so who would see a wage cut from liberalizing this market.

        This specific bill falls far short of my expectations, but I see it as the first step in a long fight to bust up all the different cartels and monopolies who control this market. I wish that a bloc of urban and suburban Democrats would offer their votes in exchange for some pro-consumer and pro-worker reforms. But this is the bill we got when Democrats decided to take a bad faith approach, and the Republican caucus was forced to negotiate the bill internally.

        Here’s my opinion the wage issue you brought up. I don’t see how retail wages in a monopoly would have an impact on the rest of the private retail market. The normal way it works is that employers have to bid up their wages to draw workers from unionized firms. But there is no employer competition in this market because it’s a monopoly. The only people benefitting from this are the 3500 or so who have these jobs now.

        • Albert Brooks says:

          The PLCB actually did make about $105 million last year because the amount of negative assets shrank by $25 million and they gave $80 million to the general fund. Strange with all of the record sales and less stores to operate that they give less in dollars and percentage then they did 5-8 years ago though.

          • Chris says:

            Fact check: The PLCB doesn’t choose how much they transfer to general fund. The Governor decides how much their transfer to the general fund is. Just sayin.

            Don’t go on a tangent either, I’m just clarifying a point you made.

          • Albert Brooks says:

            They’ve also finished the last 3 years with negative asserts which they never had before.

  3. Chris says:

    Actually, the Public Financial Management firm hired by Governor Corbett himself said 2,302 full-time equivalent employees will go on unemployment compensation. They also said that will cost the Prnnsylvania taxpayers about $64 million. But hey, don’t let the guys who were hired by Corbett get in the way of your talking points Albert. I’m sure you know better then them.

    • Albert Brooks says:

      You could finish the story. It is $64 million spread out over 4 years. However, nowhere in this discussion were transition costs brought up so they didn’t get in the way of my points. The 2013 PFM update also shows the state making more then the current PLCB operations. If you want to talk about the report fine.

      The money doesn’t really matter, preventing the PLCB from making decisions on what I and the majority of the citizens can or can not buy does.

      • Chris says:

        The 2013 update was also only 20 pages or so compared to the 200+ from before. They didn’t even due an extensive report on the Corbett proposal, and didn’t include any transition costs. And who cares if it was 4 years or 1 year. It will cost PA taxpayers money. Also, does this mean you refute your own claim that this will create jobs? Because that report says the opposite. And you seem to agree with its other findings.

        It’s not about the money? Less then half of Pennsylvanians drink wine and spirits. That’s bad public policy.

        • Albert Brooks says:

          I’m sorry but your statement of less then half of Pennsylvanians drinking is blatantly false unless you count those underage.

          • Chris says:

            Wine and spirits. Not drinking. Please read what I’m writing.

            And I certainly think those not of the legal drinking age should count. They should be concerned about the money. It’s the state that funds education, social services, other programs their families use. But I guess they don’t count to you either?

          • Albert Brooks says:

            The entire non-tax contribution of the PLCB was 3 tenths of 1 percent of the budget. or about $8.30 per resident. Since you are looking at the PFM report and like to quote it, it also says that that money will be replaced by increased sales (taxes collected) business taxes, license fees etc etc.

  4. Chris says:

    And to be clear, transition costs were brought up because the cost of unemployment compensation because you said this will “create jobs”.

    • Albert Brooks says:

      You are assuming that PLCB lost jobs and private industry job gain are 1 to 1 and that isn’t the case. There will be jobs created that state store workers may not be qualified for and so won’t get but somebody else will. Just because there is job loss in one area doesn’t mean that there isn’t job gain in other areas.

      • Chris says:

        Where will there be jobs created from liquor privatization? And why won’t state liquor store employees be qualified? Just want to know if this you just talking out of your you know what or you have some evidence to prove this.

        • Chris says:

          And I’m not “assuming” anything. I’m reading a report that the Governor paid for. And I’m telling you what it says.

          • Albert Brooks says:

            The report does not say that there will be 2,302 NET job loss. It says for just PLCB employees. If you don’t understand what net is there is no point in continuing this.

  5. Chris says:

    Where will there be jobs created from liquor privatization? And why won’t state liquor store employees be qualified? Just want to know if this you just talking out of your you know what or you have some evidence to prove this.

    • Jon says:

      Each county is guaranteed as many liquor store licenses as the number of state stores they currently have. I don’t know why. In many of these counties the market is too small and the current number of stores makes owning a liquor store a money-losing proposition. The better answer is, there will be jobs created wherever there’s a market for liquor. Which is mostly the suburbs and urban areas. Private store owners will want their employees to be knowledgable about wine and liquor and be able to explain the differences between products to people. To the extent that state store employees know their business, they’ll be qualified.

  6. JohnRz says:

    It is a bad thing to have your life controlled by government, but it is a far worse thing to have it controlled by alcohol.

  7. JohnRz says:

    Liberal blogs quoting Concentration of Wealth Foundation propaganda? Only when it comes to booze does this ever happen. Look at the real crime statistics. Look at the real financial impact as big boxes bankrupt the competition. Note the increased taxes were set at a rate that would replace the lost profits, just as the Corbett licenses and fees do. Compare real peer review science to cuz “Jon and Albert say so” on the social impact of alcohol.
    The price increase is due to inefficiency having multiple entities duplicating the same service once handled by one central agency. It is cheaper for 60 people to take a single bus across town than to take 20 taxis. More total overhead is inherent to multiplied systems.

    • Jon says:

      LOLOL “The price increase is due to inefficiency having multiple entities duplicating the same service once handled by one central agency.” What is that Stalinomics? That’s the most ridiculous bullshit I’ve ever heard

    • Jon says:

      I’m agreeing with CF because they’re dead-on right about this issue. Nobody’s been able to show any public health benefits of the state monopoly. I’m not taking a lax attitude toward the public health issues. I think we should have high gallonage taxes, a statewide Do Not Serve list, and an alcohol advertising ban. That’s the most effective way to control alcohol. You’re pretending to care about public health, but you simply can’t show how the monopoly’s made PA better off in this area than other states.

    • Albert Brooks says:

      Albert didn’t say anything about social impact John. You do this quite often and it isn’t because you can’t read. I only used the word social twice in this thread and neither one was about the use or over use of alcohol. If you are going to quote me then do it but don’t continuously lie.

      • JohnRz says:

        Albert you have repeatedly blown off peer review science in favor of the Commonwealth Foundations position papers. Most famous the Antony Davies paper. He desperately submitted it one of the lowest ranked Journals in the field of socio- economics and even they wouldn’t publish it. Meanwhile the meta-analysis of publish studies conducted by the CDC task force is just a conspiracy. BTW, that last study I mentioned had no problem getting published.

        • Jon says:

          The CDC’s argument is that greater access to alcohol will create more competition which will lower prices. They don’t agree with your Stalinomics take on the virtues of centralized monopoly provision of commodity goods. Fortunately, state government would have no problem keeping prices high through taxes or minimum pricing if they were inclined.

        • Albert Brooks says:

          No John, I have said the CDC study wasn’t accepted as policy, which it still hasn’t been.. Selective memory for you again.

    • Dan Sullivan says:

      Maybe 20 people should drink out of one bottle.

  8. Pingback: 4/10 Morning Buzz | PoliticsPA

  9. JohnRz says:

    If the Cf is so trustworthy Jon,why do they cherry pick one article from an obscure newspaper on crime stats since privatization. The major papers report just the opposite including the fact that some private retailers refuse to share info on unreported crime in and around their stores.
    You never answered my question about the bus and the taxis. Instead you just slandered the comment. Most disappointing.

    • Jon says:

      If you think they’re cherrypicking, you should rebut the statistic. The comparison to transportation markets is absurd. Of course taking a bunch of cars instead of a bus is more wasteful, since cars take up a ton of road space and fuel. Allowing supermarkets to repurpose some shelf space for booze requires very little additional overhead. They won’t have to spend much money to start selling booze.

  10. Albert Brooks says:

    Maybe they should quote Raging Chicken Press like someone we know.

    Theft is a security problem and not a privatization problem. The store owners will have to increase security in order to keep profit. Even the PLCB gets ripped off.

    • businessperson says:

      Albert, You must be in the alcohol industry in some shape or form. I am, and I can tell you that I have spoken with many legislators and liquor committee staff, and NONE of them have a greater (hell it is not even close) command of this issue than you do. I have read HB790, and I am very well aware of everything thing bill will provide and what it will fail to provide. I have followed ALL your comments, daily, from all over the state. This is my first post, but as I stated I am in the alcohol business in PA. I wish you were a little more honest and disclose your agenda as well, because I cannot believe for a minute that you are just 1 concerned PA citizen worring about getting a Total Wine on your street. You are a little to comsumed by this issue for that to be the case.

      • Albert Brooks says:

        Everybody has to have a hobby. Dismantling the state store system is mine. However, I do not work for anybody or company that is involved in selling any alcoholic beverage of any type. I own my own business that has nothing to do with anything in the alcohol industry.

        The chances of even getting a liquor store in the town down the road is minimal at best let alone a Total Wine but one can always dream.

        Nice that I have my own (2nd!) stalker and thank you for the compliment but if you follow and read every post I make (which I doubt because I make A LOT of them) then you seen a bit consumed too n’est ce pas?

        So being in the alcohol industry which means you could be a bartender in a restaurant on up to owning Jaquin’s – do you favor privatization or not?

        • businessperson says:

          Al, I thought you were for real. If this is your “hobby” than you are just another crack-pot with a computer and no life. You don’t have any influence, so I suggest you get another hobby – like golf.

          • Albert Brooks says:

            I see that sarcasm once again doesn’t translate well onto the printed page.

            You didn’t say if you were for or against.

          • Jon says:

            man, fuck golf

          • Albert Brooks says:

            Where is the “like” button?

          • businessperson says:

            FOR IT !! However, if you divest the wholesale side and create a 3-teir system the consumers will not get the price that you think. When you territory these wholesalers they control the price – not the retailers. When a retailer is forced to buy a certain brand that is only distributed by 1 entity in their territory they pay the piper. When you factor that in with the 18% Johnstown Flood Tax (that stays) & all the other license fees & costs associated with this, I don’t care if the retailer sells it for COST you will still pay more than you do in New Jersey, Delaware, and Maryland. You will be even more ticked off about this system 2 years from now than you are today. Finally, I assume you live in Southeast Pa. You need to remember that what the folks get in Philly, Pittsburgh, and 5 or 6 other counties will not be the same as the other 60 counties in the Commonwealth. For every one “Super-Duper” wine & spirit shoppe in those large populated areas there will be 100+ corner liquor stores run by folks that WILL NOT have the population and/or affluent clientele to support those kinds of stores. The wholesalers will have tens of millions of dollars invested in obtaining the wholesale rights – do you really think they are not expecting an instant return on their investment. I am a capitalist, and you have to remember I, and all other capitalist, don’t do what we do for love of God & Country. We do it for love of MONEY! Therefore, if this thing isn’t straightened out here is what you will get. The State out of the business of selling booze (that’s what you want), You will have about 8-12 Big National Wine and Spirits Shoppes, 100′s of corner liquor stores, consumers paying more for booze in PA than they do today, and several muti-millionair wholesalers laughing all the way to the bank – - oh yeah and 1 more thing – - a new governor next year, because regardless of what happens with this legislation he CANNOT get re-elected in this state in 2014.

          • Albert Brooks says:

            I realize that prices will not be as low as DE, MD, NJ etc, they aren’t now for the things I buy, that is if PA has them at all.

            I don’t think that there will be “hundreds” of corner stores for a few reasons, the first is the cost of licenses to non-beer distributors will prohibit it and secondly the beer distributors that decide to compete will have to expand selection to keep up with the loss of Bud Light and other crap like that to supermarkets or other entries into the market. Also there is a 5 store limit and I have a feeling that may change downward to 2 or 3 to protect some of the smaller establishments from too much big box competition. Just my opinion though.

            I’ve never lived in Southeast PA but I do get to travel to there and NJ, DE & MD on business and a very long time ago I lived on the Jersey side of the Ben Franklin so I do know what is possible with competition in the retail side of liquor from a consumer standpoint.

            It doesn’t matter if the Governor gets re-elected or not since either privatization will be passed by then or it won’t. If it isn’t then it will take another 4-5 years of the normal incompetence of the PLCB to start the cycle all over again. If it is, then it still won’t matter to me. Since my local Representative and Senator are already for privatization I can’t even take any satisfaction from voting against them if it doesn’t pass.

  11. usafa75 says:

    If we can easily raisse the required funds within the budget so we don’t have to make privitization pay for privatization, include the soultion in the bill establishing privatization. The addition hould be easy, non-contentious, and readily passable, right?

  12. usafa75 says:

    And I also noticed that Washington State decriminalized marijuana last fall. As long as we’re following their lead let’s add that in as well.