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How to Solve PA’s $3.2B Budget Deficit – with Wine

Posted on by 1WineDude

There is, in the Commonwealth of Pennsylvania, a time-honored and long-standing tradition that takes place every year.

I’m not talking about the February 2nd ritual of watching expectantly to see if Punxsutawney Phil will glimpse his own shadow, heralding six additional weeks of Winter.

I’m not talking about the amazing July 4th event that takes place in downtown Philadelphia, drawing nearly one million people together to celebrate PA’s unique place and status in the history of the United States’ liberty-based government.

No, I’m talking about the annual Harrisburg tradition that comes around every Summer, in which the PA state senate and governor fail to pass a budget in time for the next fiscal year. PA governor Ed Rendell has the dubious distinction of being seemingly incapable of herding PA’s senate into signing any budget into law before the state teeters on the verge of government program funding meltdown.

To put it kindly, the PA state budget is in a state of total crisis.  The Commonwealth now faces a budget shortfall of $3.2 billion, or roughly the GDP of Mauritania. That kind of deficit is basically a guarantee of missing end of fiscal year targets, since it’s unlikely that any Senate would be happy with the level of cuts needed to reign in such a monstrous shortfall.  This situation has the ability to self-perpetuate: When the state budget is not positioned well to weather a poor economy, the budget deficit grows; it becomes harder and harder to pass a budget due to the pressures of cutting programs that will piss of the state Senate’s constituents; the next year’s budget is then passed late due to the in-fighting, and thus faces more pressures and a potentially greater deficit, which means the budget is poorly positioned for the next economic storm… and the cycle starts all over again.  Which is more-or-less what’s been happening in Harrisburg.

And yet, the PA state government is sitting on a goldmine that could – relatively quickly – halve that deficit.  It simply lacks the courage and will to act on it.

The goldmine?  Wine…

More specifically, the sale of wine, and alcohol, to PA state residents.  Through its state-run monopoly, the state of PA is one of the largest players in alcohol sales in the U.S.   According to the Post Gazette:

“Pennsylvania has one of the most restrictive liquor control systems in the country, with retail sales of wine and spirits limited to the 623 stores statewide. The liquor is subject to a 30 percent markup, plus the so-called Johnstown Flood Tax that legislators put in place in 1936 to help Johnstown recover from a flood. The tax, originally 10 percent, is now 18 percent and amounted to $239 million last year.”

Understandably a windfall that the state wouldn’t want to give up, especially in a time of budget crisis.  And it woudn’t have to, at least not if you believe Nathan A. Benefield, director of policy research with Commonwealth Foundation, who was recently quoted in a PennLive.com article about privatizing PA liquor sales:

“…Pennsylvania would still reap the $102 million annually from sales taxes on booze, as well as the $251 million from the state’s 18 percent liquor tax, based on 2007-08 numbers.”

That same article details the potential pay-off that the state of PA could expect from the sell-off of its liqour control system:

“The Reason Foundation, a national public policy research and education institute, estimated in a 2007 report that full privatization of Pennsylvania’s wholesale and retail liquor structure could return $1.7 billion to state coffers in one-time sell-off payments.”

$1.7 Billion.  That’s over 53% of the current state budget deficit.

Bills calling for the sell-off of PA’s liquor control stake are not exactly new news.  They crop up just about every other year, actually.  But PA’s mounting debt and budget stalemates might be providing extra momentum to the turning tide against the state’s monopolistic alcohol control.

That the tide may be turning is evidenced by the fact that PA has seen recent challenges to its monopolistic, multi-tier alcohol distribution system upheld in appeals court.  State residents can now buy beer directly in some supermarkets – which goes against the grain of long-time PA liquor control board claims that state residents want them to control the flow of alcohol within the state (presumably, they only interview mentally insane residents).

Here’s hoping that wine isn’t too far behind…

Cheers!

(images: groundhog.org, bridgeandtunnelclub.com)

22 thoughts on “How to Solve PA’s $3.2B Budget Deficit – with Wine”

  1. I agree the state should definitely give up their control over the sale of liquor. Pennsylvania always seems to have their head stuck in the mud when it comes to progress and keeping up with other states. This has been a long time coming and I for one would love to open my own retail liquor store, that will never happen if we don't finally get this changed!!

  2. You can't deny those numbers. Rather, you could deny them, but then you'd be denying an obvious opportunity to benefit a quickly degrading situation. To all the wine drinkers not interviewed by the state, best of luck, I hope you find the changes you've been wishing for, including Jodi.

  3. Well, it's no secret that I'd love to see the situation change. But despite compelling data like the numbers discussed here, there is so much power in the PLCB and lobbying strength due to the money involved, that we're unlikely to see any movement on this in the short term, if ever.

    And sadly what is best for the tax payers of PA doesn't seem to matter all that much to the state…

  5. There is no lobbying power at the PLCB, the power resides solely with the unions, who will never allow privatization.

    1. Not sure I buy that, at least not totally. Certainly players within the three-tier system (PLCB included) carry considerable lobbying power.

  6. I'm not even sure what you mean by that… the wholesalers would grow significantly as wine would stop going directly to the PLCB. (If you live in PA, you surely know that it is not the three tier system currently.) The PLCB as an entity is composed mainly of union drivers and union store employees, all of who would be non-competitive in a free-market system. (Imagine a private store owner paying someone $35K a year and full benefits to work a cash register.) The board itself is composed of three political appointmentees who make more money in private life and always eventually move on. The unions are clearly the key opponents of privatization, with lesser pressure from groups like MADD. I enjoy your blog, but you are not well informed on this issue.

    1. You may be right. What I am sure about is that it's not *only* the unions that would attempt to block this kind of move. There are some enormous companies that sell wine to the PLCB (Southern, for example). Those companies also stand to lose lucrative contracts with one of the top wine buyers in all of the U.S. in terms of volume (the state of PA) if the current system goes private. No question in my mind that they'd lobby to block it.

    2. Thanks for the kind words about the blog.

      You may be right in terms of the union being a big force in maintaining the status quo in PA. What I am sure about is that it's not *only* the unions that would attempt to block this kind of move. There are some enormous companies that sell wine to the PLCB (Southern, for example). Those companies also stand to lose lucrative contracts with one of the top wine buyers in all of the U.S. in terms of volume (the state of PA) if the current system goes private. No question in my mind that they'd lobby to block it.

    3. If you think that pay is too high to put up with drunk "a-holes" like yourself enjoy this little fact:
      I've worked in a state store for 27 years putting up with you little pissy cry babies. Most of you get your
      wine education from watching Movies and TV….Translation..you don't know crap about wine but you think you do.
      One last thing…I make $18.32 an hour so SUCK ON THAT BITCHES !!!!!

        1. Wow…That took so much effort on your part to be witty…So Glad you and your followers on this blog think so little of the workers in the stores. You should deal with the shopping public that thinks all wine should taste like grape soda. Personally, I can't wait until HB 2125 goes thru and wine can be sold by the private sector. Since the state can't please the wine snobs, let's see how Walmart does for ya…

          1. I don't really understand why you're drawing that conclusion.

            The employees in the PA state stores are not the issue for me – it's the lack of incentive for the stores and PLCB to provide top service to customers because of their monopoly position.

            If the state system is really awesome then what would it have to fear from competition? – which I think is the point you're making, right?

            But the PLCB has blocked this competition in every conceivable way, using baseless claims as its justification (e.g., minors would have easier access to alcohol, etc.), even when science and statistics actually prove those claims to be false.

            1. No it's not the issue..it was the comment you made about "I mean, one that serves consumers?"
              Do I or anyone who works in the stores criticize other peoples jobs or how much they are paid?NO ! People who work in the stores do more than "ring a cash register". It's this perception that is made by politicians and the news media that are only self serving that is the problem. The PLCB is the most poorly run entity on the planet and believe me, it only getting worse. Went they privatize and believe me is coming, the sad part is those running the current PLCB are still going to be controlling what is sold in Pa. Harrisburg and the idiots they hire from the private sector who are running the system are the problem and I'm afraid that will never change, Privatization or not.

              1. Now that I understand and I think you bring up a GREAT point – if the system is changed but the underlying issue of alcohol sale / distro. benefiting only the State and not consumers is addressed, then privatization won't reap all of the potential benefits for both the consumers AND the State government.

                I think it's a step in the right direction, though…

  7. PA buys wine directly from the wineries, NOT Southern. (Again, you don't seem to understand that PA is not a traditional 3 tier system. The State is the retailer AND the wholesaler) Southern has a very small presence in the state, and would expand greatly under privitization. I know that it is popular in the blogosphere to go after the big wholesalers on every issue, but the wholesalers in PA would gain from changes. The wineries, who invest heavily in their brands, can see themselves shut out by the actions of one goverment bureaucrat. They would much rather compete for the dollars of the local store owner, rather than beg in Harrisburg each year.

    Also, why would volume drop? If the premise is that taxes would be the same under privatization (which they would), then that assumes no change in volume.

  8. That's enough staffing for approx. $150 mm in business. If the system is private, their operations would at least double. They are small for the size of the state.

  9. Their actual staffing is lower than 227, as a start… but in general you can assume approximately one employee equals $700K in sales. This number can be higher per employee in a chain market where you are calling on a lot of corporate offices, but it's a good ballpark. If they did 300 – 400 million in the state after privatization, that's 400 to 500 employees. (or more)

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