As many Pennsylvanians are heading to their local state liquor store to pick up holiday cheer, there are three things they won’t be celebrating: Higher costs, less selection and lower quality service in the bloated bureaucracy of Pennsylvania’s state-run liquor monopoly.
But the Grinch who stole personal and economic freedom might not be coming to town much longer. House Majority Leader Mike Turzai is pushing legislation to license private companies to sell wine and spirits-just as most other states have done. By ending the state’s monopoly, Pennsylvania could bring in nearly $2 billion in a one-time influx of funds and hundreds of millions annually-on top of receiving better services, lower prices and greater selection. A recent Quinnipiac University poll shows that 66 percent of Pennsylvanians believe this is the right direction for the state.
The Pennsylvania Liquor Control Board (PLCB) is the exclusive wholesaler and retailer of wine and spirits in the Commonwealth. This government monopoly forces Pennsylvanians to pay up to 50 percent more for liquor than in other states-many of which offer a variety of wines not available in the Commonwealth, and allow wholesalers to deliver the spirits right to your door.
Instead of giving customers competition and real selection, the PLCB rolled out impractical wine kiosks and "wine boutiques," in order to appear as a customer friendly monopoly. This year, they ramped up promotional efforts, rolling out a new consumer Web site, running promotional ads and solicited a consulting bid with universities to revamp the state’s selling model to bring in more customers.
Unfortunately, at the same time, the PLCB is charged with being the state’s alcohol watchdog. The clear conflict of interest between controlling sales and being the salesman would be eliminated if the state divested from the alcohol business.
While only three states, including Pennsylvania, still have a government monopoly on the sale of wine and liquor at the retail and wholesale level, the notion still faces strong opposition. However, studies and real-world experience with liquor reforms in other states demonstrate the main criticisms are unfounded.
The main concern of critics is that privatization will increase underage drinking, binge drinking and DUI fatalities. This is simply not the case. A study by John Pulito and Dr. Antony Davies of Duquesne University found absolutely no link between these social behaviors and the level of state control. Similarly, states moving from government-run liquor stores to licensing of private retailers saw little change in these areas.
Moreover, in contrast to opponent’s claims, private employees have just as much incentive to refuse alcohol to minors as public employees, as they both face third-degree misdemeanor charges, fines and possible imprisonment. Likewise, private retailers would risk losing their license if they violate any alcohol laws.
A second myth used by defenders of the current system is the state will lose revenue. Wine and liquor sales generate revenue through two sources-liquor taxes (approximately $376 million annually) and state store’s "profits" (approximately $90 million annually).
Under Rep. Turzai’s proposal, the state would auction off inventories of state stores, as well as 750 retail stores licenses and 100 wholesale distribution licenses to private companies-estimated to bring in almost $2 billion. With another $500 million expected annually by requiring biennial license renewal fees, state alcohol taxes and in new taxes not paid by government entities, such as corporate income taxes and property taxes-and an end to border bleed-this proposal would likely generate more state revenue than is produced by the current system.
Critics also decry private sector "greed" as a reason to retain a state monopoly. Yet self-interest is just as prevalent in government. Just recently, more than 20 PLCB employees, including managers, were fired for widespread "financial irregularities." In addition, the PLCB has been tainted with cronyism, such as creating a high-paid position for Joe Conti, a retired legislator. Privatization would reduce abuse political patronage and unnecessary government spending.
Licensing private businesses to sell wine and spirits cuts down on political corruption and will likely lower wine and spirit prices while improving services for customers. Moreover it presents a significant opportunity to balance the Pennsylvania state budget, while returning the PLCB to its role of promoting real public safety. If Pennsylvania consumers and voters get their holiday wish, we may soon be celebrating the benefits of a true market.
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Katrina Currie is a Research Associate for the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy education and research institute located in Harrisburg.