The House Thursday passed House Bill 466 (Turzai-R-Allegheny) that would replace the state liquor store system with a privately owned wine and spirits system, by a vote of 114 to 87.
“This has been a topic of discussion in the General Assembly for decades,” House Majority Leader Dave Reed (R-Indiana)said. “This bill would provide consumers the convenience that they have requested for years, while eliminating a state-run monopoly that has prevented any competition from the private sector.”
House Bill 466 is nearly identical to the legislation passed by the House in March 2013. It includes a series of reforms for beer, liquor and wine sales across the Commonwealth. The bill allows beer distributors to expand their businesses to sell liquor and wine, as well as beer. It also allows private wine wholesalers to sell products to Commonwealth customers.
The Liquor Control Board would still operate state stores until there are twice as many retail stores compared to current state-operated outlets.
“This bill represents the beginning of a discussion which will include members of the House, Senate and Gov. Tom Wolf,” Rep. Reed added. “Although a very similar bill passed the House last session, it never came to the Senate floor for a vote. I look forward to discussions with Senate leadership and the governor on the best approach to selling wine and liquor in way that is efficient for our Commonwealth, but that also improves the convenience to consumers.”
Pennsylvania’s current liquor system was created more than 80 years ago, in 1933, following the repeal of Prohibition. The Commonwealth is one of only two states, joining Utah, which has a complete monopoly over wholesale and retail operations.
The House passed a similar liquor reform bill in 2013 by a vote of 105 to 90. The bill died in the Senate Appropriations Committee.
A summary and House Fiscal Note are available.
Reaction
House Democrats Thursday unanimously opposed a Republican plan-- House Bill 466 (Turzai-R-Allegheny)-- to privatize the state’s wine and spirits stores, saying it does not address consumers’ wants, would cost taxpayers more in the long term, do little to help Pennsylvania’s current fiscal crisis, and risk thousands of jobs.
Liquor Control Committee Minority Chair Paul Costa (D-Allegheny) rebutted backers of the bill who claim that putting all liquor sales in the private market is what Pennsylvanians want. In fact, consumer polling tells another story and the bill’s cumbersome formula for private licensing would set up a system people don’t want.
A 2014 poll done by Franklin & Marshall that included an explanation of privatization and alternative plans found that more than half of respondents (57 percent) preferred to make the state wine and spirits stores more convenient or leave them the way they are.
Rep. Costa said the Republican scheme would birth a complex system of private stores selling a hodgepodge of products with only a few fully stocked with liquor, wine and beer. Selection would diminish in many areas of the state, while big distributors would eventually put smaller, family-owned businesses out of business and then charge higher prices. Consumers would lose out.
“Pennsylvanians want convenience, selection and good pricing,” Rep. Costa said. “The majority are not demanding privatization or anything close to what’s in this bill. House Democrats support a plan that provides better convenience, selection and prices through package reform, longer store hours, better locations and flexible pricing. These practical steps for consumer convenience would provide at least $125 million in additional annual revenue for the state.”
Democratic Leader Frank Dermody (D-Allegheny) said the bill pushed through the House by Republicans would produce just a fraction of the upfront revenue its supporters have promised and would sacrifice the reliable long-term revenue generated by Pennsylvania’s state-operated stores.
State wine and spirits stores earn $80 million a year in pure profit for the General Fund, revenue that the state would no longer receive under a privatized system.
Rep. Dermody said a fiscal analysis on the bill shows the one-time revenue gain over two to four years from new licensing pales in comparison to projected long-term profit losses. Within 20 years, the net loss to the Commonwealth would be more than $3 billion.
In addition, the bill would put some 4,000 state store workers out of work, adding to the state’s unemployment rate and overall unemployment costs.
“This bill simply does not make good financial sense,” Rep. Dermody said. “Selling off a profitable asset while the state is facing a huge structural budget deficit signals that some legislators are not in touch with reality and it raises doubts about their ability to help lead Pennsylvania through its current fiscal crisis.”
Democratic Whip Mike Hanna (D-Centre) said making the current, already profitable system more convenient, an idea Gov. Tom Wolf has embraced, would give consumers more options and give the state more money to help balance the budget.
Rep. Hanna said the Liquor Control Board’s net profit over the past decade totaled more than $1 billion. With growing income and low operating expenses, the system is a solid moneymaker for the state.
“House Democrats cannot support closing our profitable retail and wholesale system on the cheap for a quick buck because it will have disastrous long-term consequences,” Rep. Hanna said. “Rather than make the rash and risky decision to privatize, we should make our current system more convenient and innovative. A business asset should never be sold or transferred until you’ve maximized its value. We have not done that to this point, especially while former Gov. Corbett held the reins.”
Minority Appropriations Chair Joe Markosek (D-Allegheny) noted only about $167 million of House Bill 466’s projected revenue through licensing fees would be available in the first year, so the bill would do little to help close the state’s more than $2 billion budget gap.
Meanwhile, the privatization study commissioned by former Gov. Corbett concluded it would cost Pennsylvania approximately $1.4 billion over five years to fully divest from wholesale and retail liquor operations.
“Privatization clearly is not the solution to our fiscal problems nor is it a solution for consumers,” Rep. Markosek said. “Consumers will most likely see higher prices for wine and liquor, as businesses will pass on the various licensing and renewal fees, and less selection.”
The Democratic legislators also said Pennsylvanians would be sacrificing safety because state-owned liquor stores provide more complete protection against underage alcohol purchases than privatized liquor distributors.
By making alcohol more readily available in grocery stores and a variety of small corner stores, it becomes more available to minors and those who abuse alcohol.
The Democrats said the bill would have many harmful ramifications on individual lives, as well as municipal budgets due to an increase in necessary law enforcement and EMS services.
