The Daily Item, Sunbury, PA

March 5, 2013

Too many variables in privatization plan

Daily Item

---- — Traditional talking points in Pennsylvania's 30-year debate about state liquor control don't fit the Corbett administration's eagerness to privatize the system in order to raise revenue through the sale of distributor licenses.

Familiar arguments include the loss of insulated state jobs with good wages and benefits, questions of supply and variety in sparsely populated markets, and prices driven down by competitive pressure.

As Pennsylvanians consider what will be lost and what will be gained over the short and long term, it is difficult to see how the proposal compensates for surrendering the clear financial advantages of a government monopoly.

Whatever else the state-run liquor business is, it is a revenue generator.

We still assess an 18 percent tax on all wine and liquor sales, which is a hidden tax, not printed on any receipt of purchases, a lingering and twice-enhanced shadow of a "temporary" 10 percent initially enacted to help with cleanup and recovery for victims of the 1936 Johnstown flood.

Some $200 million collected annually by this tax no longer goes to flood victims, but is distributed throughout the state budget to cover a range of expenses. The Johnstown flood tax and a 6 percent sales tax are unlikely to shrink or disappear under privatization.

Without the leverage of bulk purchasing to negotiate wholesale prices, the gross margin -- the difference between what the retailer pays suppliers and what the retailer charges customers -- is also likely to narrow.

Plus, because the state is banking on revenue from the sale and churn of an expanded number of distributor licenses, demand for those licenses will decide how much the state collects and how much distributors pass along in higher prices for consumers.

It is hard to see how these market forces are going to produce the reliable revenue yield of the state monopoly. A more likely outcome will be higher prices for the consumer.

At some point in that incline, the entrepreneurial spirit is going to seize Pennsylvania's border counties, followed by the probability of greater enforcement expenses to stem rum running from Ohio, New York, New Jersey and points south.

In better times, a decision whether to privatize state liquor sales may have been philosophical, religious or merely pro-temperance.

The current debate pivots on a promise to generate essential money for public education. Too many variables have to fall into place for that to move from promise to probability.