If you believe its own financial promises, Pennsylvania Liquor Control Board will be gone by 2019. Cause of death? Suicide. This has nothing to do with political wrangling. It’s simple math.
The LCB just tapped its reserves to pay the state. That’s right: Pa. government’s favorite cash cow is now borrowing from itself to make ends meet.
Sales of booze and wine during FY2016-2017 did not bring in enough cash to make up the amount the LCB was slated to return to the General Fund this year. Not even close. Of the $213 million owed, $112 million — or 51.6 percent — is slated to come from reserves, per the Altoona Mirror’s reporting on a March hearing in front of the General Assembly. The borrowed amount is more than the LCB’s entire contribution in the previous fiscal year, which totaled just $100 million.
This discrepancy didn’t come out of nowhere. It’s thanks to Act 39. Yes, the “historic reform” Gov. Tom Wolf signed into law last June — which I strongly and vocally opposed, for the reasons laid out here.
It seems my predictions on the failure of this act were correct. (In short, licensees — both restaurants and grocery stores selling wine-to-go — are still lacking true wholesale pricing, wine in grocery stores is either available at prices that are way over retail or in ways that inconvenience the consumer, and restaurants are getting priced out of affording liquor licenses as the major grocery chains snatch up whatever available licenses are left only to then turn around and sell wine-to-go at a loss.)
Let’s put the retail repercussions aside for now, and get back to the financial fallout.
Act 39 was supposed to allow the LCB to generate an extra $139 million in tax revenue. As soon as that bill was signed into law, the lawmakers had that extra $139 million to allocate to the state budget, even if it never came in. Which, of course, it has not.
Well, the state recently gave the first part of the tax bill to the LCB, resulting in a bit of an “oh, shit” moment — which sent the board running to its reserves.
Ok, one year, just a stopgap, right? Not if you listen to board member Michael Newsome. In March, Newsome told the Mirror that the PLCB is “comfortable” with a Wolf administration proposal to contribute $185 million next year “and maybe the year after that.”
So say the LCB follows the same profitability pattern as this year — no guarantee it will, but also no guarantee it won’t. If it were forced to tap its backup funds for 51 percent of its required contribution again, that would suck another $95 million out of the reserves , leaving just $88 million by the end of 2018. And if it had to come up with a similar contribution to the General Fund again the following year? The reserves would be wiped out completely.
At that point, Pennsylvania taxpayers would officially be subsidizing the LCB.
In what world would taxpayers want to pay the government to run their liquor stores over, say, investing that money in public schools? None that I can imagine.
Once word of that grievous situation got out, public outcry against the LCB would be so great that Pennsylvania legislators would be forced to nuke it. The state would have to chop the LCB up into little pieces, sell off the valuable parts, and start over with a completely private system. No Emergency Tax. No Fine Wine & Good Spirits stores. Just a fresh, private system like in New York or New Jersey.
Of course, this timeline assumes the LCB maintains its current level of profitability, which it has not been able to do for the last several years.
For the last five years or so, the LCB has touted record revenue. But profits have been declining at the same time. I believe this is because the costs are out of control due to mismanagement. There’s also the issue of a massive pension debt in the amount of $260 million (of which the board could only pay $550k last year).
So, at this point, the LCB is bleeding out like a stuck pig.
While I have in the past advocated for “semi-privatization,” Act 39 and other factors mean the LCB’s financial situation has dramatically changed. I now believe the best course of action is just to let the LCB run out of money and go bankrupt by itself.
Although, if lawmakers were smart and truly had the best interests of the people of Pennsylvania at heart, they would realize this unsustainable situation and work to replace the LCB with a private system that actually returns real tax revenue sooner rather than later. The holdup, and the reason that probably won’t happen, is because of the huge number interest groups involved (over 50, far more than almost any other government affairs issue).
The good news is, by the end of 2019, the LCB will have put itself out of its misery, and there will no longer be a choice.