Government Bytes


On Tap in Pennsylvania: Liquor Privatization


Many of the nation’s new Republican governors have ruled out tax hikes to address billions in collective deficits.  Proposals to cut spending are taking center stage as a way to avoid the harmful effects of tax hikes during a recession. Governor-elect Tom Corbett of Pennsylvania appears to have embraced this philosophy as he considers a budget gap that could run as high as $5 billion this year. Pledging not to raise taxes, Corbett and Republican leaders in the Legislature have booze on the brain, pondering a plan to privatize the state-run liquor industry. 

Pennsylvania joins 18 other states that impose some form of control on liquor sales, ranging from controls on both wholesale and retail markets.  H.B. 2350 seeks to change all that. Introduced by state representative Mike Turzai, the legislation would privatize liquor stores in Pennsylvania, beginning with the auctioning of 750 retail licenses and 100 wholesale licenses to the highest bidder.  

Getting the state out of the booze business is one way to reduce the public payroll, save on operating expenses and improve customer service. Also, with the sale of licenses the state is slated to collect $2 billion in up-front revenue in 2011 and an additional $350 million annually in alcohol sales tax. All could be used to help close the state’s looming budget deficit.

However, pro-control advocates cite many disadvantages of privatization. Yes, they claim, the private sector shows it can provide higher quality products at a lower cost, but reducing alcohol consumption, underage drinking, and alcohol related traffic deaths are lofty goals the profit oriented, private market cannot achieve. On the contrary, a recent study from the Pennsylvania-based Commonwealth Foundation of 48 states shows that over time there is no link between market controls and these social goals. Based on consumption and traffic data over the last four decades they find no significant reduction in any of these three areas compared with non-controlled states. As a matter of fact, they show that states which recently privatized their liquor industries experienced a significant decline in per capital alcohol consumption. 

Another fear of the pro-control folks and even The New York Times is large scale layoffs of government workers that result from privatization. This may be true, but privatization doesn’t mean liquor stores disappear. The stores will still exist and continue to require workers. Most of the state jobs will simply shift to the private sector. And as evidenced by the 31 successful cases of private liquor sales there is little justification for government liquor salesmen. Jacob Sullum of Reason sums it up well, “[H]ow seriously can we take the argument that unnecessary government jobs should not be eliminated because then there will be fewer unnecessary government jobs?”  

When state governments are experiencing shaky budgets, policy makers need to be on the lookout for any and all ways to streamline. Pulling the cork on state-run liquor sales is surely a place to start.