Not So Fast With Your Dreams of Cheap Wine, Philly

Corbett’s liquor privatization bill won’t give Pennsylvanians lower prices and better selection at the liquore store.

Tom Corbett and the Republican-controlled PA House are either very smart, or very dumb. As they push their liquor privatization bill through Harrisburg, they are either trying to pull a fast one on Pennsylvanians who expect better selection and lower prices (which they know cannot happen with this bill). Or they’re very dumb, and actually believe the bill they’re peddling will accomplish those things.

I’m betting on the latter.

Currently, huge numbers of Pennsylvanians continue to stock up in other states, like New Jersey and tax-free Delaware, to the detriment of Pennsylvania’s state coffers. The fact that Corbett and the House Republicans think that situation will change with the current bill (which passed the House on party lines) makes you wonder if they were drunk while crafting such bad legislation.

PA Liquor Taxes Will Remain High

This bill is a non-starter, and should it pass the senate in its current form—far from certain, since Majority Leader Dominic Pileggi is lukewarm and the GOP lost 10 percent of its seats in the last election—the people will be vastly disappointed upon realizing that prices will be the same, or even higher.

Here’s why.

The whopping 18 percent Johnstown Flood tax (established to rebuild that city after its 1936 flood) remains in place, and on top of that there’s the state sales tax. End of story for lower prices.

Being hamstrung by such an onerous tax gives the potential wholesalers and retailers absolutely no wiggle room, forcing them to keep prices substantially higher than in stores in neighboring states.

There are only a few players in the nation with the capital to buy in at the wholesale level, which will cost tens of millions just to get a seat at the table. And that’s just the beginning.

Funny thing about liquor: It’s bulky and very heavy. Transporting it across 45,000 square miles will take one hell of a lot of trucks and drivers, neither of which come cheaply. There will be the need for huge warehousing space in multiple locations. Personnel requirements will be substantial, and the costs associated with distribution networks and other ancillary logistical issues will be considerable. And last I checked, fuel costs were near record highs.

It’s Not That Easy for Your Local Beer Distributor to Start Selling Wine

Making this bill even less than gin-dandy are the pie-in-the-sky revenue projections related to licensing. Beer distributors would be able to now sell wine and liquor, with the purchase of an expensive initial license fee (and subsequent renewals). Great, except for three big problems:

1. Most beer distributors are small, undercapitalized mom-and-pop operations. Where exactly are they coming up with the cash required for a license?

2. Assuming a distributor could get a license, they would have to add considerably more square footage to their existing stores, or lease/buy a much larger space altogether. Wine and liquor take up a lot of space, and recession notwithstanding, that space isn’t cheap.

3. Distributors know nothing about wine, so, in order to compete, they would have to hire additional staff with knowledge about vino.

One of two things will occur. Many distributors can’t or won’t apply for licenses, and for those who do, their prices will increase to make up for their additional costs. When you add in the mandated Flood Tax, it becomes obvious that overall costs have to rise, perhaps dramatically. Distributors would also have to compensate for the loss of revenue associated with the widespread availability of six-packs and the elimination of the buy-beer-by-the-case law.

Here’s How Corbett Should Fix PA Booze Sales

Granted, many politicians are slow, but this one should be a no-brainer.

Eliminate the 18 percent tax. Some will ask how to make up for the revenue shortfall. That’s easy. First, you don’t keep a tax that’s wrong just because you happen to rely on the revenue it provides. You fix it. Second, that’s the legislature’s job every budget season: Decide how much money goes where. If there’s a shortfall, other slices of the pie get smaller. Tighten the belt like families do.

But there wouldn’t be a shortfall. If the incentive is taken away to go to other states, untold millions—which would be “new revenue”—would find its way into Pennsylvania because of the massive rise in liquor sales. Remember, as it stands now, the state is getting zero from the millions currently flowing into other states.

Corbett and the Republicans need to put down the bottle and either rectify their error of pushing a bill they think is good, or stop the political expediency of rushing a bill they know is bad but can deceivingly trumpet as a success purely for reelection purposes.

Do liquor privatization right, or not at all. You don’t have to be blitzed to know that.

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  • http://www.facebook.com/people/Albert-Brooks/100000517005331 Albert Brooks

    One has to ask why if you remove the 27% Washington added in taxes to their already highest taxed liquor in the country, average prices have gone down? (according to the Washington State Department of Revenue)

  • http://twitter.com/masi3v The Drunken Cyclist

    I can’t believe I find many points in this article where I agree. I also can’t believe it was written by Chris Friend. I must be drunk.

  • kane marlin

    Al, this is the businessperson that conversed with you the other day. This article is exactly what I told you several days ago. There are more than 1 question to this issue. The first question is – do you believe Pennsylvania should be in the business of “Selling” booze? That question is totally seperate from the second question which is – Should the consumer have better selection & lower prices? What HB790 does is answer Yes to question #1 & NO to question #2. If you think about it each question is really seperate from the other, because the State could remain in the “selling” business & offer more convenience – more stores – open 7-days a weeks – better selections – lower prices (by repealing the Johnstown Flood Tax). The State could also divest themselves of the stores & provide better selection & lower prices by repealing the Johnstown Flood Tax & not charging high wholesale & retail license fees & allow for wholesale competition. You see Albert if folks like you (and me) want the State to get out of the booze business & give consumers better selection & prices then everyone has to be honest with the entire TAX PAYING CITIZENERY and tell them that the State will have to makes cuts somewhere else or raise taxes to make up for the lost liquor tax revenue. You see Albert we can’t have it both ways with this piece of crap legislation – HB790. What Pennsylvanians get with HB790 is the state out of the selling business and less selection & high prices, and when that happens I’m telling you people will be pissed. You have to remember that 40% of the public don’t care about this, and 90% of the 60% that do – really do not follow or understand it what they will get from HB790. I told you I’m in this business & I know how the numbers work and they don’t lie.

  • kingghidorah

    The Governor also promised last year 2 billion from the licence sale, then it went down to 1 billion a few months ago, now he estimates 400 million. Factor in the promised tax credits for employers who hire displaced workers and the education and retraining for them in the bill, unemployment benefits for them, the cost to liquidate the system and buy out of property leases, that would leave Pa on the hook.

    • kane marlin

      There you have it ! Does the commonwealth really want to give alcohol consumers lower prices & better selection? If so, to compete with Delaware, New Jersey, Maryland, Ohio, New York, and West Virginia, the taxpayers will be on the “hook” for it – with a higher EIT tax or by cutting something else. Like I said – you cannot have it both ways, and the Governor & Turzai are lying to the public by telling them this will do that through the “free” market system. There is a reason it is called “Free Market” It allows us to charge what is nessessary to make a profit. Am I the only one who has noticed that NO retailer has issued a statement saying they WILL give better selection & better prices than our nieghboring states. All I read heard and read is that they welcome the opportunity to sell alcoholic beverages to there adult customers.

  • http://twitter.com/pavineco Pennsylvania Vine Co

    Though I mostly agree with the points here, I do wonder about the very last statement – “Do liquor privatization right, or not at all.” Even if our gov’t was capable and acted logically, getting privatization “right” on day 1 would be difficult, as surely there will be unforeseen complications. So the question remains: would a flawed privatization system be a positive step towards eventually getting it right? I don’t know the answer, but it is a question worthy of serious discussion.