Reason #13: Who Needs 'Em?

Thank you, Michael Hudson.

Who is Michael Hudson, of Pottstown, PA, and why am I indebted to him? He's a Philadelphia Inquirer reader I've never met, but he wrote the following letter to the Inky's editor that posted today, and goaded me into reviving this sadly moribund blog:

Gov. Rendell's decision to push the state's budget shortfall both down and up the food chain at the same time - i.e., on to local taxpayers and the federal government - reflects the cowardice and poor judgment that are the hallmarks of his administration. Someone is going to hurt the economy by raising taxes, just not good old Ed. The right answer for the state is to cut costs (employees) and sell assets (state liquor system) to balance the budget.

Well, hello Michael! You're my new best friend. Because you've put your finger on the dirty secret the PLCB and the State have been hiding right out in the open for decades.


Reason #13:

We don't need the State Store System to make a lot of money off booze


Let's take a look at just how much that works.

The first screech about privatizing the State Store System is always about how much money -- excuse me, how much revenue it brings to the state. We won't be able to replace that revenue flow, the argument goes, without more taxes, and contrary to popular notion, the Legislature doesn't really like raising taxes: it gets them voted out of office. Interrupts their revenue flow, you know?

Let's take a look at that flow. Here's (actually, they've updated it; that now points to the next year, but it still has these numbers; look under 52 weeks ended June 26, 07) the latest state Auditor General audit of the PLCB and their State Store System operations. There's some interesting stuff here for future posts, but for now, riffle back to page 12 (jump to page 18 in the PDF controls), and feast your eyes on some numbers:

• Right up near the top, the total taxes collected: $336,980,000. That is a buttload of bucks, incoming to the state's operating funds. Yummy revenue stream...
• Jump down a bit, to the total operating expenses: $335,427,000. That, too, is a buttload of bucks, outgoing from the state's operating funds (and please note: it appears that's just the operating costs for The State Store System, not the PLCB's lawyers and administrative staff and enforcement agents and board and CEO.)
• "Operating profit from state stores": $106,352,000. Not bad, but not as big a nut as the taxes, is it?

Pretty much every number south of that on the page wouldn't change if we shut down the SSS tomorrow, except the "Interest income," and the state can invest any money it has for interest, it doesn't need the PLCB to do it (not to mention that the PLCB gets an annual loan from the state's general fund of about $80 million for operating expenses).

There would still be income from license fees and fines, we'd still have to pay for licensing and inspections costs and enforcement costs (the PLCB shoots about $20 million to the PA State Police for that -- out of the total income, that's considered a transfer, not an expense). So the important numbers:

• $336,980,000 coming in from tax collection.
• $335,427,000 in operating expenses.
• $106,352,000 in "operating profit."

Now...I'm not an accountant, I'm a very slapdash "businessman." But it sure as hell looks to me like this is a no-brainer...for shutting down the State Store System tomorrow. If we could turn a key right now that transferred control of every State Store over to private businesses tomorrow -- completely aside from the one-time windfall that those businesses would line up to pay for that privilege, and what we would get for selling off over $185 million in inventory, and the machinery, land, and other assets -- we would still get about $336 million in taxes without any cost -- or liability or risk -- to the State. Because the onus and cost of collecting those taxes would all be on the private businesses, as it already is in states where they run things normally.

That's $336 million free and clear. We don't have to pay anyone to collect it and send it to Harrisburg. We just pass a law that says they have to, put enforcement and inspection clauses in it and hand it over to Department of Revenue to handle with their existing sales tax collection mechanism (with an added widget for collecting the damnable Johnstown Flood Emergency Tax), and whoosh, you got revenue flow.

We have this big state-owned retail store system for collecting taxes from sales we don't need to be making, and all it's netting us is $106 million? A system that is unresponsive to the citizens of the state, a monopoly system that most people who buy booze in the state despise?

The PLCB should be abolished because it costs us money. The operating costs are so high that it's probably one of the major reasons we have so few State Stores: if they opened a reasonable number of stores, the state would be bankrupt. Yet somehow, liquor stores in other states manage to run at a profit, and deliver a constant flow of taxes to the states. If we went all private and sold more licenses, my God, how the money would roll in. Just think of the money we'd make from people no longer crossing state lines to buy booze in states with rational booze retail and real selection! Think of the boon to Pennsylvania's restaurants! Think of the jobs created!

And please, don't lean on the weak reed of "more stores would mean more alcohol abuse!" Prove it, convincingly. There is no definite link between the number, the density of booze stores and the amount of alcohol-related problems. Pennsylvania does not rank particularly low in alcohol problems among the other states; we're about average.

We have private, licensed beer distributors, hobbled though they are by the case law. They work. Selling wine and spirits is so much different?