Four Facts About the Liquor Control Board's Deteriorating Finances

It’s a timeless tradition. Each year, the Pennsylvania Liquor Control Board (PLCB) releases its financial report, touting the success of the government’s booze business. Shortly after, CF explains why the report unintentionally makes the case for privatization. The tradition continues.

The PLCB’s 92-page annual report covers many aspects of the state-run liquor system. The most important are summarized below. As you’ll see, Pennsylvania’s near monopoly isn’t necessary or successful.

1. The PLCB’s cash transfer is unimpressive. Advocates of the PLCB cite its annual cash transfer to the General Fund to prove the agency provides a financial asset to the state. Yet, taxes make up the most significant portion of this transfer—last fiscal year, taxes comprised nearly 74 percent. Under a private system, the state could still levy these taxes. Additionally, the remaining portion of the transfer is irregularly high this year and history indicates it won’t be replicated consistently in the future, which means taxes will comprise an even larger percent of the transfer.
2. Record sales for a near monopoly isn’t an accomplishment. Thanks to Act 39, the PLCB doesn’t have total control over the market for wine and liquor, but it still maintains a near monopoly on both. When the PLCB is the only game in town for the vast majority of Pennsylvanians, record sales aren’t noteworthy. The real story is the Board’s sales growth rate, which declined for the third year in a row.

3. The PLCB’s net income is inflated. Net income reached $158.2 million in 2017-18—a record for the agency. However, further analysis indicates a mediocre showing. As the PLCB points out, a portion of the net income is the result of increased license fees from Act 39. These fees clearly are not a product of the government’s service. Total license fee revenue is approximately $33.5 million higher than its pre-Act 39 levels. If these new revenues were subtracted from the board’s net income figure, it would put net income at $124.7 million—a sum lower than net income in fiscal year 2012-13.
4. A $1.1 billion liability cast a shadow over the PLCB. The Board’s total net position was negative $1.107 billion at the end of the 2017-18 fiscal year. The PLCB’s financial plunge deeper into the negative is the result of a change in financial reporting for other post-employment benefits. The new reporting requirements provide a more realistic picture of the PLCB’s liabilities. And these liabilities will likely negatively affect the agency’s finances in future years.

The arguments for full privatization are forceful and numerous. And the PLCB’s recent report is just the latest addition to the mountain of evidence against government’s involvement in the booze business.

The majority of Pennsylvanians agree: Government shouldn’t maintain control of the market for wine and liquor. It’s well past time Gov. Wolf step out of the way and allow entrepreneurs to replace a broken system with choice, convenience, and competitive pricing.