PA’s PLCB ‘asset’ has far more liabilities than it appears able to...

PA’s PLCB ‘asset’ has far more liabilities than it appears able to cover

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PA’s PLCB ‘asset’ has far more liabilities than it appears able to cover

By Chris Comisac

The Pennsylvania Liquor Control Board last week once again touted record sales, but despite recent efforts to make the state-run monopoly look more like a competitive private sector-driven system, the agency continues to be mired in significant debt.

Fiscal Year 2015-16 did see record retail sales of $2.43 billion, from both liquor – for which the agency has the power to set the price without competition – and sales taxes on the liquor; that was a 4.1-percent increase over the prior year’s sales, which were, at the time, also a record.

But looking at the PLCB’s unaudited financial statement shows things are not getting much better, fiscally-speaking, at the PLCB. That’s due in no small part to increasing costs associated with the operations and duties of the agency, as well as the transfers it made to the state’s General Fund and other items.

Gross revenue – once the price of the goods sold by the PLCB is subtracted from the stores’ sales net of taxes – was likewise up by about 4.2 percent. That $605.6 million total was good for an increase of $24.5 million over FY2014-15’s gross revenue from sales, and 2015-16 gross revenues were $115.3 million more than they were five years ago.

However the agency’s operating and other costs also continued to increase.

The costs for things, like pension and medical benefits for both active and retired employees, continued to rise during the past year, with overall operating expenses increasing by $4.2 million, to a total of $473.8 million. Five years ago, those costs were nearly $90 million less, at $386.1 million in FY2010-11.

So while gross revenue has been increasing – it’s up 23.5 percent from where it was five years ago – so have the agency’s operating costs, by 22.7 percent.

License fees, enforcement fines and interest income increased a bit last year, but that was still more than offset by the costs associated with the licensing and investigation work done by the agency, as well as the administrative law judges and other legal work required by the PLCB. Once all accounted for, that took another $1.8 million off the gross sales revenue.

Those non-operating costs were slightly less than the prior year, but that difference was offset by the slightly higher amount of money transferred to the Pennsylvania State Police for their PLCB-related enforcement efforts (a total cost of about $26.1 million) compared to last year.

On top of all of that, the Legislature decided to transfer from the PLCB a little more than $103 million, with most of that ($100 million) going to the General Fund along with some funding for drug and alcohol programs – something they do every year. Last year, and dating back to FY2011-12, the annual transfer to the General Fund has been $80 million. Prior to FY2011-12, in FY2009-10 and FY2010-11, the General Fund transfers were $105 million, with additional funding for drug and alcohols programs of between $1 million and $2 million.

So when it’s all said and done, only $528,890 of the $605.6 million in gross revenues they reported is left.

That’s about $1.4 million less than was left over after everything in FY2014-15, although, as noted, that was helped significantly by the transfer of only $80 million, not $100 million, to the General Fund.

Which means the system, that had a net financial position showing a $238.7 million debt at the end of FY2014-15, was only able to reduce that debt to $238.2 million during FY2015-16. Yes, there’s also close to half-a-billion dollars in taxes remitted to the state because of liquor sales, but those would occur with or without the PLCB liquor sales monopoly.

So when you hear people talking about how the system is an asset for the Commonwealth of Pennsylvania, remember that asset’s net value (assets minus liabilities) is well in the negative, and it’s only just covering its costs of operations while also trying to justify its existence by supplying the General Fund with revenue.

In FY2009-10 and FY2010-11, the PLCB couldn’t even say that, when it spent and transferred more money than it took in those years. So the Legislature started transferring less money to the General Fund – meaning taxpayers were, for a few years, subsidizing what the PLCB had been transferring to the General Fund.

With new pension accounting standards in place, the PLCB’s overall long-term debt of $598.1 million (its noncurrent liabilities listed on the agency’s financial statement) is properly reflected on its balance sheet, with most of it ($449.2 million) due to its portion of the Pennsylvania State Employees’ Retirement System (SERS) unfunded liability. As anyone who has followed Capitolwire’s coverage of the state’s pension crisis knows, the ones most on the hook for that debt are the taxpayers, even those who don’t drink alcohol.

If the Legislature were to trim the PLCB’s General Fund transfers – as they did for a few years – that would still mean the taxpayers are subsidizing the agency, given it would be an admission of the PLCB’s inability to transfer to the General Fund what it once did, forcing taxpayers and/or other government operations to come up with those savings.

And all that assumes the agency can continue to set sales records every year, making enough money to cover its various duties, operating costs and transfer responsibilities – which it barely did this past year.

For 83 years and counting, Pennsylvania has eschewed a market-driven alcohol sales solution and clung to the state-run PLCB monopoly – but does the system sound like an invaluable asset of which we now can’t afford to rid ourselves?

Of course, given the state’s proclivity to want to control alcohol sales, if you had the money to buy it, would you?

Chris Comisac is Bureau Chief of Capitolwire.