The state-run liquor sales system says it will have no problem continuing the support it provides to Pennsylvania’s General Fund, but when asked to produce projections illustrating that, it couldn’t.
The budgetary document presented to the House Appropriations Committee by the Pennsylvania Liquor Control Board for its budget hearing states: “Estimated columns of 2017-18 through 2020-21 have been deleted given uncertainty and the ever-changing nature of the allocation of the PLCB’s share of the overall actuarially determined unfunded Commonwealth liability for employee benefits.”
In simpler terms, the PLCB is saying that because it can’t predict what its employee pension contributions will be, it can’t offer legislators any future financial estimates.
“The reason we didn’t do it is because it becomes more and more difficult, because we are not sure if we’re going to get legislative relief … if we get it, we’re not sure what other expenses will come in, so it’s harder to predict,” said Board Chairman Tim Holden, explaining why the PLCB’s budgetary report contains no projections beyond the coming 2016-17 fiscal year.
“Last year we anticipated receiving legislative help and we didn’t get it, so that was the reason for costs,” added Holden, noting the lack of legislative movement for a bill containing various “modernization” proposals that proponents argue will help the PLCB generate more sales and, consequently, more revenue for the state.
Holden’s colleague, board member Michael Negra, argued late and unexpected pension costs, workers compensation costs and other employee benefit-related costs were not built into projections for this past fiscal year.
“The Budget Office and the comptroller have no idea in terms of what those accruals are going to be, and if they don’t have an idea, it’s hard for us to pass that information along to you,” said Negra. “We’d like to be accurate in our information, not just taking a stab at it – this way we’re pretty sure what will happen in the next 12 months, but it’s almost impossible to go beyond that.”
“I appreciate the attempt at accuracy, but it’s also very prudent for us to do planning on the long range,” said Rep. George Dunbar, R-Westmoreland. “We need to understand are you going to be able to make the transfers that we have scheduled out for the next three or four years.”
While GOP members expressed concerns about continually-increasing PLCB expenses growing at a faster pace than wine and spirits sales, the committee’s Democrats maintained the state store system provides predictable and sustainable revenues for the Commonwealth’s General Fund.
Liquor revenues “are the most predictable source of funding that we have in the entire General Fund,” asserted Rep. Peter Schweyer, D-Lehigh, focusing on the consistency of the transfers made by the PLCB to the General Fund.
“[That’s] When I’m looking at the system as it stands right now, even though it’s not operating right now at full capacity,” said Schweyer, alluding other Democrats’ statements about the need to further modernize, but not privatize, the system.
“We know that we can always rely on your contributions to the General Fund year in and year out,” he said, voicing the common Democratic refrain during the hearing.
Of course those transfers are mandated by legislation, enacted each year, regardless of the revenues actually reported by the PLCB, and several Republicans noted the transfer amount has risen to $100 million – for both the FY2015-16 budget partially-vetoed by Wolf and in the governor’s proposed FY2016-17 budget – from the $80 million level at which it has been for a few years.
The governor also assumes, as part of his 2016-17 budget, an additional $100 million transfer from the state stores, with the amount to be generated by modernization proposals that have yet to be implemented.
Holden said the modernization-related revenues assume a July 1, 2016 implementation. Those proposals include Lottery sales in liquor stores, increasing license fees (as well as enforcement and fines), expanding Sunday sales, and giving the PLCB more flexibility in its pricing of products.
Although House Liquor Control Committee Chairman Chris Ross, R-Chester, and other GOP members, acknowledged some of those revenues could be achievable – and could happen as part of privatization as well – the $100 million revenue assumption might be a bit too high, they said. And the $185 million the Wolf administration expects modernization to deliver in FY2017-18 was simply panned by the GOP.
Holden, a former Democratic congressman from Schuylkill County and named board chairman by Wolf, expressed certainty the proposals, if enacted, could generate at least $100 million, and confidence in the $185 million figure anticipated by Wolf in 2017-18. However Negra, appointed to the board by Gov. Tom Corbett (like Holden), said $100 million was likely achievable, but $185 million is “a stretch” that “would require an awful lot of things to fall into place … I’m not on board with that.”
Republicans, less interested in the modernization efforts and focused more on privatization, questioned the ongoing argument made by privatization opponents who claim the state shouldn’t sell a valuable asset like the state-store system.
When asked about the value of the asset, the PLCB’s representatives said they have no idea what the state-run system – the retail and wholesale components combined – is worth as an asset.
“We have not tried to make that valuation,” said PLCB executive director John Metzger, regarding the question of the open market value of the system if it were to be sold and privatized. “Our former chairman [Joseph “Skip”] Brion used to say to us the right way of business would approach this as maximize the asset, then sell it when it’s at its maximum value.”
Ross observed that if people are going to talk about the value of the system and “about what is a fair value for the sale of the system, we ought to know what we’re selling, and we ought to know the actual value.”
“We don’t own the warehouses; we don’t own the stock while they’re in the warehouses because they’re being held in bond at that point; we hire someone to transport the material to the state store retail locations; the state store retail locations are rented; the inventory doesn’t have to be paid for until sometime after it has been delivered into the store … and in some cases the inventory may be sold before we actually have to pay for it,” explained Ross.
“So it’s interesting to think about what are the real assets beyond the fact that we have a monopoly, and we have the right to sell liquor in Pennsylvania,” Ross said.
And when asked by Ross to offer examples of what the PLCB can do better with its retail and wholesale operations than a private retailer, the board’s two current members didn’t seem prepared for the question.
“It’s retail, and comparing one retailer to another,” said Negra.
Negra, with a bit more confidence, then said, “I think that certainly, in our system, it’s not weighted toward Philadelphia or Pittsburgh – it might be more of a benefit to rural areas from a pricing standpoint,” noting prices for the same products are the same throughout the state. “I don’t think you’d find that.”
In addition to the “benefit” of the state monopoly’s pricing ability, inventory and selection, even in rural areas, would also be better within the PLCB system than in a private retail environment, argued Negra.
“Those two things come to mind, initially – I’m sure that there’s others – but that’s what comes to mind initially,” Negra said.
Holden, with a host of yellow-shirt clad members of the union representing state-store employees sitting behind him, added the system offers good jobs.
Ross responded having more retail outlets than currently exist would seem to indicate an even greater availability of jobs. Holden argued private retailers likely wouldn’t offer the salary and benefits the PLCB does for its employees.
Republican liquor privatization efforts have thus far been unsuccessful the last few legislative sessions, although a scaled-down version had been part of the framework budget agreement that collapsed prior to Christmas.