The Wolf administration paid consulting firm McKinsey & Co. $1.8 million to suggest ways to balance the state budget, but it forgot a big one: Get out of the booze business.
McKinsey pointed out the Pennsylvania Liquor Control Board has higher operating costs and lower profit margins than other states that control alcohol sales. But it suggested only incremental solutions, including reducing employee overhead, renegotiating supplier prices, and increasing sales.
Here's a better idea: Sell the more than 600 State Stores and possibly rake in $1.5 billion for the state. Compare that to the up to $231 million increase in annual profits that McKinsey says its ideas would generate. That's better than the up to $75 million in additional revenue the PLCB estimated could be gained from pricing measures it implemented last year. But it's not enough.
The state is facing a $3 billion budget deficit and the Republican-controlled legislature is opposed to raising broad-based taxes, such as on sales and income, to make ends meet. Wolf has proposed a $32.3 billion budget that instead of raising those taxes seeks to close the gap mainly through cuts and increased efficiencies.
Selling the State Stores would not solve all of the state's budget woes. But the sale would provide a large cash infusion that the state could use to fund other needs, including shoring up the underfunded pension system or putting cash into the depleted rainy day fund.
But the broader point is that the state has no business being in the booze business, just as it makes no sense for it to be in any other retail business. If anything, the state has an inherent conflict of interest as both the seller and regulator of booze. Beyond that, the State Store system is inefficient and results in higher prices for consumers.
Even with their higher prices, the State Stores have struggled to keep up with expenses. Since fiscal 2012, sales have increased 4 percent a year while operating expenses have increased about 5.2 percent annually. Changes in the way the PLCB accounts for pensions, health benefits for retirees, and workers' compensation insurance have been a big contributor to its increase in operating expenses.
For years, the State Stores have been compared to a Soviet-style monopoly. As pressure has mounted to sell the State Stores, the PLCB has improved product selection and renovated many stores. The state has also loosened laws to allow the sale of beer and wine in grocery stores. But even with those improvements, Pennsylvania remains out of step with the majority of the country.
Many privately owned liquor stores in Delaware and New Jersey offer cheaper prices, wider selections, longer hours, and better service. No wonder a number of polls in recent years show the majority of Pennsylvania residents support privatizing the State Stores. But that broad public support has not translated into action in Harrisburg, where politicians in hot pursuit of campaign donations seem to listen more closely to the union representing PLCB workers.