Jul. 30, 2015

The Pennsylvania General Assembly recently sent Gov. Tom Wolf a historic bill that would have moved the Commonwealth out of the alcohol business and, as a result, in line with the 48 other states that have privatized wine and spirits sales. Unfortunately, Wolf vetoed this pro-consumer legislation, which would have generated more than $200 million annually to the state. The governor’s severance tax proposal, by contrast, would be lucky to bring in that much money.

The liquor reform legislation would have phased out state-run stores once the Pennsylvania Liquor Control Board (PLCB) first ensured that an area had adequate private-sector service. It also would have expanded consumer choice and convenience by allowing beer distributors to sell wine and spirits; authorizing private wine wholesalers to sell products to Commonwealth customers; and expanding restaurants and hotels’ abilities to obtain wine and liquor permits.

This legislation could have generated more than $200 million annually on top of current tax revenues to the state from the sale of alcohol. The revenue would have resulted from expanded licensing fees and current taxes levied on alcohol sales. These funds could go toward educating children across the Commonwealth, rather than propping up an antiquated state store system whose origins date back to the end of Prohibition.

In contrast, the governor presented a plan to enact a severance tax – a tax the Pennsylvania Independent Fiscal Office characterized as the highest state severance tax in the country – as a way to raise $1 billion for state education spending.

As I have written in previous columns, the current economic reality for most Pennsylvania-based natural gas developers is that drilling new gas wells is a money-losing enterprise due to oversupply of natural gas and low energy prices. Considering the current low price of natural gas and the Commonwealth’s overall tax structure, it is unlikely that Pennsylvania would generate any more revenue than was generated from the Impact Fees collected last year, let alone $1 billion. In fact The House Appropriations Committee recently confirmed this to be true when it analyzed the governor’s proposal. The committee determined that, due to current market conditions and the lack of infrastructure necessary to transport gas to market, a severance tax would only generate a fraction of what the governor suggests and would get nowhere close to the $1 billion. Market prices are now about two-thirds lower than estimates upon which the governor has based his revenues, yet the administration continues to use these figures for budget negotiations.

Liquor privatization would serve as a sustainable source of much needed revenue to Pennsylvania. Under Pennsylvania’s current state store monopoly, residents are leaving the Commonwealth and traveling to neighboring states with privatized alcohol systems to purchase wine and spirits, where prices and selection are better. According to a report by the Distilled Spirits Council of the United States, Pennsylvania loses out on $313 million in retail sales due to “border bleed,” or the loss of revenue caused by residents crossing into bordering states to purchase wine and spirits.

Pennsylvania could recapture those sales and tax revenues under a privatized system better suited for meeting consumers’ demands. After all, there’s a reason that residents in the 48 states with privatized liquor sales are not urging their lawmakers to switch back to a state-run system. Privatization raises revenue through efficiency rather than raising taxes on the citizens of Pennsylvania. I believe we should start there before we consider massive tax hikes.

Representative Steven Mentzer
97th Legislative District
Pennsylvania House of Representatives
Media Contact: Jonathan Anzur
RepMentzer.com / Facebook.com/RepMentzer