Liquor-privatization fans smell a rat in Wolf's $1.25 billion solution


HARRISBURG, PA - In order to keep paying Pennsylvania's bills without a revenue bill from the Republican-controlled Legislature, Democratic Gov. Tom Wolf intends to raise $1.25 billion from future profits of the state's liquor system.

Wolf's choice of funding options feels personal to some lawmakers who have pushed for years to privatize the sale of wine and spirits in Pennsylvania.

Wolf's plan would borrow against the state Liquor Control Board's future profits and pay it off, with interest, over 20 years, ending discussion of privatization during that time.

"With all due respect to the governor, I think this is spite work," said state Rep. Jerry P. Knowles, a Schuylkill County Republican who represents part of Berks County. "It's like, 'If you don't do what I think you should do, I will do this. I'll show you.' "

"What in the world are we doing sticking our nose into wine and spirits?" Knowles said. "It should be privatized. It would be good for the consumer, more competition."

State Sen. David G. Argall, a Schuylkill County Republican representing part of Berks County, said he and others believe the move is intended to undermine privatization.

"A lot of us are asking, if this is such a good idea, why didn't he offer it several years ago?" Argall said. "Many of us are looking for additional places to save money in the budget. We think that is better than continued borrowing. We are also questioning if he has the legal authority to do this."

Is that allowed?

A number of lawmakers said they were investigating whether the borrowing would be legal. Wolf's administration says it is.

The Liquor Control Board has the authority to borrow against its future profits under its existing power to enter into contracts, Wolf spokesman J.J. Abbott said. The transaction, a certificate of participation contract, is a kind of installment purchase contract in which the state receives something up front - a large prepayment of liquor board profits - and then repays it over time.

A certificate of participation contract transaction is a contract, not a bond, Abbott said, adding Pennsylvania has issued this type of contract before. In the early 1990s, he said, under then-Gov. Robert Casey's direction, this type of transaction provided financing to construct some county prisons.

Former Gov. Ed Rendell did the same thing with the Pennsylvania Turnpike, said state Rep. Thomas R. Caltagirone, a Reading Democrat. Rendell had pushed for a long-term lease of the turnpike to a private firm as a way to raise money, until lawmakers passed Act 44 in 2007, which monetized the turnpike, borrowing against future profits, and ending talk of a lease.

"The governor is doing this to prevent school districts and other service providers from paying the price for the House's inaction," Abbott said. "There is nothing preventing them from acting and funding the budget they passed more than three months ago." Wolf wanted to assure school districts, counties and human service providers that the commonwealth will live up to their commitments, Abbott said.

After months of gridlock, the governor had to act said state Rep. Mark Rozzi, a Muhlenberg Township Democrat.

"The governor has to lead at some point," Rozzi, said. "It is a way that we don't have to raise taxes on our citizens. I think the governor is really smart in what he did here."

A new budget hole

Alcohol is lucrative, with sales increasing annually. In fiscal year 2016/2017 total sales, including profits and taxes collected for wine, spirits and other items sold at state stores totaled $2.53 billion. That is a 3.9 percent - or $95.5 million- increase over the previous year, Liquor Control Board spokeswoman Elizabeth Brassell said.

Of that, $764.7 million was split into various amounts and sent to funds for the Pennsylvania State Police Bureau of Liquor Control Enforcement, the Department of Drug and Alcohol Programs, other state agencies and municipalities across the state.

The board also makes a cash transfer to Pennsylvania's General Fund annually. Last year it was a record $216.7 million cash transfer. The cash transfer amount projected for 2017/2018 is $185 million, Brassell said. If Wolf's plan happens, that cash transfer will not be available to the Legislature when it crafts future state budgets.

"It is a sorry state of affairs that the governor has to take over what is the Legislature's job, but we are at this point," said state Sen. Judy Schwank, a Ruscombmanor Township Democrat. "I am not thrilled about the borrowing but it is probably more stable than some other revenue ideas that have been put forward. It will prevent privatization for 20 years. Some may see that as a downside. Perhaps a more important downside is: We are mortgaging our future. But I don't think the governor had much choice."