LEGISLATIVE REPORT – FUNDING THE PROPOSED GOP BUDGET
Following introduction of Governor Wolf’s $32.34 billion state budget proposal, the Pennsylvania House of Representatives adopted along party lines a Republican budget with $31.27 billion in expenditures known as House Bill 218 (the “House Budget”). While the Governor’s budget raises money from a severance tax on natural gas drilling, a sale/leaseback of the Farm Show Complex, elimination of sales tax exemptions and closing the Delaware loophole for businesses that remove taxables from Pennsylvania, the House Budget raises a projected $800 million mostly through liquor privatization and gambling initiatives. The House and its Liquor Control Committee promptly took action on liquor privatization bills to support its negotiating positions in the Pennsylvania budget process. This is to summarize the principal House bills on liquor privatization, some of those negotiating positions and the distinctive cost-cutting measures from the House Budget.
House Bill 438, sponsored by Representative Mike Reese (R Westmoreland), would authorize the Pennsylvania Liquor Control Board (the “Board”) to issue to licensed restaurants and hotels a “spirit expanded permit” authorizing them to sell at retail hard liquor of up to 3 liters per sale for off premises consumption (“Off Premises Liquor”). The initial spirit expanded permit would cost $2,000 and annual renewals would cost 2% of the price of Off Premises Liquor sold by the Board to permittees during the prior year.
House Bill 991, sponsored by Representative Adam Harris (R Juniata), would authorize the Board to issue licenses for the sale of hard liquor to as many as 2,000 private retailers for sale of hard liquor in competition with the Board’s 200 state liquor stores (“State Stores”). The Board would sell at wholesale to the retailers who could retail liquor at various prices with the benefit of a fixed retail price list applicable for sales by State Stores. Initial licenses would sell from $100,000 to $500,000 with annual renewals at 5% of the total gross receipts for sales of Off Premises Liquor during the prior year.
House Bill 975, sponsored by House Speaker Mike Turzai (R Allegheny), would allow the Board to permit licensed wine importers to hold a “wine wholesale license” for the purpose of selling at wholesale prices wine to the Board, to all licensees and to the United States Armed Forces facilities (“Armed Forces”) in the Commonwealth. This bill removes the Board as the sole wholesale wine supplier in Pennsylvania. The initial fees would be 10% of the cost the Board paid to the licensed importer for wine during the last 12 months. Annual renewal fees would be 5% of the wine wholesale licensee’s gross receipts in sales to licensees, the Board and the Armed Forced in the prior 12 months. The Bill also authorizes wine retail licenses for sales of up to 9 liters of wine per sale intended to be consumed off premises for an initial license fee of $250,000 and annual renewals of 2% of the licensee’s gross receipts for the prior 12 months.
House Bill 1075, sponsored by House Speaker Mike Turzai (R Allegheny), would remove the Board as wholesale vendor of wine and hard liquors in Pennsylvania by authorizing the Board to issue “wholesale permits” to licensed importers for the purpose of selling and distributing wines and spirits at wholesale to the Board, licensees and the Armed Forces during a 10-year lease of the Board’s system. The initial license fee would be 10% of the cost of the importer’s sales to the Board in the prior 12 months and the quarterly renewal fee would be 10% of its gross receipts for the prior calendar quarter due on the 20th day of April, July, October and January of each year. The Commonwealth’s wholesale operation would be divested ten years after issuance of the wholesale permit. Wholesale permits would be converted to wholesale licenses to be renewed annually at 5% of the licensee’s gross receipts. Revenue from State Stores would be paid into a State Store Operating Fund for the sole use of operating State Stores.
These four House bills cover alternate bargaining positions because each raises a different amount of revenue than the others and they privatize liquor and wine sales in Pennsylvania to varying degrees. The goals reflected in these bills include raising revenues by fees without additional taxation, privatizing alcohol sales in Pennsylvania and making liquor sales available in rural areas and at times not covered by State Stores. Opponents claim that these House bills undervalue the public assets, would endanger over 4,000 family sustaining jobs, eliminate a certain annual revenue to the Commonwealth of $300 to $400 million and jeopardize the benefits to consumers of the Board’s strong bargaining power with suppliers.
The Governor’s budget and the House Budget rely on revenues from liquor sales and cost-cutting efficiencies in the consolidation of four departments into a Department of Health and Human Services. However, the House Budget remains open to privatized liquor revenues and additional revenue from proposed video gaming terminals and fantasy sports gambling and from various cost reductions not common with the Governor’s budget. The House Budget would eliminate $25 million in state tax credits, allocate $50 million less than the Governor proposes for early childhood education, reduce the state’s payment to the school employees’ pension system by $20 million and reduce childcare services by $15 million. With the divergence in revenue raising and cost cutting represented by the Governor’s budget and the House Budget, it might be unlikely for Pennsylvania to have an approved budget by June 30, 2017.
© 2017 Robert J. Hobaugh, Jr.