Here’s how Pennsylvania Gov. Tom Wolf plans to solve the state’s budget crisis: Unless the legislature finalized the budget, Wolf said, he will securitize profits from the state’s liquor system. It will raise $1.25 billion to pay off nearly all of Pennsylvania’s prior year deficit and significantly reduce the need for additional temporary borrowing to pay its bills.
The Liquor Control Board transferred $210 million to the General Fund last year, far in excess of the annual amount necessary to make payments on this loan.
In a statement, PLCB pledged “to work collaboratively with the Governor’s Budget Office to explore a revenue-backed contract to deliver significant immediate revenue while capitalizing on the PLCB’s long-term profitability.”
However, the Distilled Spirits Council noted the state’s $1.25 billion in debt is about 10 times the PLCB’s FY2016/17 operating income.
“The governor’s plan to take on $1.25 billion in debt securitized by PLCB profits will put a great deal of burden on the PLCB for years to come. It is now more important than ever that the PLCB maximize sales by expanding the number of spirits and wine outlets in order to meet its new debt service,” warned DSC Chief Economist David Ozgo.
The move, we think, shows Wolf to be a wily politician. The Pennsylvania House Republicans for years have warned to turn PLCB’s warehouse and liquor store empire over to private entities. But if its profits fund the payment on the state’s debt, it becomes much, much harder to dispose of the PLCB’s merchant operations. Union leaders, who have opposed privatizing the PLCB, should love this maneuver.
In a statement, Wolf blamed Republicans for the budget impasse, saying:
“Today, House Republicans again failed to deliver on a budget agreement. Over the last several months, I have been flexible and patient as they have repeatedly failed to agree amongst themselves on how to approach the budget.
“House Republicans continue to prolong and delay the debate over the means to pay for the programs they themselves voted to pass – overwhelmingly – in June. They have worked tirelessly to block a severance tax, at the expense of finishing this budget process months ago.
“In February, I proposed a budget that balanced by implementing more than $2 billion in cuts, savings, and efficiencies and relying on a severance tax and closing loopholes,” Wolf said, adding:
one thing has become abundantly clear: Too many Republicans in the legislature are more focused on the 2018 elections than on helping Pennsylvania succeed. They would rather see me fail than Pennsylvania succeed. They would rather protect special interests, lobbyists and campaign donors than do the right thing. I’m not going to play their games anymore. I’m drawing a line in the sand.
“Yesterday, they said they could not pass their own proposal to lift the exemption on commercial storage.
“Now, their proposal to tax hotels has failed. The fairest and simplest solution to this challenge would have been, and still is, to replace these taxes with a severance tax. It’s the same amount. And it’s widely supported throughout the commonwealth and among bipartisan legislators, as was evidenced by the responsible action taken by the Senate just a few months ago. It’s commonsense.
“We’re the only major gas producing state in the nation without one. The House could still put that in, and have a vote this week to get this done. Doing so would bring together a budget with ideas from all caucuses and the administration,” Wolf said.