HARRISBURG — The Liquor Control Board has taken the first steps to borrow $1.25 billion to help balance the state budget, but many lawmakers remain unconvinced of the strategy.
After the state House failed to pass a series of potential fixes to the budget, Gov. Tom Wolf, in frustration, abruptly announced Oct. 4 that he will pay the bills by borrowing against future liquor sales.
Under this plan, Wolf estimated that at 4 percent interest, it would cost the state around $85 million a year in debt payments over the next two decades to borrow the funds necessary to balance the budget.
The Liquor Control Board said its annual payment to the state has topped $200 million every year in the last decade.
The Liquor Control Board on Wednesday announced that it was having legal staff review how to proceed.
“We understand the urgency driving this issue for the Governor’s Budget Office, and we are working as quickly as possible to contract with legal and financial advisors well-versed in this kind of transaction,” said LCB board member Michael Newsome in a statement.
But the plan comes as the system absorbs dramatic changes to the state’s liquor law, with an increasing number of grocery and convenience stores now able to sell wine, as well as beer. The wine sales set them up in direct competition with the state-run liquor stores. In 2015-16 before the state Legislature loosened the rules on where wine can be sold, wine accounted for about 36 percent of the sales at the state stores, LCB data shows.
Last year, locations with wine-expanded permits, including grocery and convenience stores, accounted for about 5 percent of wine sales, said Elizabeth Brassell, an LCB spokeswoman.
“It’s unfortunate we need to look at borrowing” to balance the budget, said state Rep. Tedd Nesbit, R-Mercer County.
The move to borrow against the proceeds of liquor sales will also create a long-term handicap to any future move to further privatize the system, Nesbit said.
Wolf said the bond could be “callable,” meaning the state could pay off the debt early, if there was a reason to do so. But the cost of paying off the debt could make it “impractical” to move away from having the state running the wine and spirit stores, Nesbit said.
Auditor General Eugene DePasquale on Thursday said Wolf’s plan “has some merit,” though he added that “I’d be stunned” if someone doesn’t file a lawsuit trying to stop the proposal.
DePasquale added that he has no specific information that a lawsuit is planned, but suggested that the controversial nature of the proposal suggested it was ripe for a legal challenge.
DePasquale said he’s much more certain of the merit of the governor’s plan, announced Monday, to lease the Farm Show Complex in Harrisburg to a private operator. Under the plan, the state would get $200 million in an up-front payment, while maintaining control of the facility, which is home to the Farm Show and a variety of other events throughout the year.
DePasquale said he can find no evidence that his office needs to approve either plan and said as the negotiations over how to balance the budget have dragged on, there are few good solutions left.
“I can’t stress enough, this isn’t an ideal situation,” he said.
State Rep. Fred Keller, R-Snyder County, said that he objects to the fact that the borrowing is being used to pay off a debt.
“If we were getting a tangible asset, I could make an argument for it,” he said. “But after 20 years what are we going to have? Nothing.”
Keller said he hopes the state House moves to get the governor and Senate to pass legislation that would tap money House lawmakers say is sitting unused in reserve funds, while borrowing against the state’s tobacco settlement payments.
The tobacco settlement money goes toward health programs, including payments to hospitals to cover their costs of providing care to people who can’t pay.
Keller said that the Legislature would have to figure out how to replace that funding, but it wouldn’t involve forcing one government agency, like the Liquor Control Board, to absorb the full burden of debt.