Compromise on State Stores: Sell but help employees buy

There are two well-entrenched camps in the debate over the State Store system: those who believe Pennsylvania should divest itself of the system completely, and those who see it is a treasured asset that should be retained indefinitely.

How about a compromise? A structured sale that would satisfy those who want to privatize the system while still protecting the current employees.

First, the state should determine the value of each store as a stand-alone business entity. This is something accountants do all the time.

Next, the state should give a right of first refusal to the employees of the individual stores to purchase the liquor license and stock. For employees who could not get the financing needed to purchase the stores, Pennsylvania could loan it to them, paid for by a bond issue equal to the total value of all State Stores.

Pennsylvania would not actually give the bond money to the employee-owners. That money represents the state's cash-out when it divests itself of the state stores, so the repayments would go toward paying down Pennsylvania's pension deficit.

The employee-owners would repay these loans, secured by the stores' liquor licenses, over time. They would be able to sell the stores to a third party as long as the debt obligation to Pennsylvania is fully satisfied. Failure to make payments would result in the revocation of the license, which would then be auctioned off to the highest bidder.

There would be a five-year transition period when no new retail licenses for liquor stores would be issued. After that time, additional licenses would be auctioned off to nontraditional vendors as long as they can conform to the regulatory requirements for selling alcoholic beverages.

This plan, while not perfect, has a number of benefits:

First, the long-term revenue stream that Pennsylvania currently derives from the stores would be replaced by a long-term reduction in payments that Pennsylvania is obligated to make to its pension fund.

Second, it would provide a soft landing for the displaced State Store employees by setting them up as owners of a proven business enterprise. They already know how to operate the stores and are free to innovate as long as they comply with state regulations. The United Food and Commercial Workers should have a vested interest in seeing its members succeed.

Third, Pennsylvania would maintain its wholesale warehousing and distribution operations. We are among the largest purchasers of alcoholic beverages in the United States, buying at deep discounts. The reason wine and liquor is so expensive here is because, unlike Delaware, we tax those items at 25 percent. Prices would rise if we got rid of that purchasing power.

Fourth, this would remove a perennial bone of contention from the budget process - an outsize distraction that is used more for pandering to special interest groups than to serve the commonwealth.