Liquor Store Privatization
Instead, he plans on adding to state debt with pension obligation bonds–essentially borrowing money to gamble in the stock market while hoping for a good return.
CF’s Nate Benefield talks with WAEB's Bobby Gunther about Gov. Wolf’s misguided borrowing plans.
Nate explains how pension obligation bonds have a terrible trackrecord. Even Pittsburgh’s Democratic Mayor Bill Peduto has publicly criticized Gov. Wolf’s plan to use pension obligation bonds, saying his city should be the litmus test that proves pension bonds are not a solution.
Gov. Wolf should listen to his constituents who want long-term solutions, not historic tax increases.
Click here or listen below to hear more.
Bobby Gunther is on WAEB News Radio weekdays from 5 a.m. to 10 a.m.
Pennsylvania Liquor Control Board (PLCB) partisans are quick to defend the agency as an asset for the state, but the PLCB’s finances—and the entrepreneurs who deal with the booze bureaucracy—tell a different story.
On the financial front, the board reported $117 million in net income this past fiscal year, representing a decline of 5.41 percent from 2013-2014. The decline coincided with the agency’s best sales year to date. Though, a monopoly reporting record sales isn’t exactly groundbreaking. No one would be particularly shocked if a private business was able to outlaw its competition and increase sales.
The decline in the liquor control board's "profitability" shouldn't come as a shock either. The agency forecasted the possibility in a July 30 memo last year, noting the decline was due to rising operational costs (driven mostly by pensions). The agency proposed increasing product prices by more than 16 percent to boost its profitability, but they quickly abandoned the idea.
Finances are only half the story. The board also causes constant headaches for entrepreneurs.
Ray Hottenstein, testifying in front of the House Liquor Control Committee on behalf of The Pennsylvania Restaurant & Lodging Association (PRLA), said the board's uncompetitive pricing structure is the biggest source of irritation for PRLA members:
It should be no surprise that pricing is the number one frustration of licensees in Pennsylvania. The five levels of mark-ups not only make Pennsylvania uncompetitive with other states but it makes it difficult and sometimes impossible for licensees to resell the product at a fair and reasonable profit. Licensees are not able to purchase wine and spirits from where we can get the best price, we are forced to pay whatever the state dictates with only a 10 percent discount.
Competitive pricing isn’t the only problem, according to Mr. Hottenstein:
The second largest complaint we have heard from our members is the lack of selection and poor customer service they receive at their local state store. Many of our members in less populated areas have said that their store is not regularly stocked and in some cases have to wait weeks for an order to be shipped from another store.
Unsurprisingly, the PLCB's inefficiency isn't confined to product availability. Jason Malumed, President of Chalkboard Wine + Spirits, gives his firsthand account of the state's disorganized liquor monopoly:
There have been many times when a several thousand dollar invoice of mine is at 120+ days past due (the PLCB also pays their invoices net 60, despite the industry standard being net 30), and we have not heard anything fiom the PLCB about why we have not been paid, only to go to the store ourselves, dig through piles of old, cancelled wine that has been sitting in a non-temperature controlled room, and discover an order of ours that was supposed to be returned back to us months ago.
The PLCB’s declining profitability along with its inability to provide true convenience, choice and competitive pricing to consumers and entrepreneurs make the agency a liability, not an asset, for Pennsylvanians.
Wolf’s reasoning can be summarized as this:
We shouldn't get rid of a "government asset." Prices will go up if we privatize. Despite rampant corruption at the agency, we should keep state control and "modernize" the asset.
This mirrors almost exactly the arguments made against leasing the Pennsylvania Turnpike eight years ago:
We shouldn't get rid of a "government asset." Tolls will go up if we privatize. Despite rampant corruption at the agency, we should keep state control and "monetize" the asset.
A proposed lease of the Pennsylvania Turnpike, proposed by Governor Ed Rendell and supported by the Commonwealth Foundation, would have netted Pennsylvania $12.8 billion in upfront lease payments. It would also have capped toll increases (after a planned increase in 2008) to 2.5 percent per year. Instead, lawmakers passed Act 44 of 2007 to "monetize" the Turnpike, requiring annual payments to the state funded by new debt (and backed by higher tolls).
This week, the Pennsylvania Turnpike Commission announced that tolls would increase by 6 percent next year, and 4.5 percent every single year through 2044. Cash tolls have already more than doubled since 2008, and there is no end in sight to increases.
The cost of a one-way car ride from Ohio to New Jersey has gone from $21.40 in 2004 to $48.90 next year.
Instead of leasing the Turnpike and receiving $12 billion in upfront funding with a cap on toll increase, Pennsylvanians instead have a massive increase in their debt and skyrocketing tolls.
Gov. Wolf is repeating the same mistakes of the past.
Instead of a liquor privatization plan that would generate additional revenue for the state—while providing consumers greater choice, convenience, and, yes, lower prices—Wolf is pushing for "modernization" which literally calls for raising prices on wine and liquor products.
Gov. Wolf promised to be a governor who would eliminate Pennsylvania’s destructive status quo. So how did he respond when state legislators put a budget without tax increases, a bill to privatize the liquor business and a bill to give more funding to schools on his desk?
Gov. Wolf promptly scribbled his veto pen across all of them, ensuring the status quo lives on.
Matt Brouillette spoke with WPHT’s Rich Zeoli about Gov. Wolf’s decision to veto all of these bills.
He explains Gov. Wolf executed his veto power to “take care” of public sector unions (his biggest campaign contributors) while ignoring the concerns of average Pennsylvanians.
Matt clarifies why Gov. Wolf’s own budget plan got zero votes in the House, saying it “presented spending and tax increases that exceed the other 49 states combined”. Gov. Wolf needs to lose the “my way or the highway” attitude and start chipping away at the status quo rather than allowing it to continue.
Click here or listen below to hear more.
Rich Zeoli appears on WPHT weekdays from 3 pm – 6 pm.
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Gov. Tom Wolf’s veto pen may be running out of ink.
In the span of one week, Pennsylvania’s “different kind of governor” vetoed a no-tax-hike budget, liquor privatization, the school code and the fiscal code. He is currently debating whether or not to veto pension reform, as well. But that’s not an exhaustive list.
By vetoing the budget bill, Gov. Wolf turned down a $100 million increase for Basic Education, a $20 million increase for Special Education, a $30 million increase for early education, and $50 million more for higher education. He even vetoed the implementation of a new, bipartisan school funding formula—particularly curious since the formula, which would distribute funds based on student need, has been universally applauded.
At every turn, Gov. Wolf has embraced and perpetuated the myth that Pennsylvania schools are underfunded and suffering from a phony “billion dollar cut.” The administration conveniently ignores the fact that Pennsylvania spending per student ranks 10th in the country, and total school spending is at an all-time high. Seemingly nothing can deter Gov. Wolf on his quest to raise taxes—in the form of income, sales, and severance taxes—on families and small businesses.
Rather than seek common ground or areas of compromise, the governor insists on a budget—his own—that was voted down 0-193.
Thankfully for working families who would be burdened by Wolf’s tax increase, even 4 billion vetoes cannot enact $4 billion in new taxes.
Last Thursday, Gov. Tom Wolf vetoed legislation passed by the general assembly that would allow private retailers to sell wine and liquor. As my colleague Bob pointed out, his reasons don’t hold up to scrutiny.
Others have noted the inconsistencies and lack of rational thought in Gov. Wolf's veto message. Jacob Sullum, writing for Reason, points out
The prediction of higher prices is not only inconsistent with basic economic principles and the experiences of the three dozen or so states that already have private liquor sales. It is also inconsistent with another major argument used by opponents of privatization, who say abolishing the state monopoly will lead to more drinking and more alcohol abuse.
The Pittsburgh Post-Gazette editorial board contrasts Wolf’s claim with the experience in neighboring states, where most Pennsylvanians actually shop for lower prices and better selection
But in written remarks Thursday, the governor claimed the bill made "bad business sense," saying it would mean "selling an asset and risking higher prices and less selection for consumers." Apparently, he's never had the far-better experience of buying a bottle of wine to go with dinner ingredients or the vast selection of adult beverages that is available across the state’s borders in New York, Ohio, West Virginia, New Jersey and Maryland.
Jonathan Adler, writing on the Volokh Conspiracy blog of the Washington Post, makes a mockery of Wolf’s veto message.
Pennsylvania Governor Tom Wolf vetoed the legislation, claiming allowing private wine and liquor sales would lead to "higher prices and less selection" for consumers. No, really. That was the explanation.
Adler, with his title, suggests Wolf doesn’t understand economics, or at least has other reasons.
To be clear, Gov. Wolf absolutely understands economics, and knows that a market-based system will result in lower prices and greater selection.
And Gov. Wolf certainly understands that "modernization" proposals, which literally call for government increasing the price of wine and liquor, will result in higher prices.
No, Gov. Wolf is simply parroting the rhetoric of government union leaders who gave $3.4 million to his campaign and now are demanding political return.
Of course, Gov. Wolf can't say in a veto message that he's beholden to union leadership and trying to raise money for a new PAC, so he pretends he doesn't understand economics and has never bought alcohol in another state.
The Pennsylvania legislature made history yesterday. For the first time since the creation of the state-controlled liquor system in 1933, both houses of the General Assembly voted to remove government from the business of selling wine and spirits.
The privatization plan, HB 466, would gradually phase out the state stores and lease wholesale responsibilities to the private sector for a period of 10 years. After the 10 years is up, the state would completely divest itself of the wholesale system.
The bill gives beer distributors the exclusive right to purchase a permit to sell wine and spirits for six months. After six months, any remaining permits will be auctioned off to interested buyers. Establishments with a "R" license (taverns, restaurants, hotels, grocery stores) will also be allowed to purchase a permit to sell wine and liquor. The entire plan is expected to net the state $220 million annually, mainly through the sale of permits, licenses, and renewal fees.
While the bill is far from perfect, it takes a big—historic—step toward ending the PLCB's stranglehold on one of the last vestiges of Prohibition in the country. Now, the only person standing in the way is Gov. Wolf. Let's hope he sides with the majority of voters over special interests.
Join us in thanking the legislators that voted for this bill. To see if your lawmaker was one of them, click the vote counts above and take a minute to send them a note of thanks.
- Strip club entertainment
- A stay at the Ritz Carlton
- Pittsburgh Steelers tickets
- Philadelphia Eagles tickets
- iPad 2
- World Series ticket
This is a just a short list of the items that former Pennsylvania Liquor Control Board (PLCB) official Timothy Fringer illegally accepted, according to the State Ethics Commission and reported by Kari Andren at the Tribune-Review.
Mr. Fringer joins a long list of PLCB officials accused of accepting bribes and committing ethics violations (you can read more from CF about those here, here, here, here, here, here, and here). In fact, Mr. Fringer is the fifth official to be charged just this year.
Corruption and waste have become synonymous with the PLCB. And it's important to remember that as long as the governor and the government unions blast privatization the culture of corruption at the PLCB will remain.
PLCB ineptitude is hardly the reason why the vast majority of Pennsylvanians—liberal, conservative, Democrat, Republican—support privatization. In short: Government has no business selling and advertising alcohol.
In addition to ending corruption and complying with public opinion, privatization makes financial sense. The vast majority of the PLCB's "profits" are simply tax revenue—revenue that would be generated by privately-owned businesses as well. Privatization would help recover the millions lost in border bleed to states like Delaware. And it would allow entrepreneurs to innovate, create jobs, and meet customer demand.
Until we get out of the booze business corruption will continue, Pennsylvanians will continue to cross state lines to buy their booze, and the PLCB will struggle to increase revenues.
Is liquor privatization in Washington State a “failed experiment"? That's the bold assertion from opponents of unshackling Pennsylvania from the chains of a government liquor monopoly. It’s also wrong.
Washington State’s Office of Financial Management released a report back in January on the impact of liquor privatization. Their findings decimate the claims that privatization is a failed experiment. On the contrary, privatization led to a number of positive developments:
- Liquor sales increased by 13 percent.
- Revenue collections increased by 18 percent.
- The number of liquor stores increased by 327 percent.
- Liquor store employment increased by 91 percent. (The report states that some of this growth may have occurred absent privatization.)
- Per-liter prices increased by 8 percent on average. This increase can be attributed to additional fees included as part of the privatization conversion and the state’s $35.22 per gallon excise tax— the highest spirits excise tax rate in the country.
- The costs of running the liquor system fell by 77 percent.
If Pennsylvania turns over the sale of liquor to the private sector without increasing taxes and fees (and we’re one step closer!), expect more jobs, better convenience, and competitive pricing.
For more on liquor privatization, check out this one-stop shop.
On Thursday, the Pennsylvania House of Representatives passed liquor privatization legislation sponsored by Speaker of the House Mike Turzai. You can see how your legislator voted in this interactive graphic from PennLive.com.
Back in 2013, the House passed the first liquor privatization bill since the end of Prohibition more than 80 years ago. With yesterday's vote, the House has recommitted to expanding choice and convenience for consumers by getting government out of the booze business.
We applaud the House for acting in the best interests of taxpayers and consumers and again recognizing that the vast majority of Pennsylvanians—no matter their political leanings—want government out of the liquor business.
Even with this victory, the liquor privatization debate is only just heating up. As talks continue, it's critical that these principles of liquor privatization undergird any changes to the legislation:
- Government should permanently and unequivocally get out of the business of selling alcohol and end the system in which state-run liquor stores, with all their advantages and taxpayer subsidies, compete against private mom & pop businesses.
- Only full privatization ends the conflict of interest inherent in having the Pennsylvania Liquor Control Board both regulate and promote wine and liquor sales with tax dollars. Modernization would allow the PLCB to continue to produce government-brand wine and fiascos such as the failed wine kiosk program, undermining Pennsylvania wineries, consumers, and taxpayers alike.
- Modernization or other measures that maintain the current state store system fail to move Pennsylvania into the 21st century and deliver the choice and convenience Pennsylvanians want. Modernization is like offering consumers a "touch-tone" phone—it's better than a rotary phone, but is a far cry from the smart phones consumers really want in 2015.
- To promote competition, lower prices, selection and convenience, lawmakers should allow the market to decide the number of outlets that can sell wine and spirits. At the least, the number of licenses should be set to the national average of retail outlets based on population, to keep Pennsylvania competitive with the rest of the nation.
- While beer distributors cannot expect to retain their protected oligopoly, proposals should treat them fairly in consideration of how much time and money they have invested in their business, including minimizing the cost of upgraded licenses and guaranteeing loan financing for new licenses.
Opponents of consumer choice will continue to employ the same scare tactics about privatization, but their arguments ring hollow (brush up on your facts and responses here). At the end of the day, government booze doesn't make us safer or economically stronger.
It's time to end Pennsylvania's Prohibition era once and for all.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.