Liquor Store Privatization
Finally some good news for booze consumers: the Pennsylvania Liquor Control Board (PLCB) has decided against increasing the markup added to each wine and spirits product, according to PLCB Chairman Joseph Brion.
The announcement came last week after an internal PLCB memo calling for a 16.6% increase in the PLCB’s markup received wide media attention, much of which was unfavorable. The proposal was being considered given the agency’s projection of a 20% reduction in their net income due to rising employee costs and government mandates. The memo itself quashed one of the anti-privatization movement's favorite talking points: that the PLCB is an unparalleled source of revenue for the state.
The PLCB’s decision to forgo the markup increase raises an important question, though: How will the agency make up the lost income, i.e., taxes it collects from consumers? Calls for "modernization" will undoubtedly be touted as a solution.
But instead of trying to mold the PLCB to work more like a private system, which is like pushing on a string, the state agency should be steered in a different direction, getting it out of the business of booze sales and ending its costly conflict of interest.
Union CEO Wendell Young issued a press release Wednesday claiming, "there's no nice way to put this but he [House Majority Leader Mike Turzai] is not telling the truth and he knows it."
This is what pscyhologists call projection— that is, attributing what you do (in this case, not telling the truth) to others.
Young, for instance, claims a state-commissioned report found "a transition to privatization would cost $1.4 billion over five years." Not true.
The report actually indicated that the total cost of running the PLCB would be $1.4 billion during the five years it takes to transition to a private system. But those annual operating costs would decline from $500 million to less than $100 million. Without privatization, the PLCB's operating costs would be about $2.4 billion over those same five years. That is, privatization would save state taxpayers $1 billion in operating costs.
We've pointed out Wendell's error on this point consistently, but he continues to repeat it.
But this is to be expected; Wendell has a long history of misrepenting the truth. He claims Rep. Turzai puts "politics above Pennsylvanians," yet:
- Wendell puts his personal politics above the well-documented majority of Pennsylvanians that want the state out of the liquor business.
- Wendell has misled the public, spending more than $1 million—from taxpayer collected union dues—on factually inaccurate ads.
- Wendell puts his personal politics above the interests of his own members and fee payers, by incorrectly disclosing how their dues and fees are spent.
- Wendell puts his personal politics above Pennsylvania law, by failing to register as a lobbyist, despite exceeding the law’s minimum requirements by significant sums.
The truth is, the liquor privatization plan put forth by House Majority Leader Mike Turzai last year, which passed in March of 2013, put Pennsylvania taxpayers and consumers first. Pennsylvanians on both sides of the aisle are tired of the state’s Prohibition-era liquor system, which has more government control than any state other than Utah.
Liquor privatization is only about politics within the Capitol, and that’s because Wendell Young spends millions of both workers’ dues and fair share fees to keep it that way. And as taxpayers, we continue to pay to collect the money that is used against this commonsense reform that would finally put Pennsylvanians – not politics – first.
Pennsylvania’s Prohibition-era liquor laws did nothing but provide headaches for two entrepreneurs, demonstrating yet again the absurdity of our state liquor code.
Stymied by a bureaucracy’s byzantine legal code, Knechel and Tracy attempted to acquire distilling and brewing licenses, but were repeatedly denied over the course of six months. The explanation? A simple “you don’t meet the current code” was given by the PLCB countless times, but both men persisted and continued to push for answers.
Knechel and Tracy were finally given a definitive answer: Pennsylvania law dictated that the PLCB could not issue two licenses to the same address. So to comply with the code, the men built an eight-foot wall, separating the property into two addresses.
This example of government inefficiency should not surprise those familiar with the PLCB. The antiquated system stunts the growth of local entrepreneurial projects, prevents innovation and denies choice, convenience and competitive pricing to those who demand it.
Pennsylvania needs a liquor system and code that works for both taxpayers and entrepreneurs, so we can finally leave the the relics of Prohibition behind.
posted by PAIGE HALPER | 09:22 AM | Comments
When questioned about why he failed to register as a lobbyist, UFCW president Wendell Young IV excused himself with a special exemption from the law that doesn't exist.
He told Pennsylvania Independent reporter Andrew Staub that he didn't need to register, basically because he’s kind of a big deal.
"Clearly, I do lobby, but it's not my primary function as president of the union," Young said, comparing his role to that of corporate CEOs, who don’t have to register although they might contact state lawmakers.
Um, that's false. Corporate CEOs do have to register, if they spend as much time and money lobbying as Wendell Young. The state lobbying law has some exemptions—but "not my primary function" or being a CEO isn't among those.
UFCW's own reports show that Wendell Young spends 8 percent of his time on lobbying and political activity. Given his annual compensation of $292,765, his payment for lobbying comes to $23,421 per year. That's way above the minimum threshold for registering as a lobbyist. Ignorance of the law is no excuse.
But this isn't the first time Wendell Young has invented his own facts. Here is a long list of other things Young has simply made up:
- A $300,000 ad campaign claiming wine in grocery stores will kill one child every week (note: the Tribune-Review wrote today how egregious this particular lie is),
- A $1 million ad campaign claiming liquor store privatization will result in more drunk driving accidents and children growing up without parents—an ad so false the rest of the nation just laughed at it,
- Claiming these ad expenses were "representational activities," not lobbying or political,
- Misquoting studies about liquor privatization,
- Making up, on the spot, that Pennsylvania has the lowest rates of alcohol abuse (among other myths) during an online debate,
- Accusing "privateers" of hijacking an online Pittsburgh Post-Gazette poll, and
- Claiming that union dues can't be used for politics,
It's pretty clear that Wendell Young thinks being a government union executive entitles him to make up his own facts, and even his own rules. But Pennsylvania taxpayers and union members deserve better.
Wendell isn't alone. Other union executives failed to register as lobbyists, and when taken to task, suggested that maybe they should follow the law, if they really have to.
When learning that Gene Barr, president of Pennsylvania Chamber of Business and Industry, is registered as a lobbyist, [AFL-CIO President Rick] Bloomingdale said it's probably a good idea for him to register, too.
"We’'e got nothing to hide," Bloomingdale said. "If we've got to do it, we'll do it, and that’ll be the end of it."
In a move that reeks of desperation, the United Food and Commerical Workers Union (UFCW) released a new ad with a ridiculous message: liquor liberalization will kill your kids.
Think I'm exaggerating? Watch and judge for yourself.
The ad is in response to the newest liquor plan being floated in Harrisburg.
Not only is the ad over-the-top, but its message belies the facts. We compared data from North Carolina (the state mentioned in the ad) with Pennsylvania, and found that Pennsylvania has a higher number and rate of alcohol-related traffic deaths involving underage drivers, which runs counter to the ad's claims.
|Past-Month Alcohol Use, Ages 12-20||23.0%||28.7%|
|Past-Month Binge Alcohol Use, Ages 12-20||12.8%||18.7%|
|Traffic Fatalities, 15- to 20-Year-Old Drivers with BAC > 0.01||49||58|
|As Percent of All Traffic Fatalities||23.0%||26.0%|
|Source: The 2013 Report to Congress on the Prevention and Reduction of Underage Drinking, https://www.stopalcoholabuse.gov|
Keep in mind, Pennsylvania is one of only two states to have complete government control of the wholesale and retail sale of wine and spirits. Yet North Carolina, which has more liberal liquor laws, saw fewer alcohol-related underage fatalities than Pennsylvania.
Of course, the UFCW is no stranger to making outrageous claims about liquor reform. Last June, the union released a reckless ad featuring a young girl at her father's funeral, implying liquor privatization would lead to more drunk driving deaths. As we have highlighted before, that's patently false.
In fact, the claim was put to the test in Washington state just last year. The result? Drunk driving deaths actually declined after Washington state privatized spirits sales.
The kicker? The latest "it only takes a little bit of greed to kill a child" TV ad was paid for with $300,000 in union dues collected by you, the taxpayer. Wouldn't it be great if there were some way to protect taxpayers and union members from helping government unions run such shameful ads?
"Today's featured wine has notes of bureacracy, boondoggles, and waste, with a lingering aftertaste of corruption. May I interest you in this PLCB blend?"
Unlike a fine wine, the PLCB seems to get worse with age. The latest revelation concerning the booze bureaucracy comes to us via the Pennsylvania State Ethics Commission. The commission found three former PLCB officials violated state ethics laws.
The violations include: accepting gifts from vendors who had ongoing contracts with the PLCB, using a position in government for personal benefit, and failing to disclose gifts on annual financial interest statements. The three officials, former CEO Joe Conti, former PLCB Board Chairman Patrick Stapleton and Director of Marketing Jim Short were showered with numerous gifts during their respective tenures. The gifts included invitations to golf outings, sporting events, meals, lodging, and alcoholic beverages.
Many of these violations occurred on the taxpayer’s dime with officials attending functions and accepting gifts during work hours. Not only that, but taxpayers were actually billed for some of the expenses related to these social functions. How many of you get to bill your employer for non-work related golf outings?
The findings of the Ethics Commission aren't the only things troubling taxpayers—so are the punishments. Chris Comisac of Capitolwire (subscription required) reports that some good government watchdogs are questioning why the penalties for these public officials are so light.
"It encourages public officials to roll the dice and take the chance they won't get caught," said Barry Kauffman, executive director for Pennsylvania Common Cause. But beyond that, Kauffman said it also creates a situation where those giving the gifts are buying access to those public officials, and at least the possibility of getting what they want from those officials....
"The only real penalty is that they have to pay for what they already have," added Kauffman. "That's really not much of penalty at all."
The corruption at the PLCB is a symptom of a larger problem. When a government monopoly has the sole authority to determine what products are sold on state store shelves, it shouldn’t come as a surprise that some businesses will try to influence those with such authority. Moreover, these same officials are tasked with regulating and enforcing the state's liquor laws. It's an inherent conflict of interest, and they serve neither purpose well.
As several states (Pennsylvania, Virginia, and Oregon) look to rid themselves of antiquated government-run liquor systems, the defenders of state-control status quo are fighting back harder than ever. And some aren't letting facts get in the way of their arguments.
More than a year ago, Washington state privatized liquor sales. Opponents of privatization in Oregon are nervously looking north, and touting a new "study" that shows emergency room visits in Washington have increased, as have thefts of liquor stores and alcohol accessibility to minors. The study, though, was actually a PowerPoint presentation by longtime liquor privatization opponents. Last week in Forbes, Donald Rieck, Executive Director of Statistical Assessment Service noted that many of the study’s claims are dubious at best and ignore general positive trends following privatization in Washington state.
In fact, according to the Washington Health Youth Survey, binge drinking (at historic lows) and other levels of problem drinking declined for grades 8, 10, and 12. There continues to be growing awareness among the same age group of alcohol’s harmful effects. As for the other questionable claims, Rieck notes, "the preponderance of data on the effects of privatization on Washington State suggests the exact opposite of the meaning conveyed by the [study]."
As we have continually detailed, liquor privatization does not lead to an increase in social problems, nor is there a correlation between government control of liquor and safety. Thankfully, the rhetoric here in Pennsylvania about the collapsing of society’s social fabric isn't fooling anyone: More than 60 percent of Pennsylvanians support liquor privatization.
It’s time to end the conflict of interest ingrained in Pennsylvania’s state system that promotes and regulates alcohol.
In a long overdue move, the PLCB is discontinuing its in-house wine, Tableleaf. As a refresher, Tableleaf is the PLCB's own government-branded wine, which it introduced in 2011. Tableleaf is made in California and directly competes with Pennsylvania's own burgeoning wine industry—and was backed by up to $10 million of taxpayer money in branding and marketing muscle.
The introduction of Tableleaf was an obvious bureaucratic overreach and squeezed out Pennsylvania entrepreneurs. Ending production of government wine brands is a win for taxpayers, consumers, and Pennsylvania wineries.
But that bad decision is only a symptom of a larger problem: The PLCB has sole authority over determining what wine and spirits are bought and sold in Pennsylvania.
The PLCB’s booze bureaucracy forces entrepreneurs to jump through a variety of hoops just to propose selling a wine or spirits product in Pennsylvania. It's a byzantine system, and here's how it works:
- In order to submit what the PLCB calls a "product proposal," you must first obtain a license from the Alcohol and Tobacco Tax and Trade Bureau (TTB), a federal government agency.
- Once you’ve obtained a license from the TTB, you must then apply for a Pennsylvania Vendor’s Permit, which costs $265, in addition to a filing fee that will run you about $700. According to the PLCB’s website, payment of these fees does not guarantee your product will appear on state store shelves.
- Now that you have both the federal license and the vendor’s permit, you can send a “listing proposal” (only twice a year) to the PLCB that must contain the following:
- A non-refundable listing proposal fee of $150 per item
- Two presentation packets that must include:
- Completed New Item Request Form
- Completed Standard Quotation and Specification Form
- Two copies of the front and back label of the product.
The packets and check must then be mailed to the “Office of Product Selection” in Harrisburg.
Congratulations! You have successfully completed the PLCB’s proposal process, that is, unless you’re required to make a presentation. If that’s the case, you must present your product to the product manager responsible for your product's category. Be sure to bring samples of your brand of wine or spirits.
Once the proposal process is completed, a decision follows. The PLCB's "Procedures and Policies for Vendors" states:
The Category Managers will make their recommendation to accept or reject an item based on several key factors, including price segment growth, category growth, projected annual profit per store, and marketing support being provided by the vendor/supplier.
The Director of Product Selection will submit recommendations to the Board for official decision.
Did you catch that? Even after completing the proposal process, the PLCB can still reject your product. And because the PLCB is a statewide monopoly, you do not have the option of pitching your product to another store. The PLCB has the final say.
Creating a successful business is difficult; state government should not make the process even more difficult by creating a bureaucratic maze for entrepreneurs to navigate just to sell their product.
The solution to this bureaucratic nightmare is full privatization. Entrepreneurs should not have their fate determined by a board in Harrisburg. Instead, they should be free to negotiate with private wholesale and retail owners on the market. That's true liquor liberty.
Liquor privatization has been a promise, a priority and even passed the House last year. And in the roughly 11 months since that historic vote, progress remains stalled.
But it's a new year. January 17 marked 94 years since the beginning of Prohibition, and the optimistic among us are asking, “Could 2014 be the year it finally ends in Pennsylvania?” Earlier this month, Senate Majority Leader Dominic Pileggi expressed hope to get privatization legislation to the Governor’s desk this spring, but reports indicate that privatization plans being considered would only go halfway.
What does halfway privatization mean? In short, the government will still have control over wine and liquor sales, but consumers may have a few new options in terms of where they can purchase some types of government-selected booze.
David Ozgo, chief economist of the Distilled Spirits Council, warns that "Like most halfway measures, privatizing only wine is a phenomenally bad idea that would do great financial harm to the state and consumers."
According to the Distilled Spirits Council, a half-step which keeps the PLCB in control of the wholesale side of alcohol sales—responsible for selecting what can be sold in the state, warehousing and delivering wine and spirits, and setting prices—will be worse than the status quo for consumers. It would likely result in reduced tax revenues, operating losses, higher prices, less convenience, and increased border bleed.
Not only is halfway privatization a bad idea economically, but it flies in the face of what Pennsylvanians actually want. Survey after survey shows that voters and consumers on both sides of the political aisle want full privatization, not "modernization" or halfway measures.
Consumers have patiently waited to get the choice and convenience they deserve and demand—and only full privatization will satisfy those demands. Send a reminder to your lawmakers today.
It has been 94 years since the beginning of the nationwide prohibition on the production, distribution and sale of alcohol. Fortunately, states had the good sense to repeal the 18th Amendment, which proved disastrous. Yet in Pennsylvania, it’s like Prohibition never ended.
While almost every other state has been freed from the shackles of state-controlled liquor, Pennsylvania still remains stuck in the early 20th century. The state controls both the wholesale and retail side of wine and spirit sales, prohibiting entrepreneurs from opening up their own shops, which would give consumers more choice and convenience. And the prohibitions don’t end there: The state regulates where and how much beer can be sold at restaurants, convenience stores, licensed beer shops and distributors. And the state prohibits shoppers from purchasing booze across state lines and bringing it back to Pennsylvania for consumption.
Despite bipartisan, majority support, Pennsylvania lawmakers have yet to get government out of the booze business largely because of government union lobbying and political spending against taxpayers’ interests. The worst part? Taxpayers are forced to pay for it all.
In addition to profiting from higher taxes and higher prices on government-sold wine and spirits, the United Food and Commercial Workers’ union (UFCW) uses taxpayer funds to collect union dues, fees and campaign contributions directly from employees’ paychecks—an exclusive legal privilege granted only to government unions.
Much of this political money is then used to lobby politicians and make campaign contributions to squash the very liquor privatization legislation that is supported by the majority of Pennsylvanians. Taxpayers are forced to collect money that is then used to fight against their interests
Given the forces working against taxpayers in the battle for liquor privatization, it is encouraging to see lawmakers resuming talks over removing the state from the liquor business to the consternation of its well-funded, politically privileged opponents. It's time to end Prohibition completely and give taxpayers the full privatization they demand.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.