Liquor Store Privatization
"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.
Yesterday, we gave you the 5 most popular blog posts of 2013. Today, we are highlighting the 5 most read articles of 2013 on our website.
Getting government out of the booze business would eliminate conflicts of interest, stop government from freezing out Pennsylvania wineries, reduce opportunities for cronyism, eliminate taxpayer-funded boondoggles and allow the PLCB to focus on its mission as a regulatory agency. Privatization means ending the government monopoly over both wholesale and retail operations and returning to a free market.
State spending on public schools is at an all-time high. Critics claim that Gov. Corbett “cut $1 billion” in education spending in the state budget. But in 2011-12, federal stimulus funding—$1.3 billion of which was used for public education in 2010-11—disappeared. The following year, the state budget increasedstate dollars for public schools by $480 million. The 2013-14 budget would spend nearly $10 billion on PreK-12 education. This represents a record high, even greater than state plus federal stimulus dollars.
In 2012, Pennsylvania’s primary government unions spent more than $4.9 million from union dues on political activities and lobbying, a 64% increase from 2006.
A new survey—the most comprehensive examination of Pennsylvanians' attitudes towards liquor privatization to date—shows that 66 percent of likely voters want to privatize Pennsylvania’s government-run wine and spirits system. Strong, bipartisan support for the measure was revealed, even among union households.
Pennsylvanians deserve Medicaid reform that provides robust choice to meet individual needs, gives flexibility to tailor benefits and reduce unnecessary costs, and creates incentives for Medicaid recipients who maintain healthy lifestyles and seek preventative care.
As 2013 winds to a close, we thought we'd run down the top stories of the past year. Here are Commonwealth Foundation's top 5 blog posts, as chosen by you the readers:
Members of the House of Representatives made a historic vote today by passing HB 790, a vote to end the state government's Prohibition-era liquor system in Pennsylvania.
Three days into the live exchanges many still do not know if their rates will increase. For many Pennsylvanians, the answer is most assuredly yes. Yesterday, the federal government released a sample of rates on the exchange for each county in the nation. We did a quick analysis of current insurance premiums on ehealthinsurance.com in Philadelphia and Pittsburgh.We compared the lowest premiums to the minimum rates that will be available on the exchange. Not surprisingly, young adults will face the largest premium hikes.
I am a Western Pennsylvanian and my Sheetz card is practically falling off my keychain due to overuse. But you don’t need to know a Shmiscuit from a Shmuffin to be embarrassed by recent comments about Sheetz in a Senate liquor privatization hearing: "They rip people off every day." Another outrageous union boss comment? No, a state senator.
Remember the shadowy group, Pennsylvanians for Accountability, which ran "shell game" prime time attack ads on Gov. Tom Corbett for "bankrolling big tax cuts for his corporate backers"? Now it turns out the National Education Association gave a whopping $650,000 to Pennsylvanians for Accountability this year.
If you like a good deal, nothing beats shopping during the holidays. Retailers will do whatever it takes—sales, coupons, early bird specials—to get an edge over their competition, all to shoppers’ delight. But what if you have no competition? What if, say, you’re a government-run liquor monopoly?
In that case, like the PLCB, you simply pretend to satisfy consumer needs. The PLCB's half-hearted efforts were obvious yesterday, on Cyber Monday, when the PLCB offered free shipping for online purchases. Not free shipping to your home—but to the government store of your choice. How customer friendly! After you select the wine or spirits the government has decided you can buy as a Pennsylvania resident, you are then afforded the luxury of driving to a store to pick it up at their convenience, not yours. Imagine if your Amazon order was only available for pickup during business hours at a government agency.
Meanwhile, in Washington state, which privatized spirit sales over a year ago, stores are competing and consumers are winning. The Columbian reports, “Local spirits sellers are pulling out all the stops to compete for those sales. It's a contest that has some retailers expanding store liquor departments, others carrying holiday gift packs and some offering extra services such as online sales and abundant, well-trained sales associates on the selling floor.”
If that doesn’t put you in the holiday shopping spirit, perhaps the PLCB's Holiday Gift Guide will. In it, the government recommends what alcohol you should purchase for the “trendsetter” or “business associate” in your life. And don’t forget, the same agency that’s promoting the purchase and consumption of holiday-related booze is also the same agency tasked with educating and enforcing responsible consumption. Conflict of interest, anyone?
No matter how they try to mask it, the PLCB can’t serve consumer needs like the private sector can. But until we end the government booze monopoly, happy holidays from the PLCB—your only choice for seasonal spirits in Pennsylvania.
A change has come to Pennsylvania's state-controlled liquor monopoly that will improve the customer experience, according to the PLCB. Are we finally going to get liquor privatization after eight decades? No. According to the Times-Tribune:
Companies that sell liquor and wine to the LCB like Diageo, a British-based liquor supplier, now retain ownership of that liquor while it's stored at the warehouse. The LCB takes ownership of the inventory when it ships from the warehouse, a departure from past practice where the agency owned the liquor while in the warehouse.
The new arrangement is said to improve costs and efficiencies because companies now have the ability to ensure high in-stock levels at state stores, which will lead to more sales. But this improvement is like putting a Band-Aid on a broken leg.
If you have been following our work on the PLCB, you'd be rightly skeptical of inventory system improvements. The PLCB has already had its fair share of inventory problems. Not long ago, they poured $66 million in taxpayer money—nearly two-and-a-half times the estimated cost—into a "state of the art" inventory system that failed to allocate adequate product levels, causing widespread shortages at retail outlets.
Regardless, a simple inventory improvement doesn’t change the fact that the current system still cannot adequately serve the business community or consumers. The PLCB doesn't deliver to restaurants, bars and taverns. And it contracts with private companies for warehousing and even delivery to their own state stores. One of those companies is Kane Warehouse, Inc., owned by the husband of Attorney General Kathleen Kane, which received more than $12 million in payments from the PLCB last year. And the PLCB's economies of scale, which are greatly exaggerated, have not been effective at holding down prices, as compared to other states.
PLCB officials announced, “The goal of the distribution system is to get the right product to the right store at the right time so customer needs are satisfied.” If that is truly the goal of the PLCB, then privatization is the real solution. Entrepreneurs—not a mismanaged government agency—can better serve consumers in their communities.
Public safety improved in Washington state after liquor store privatization, we told you back in July. As further data comes in, the results continue to impress: Most state alcohol-related arrests continue to decline. DUI collisions and charges for “minor in possession” both improved following privatization.
But what about preventing sales to minors? Pennsylvanians have heard the UFCW claim they can do it better than the private sector, though state police don't peform sting operations in PLCB stores. Here's how they've fared in Washington:
Judging from the first year of data, the private sector has stepped up to this challenge. According to the WSLCB’s “Compliance Rates for Retailers Since 2012,” those private sector stores with at least 10,000 square feet (as required by Initiative 1183) or former state contract stores have averaged just over a 92 percent compliance rate. The most recent check for August 2013 showed a compliance rate of nearly 94 percent. These numbers do not show a significant drop in compliance rates with private liquor sales.
Using data from the Washington State Patrol, the Washington Policy Center has found that the improving trends of alcohol-related arrests in their state were not reversed, to the consternation of privatization opponents who claimed otherwise.
State control wasn’t keeping Washington residents safer. And now residents are enjoying improved public safety reports, in addition to increased sales and tax revenue, thanks to ending their government alcohol monopoly.
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