Principles for Liquor Privatization

July 25, 2015

Key Points:

  • Government should permanently get out of the business of selling alcohol and end the system in which state-run liquor stores compete against private business.
  • Modernization fails to move Pennsylvania into the 21st century.
  • Only full privatization ends the conflict of interest inherent in having the PLCB both regulate and promote wine and liquor sales with tax dollars.
  • Pennsylvania is not safer or more sober because of government-sold alcohol.

A PLCB Special: Red Ink

NOVEMBER 3, 2015

Supporters of the state liquor monopoly defend the Pennsylvania Liquor Control Board (PLCB) as a cash spigot for the state, which is one of the reasons they refuse to support privatization. But the agency's days as a cash cow are numbered.

According to the PLCB’s own report, it’s on the verge of insolvency. After changing its accounting practices to mirror those used in the private sector, the agency ended the year more than $238 million in the red. Chris Comisac of Capitolwire lays out the biggest reason why (paywall):

Not only did the new accounting requirements mandate annual changes in the pension liability and other actuarial assumptions be reflected against the fund’s net income, the PLCB had to record on its financial sheets its share of the State Employees’ Retirement System (SERS) unfunded liability.

That means the PLCB’s $362.7 million pension obligation (2.9 percent of SERS’ total $12.3 billion unfunded pension liability), when applied to the State Stores Fund, leaves the fund in a negative net position. Compared to last year when the fund had a net ending position that was more than $77 million dollars in the black, FY2014-15 ended at negative $238.7 million.

The rising cost of pensions, along with other personnel expenses is eating away at the liquor board’s profitability. Its reported net income was only $84 million after accounting for all expenses. This figure is much lower than the one reported back in August and the lowest since the 2010-2011 fiscal year.

The PLCB’s poor finances are confirmation of what we already know: the state’s government-run liquor system isn’t an asset for taxpayers, just an asset for those in positions of power who use the system to enrich themselves.  

posted by BOB DICK | 10:33 AM | Comments

A Revolving Door of Corruption

OCTOBER 26, 2015

The revolving door of politics—when top government officials change careers and become consultants for the industry they once regulated—is alive and well in Pennsylvania. Except in the case of the commonwealth’s Liquor Control Board (LCB), the revolving door involves regulators who were previously cited for improperly accepting gifts and other forms of outright corruption.

Kari Andren of the Tribune Review has the story of formerly sanctioned LCB officials now representing the wine and spirits industry before the LCB:  

From January through mid-September, the former officials — and vendors who provided the gifts — collectively visited LCB offices more than 120 times, according to visitor logs for the Northwest Office Building in Harrisburg, obtained under the state's Right to Know Law.

The logs show:

• [Matt] Schwenk, now a spirits sales representative for Palm Bay International, visited LCB officials six times, typically in the product selection division. Palm Bay imports dozens of brands of wines and spirits. Schwenk was cited by the state Ethics Commission in 2014 for taking gifts of golf outings and trips from vendors.

• Former CEO Joe Conti, who accepted golf outings, dinners and gifts from vendors, attended board meetings and met with LCB attorneys and board Chairman Tim Holden. He's a registered lobbyist who counts among his clients Majestic Wine and Spirits, which distributed all but one of the LCB's controversial in-house brands of wines and spirits, and the United Food and Commercial Workers union representing liquor store clerks.

• Former LCB Chairman Patrick “P.J.” Stapleton, who accepted rounds of golf, meals and Philadelphia Phillies tickets, has made three trips to the agency. He is a partner at the law firm Weber Gallagher in Philadelphia, where his biography notes that he has represented alcohol suppliers regarding recent changes to the state liquor code.

As Andren explains, sanctions against LCB officials are not roadblocks for these same individuals to gain lucrative employment in the alcohol industry. This lack of accountability could explain why LCB officials hindered the release of information that, according to Pennsylvania’s open record law, should be matter of public record. Why follow the law when there are no consequences?

My CF colleague Dawn Toguchi said it best: You can’t spell corruption without L-C-B. The state's monopoly over the wine and spirits industry has produced numerous scandals on top of its shoddy service and uncompetitive prices. 

Now add the revolving door of corruption to the endless list of reasons to get the government out of the alcohol business, once and for all.

posted by JAMES PAUL | 04:39 PM | Comments

Audio: Getting Government Out of the Booze Business

SEPTEMBER 16, 2015

A majority of Pennsylvanians support a privatized liquor industry, but government unions use their financial clout to ensure the state government maintains a monopoly over wine and spirits.

WILK’s Sue Henry spoke with CF’s Matt Brouillette to discuss his recent op-ed in National Review that outlines the problems created by the governement's liquor monopoly–including a system of corruption and higher prices for consumers.

Infusing competition into the industry would solve these problems. Matt explains that “competition provides greater choice for consumers, competition for the providers, and ultimately it will result in better prices for all the people who buy alcohol in Pennsylvania.”

Getting the government out of the booze business and dismissing groundless myths will allow the state to focus solely on its role of public safety and enforcing liquor laws, rather than promoting the sales of wine and spirits.

“It’s better to have the government in the role of oversight rather than in the role of selling liquor.”

Click here or listen below to hear more.

The Sue Henry Show airs weekdays from 9:00 a.m. - 12:00 p.m.

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posted by JONATHAN REGINELLA | 09:36 AM | Comments

The PLCB: Fermented Grape's Gatekeeper

SEPTEMBER 14, 2015

Last week 90.5 WESA published a story about the PA Preferred Wine Program—a tool designed to help promote Pennsylvania wines. The program allows in-state wine producers to apply for the chance to sell up to 10 products in state stores.  

According to the rules governing the program, wine producers must pay $150 for each wine application, which can only be submitted during a short “listing period.” Apparently, this is what qualifies as a "business-friendly practice" in the world of the Pennsylvania Liquor Control Board (PLCB).

In reality, the PLCB hinders entrepreneurs looking to sell their products in Pennsylvania. One PLCB-created roadblock is the uncompetitive price system imposed on its vendors. WESA explains:

That system can be a non-starter for some wineries. Reduce their profit margin too much to offset the state markup and they won’t make any profit; sell the wine at a higher price and potentially turn off customers. Some Pennsylvania wineries are simply too small to provide enough wine to sell in stores, while others only want their product available at their home-base, liquor lawyer Mark Flaherty said. [Bold mine.]

If wineries don’t believe they can make a profit selling to state stores, their consumer base in Pennsylvania shrinks dramatically because of the PLCB's retail monopoly:

Pennsylvania is one of the largest buyers of wine and spirits in the world. Because the state owns the system, there’s only one gatekeeper accepting or rejecting the products that make it into the stores.

Concentrating so much power in one agency has predictably led to corruption and mismanagement. To continue with the current system as-is would be a slap in the face to Pennsylvanians. The people of this state deserve better.

To improve the system, the state's liquor laws need to be modified to reflect the age of Uber, rather than the age of Capone.

posted by BOB DICK | 10:30 AM | Comments

Audio: Budget Impasse Debate

SEPTEMBER 10, 2015

With the state budget impasse in its third month, funding for critical things such as education and social services remains in question. 

CF’s Elizabeth Stelle spoke with WHYY’s Marty Moss-Coane and opposite Keystone Research Center’s Stephen Herzenberg regarding the impasse and why a compromise has not been reached in Harrisburg.

Among the key points at issue in the budget discussion have been education funding, Wolf's proposed severance tax, pension reform, and liquor privatization.  

While Gov. Wolf claims to have made concessions on everything, his “compromise” contains most of his original plans to hike taxes on hardworking Pennsylvanians. And despite the legislature's offer to meet in the middle, the governor continues to push for income and sales tax increases.  

Click here or listen below to hear Elizabeth explain what can be done to pass a taxpayer-friendly and fiscally responsible budget.    

Radio Times with Marty Moss-Coane airs weekdays 10-11 a.m. and 11-noon.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

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posted by JONATHAN REGINELLA | 10:12 AM | Comments

Corruption is Spelled P-L-C-B


When it comes to government corruption investigations, Attorney General Kathleen Kane has dominated the conversation this summer. But now, as if seemingly miffed at the spotlight being taken away from their own scandals, the Pennsylvania Liquor Control Board's (PLCB)'s culture of corruption is once again making headlines.

For those of you catching up, we've written about various recent PLCB scandals here, here, here, here, here, here, here, and here.

And today, we add to the list former Director of Marketing & Merchandising James Short. Short pleaded guilty to federal charges of soliciting and concealing bribes and kickbacks that ranged from all-expense-paid golf trips to shiny new cuff links. Short accepted these from vendors seeking to do business with the PLCB at its stores statewide—namely, the stores that Pennsylvanians are forced to shop from if they want to buy wine and spirits in state.

The culture of corruption at the PLCB shows precisely why Gov. Wolf was wrong to veto liquor privatization this summer. When a few bureaucrats like James Short are given the power to control what products Pennsylvania residents can buy, it's no surprise that vendors offer lavish gifts to earn bureaucrats' favor. Clearly some officials are all too willing to accept them.

For years now, the government liquor monopoly’s headlines of ethics scandals have sounded more like a broken record than breaking news. But the biggest scandal of all is that taxpayers continue to fund the state-run system—of which only Utah is a counterpart—that invites this corruption.

As long as Gov. Wolf determines that bureaucrats have the power to determine wine winners and liquor losers, customers, job creators, and taxpayers pay for the scandals, inconvenience and inefficiencies of a government alcohol monopoly.

posted by DAWN TOGUCHI | 02:26 PM | Comments

Ridesharing Freedom En Route to Pennsylvania

AUGUST 28, 2015

Uber and Lyft provide inexpensive rides to customers across the country despite numerous regulatory hurdles—chief among them the Philadelphia Parking Authority, which has previously thwarted the businesses from operating within the city. Recently introduced Senate Bill 984, however, would allow Uber and Lyft to compete in Philadelphia.  

This legislation, sponsored by Sen. Camera Bartolotta, establishes the framework under which ridesharing companies can freely and safely operate within all 67 counties of the commonwealth. SB 984 requires background checks and a zero tolerance policy on drug and alcohol use for prospective drivers. Uber and Lyft will also be required to maintain insurance coverage and abide by vehicle safety regulations.

According to a recent study from the Cato Institute, many concerns surrounding ridesharing are unfounded. Critics typically point to safety concerns as their primary objection, but Uber and Lyft actually offer a safer alternative to the taxicab monopoly—both for drivers and passengers.

A major factor ensuring this increased safety is the utilization of an electronic payment system. All Uber and Lyft transactions are completed via their respective smartphone apps. This eliminates many of the risks facing drivers. Since cash never changes hands, drivers are less vulnerable to robbery.

Additionally, unlike a traditional taxi service, where passengers are anonymous, Uber and Lyft customers must create electronic profiles to use the ridesharing services. These measures ensure added safety for drivers, as any criminal activity could easily be linked to a user’s profile information stored on the ridesharing app.

The structure of Uber and Lyft protects the passengers, too. The passenger knows the name of the driver, the make and model of the car, and the license plate number upon ordering a ride.

Immediately after the ride is over, the passenger can rate the driver from their smartphone, which gives passengers influence over future demand for the driver. Indeed, user ratings, combined with the ability to choose your driver, provides riders far more protection than government licensing mandates.

Sen. Bartolotta’s legislation will increase competition and provide consumers with more options at better prices. It’s time to bring ridesharing freedom to Pennsylvania.

posted by JAMES PAUL | 09:14 AM | Comments

Entrepreneurs Speak Out Against the PLCB

AUGUST 10, 2015

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.

posted by BOB DICK | 03:48 PM | Comments

Wolf Repeating Same Mistakes of the Past

JULY 9, 2015

Earlier this week, we pointed out how Gov. Tom Wolf's veto of liquor privatization—using talking points from union leaders to justify his action—didn't make much sense.

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.

Turnpike Tolls to 2044

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.

posted by NATHAN BENEFIELD | 02:26 PM | Comments

Audio: Gov. Wolf's Vetoes Keep the Status Quo Alive

JULY 8, 2015

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.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

And for mobile listening, get the SoundCloud iPhone and Android apps.

posted by JONATHAN REGINELLA | 03:29 PM | Comments

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