Privatization

Critics of liquor store privatization claim that a CDC study suggests liquor privatization would result in greater social harms.  The problem: The flawed study doesn't support that claim, and the Task Force admits that they can't find a link between privatization of liquor sales and social harms.

Here is my letter to the Pittsburgh-Tribune Review questioning one critic who keeps repeating this misinformation.

Ironically, Keystone Research Center executive director Steve Herzenberg's letter “One-sided & ill-informed” (May 15 and TribLIVE.com) about Eric Heyl's column “Here a shot, there a shot: Propaganda flows freely in Pennsylvania debate over liquor stores” (May 4 and TribLIVE.com) is itself replete with factual errors.

Herzenberg writes that a task force of the Centers for Disease Control and Prevention concludes “privatizing alcohol sales would increase excessive drinking, alcohol-related traffic fatalities and other drinking-related social problems.” But the task-force report makes none of those findings.

In fact, the task-force report notes “research gaps” that include “limited available evidence of effects of privatization on alcohol-related harms” and “insufficient evidence to determine the effects of privatization on excessive alcohol consumption and related harms.”

Herzenberg and his government-liquor-union-funded organization are entitled to their opinion, but not their own facts.

I don't know if he is ill-informed or simply distorting the truth, but either way, the claims he makes are demonstrably wrong.

Have you heard that liquor privatization is dead? Or maybe just mostly dead? Well, as one of the great philosophers of our time (Billy Crystal in The Princess Bride) once said: "There's a big difference between mostly dead and DEAD." And here in Pennsylvania, there’s a big difference between mostly dead and where liquor privatization actually stands.

The two Senate hearings have frustrated liquor privatization advocates, to be sure, but key Senate lawmakers are publicly acknowledging and supporting some of the major components of privatization that consumers demand: choice and convenience.

Senate Law & Justice Committee Chairman Chuck McIlhinney stated that his privatization plan includes, "Ten times the number [of licenses than] in the House bill, albeit probably 30,000 less than the governor wanted." And Senator Joe Scarnati, President Pro Tempore, recently wrote in an op-ed:

That is why many were encouraged when, after years of hard work and long debate on the issue, the House of Representatives recently passed HB790.  While far from perfect, passage of this legislation was an important first step in advancing the cause of privatizing our state liquor system, which I also support. I will continue to work … to craft a privatization proposal which increases consumer choice and convenience for all areas of the Commonwealth, while protecting our small business owners who have invested so much in their communities.

These are encouraging statements for Pennsylvanians who want to buy their beer, bread, and Bordeaux in one place. But, while increasing choice and convenience is critical to liquor privatization, so too is ending the government’s monopoly on wholesale wine and spirits. As my colleague Elizabeth Stelle recently wrote: "The reality is a monopoly over wholesale pricing and distribution is a monopoly over all liquor sales. Wholesale privatization is essential to securing the convenience consumers want without burdening taxpayers."

Ending the government’s wholesale monopoly is critical for the true privatization that Pennsylvanians want and deserve.  To better understand why, check out: Why Privatizing Liquor Wholesale Matters to You and Liquor Privatization Done Right.

As Yogi Berra once quipped, "It's déjà vu all over again." Another year and another audit of the PLCB released by the Auditor General’s Office found mismanagement at the state agency. The report noted the agency is plagued by "internal control weakness over financial reporting for capital assets." (Still awake?)

In other words, the PLCB lacks any policy to label and keep track of its inventory properly. Why is this a big deal? The audit found out of a random sample of ten items, six were no longer in use, or could not be identified by PLCB employees. The price tag for these six items: $1.047 million.

The problems don’t end there. Kari Andren has more:

The audit found that the agency's internal controls over its Information Business Management System, which tracks store and warehouse inventory, agency assets and other financial details, are deficient.

• An "excessive number of users," including contractors, can add, change or delete user IDs and data. And a group of users can log in and make changes in the system under the same user ID, rather than individual IDs. The LCB does not have a policy or procedure in place to monitor the use of those functions.

• Credit card users who made purchases in state stores between Nov. 23 and Nov. 28, 2011, were charged twice because the computer monitoring did not detect a problem with the transactions. Cash-paying customers were not affected, and the LCB removed the duplicate credit card charges in March 2012.

This type of mismanagement is nothing new for the PLCB, yet opponents of liquor privatization are pulling out all the stops to prevent change.

Pennsylvanians deserve better than a wasteful, outdated government monopoly on wine and spirit sales. They deserve more choice and convenience at lower prices, which is why it's way past time to get government out of the booze business.

A study frequently cited by liquor privatization opponents is soundly debunked in an article by Trevor Butterworth, a statistics guru at Forbes.com. Butterworth dismantles the methodology of the Center for Disease Control’s (CDC) Task Force study that claims privatization would increase alcohol consumption (though admitting no connection with alcohol-related harms). Mr. Butterworth’s critique concludes with a few choice words:

[…] whatever way you parse the recommendations of the Task Force, and their adoption by the CDC, such reasoning is about as robust as Styrofoam. This is an astonishing abuse of data in the service of trying to sway legislation – and one which points to an agency being driven by politics and ideology, and not by science.

Why such an emphatic condemnation? The Task Force study relies on something called Single Distribution Theory to reach its anti-privatization conclusion. This theory contends that changes in the mean alcohol consumption level result in corresponding changes in consumption levels for all alcohol drinkers. So, if liquor stores are privatized and alcohol consumption increases, Single Distribution Theory suggests that those who use alcohol irresponsibly will also be drinking more, resulting in more DUIs and other social ills.

The problem is, Single Distribution Theory has been essentially debunked for more than a decade for a variety of reasons explained by Mr. Butterworth. To put it simply, some people wouldn’t accept a drink for free, while others, like many Pennsylvanians, are willing to skirt the law and drive across state lines to get the products they want. These bootleggers will not necessarily be drinking more under privatization; they will just be keeping their tax dollars in Pennsylvania and employing workers in our own state.

He also points to another major flaw in the research. The Task Force found a 44 percent increase in median alcohol consumption in states after privatization. But this is mostly the result of the dramatic rise in wine consumption across the U.S. over the past few decades—an increase which also occurred in states that did not privatize alcohol.

Butterworth aptly calls the study, "an astonishing abuse of data in the service of trying to sway legislation,"—very convenient for vested interests currently seeking to keep Pennsylvania stuck in the 1930s, but very inconvenient for the rest of us.

A year ago this June, the government liquor monopoly ended in Washington state.  Critics of Pennsylvania’s plan to privatize state wine and spirits stores have pointed to Washington as an example of the negative consequences of privatization, yet Washington has seen liquor tax revenue increase by 12 percent and liquor sales increase by $23 million compared to last year.

Many of Washington's lawmakers, including Senate President Pro Tempore Tim Sheldon (D), have praised the state’s privatization efforts. Sen. Sheldon states:

Liquor privatization was a good idea when the voters approved it, and it's a good idea now. Washington state's implementation of privatization is still, however, a work in progress. While we no longer have state liquor stores, the state is still highly involved in regulating the industry, especially in areas like wholesale distribution. The dust is still settling during this transition, but I remain convinced that what will ultimately emerge is a system that will be fairer to consumers and to private business. Liquor privatization continues to be one of the most visible reforms that our state has done in years.

Today, almost two months since the House passed HB 790, the Senate Committee on Law and Justice holds its second hearing to discuss liquor privatization.  In weighing whether to end Pennsylvania's 80-year old government monopoly, lawmakers shouldn't just listen to folks saying "we've always done it this way", but also examine the successes in the 48 states that allow some degree of private sellers of wine and liquor.

The United Food and Commercial Workers Union (UFCW) is spending a million in order to save a million—every year!

The UFCW announced a $1 million statewide television ad buy attacking "reckless" liquor privatization proposals.  But the real "reckless scheme" is the union’s shameful attempt to mislead the public to protect its own political and financial largess.  The Commonwealth Foundation estimates that UFCW 1776 receives approximately $1.2 million annually in forced union dues collected from roughly 2,100 members employed in the state-run liquor stores.[1]

Let’s look at some of the false claims in their reckless ad:

• Claim: Liquor privatization will increase taxes.

Fact: There are no new taxes in the privatization legislation.  Tax revenue is expected to increase after privatization because of increased sales. Pennsylvania currently loses hundreds of millions of dollars each year due to residents purchasing their wine and spirits in other states.

• Claim: Liquor privatization will cost 5,000 jobs and destroy small businesses.

Fact: Ending the government monopoly on wine and spirits sales will mean additional investments in Pennsylvania, creating thousands of new jobs.  Right now, the best paying job a government wine salesman in Pennsylvania can hope for is a union president’s six-figure salary. Under a private system, a wine clerk could own his own store.  That’s the American dream.

• Claim: Privatization will put alcohol on every street corner.

Fact: The current legislation only allows for 1,200 additional licenses.  That amount doesn’t put Pennsylvania anywhere near the national average of stores based on population.  In fact, the PLCB has already granted more than 25,000 alcohol licenses and permits to restaurants, taverns, and beer distributors.  It is reckless to suggest this proposal to bring Pennsylvania into the 21st century spells doom for the state.

Misleading advertising is not the only tactic the UFCW has used to try to stop liquor privatization.  In March, union president Wendell Young IV tried to shout down a Capitol press conference and harassed numerous speakers (click here for video).  UFCW leaders have even accused "privateers" of rigging a non-scientific Post-Gazette online poll to show public support for privatization—even though scientific polls consistently show voters support liquor store privatization.

Pennsylvanians know the truth: Maintaining a Prohibition-era government monopoly known for corruption, incompetence, and waste is the real reckless scheme. For more information on liquor privatization, visit BoozeFacts.com.

As liquor privatization discussions are occurring in the Senate, some have suggested maintaining the PLCB’s wholesale monopoly while simply turning state retail stores over to private sellers. After all, Pennsylvania consumers just want the convenience of picking up a bottle of wine at the grocery store, right?

The reality is a monopoly over wholesale pricing and distribution is a monopoly over all liquor sales. Wholesale privatization is essential to securing the convenience consumers want without burdening taxpayers.

• Wholesale competition is needed to deliver better selection and lower prices.  Getting government out of the wholesale business is foundational to any real privatization plan.  Maintaining the PLCB’s monopoly of the wholesale function of selling wine and spirits will limit the selections and competitive pricing available to consumers.  Creating a competitive wholesale system—whereby restaurants, bars, taverns, and other retail outlets have competitive wine and spirits choices—is critical for a functioning retail marketplace. 

• PLCB's wholesale monopoly can’t serve current, much less expanded, retail outlets. The PLCB has continually proven itself inadequate to the task of meeting the retail needs of restaurants and taverns.  As Rep. Kurt Masser explained the PLCB’s ordering process: "I get my meat delivered to my restaurant. I get my produce delivered to my restaurant. I get my beer delivered to my restaurant.  I have go pick up my liquor order. I can’t get it delivered.  And if the liquor order is wrong, I have to take it back to the store and redo it."  A competitive wholesale system will better serve Pennsylvania’s small businesses.

• Wholesale privatization shifts the risk off taxpayers and consumers.  When the PLCB makes a mistake, such as the $66 million "state of the art" inventory system—which  failed to allocate adequate product levels, causing widespread shortages, massive hoarding by store managers and, later, to over-ordering—it is the taxpayers and retailers who have to pay.  If a private wholesaler makes such a mistake, those losses cannot be shifted to consumers or taxpayers. A competitive wholesale system forces the wholesaler to pay for his own blunder.

• Moreover, the wholesale monopoly has allowed bureaucrats to jet-set on taxpayers' dime. From 2007-2011, 14 PLCB employees visited exotic destinations such as Paris, Dubai, New Zealand, Catalonia, Barcelona, Lisbon and Argentina, often at taxpayer cost. The rest was paid by foreign governments and corporations hoping to have their products sold to a captive audience. And the PLCB outfitted a $35,000 wine tasting room, dubbed "the wine shrine," complete with leather chairs, sofas and big-screen TVs to "educate palates" of Pennsylvania consumers.

• Wholesale privatization would end the PLCB's conflict of interest.  The PLCB is like an arsonist teaching fire prevention.  On the one hand, the PLCB is marketing and advertising to increase alcohol consumption, while on the other hand it is tasked with regulating and policing it.  Getting the government out of the booze business—and focused solely on the regulation of the industry—is critical for ending the conflict of interest inherent in the PLCB’s current role as both the purveyor and regulator of alcohol.

For more on liquor privatiziation, check out BoozeFacts.com.

A recent Philadelphia Inquirer piece tries to give both sides of the debate over liquor privatization.  But one key fact ingored was that the Community Preventive Services Task Force report—a report often cited by privatization skeptics—admits there isn't evidence linking liquor store privatization to social harms.

In its own analysis of "research gaps," the Task Force writes that there is "limited available evidence of effects of privatization on alcohol-related harms" and "insufficient evidence to determine the effects of privatization on excessive alcohol consumption and related harms."  They even note this is inconsistent with their own recommendation.

The Task Force reviewed 21 studies with more than 30-year-old sales data, some of which found increased consumption following privatization; others found no change or decreases.  None of the studies found increases in alcohol-related harms. In 2007, the Task Force took no position on privatization of liquor sales—then changed their position without any new evidence!

The bottom line? There is widespread agreement on liquor privatization.  We agree with the Task Force report that ending the government-run monopoly will make buying wine and spirits more convenient for consumers.  But we also agree that there is no evidence linking social ills to liquor store privatization.

You can find more information on liquor store privatization and social impacts here.

Sen. Daylin Leach's editorial on liquor store privatization repeatedly misstates facts. Here is my letter to the editor in the Delaware County Times to set the record straight:

To the Times:

Senator Daylin Leach, a former stand-up comedian, is one of Pennsylvania’s funniest politicians. Unfortunately, his letter on liquor store privatization is little more than a bad joke.

For starters, Leach claims government-run liquor stores generate $500 million for the state treasury that would vanish under privatization. But this revenue is simply what the stores collect from consumers in taxes and excess charges. Not only would it continue under privatization, an economic analysis of Gov. Corbett’s proposal projects private stores would produce even more in taxes and fees for the state.

Leach then delivers his punch lines — first, that privatization would push prices up and convenience down, then that private alcohol sales would jeopardize public safety.

But the facts tell a different story. The journal Addiction found liquor prices were about $2 per bottle lower in states with private stores than those with government retailers, like Pennsylvania. And, according to a survey of its own customers, the PLCB found nearly 45 percent of Philadelphia area residents buy alcohol in other states—breaking the law to do so — to get the prices and convenience they want. This border bleed costs Pennsylvania hundreds of millions in sales every year.

Moreover, government control of liquor sales has little impact on social problems like underage drinking or driving under the influence, something the Commonwealth Foundation has extensively analyzed and posted on our website, BoozeFacts.com. In fact, most alcohol in Pennsylvania is already sold by private vendors like restaurants, taverns, and beer distributors.

As the Senate debates liquor store privatization, lawmakers like Sen. Leach should rely on facts, not punch lines, to win the argument.