- 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.
Given the rumblings of an imminent vote on higher income taxes, it's important to remember what happened 12 years ago (nearly to the day!) with our state budget.
Ed Rendell was governor. Republicans controlled the House (108-95) and Senate (28-22). Republicans passed a no-tax-increase budget in early 2003 and were poised to reject job-crushing tax hikes. The governor had line-item vetoed education spending and was holding kids’ education hostage to get his tax increases. Sound familiar?
Gov. Rendell had demanded a 30 percent increase in the Personal Income Tax. I vividly remember Senate leaders in mid-November as they declared their steadfast resolve to not vote for higher taxes. Many expected the House and Senate would hold the line on tax increases. The public was with them!
But then, just before Christmas, the dam burst. 30 Republican representatives and 14 Republican senators–against the will of the majority of their majority–joined with enough Democrats to pass a 10 percent increase in income taxes. Governor Rendell signed the bill on December 23, 2003.
The borrowing of billions followed quickly in 2004, with massive spending increases each year thereafter.
Much has changed since Rendell’s first year in office. Over 76 percent of the House and Senate has turned over. The Republican majority is the largest in 60 years. What hasn't changed, however, are the forces that profit from Big Government: the government unions, which remain as powerful and wealthy as ever before.
And yet here we are today. Will the legislature agree to massive tax hikes without meaningful pension or liquor reforms?
Will 2015 be a repeat of 2003?
Gov. Wolf’s year-long pursuit of higher taxes shouldn’t end like Gov. Rendell’s. History doesn’t need to repeat itself.
Now that the Pennsylvania Senate has begun passing legislation, taxpayers can finally see what’s in Gov. Wolf’s “framework” for a new budget. Based on the passage of SB 1073 and SB 1082 today in the Senate, here are five things we know about the budget framework:
1. Excessive Spending Growth. The $30.788 billion budget represents spending growth of 5.4 percent over last year’s budget. Even including items shifted off budget last year, this amounts to an increase of $500 million more than inflation and population growth.
2. WAMs are back. The budget passed by the Senate includes a $103 million increase (51 percent) in Community and Economic Development spending. This includes several line-items identified as WAMs and eliminated in previous budgets.
WAMs (or “walking around money”) are slush funds used for special projects, usually controlled by legislative leaders. In the past, they’ve been used to buy votes and have been the abused with rampant corruption.
3. Problematic pension reform. The revised pension bill included a side-by-side hybrid, with a smaller defined benefit pension and a defined contribution component. This reform is weaker than SB 1 (vetoed by the governor) and while a step in the right direction, doesn’t get the politics out of pensions.
Here’s the positive: For current employees, the legislation would alter the calculations for “lump sum withdrawals” (the money employees can take in one single payment when they retire, with a reduced pension) and the calculation of “average final salary.”
On the negative side, the bill underfunds pensions. The proposal reduces collared contribution rates, which further underfunds the pension plan and adds an estimated $500 million to its unfunded liability.
Moreover, the bill suspends the provision that all pension bills have an actuarial note attached before being voted on. Actuarial notes summarize any changes that would occur and estimate the cost to taxpayers. This is a stunning lack of transparency.
4. No privatization in “liquor privatization.” The Senate liquor plan—which has been reported on but not yet passed—strips out many of the components of “privatization.” For starters, it would retain the government monopoly over the wholesale side—every retailer would still have to buy wine and spirits from the PLCB. Instead, there would be a “study” to recommend whether the state should privatize wholesale liquor sales.
This monopoly gives a few bureaucrats power to determine what can be sold in Pennsylvania, maintains the conflict of interest whereby the state sells and controls alcohol, and has led to numerous cases of corruption and bribes.
Restaurants and bars would be able to sell wine (and only wine) to-go, while beer distributors would also be able to sell wine and spirits. There would be no new liquor licenses for grocery stores or other private retailers. State stores would remain open in perpetuity.
5. Higher Taxes. We know there will be higher taxes. We know this will include some broad-based tax increase to generate the $600-$700 million needed to pay for the spending.
We don’t know what taxes will go up. There is no agreement on a tax plan; that is, the Senate passed a budget without the revenues to pay for it.
It’s unclear if there is support in the Senate to pass a tax hike, and very clear signs there isn’t support in the House for a tax hike of this magnitude.
Tomorrow marks 82 years since the official end of Prohibition. Yet, Pennsylvania is still dealing with its own version of Prohibition in the form of the Pennsylvania Liquor Control Board. The agency has complete control of both the wholesale and retail side of wine and liquor sales, and as you might expect, the results have been subpar.
Recognizing the liquor control board’s failures, the Republican-dominated General Assembly sent Governor Wolf legislation to privatize the government-run liquor system. The governor vetoed it, citing a number of weak excuses to justify an unpopular position. A couple of months later, Gov. Wolf offered his own “compromise” to break the budget impasse, which is now in month six.
But as my colleague Nate pointed out, the proposal was not true privatization. And it appears the governor has not moved from his anti-privatization stance since he vetoed the legislation back in July. Now there is talk of liquor ”modernization” as part of the deal to break the budget gridlock, but the ghosts of modernization’s past are well known. Modernization is still government-run booze. Voters should accept nothing less than real privatization as part of any budget deal.
For more on Pennsylvania’s risible liquor laws and why we need reform, have a listen to my interview with the Cato Institute’s Caleb Brown.
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.
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.
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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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.
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.
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.
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.
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.
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