To address mounting debt, strained budgets, and underfunded pension systems, lawmakers need to reexamine all aspects of government and seek new and innovative policy solutions. CF’s privatization work looks to apply the “Yellow Pages test” to all levels of government. This test says that if a service can be found in the yellow pages of a phone book, government should look to the private sector rather than public employees to provide it. In well-structured privatization initiatives, the government and taxpayers gain accountability, cost savings, higher quality services, and greater innovation.
As the partisan divide plays out in Washington, it's encouraging to see one policy battle in Pennsylvania with support on both sides of the political spectrum. Across the state, voters remain unified in their support of allowing private stores to sell wine and liquor. Unfortunately for consumers, inside the state Capitol, bipartisan unity on this issue has been harder to come by.
Last year, my colleague Dawn did us all a favor by providing a summary of the Pennsylvania Liquor Control Board’s (PLCB) annual report. This year, I drew the short straw.
Similar to last year the PLCB is once again touting record sales, but the agency is a monopoly. If the government granted one company the exclusive right to sell shoes, and the company reported record sales, would you be impressed?
Aside from a monopoly posting record sales, there are a number of red flags to note.
The first, and most important fact, is the PLCB’s fiscal health. The agency’s net income declined from $128.4 million in 2012-2013 to $123.7 million in 2013-2014. Back in September, the PLCB said the drop in net income should be attributed to a credit from 2012-2013, which inflated the net income figure. However, mention of this credit was conspicuously absent when the PLCB reported a 24 percent increase in net income for 2012-2013. In fact, the PLCB credited the growth in net income to “strong sales and expense control.”
While the PLCB’s net income is technically at an all-time high, its fiscal future looks bleak. If you remember, back in August, the PLCB floated the idea of increasing the mark-up price for its products due to growing operating costs. This past fiscal year, operating costs, driven by pension contributions, increased by more than $20 million or 5.24 percent. According to the Tribune Review, the increase in operating costs for this fiscal year (2014-2015) will result in a net income drop of more than 20 percent.
One argument consistently used against privatization is that the government-run liquor stores are an asset for Pennsylvania and privatization would reduce revenue to the state. Yet, taxes comprise nearly 85 percent of the PLCB’s transfers to Pennsylvania’s Treasury. If the system were privatized, the revenue derived from the current tax structure would continue to flow to state coffers.
Our government-run liquor system is both a promoter of liquor consumption and discourages alcohol abuse. In the last year, the PLCB monopoly spent $5.1 million advertising its products. At the very same time the PLCB spent other tax dollars to encourage responsible alcohol use through education and regulation. It appears there’s a slight conflict-of-interest here.
Pop quiz! What year is this headline from?
E. All of the above.
If you answered E., you win! (And Pennsylvanians lose.)
Excellent reporting from Kari Andren of the Tribune-Review today revealed that the Pennsylvania Liquor Control Board (PLCB) and its employees are under investigation by a federal grand jury for potential "improper relationships with wine and spirits vendors doing business with the agency."
A significant pattern of wrongdoing or potential violations that cross state lines could prompt federal officials to look into the case, he [law professor John Burkoff] said. Earlier this year, the Ethics Commission found the former top-ranking LCB officials guilty of taking all-expense paid trips to Florida and California, golf outings across Pennsylvania, high-end merchandise and fancy meals, all on the dime of executives and sales people at national wine and spirits companies.
The rounds of golf, dinners and hospitality gave vendors direct, informal access to influential LCB employees who played a variety of roles in selecting what wines and spirits would line the shelves of more than 600 state-owned liquor stores across Pennsylvania.
When will these ethical scandals stop? When will taxpayers stop paying for the moral and monetary mismanagement of a state-run alcohol system that most Pennsylvanians don’t even want? A government booze monopoly will continue to breed corruption and mismanagement until, once and for all, we get government out of the business of selling alcohol.
Is it government's job to monopolize a service that private enterprise can easily provide? Matt Brouillette says no—and Pennsylvania's state-run liquor monopoly is a prime example of why government should stick to its core functions and allow free enterprise to flourish.
Matt points to a simple "yellow pages test"—if you can find a service in the yellow pages, government shouldn't be providing it.
Listen below to hear Matt on WSBA 910's The Gary Sutton Show as he justifies this stance and illustrates how government fails when it tries to assume the role of private businesses.
The Gary Sutton Show airs daily on WSBA 910AM in the York area.
Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.
Is it time to wave the white flag on liquor privatization? After all, the Pennsylvania Liquor Control Board (PLCB) reported record revenue and transfers to the state’s General Fund this past fiscal year. Why would lawmakers bother privatizing the state stores given their enormous success?
Okay, that question is admittedly tongue-in-cheek, and for those readers who have followed our work on liquor store privatization, you know the PLCB has been anything but successful. But does the PLCB deserve a little credit for its record year? Maybe, if it weren’t a monopoly.
The PLCB is the only game in town, which is the main reason for its "success." If you want to buy or sell wine and spirits in Pennsylvania, you must go through the PLCB. (Note: There are a few exceptions, such as limited wineries.) In fact, it’s against the law to bring booze from other states back to Pennsylvania, but that hasn’t stopped residents from seeking better deals in privately-owned stores. Imagine if the PLCB had to compete with private stores here in Pennsylvania. It's doubtful we would hear about record sales and revenue.
Unfortunately, this kind of private competition isn't an option in our state. And those that don’t live near a border state are stuck with the PLCB. So take the agency’s record year with a grain of salt. Their "success" is not the product of satisfying consumer demands, but rather the result of a government-granted privilege dating back to the Prohibition Era (or error, if you prefer).
Opponents of privatization claim that the state benefits from the revenue government-controlled liquor stores bring to the state. And it's true that the PLCB does transfer some of its “net income” or “profits” to the state, which was also a record high in 2013-2014. But the PLCB is about as profitable as the IRS. Its “profits” are nothing more than taxes paid by consumers in the form of higher wine and spirits prices. But even with its monopoly status, the PLCB is facing some financial challenges.
These challenges drew statewide media coverage last month when the agency floated the idea of increasing the price of its products as a way to make up for a projected 20% loss in its net income in future years. The agency is on track to transfer fewer dollars to state government due to its increasing costs, putting to rest the idea that the agency is an asset for the state.
The PLCB wants to tout their new record, but the only record Pennsylvania consumers care about is the record number of years that we continue to live and shop with complete government control of wine and liquor sales.
Illinois’s decision to terminate its lottery private management agreement with Northstar is being misinterpreted as proof that Pennsylvania dodged a bullet by failing to approve a private lottery management agreement. The truth is, Pennsylvania’s contract better protected taxpayers and those served by lottery programs.
Pennsylvania’s negotiated contract required Camelot, the management company, to pay penalties if they did not meet guaranteed revenues. In fact, Camelot placed $200 million in a reserve fund to cover shortfalls.
Illinois's experiment was not without benefits. Even though Northstar did not meet yearly revenue goals, the state's taxpayers are still better off. Illinois' lottery grew faster under private management, an estimated 12 percent per year compared to 3 percent a year prior to their contract.
In contrast, Pennsylvania's Lottery sales have increased by only 5.8 percent per year, and net revenue has grown by only 4.2 percent per year over the past 3 years. In other words, Illinois' "failure" has resulted in sales growth twice as high as Pennsylvania's "succesful" lottery program.
At the same time, Indiana's lottery private management arrangement is succeeding. Contractor GTECH missed this years revenue goal by $1.6 million, but under the 15-year contract it must pay the difference to the state. That’s a win for taxpayers and those served by lottery programs.
Overall, GTECH's management of the lottery brought in total revenue of more than $1 billion in fiscal year 2014, up 9 percent from the previous record two years ago. GTECH's work will allow the lottery to provide nearly $250.7 million in surplus revenue to the state for the 12-month period that ended in June.
In the end, the greatest advantage of these partnerships is accountability. Illinois terminated its agreement with Northstar because the company did not meet its performance goals.
But as noted, Illinois and Indiana's private lottery manager outperformed Pennsylvania! Unfortunately, thanks to an intense lobbying effort from the American Federation of State, County and Municipal Employees (AFSCME), funded by union dues, Pennsylvania taxpayers and senior citizens won't be able to enjoy the benefits of improved management.
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
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.
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