Why This Isn't Already Done

This is something I just posted on the "Abolish the PLCB - Rewrite The Code!" Facebook group page (a group you're certainly encouraged and welcome to join). A new member was full of righteous rage and wanted to know how to get privatization and said we needed to force Harrisburg to change this. Frankly, I wish we could. But 12 years of writing and editing this blog, and all the activity that went with it, has taught me patience, the patience needed to wear away a stone. Here's what I've learned, here's how it's got to be done.  

For the new readers: I've been trying to push this rock for twelve years. I've been to Harrisburg to attend hearings and lobbying meetings, I've testified before a joint committee of the legislature once, I've made friends with a number of reporters and fed them info and ideas. Some small progress has been made, but...a reality check is needed. This is an uphill fight, although the PLCB's huge failures in the past month are a great opportunity.

Here's why.

I was so spunky back then.

I had a lot of schemes and ideas when I started working on this back in 2008. The tough truth is that there isn't anything that can be done until a MUCH larger number of voters are actively engaged on the issue. And that's not easy, because of a few factors.

1. People are liable to be embarrassed to stand up for their booze rights. "It's only a drink, it's not important." Polls usually show that people are willing to be taxed more for drinks, even though they already are.

2. Many Pennsylvanians just don't know any better. They've never gone out of state to buy booze, so the State Stores' adequacy is all they know.

Dezinformatsiya...UFCW style

3. The other side, largely through the union that represents the State Store clerks, UFCW Chapter 1776, does a great job of shaming anyone who supports privatization: "You're a drunk! You just want more alcohol! This will cost thousands of family-supporting jobs! The PLCB gives MILLIONS to the state, to police, to communities! There are much more important things that need to be done!" And people back off, because that SOUNDS reasonable.

4. There's a LOT of deeply-believed misinformation and ignorance about the situation. That the PLCB is a cash cow (it's not), that it serves us well (with only 600 stores in a state where 5,000 would be average, how can they?), that it's not illegal to buy booze out of state (it absolutely is). People are constantly amazed about the existence of the Johnstown Flood Tax, they believe it's illegal because "it's a tax on a tax" (completely not illegal to do that), without ever realizing the huge layer cake of taxes and fees that boost the shelf price of booze in PA.

5. The PLCB is absolutely brilliant at assessing the threat of privatization, and doing just enough to make people think they're improving, and the threat decreases.

Despite all this, we will have to get millions of them on board, because the Legislature cannot be moved otherwise.

Democratic legislators block-vote against this; in over 10 years, not one has ever broken ranks that I can recall. Republicans from southeast PA are likely to flip-flop on it: they face more pressure from unions here, and from a highly-organized group of beer sellers who'd just as soon see their competition run incompetently. It's a powerful combo. Speaker Turzai has tirelessly campaigned for privatization (he's retiring after this term), but the Senate has balked on it, and Wolf will not sign a full privatization bill. Without Democratic votes, there's no way to override him.

Privatization? No. HELL no.

The courts won't do anything because of the 21st amendment; states have very broad power to regulate alcohol.

The Board itself is, naturally, only interested in preserving the agency. The three members are traditionally appointed 1 each by the legislative GOP, Dems, and the governor, so no real help there.

THE ONLY THING THAT WILL WORK is getting fellow citizens involved. Writing letters to newspapers, reminding people how badly the PLCB handled literally everything in this crisis, reposting on Facebook.

Like it says at the top of the blog,

"...there was [in 1997] no overarching passion within the General Assembly, or in the public at large, for privatization. Unless and until there is a general hue and cry, it is very unlikely there will be a privatization initiative that succeeds." -- John E. Jones III, former PLCB chairman

The Dam's Breaking!

Hot news out of Harrisburg: a bill loosening rules on wine sales has passed both houses of the General Assembly (passed by the Senate back in December; the House Rules Committee brought it up, passed it, and sent it to the floor all this morning, and the House passed it early this afternoon) and is on its way to the Governor's desk. The bill -- a creation of Senator McIlhinney's -- does not eliminate the State Stores or the wholesale monopoly, but it does allow licensees to sell up to four bottles of wine for takeaway, including of course the licensees that are supermarkets and gas stations. The bill passed with bipartisan support in both the committee and the full House (two Democratic Senators voted for it in December).

Stealth bill, zooming under the UFCW radar!

Governor Wolf released a statement on the bill's prognosis:

"Today the House concurred with the Senate on historic liquor modernization legislation that provides greater customer convenience to the people of Pennsylvania. As I have always said, my goal is to modernize the sale of liquor and beer in Pennsylvania to ensure convenience and satisfaction for customers. Once the bill reaches my desk, I will conduct a final review of the legislation to ensure it meets my goals of enhancing the customer experience, increasing much-needed revenue to help balance our budget, and bringing our wine and spirits system into the 21st century."

So...maybe, maybe not, but it's going to be hard for him to veto a bill that passed with significant Democratic support that doesn't actually privatize the State Stores or the wholesale system. What it does do is potentially take a LOT of sales away from the State Stores, and UFCW Local 1776's Wendell W. "President For Life" Young IV knows it. "This is the first step to killing the Pennsylvania Liquor Control Board and the Republicans know it," Young said.

It's a wobbly step, a baby step, and a head-shakingly stupid step that recapitulates the useless mistake of the case law...but it is a step. The State Stores will be in deep crap from competition, and things will get worse, especially as people want more convenience. They're going to be irked that they still have to go to the stinky old State Store to buy liquor; they're going to be irked by the stupid four-bottle rule; and they're going to be angry and confused that they can't buy booze at every supermarket and gas station. And that's what's going to break the dam. Finally. The end may be in sight.

Privatize, don't modernize.

Fact Check, what the UFCW says, What Rep Turzai says

Below is the list that the UFCW 1776 calls "Twenty of Turzai's Lies" You can read the list here.  Not anywhere near as many as I've documented from Wendell Young IV (which nobody has refuted as of yet) but enough to see who is spinning more. I'll take them one at a time

Who is spinning more?

 01: Turzai: The PLCB has been operating in the red for the past 10 years.
      UFCW: The PLCB’s net profit for the past 10 years is almost $1 billion total

There are three ways to look at this.. The first is if everything the PLCB collects is a tax because tax is defined as "a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc." so what ever isn't specified as the Johnstown Flood Tax or Sales tax can be thought of as a use tax and not profit.

The second is that to have a profit a business has to list all liabilities and since the PLCB doesn't (not listing the over $600+ million in pension liability or $50+ million in medical for just two examples) it is questionable if a profit is made.

The third is that the PLCB as a business that is not responsible for any liabilities because the taxpayer, not the PLCB will cover them and therefore does make a profit. I'll call this one a tie

02:Turzai: The Fiscal Note for House Bill 790 said it would bring over $1 billion in upfront revenue.
    UFCW: Turzai’s own Fiscal Note says there would be at most $137.5 million in upfront revenue.

OK, there is one fiscal note listed by for HB 790 PN 1291. and it specifically says "A total of $1,123,000,000 is estimated to be generated from one-time license fees" The Rep. Turzai fiscal note does say $137.5 million. so the question is - what time period is "upfront" ?  Upfront is usually thought of as before something happens so does the money start counting before the beginning of privatization or before the end of the state stores?  This one is a tie.

03: Turzai:There is going to be an auctioning off of 1,200 wine and spirits licenses.
      UFCW: There is not one mention of auctioning licenses in House Bill 790 or his current legislation House Bill 466

This one goes to the UFCW, there is no mention of auctions in HB 466

04: Tuzai : When West Virginia went to the private sector they saw an increase in revenue.
      UFCW: West Virginia lost millions and has never financially recovered since privatizing.

Try as I might I could not find anything on line from the state of West Virgina that listed revenues from over 30 years ago when they privatized retail sales. Without verifiable information I can't make a call on this one. However, as a side note, Iowa which also privatized retail a few years later reported making more money. (1)  I have to toss this out for lack of information.

05: Turzai: There will be no increase in unemployment compensation and all PLCB jobs will be absorbed in the private sector. 
      UFCW: The Public Financial Management study states 2,302 full-time equivalent employees will lose their jobs and cost more than $64 million in unemployment costs over four years.

Since everyplace that has fully privatized has tripled employment in the industry jobs will be created, far more than are lost. If the offset is enough to make a zero balance after some of those new jobs will be filled by people already supposedly trained is a question I don't have enough information to answer. This one is a tie also.

06:Turzai: There will be open dialogue and everyone will be at the table to discuss issues.
     UFCW: There hasn’t been a House hearing on liquor privatization since 2011.

This one is tough because it is an opinion.  If you are a citizen of the state and don't know anything about the issue already I question your ability to govern the rest of us.  If you are a legislator then there is no excuse what so ever not to educate yourself. More hearings will not bring anything new to the table. THe UFCW is still using documents and statistics from as far back as 2006 so that isn't going to change. The question is if the state should sell a retail product or not.  Once you have decided that then questions like "should we have pretty stores" or "add 1,000 more "R" licenses" come into play but not before. I know that both caucuses will be meeting on this issue so I'm in agreement that everyone can discuss the issues. Rep Turzai gets this one.

07:Turzai:The PLCB produces no profit.
     UFCW: The PLCB’s net profit was $123 million alone in the last fiscal year.

This is just a rewording of #1 and the result is the same- a tie.

08: Turzai:There will not be any lost revenue.
      UFCW: Both the Fiscal Note to HB 790 and PFM show revenue gaps that need to be made up.

The fiscal note to HB 790 does say that because of the increased discount to licensees, going from 10 to 14% will reduce income it is the same proposal mentioned in some modernization plans so what is good for the goose is good for the gander.

The PFM report also shows revenue gaps but self admittedly accounts for a zero balance of the over $200 million in inventory, the sales jump as private stores ramp up before divestiture and the $200 million in other assets which can be sold although for not anywhere near the inventory value. Add to that, the complete lack of accounting for economic churn increased employment and peripheral employees will bring and the increase in sales greater access will bring it does raise questions if there will be any lost revenue in total. Since neither side can provide concrete evidence either way this one is a tie.

09: Turzai: There will not be a complete proliferation of alcohol.
      UFCW: Under Rep. Turzai’s proposal, spirits outlets will triple, including in urban areas.

Even after tripling the amount of liquor stores the state will still be well below the average for a population of 12 million - about 33% less. Since the beer distributors will get first call on licenses and they already sell alcohol where ever they are - urban or rural that aspect is a red herring.  Community zoning should take care of the additional licenses past the initial 1200. Who knows better about what the needs of the community are - Harrisburg or the people who live there? Rep Turzai takes this one.

10:Turzai:No other state taxes liquor like Pennsylvania. 
     UFCW: Almost every state has a liquor tax, as well as retail and wholesale markups.

This one will go on a technicality. No other state does tax like Pennsylvania,  We don't have a liquor tax, we have a temporary tax that is to be used to help people from a 1936 flood.  Now what it turned into and what it is used for may be like a liquor tax that other states have - it isn't. The Johnstown Flood Tax is not part of the Liquor Code. Rep Turzai wins this one too.

11: Turzai: There will be new business taxes.
      UFCW: Turzai’s proposal heavily favors existing retailers, meaning no new business tax.

Another iffy one. Obviously if a business increases sales volume there is new business tax but if there physically aren't any or many new businesses then the number of businesses being taxed doesn't increase. Pure semantics. A tie at best or completely rejected at worst

12: Turzai:There is significant border bleed.
      UFCW: Turzai cites an unknown statistic, but in reality border bleed is minimal and there is reverse border bleed into Pennsylvania.

I'm sorry, but when the PLCB itself commissions a study on border bleed and shows that there is hundreds of millions of dollars leaving the state that indicates a significant problem Rep Turzai gets this one hands down.

Wendell Young IV star of Say Anything

13:Turzai: The public supports privatization at a 70-75% approval rating and there is widespread support for his plan.
     UFCW: No poll shows this claim. Instead, recent polls show support going the other way. Also, dozens of groups oppose House Bill 790 from last session.

This gets a bit tricky. The primary question is if the state should sell a retail product.  Given that there are 40 years of scientific polls that say the citizens do not want the state store system and some of them are in the 70% range and there has never been a poll saying they want to keep the state store system over a private system that indicates there is widespread approval for privatization.  Later polls give a third option of modernization which is a dependent option and not a primary option. You have to agree that the state should sell a retail product before you can choose how they sell it.

What dozens of groups believe or not has no bearing on what scientific polls say. To believe otherwise is to succumb to "We know better than you what is good for you"  The majority of citizens want a private system as Rep Turzai says.

14:Turzai:Beer distributors will do well under his proposal.
     UFCW: The Malt Beverage Distributors Association opposes Turzai’s plan.

It is true that the MBDA opposes this plan it is also true that they represent less than half of all beer distributors. Their disapproval does not negate if some beer distributors will do well or if most will do well or if any do well.  It has no real bearing since how well an individual distributor will do is dependent on how hard he works at his business and not his membership in the MBDA. Another that is a tie at best

15:Turzai:There are only 3,500 employees at the PLCB we need to worry about. 
     UFCW: There are more than 5,000 employees at the PLCB and mostly all will lose their job

According to the state itself there are 3,074 full time employees and 1,519 part time employees as of 1/15/15.  This doesn't count any seasonal employees which may push the total over 5,000 but would also be stretching the truth a bit. Since the UFCW continually uses the PFM report I'll use it too and it says that between 2,436 - 2,678 Full Time Equivalents or 3,210 total employees  would be unemployed depending how the PLCB retail and wholesale was disassembled.

Now you can make a case for people won't be working in the same state job but a number will still be working for the state. Rep Turzai has the facts on his side for this one but semantics are with the UFCW - they get it.

16: Turzai: Operational costs have increased by 70% at the PLCB over the past decade.
      UFCW: Operational expenses have only grown at a 1.7% compound annual growth rate in the last five years.

I've a mind to throw this one out.  Answering a question with a statement that doesn't match the question is just not being honest.  According to the FY 2005 Audit by the Auditor General operational costs were $289,810,000 and in 2014 were $424,478,913 which is a 45.6% growth so Rep Turzai is wrong.  However. the 2010 Operational costs were $381,801,000 which comes out to a 2.15% compound annual growth rate to 2014 so the UFCW is wrong too.I didn't include COGS in my operation computations because the PLCB has no real control over that but if I did then operation costs from 2005-2014 would have gone up 56%  and the compounded annualized rate would be 2.79% I'm not counting this for either side.

17: Turzai: Private wholesalers sell to the PLCB wholesale system currently. There is a duplicate system in PA.
      UFCW: Producers sell to the PLCB wholesale. There is no duplicate system.

There is a duplicate system.  While for major items the PLCB may go directly to the producer, for the vast majority of items available in the system they go through a private distributor. This is easy to see because every SLO item has a vendor code and that code is not the Wild Turkey Distillery or the Conundrum winery, it is a distributor. and since SLO items outnumber in stock items by at least 4 to 1 there is a duplicate system. Rep Turzai is correct

That is the end of the list, why they called it 20 lies and then only listed 17 is a question you'll have to ask the UFCW.  I've always said they weren't very good with math.

The totals are
Rep Turzai - 6
UFCW - 2
Tie - 6
Tossed out - 3

Who do YOU believe?


(1)Privatization was deemed successful from a revenue standpoint, with profits increasing by $125 million over the first 11 years of privatization compared to estimates under State control of the stores. At the time of the 10-year review, the conclusion was that most of the increase in profits was the result of eliminating the state stores and the costs associated with them. PFM report pg 111

Percolation and Progress

Things are popping in Harrisburg. Check out this headline on the Harrisburg Patriot-News website:

Liquor privatization picking up speed in Pennsylvania as bill is introduced 

House Bill 790 was introduced today, and will be moving through committee. According to the bill's primary sponsor, House Majority Leader Mike Turzai, the bill will move quickly. From the article above: 

“Because there is a lot of energy, a lot of enthusiasm … There is widespread agreement in our caucus,” Turzai said. He said the House Liquor Control Committee will take up the bill March 18, and he expects the House will vote on it later this month.

You may recall that last year the privatization bill was shredded in committee by Rep. John Taylor. That's not how he's talking this time around, according to quotes in this article.

“It seems like we’re going to agree on most of it, but the speed of what we’re doing is really a big part of it,” Taylor said.

Taylor wants to slow down the privatization process. Well...if that's what it takes, okay. As long as we avoid the pointless "modernization" the PLCB sycophants in the PA Senate are still gassing about. That tune may change when they find themselves with a passed privatization bill from the House with the Governor standing behind it. Impaired though Corbett may be, he's still the governor, and Senate Republicans will soon find themselves under the spotlight.

Still, one day at a time, do the work that's in front of you. That's getting a privatization bill out of Taylor's Liquor Control Committee in decent time and in decent shape, not gutted like last time. So...PLEASE send emails of support to as many of the members of the Liquor Control Committee as you can; you can find them here. Definitely thank Taylor for his support this time, and thank Representatives Kampf, Killion. Lawrence, Mustio, Reese, and Regan for co-sponsoring HB 790. And if you want, send an email to the 9 Democratic members of the committee, asking them why, if a majority of Democratic voters polled support privatization, not one Democratic legislator supports it.

Keep your fingers crossed, and your powder dry. But get on the email, and on the phones, because I guarantee you that the State Store unions are doing that, calling every week. Make yourself heard for a change!

Is Privatization Dead? Not at all!

The Legislative session is effectively over, and the privatization bill has died with it. No one's doing anything till after the election, at which point privatization would have to be re-introduced. Mike Turzai, the vocal champion of privatization in the State House, damaged himself badly with a gaffe about voter ID, and by failing to bring privatization to a vote. Governor Corbett has said recently that privatization is still a top priority, and that he will present a proposal next year, but the Legislature may change hands, and his approval ratings are low.

We're screwed, it appears.

Oh, shut up. That's just what the PLCB partisans want you to believe! The truth is that the PLCB's incompetence is the gift that keeps on giving. As long as they keep screwing up, privatization is going to be in the Legislature's face, and the Internet makes it even easier to keep up the pressure.

Don't believe me? Take a look at this recent Philadelphia Inquirer poll. "The poll found that 55 percent of respondents supported privatization, 28 percent opposed it, and 17 percent either did not know or did not answer." That's almost 2 to 1 in favor among those who have an opinion. It gets better: "61 percent of respondents in the bipartisan survey said they supported allowing grocery stores to sell beer and wine." Even the clueless Legislature can't ignore numbers like that forever (except they will, because the unions that represent the State Store workers continue to get right in their faces and remind them that they vote and that they give lots of juicy campaign donations).

The PLCB stepped in it again during Sandy last week, when they shut down the entire State Store System for two days. Now, some of the stores were without power, and some were in areas where it was dangerous to drive...but the PLCB drove home the problem with a stupid state-wide monopoly by shutting down every single store, regardless of local conditions. Even some of the employees admitted it was a stupid thing to do.

Want more? How about even more bad press for the goofballs who run the PLCB and the State Store System? That's right, Joe Da CEO was in the news again, and it wasn't because he's a great humanitarian. It's about that dopey Tableleaf in-house wine brand they shoved down the throats of Pennsylvanians. The Legislature wanted to know how and why this lowball wine brand came to be on the State Store System Shelves in (unfair) competition with other brands, and Conti told them that vendors approached the PLCB with wine samples. But that's not the story PLCB marketing director Jim Short tells: he says he went to the wine companies looking for cheap wine to put under the Tableleaf label. Hmmm...a falling out between two of the people at the PLCB under investigation for corruption with vendors? 

It gets worse, according to a story on the TribLive website:

Conti told the House committee that the Wine and Spirits Advisory Council, a group of consumers and liquor license holders empaneled by the LCB, tasted samples of wine submitted for consideration by a number of vendors competing for the TableLeaf brand, transcripts show. But those council members deny being involved.

...

In later interviews with the Trib, Conti changed his story again, stating that an LCB wine educator and outside sommelier tasted samples submitted by vendors.

But Judy Carroll, a wine educator for the central region of the state, said educators don’t play a role in choosing products. “I do classes and seminars with the people who work in the (state) stores,” Carroll said.She said her six counterparts elsewhere in the state all do the same thing: conduct classes to educate state store workers.

And Melissa Monosoff, the sommelier under contract with the LCB from December 2007 through November 2011, said she was not involved in the development or selection of TableLeaf wines “in the slightest” and had “no idea who was.”

Conti, once again, has apparently misspoken. That's the arrogance of the PLCB for you.

Want more? How about this: The LCB, the Board itself, is making a dumb show of its obligation to meet publicly. Check this out, again from the TribLive website:

A Tribune-Review analysis of nearly three years of LCB meeting records, along with attendance at meetings, shows many of the board’s twice-monthly meetings lasted just 15 to 20 minutes with little or no public discussion before votes. Critics speculate the lack of discussion means the bulk of the agency’s decision-making occurs out of public view.

“It appears that ... the staff and the board members have developed a way of doing business that is difficult, if not impossible, for an average citizen to follow,” said Senate Majority Leader Dominic Pileggi, R-Delaware County, an advocate for increased government openness.

“Certainly, these issues of how the board operates will be given a fresh look as we work through the legislation for changing the way citizens are able to buy alcohol,” Pileggi said.

Unfortunately, what Pileggi means here is that the Legislature is still considering the ill-advised "Modernization" program that the PLCB is advising! Does this make sense? Here's an agency that is crippled by incompetency, riddled with corruption, consumed with its own arrogance...and you think it's a good idea to let them tell you what's needed to fix their problems?! 

We have a big job ahead of us in 2013. We need to remind Governor Corbett of his promises. We need to remind the Legislature and Senator Pileggi that we want privatization, not some crappy "modernization." We need to get a good, fair bill that gives us privatization that makes sense, not the cock-eyed greedfest that got passed in Washington (that people still seem to prefer to the old state store system). And we need to get serious about it. 

Get started now. If you're in the Philadelphia area, please come out this Thursday to Yards brewing for our second beer laws forum: if you WANT it to cover privatization, I'm willing to expand the conversation. We had 100 people at the last one, I'd love to have an overflow crowd. We're going to be talking about how to take action. It's time to get rolling.

Postponed II...and a modest proposal

Privatization is on hold till the fall, according to KYW (and an interview with Rep. Turzai), and I'm thinking that's not a bad thing. HB11 as it stood was not good enough, and was pissing off people who had to be in it to make it work. And it sounds like Rep. Turzai was pissing some people off as well; maybe the Governor's involvement will help.

In the meantime...we should help too. Take a look at my earlier suggestions for a clean bill, and discuss them with your representatives and senators. We don't want a repeat of the Washington bill, we want one that will give us normalcy.

Or if you want to make it really simple...check out this 1987 proposal for privatization that would cut through the whole Gordian shebang.  How about it:

The plan shall provide for the transfer of all the property, inventory records and employes of the State Store system and the liquor wholesale distribution system to the Department of General Services on or before June 30, 1987, for appropriate disposition as provided by §  7.343 (relating to divestment of State Stores and initial private licensing). 

That's right, check out 7.343, because it's a doozy, a brutally simple way to get the damned job done.

(3)  Termination of State Store operations. The Department of General Services shall develop a plan for the disposition of the State Store system which provides for the continued operation of each State-owned liquor store for up to 90 days following the auction of the right to purchase the property of the store. The Department shall further provide for the continued operation of liquor wholesale distribution for a maximum period of twelve months to the extent necessary to provide an adequate supply of consumer products and services during the phase-in of operations of private retail outlets and wholesale distributors. Each State-owned liquor store may remain in operation for not more than 45 days, but not later than June 30, 1988, following the opening of the substitute privately licensed wine and liquor store in order to assure adequate continuity of services to the public. 

Hear that sound? That's a clean break with the State Stores. Tell your representatives to have a look at this...because they LOVE pre-written laws that they don't have to work on.

Ugliness - What Happened to Privatization

I got a copy of the Capitolwire report on what happened to HB11, the privatization bill. It's a subscription service, so I can't/won't reprint the whole thing here, but here are some pertinent points...

Beer distributors matter to Republican lawmakers. The one who mattered most in this particular fracas is the King of SEPTA and Lord of the Turnpike, Pat Deon. In addition to those two big-ticket, patronage-filled jobs, Deon owns beer distributorships in Bucks County.
It is not clear how many of the seven Bucks GOP votes Deon withheld from Turzai. Personally, I think Reps. Frank Farry, Gene DiGirolamo and Scott Petri, all Bucks County Republicans, vote no if Mr. Deon did not exist. All have a pro-union voting history, although Gene and Scott boast a longer and fuller one than Farry.

It really sounds like the bill sank because Turzai screwed up by pushing too hard -- without listening to other legislators -- and by ham-handedly adding beer to the bill without proper thought about what 'beer' might actually want.

Turzai's bill is hated by beer distributors who think it does too little for them, costs them too much, makes them change their business too much, and gives too much to two of their rivals: restaurants/bars and supermarkets.

As Daniel Rubin pointed out in the Inquirer yesterday, most Pennsylvanians want to get rid of the State Stores, but it doesn't happen because the people who are happy with the way it is are more vocal and effective.

I asked them why it was taking so long to blow up a Prohibition-era system so many people loathe.
"For many parties, the system wasn't that broken," Waldfogel said. "And there were some parties for whom the system was wonderful."

The beer distributors and the union very much like it the way it is, and it is so important to them that they are putting the smack-dab on the legislators. As long as we're "only voters," we're screwed, and stuck with this worthless, stupid system that treats us like teenagers and tells us what we're allowed to buy.

What happens next? Probably nothing, though Turzai claims he'll bring it up again. The chances that he will have changed his leadership style sufficiently to pull it off are slim. So we have a bill on the floor that no one seems to want enough to pass, and...

The bill would have been sent back to committee Monday had not Taylor literally run down the aisle yelling, "I don't want it! I don't want it!"That was the only area of agreement between Taylor and Turzai regarding the bill: Turzai didn't want to have to get it out of committee again and Taylor didn't want it back.

Sounds like we're boned. As I've said before, this is not a good bill, and it infuriates me that now "privatization" is associated with it. We had a lot of good people and effort involved in this push, and it looks like it's been pissed away. I hope the Governor puts a bill forward.

Retail Booze Privatization: why HB11 doesn't cut it

HB 11, a bill proposed by House Majority Leader Mike Turzai back in July, is still the standard bearer for privatization. Privatization currently has the support of Republican Governor Tom Corbett, who has majorities in both houses of the legislature (although the Senate Republicans are stalling, possibly trying to squeeze out a deal on a Marcellus Shale "tax"). To make things more likely, the PLCB has obligingly stumbled badly in the past two years with: 

• two contracts of questionable ethics and effectiveness – one for the wine kiosks, the other for 'courtesy' training
• the embarrassing public failure of the wine kiosks (and a clumsy attempt to cover up a strongly negative internal review of the idea)
• a disastrous install of a $66 million inventory system that led to a gross overbuy of inventory (which then had to be stored in trailers in summer heat) and a shutdown of licensee deliveries pickups (the PLCB doesn't deliver...what was I thinking?!) for a week
• a still-simmering corruption debacle at the Philadelphia warehouse in which over 20 employees were suspended (and another cover-up)
• a complete fiasco over beer registration raids on three Philadelphia bars that led to very uncomplimentary hearings on the subject
• a frustrating inability to promptly close nuisance bars
• and a baffling failure to turn significant 'profits' with a police-enforced monopoly on sales of wine and spirits

This is the time to strike on privatization, and as you know, I've been all for it. I've called for it, argued for it, howled for it. 

But unless substantial changes are made in HB11, I cannot support it. 

It is not a question of the perfect being the enemy of the good; this bill has fundamental flaws that are simply not in favor of the citizens of Pennsylvania. I believe that they will result in the replacement of an unresponsive public monopoly with a poor selection of goods…with an unresponsive private oligopoly with a poor selection of goods, and I cannot support that. We have one chance to get this right, because changing the laws again will be even tougher. Let's have a look.

First, and most important to me, HB 11 does nothing about the intolerable police-enforced monopoly. If it passes as is, Pennsylvanians are still forbidden by law to bring home a bottle of wine from New Jersey (or Maryland, or Delaware, or New York...). I've been assured directly by Representative Turzai that the police will no longer enforce this, but that's not good enough. You're a legislator; don't tell me the police won't enforce a despicably un-American law; change the law. When so much of the state's population lives in the tight pocket of the southeast, just across the bridges from huge liquor stores, to do anything else is simply ridiculous. Kill the monopoly, encourage competition. The only reason this is even faintly legal and constitutional is because of the overboard interpretation of rights granted to the states through the 21^st Amendment by federal courts; there is no such monopoly on any other goods. The police-enforced monopoly is insulting and intolerable. I cannot and will not support HB11 or any other privatization proposal that does not end it, and neither should you.

Second, the proposed wholesaler fees for exclusivity of brands pretty much guarantee a smaller selection of wine and spirits. Nathan Lutchansky (of the PLCB Users Group blog) has explained this in greater detail than I'd care to replicate; read it there. You'll soon realize that this is a non-starter. Why is this here? Well...maybe this is the reason (and Turzai's general counsel Jim Mann is extremely protective of the bill as written, BTW). Clean bill, please: do-over time.

Taxes are another issue: they're too high. Turzai has replaced the insulting “Johnstown Flood Emergency Tax” with a more rational gallonage tax, but it attempts to replicate the revenues from the onerous Johnstown tax – plus state sales tax, plus the PLCB's “profit” that goes to the state (not really "profit," but a somewhat arbitrary number set each year by the legislature; didja know that?) – by boosting it to crazy high levels...more than twice the taxes in neighboring states. Again, Lutchansky hasthe numbers on this; have a look (see his "Issue #2"). The taxes on wine and liquor simply do not have to be that high. They're unfair at those levels; why should I be paying so much more to fund state programs that benefit everyone just because I drink -- moderately!? Now's the time to make these taxes more equitable, instead of some of the highest in the nation (which is weird, because we have one of the lowest beer taxes...). Replace the revenue with a shale gas tax if you have to.

A huge problem: what about beer?  Why hesitate when we can fix some of the most egregious problems with a couple quick penstrokes (see below) Get rid of the insane case law, now! While we're at it, do away with ALL limitations on sales by licensees: “distributors” can sell anything from a single bottle to a keg, and so can taverns (and delis, and supermarkets with deli licenses), and fix the tax laws so that all retail outlets are on the same footing (right now, bars pay more taxes than distributors...say what?). Then, allow beer distributors to add wine and liquor to their licensed sales; allow the new wine/liquor licensees to sell beer. The artificial separation of sales is all about protecting business status quo; rewrite these laws for the benefit of Pennsylvanians, citizens, and voters for a change! Hell, if Joe "CEO" Conti can say “I'm for the people of Pennsylvania,” so can I!

1,250 licenses is simply not enough. If the number were doubled, to 2,500, we would still be under the national average per capita, and this would help address the issue of oligopoly (see below). It will also help address the red herring issue of rural retail access.

I don’t know enough about how the PLCB sells to licensees to complain about it, so I’ll tell you what a friend of mine, a licensee, said:

“My concerns are from a licensee’s point of view. I don't want to be forced to buy from one wholesaler that has a limited selection, makes it difficult to place special orders, and charges retail and sales tax on ‘wholesale purchases.’”

To tell the truth: I don’t even know what HB11 does to address these concerns. I do know that almost every licensee I've talked to who tries to keep a premium wine or spirits inventory finds the PLCB frustrating, and that almost every one is afraid to criticize them. I’d like to hear more about what HB11 has for licensees...I suspect it's not much.

The licensing scheme in HB11 is just that: a scheme. It’s easiest to quote from a licensee who emailed me about this:

“The huge issue I see with the bill is the emphasis on large (over 15,000sf) stores. Was this bill paid for by big retailers like Total Wines? Who the hell is the state to mandate the square footage of a private business? Many of the state stores are much smaller than this. As per the bill, over half of the roughly 1200 stores will need to be over 15,000sf! These large stores often have lots of bottles, but by necessity need to focus on industrial products, not small producers. How is this going to increase selection? We don't need bigger Absolut displays. We need many smaller stores run by entrepreneurs who find and offer cool products. This bill would be the equivalent of mandating that over 50% of all restaurants be more than, say, 5000sf in size. Can you imagine what Philly would be like? A lot more Ruby Tuesdays, a lot less anything good. This aspect of the bill nearly makes it pointless to have privatization!”

I agree. The “protections” against private monopolies could be made much more effective by simply dropping the maximum licenses owned by any one company/person to ten instead of forty. Problem solved. If that loses support from big chains, well, first, too damned bad; and second, it will gain support from the people who are concerned about big chains grabbing all the licenses, and throttling selection. Who are we more concerned about? What’s good for business -- ho ho ho, don't you worry, little voter! -- is good for citizens? Sorry, that’s how we wound up with 75 years of the case law!

Finally, let the results of Granholm flow, and again: favor Pennsylvania’s citizens, not business interests who’d rather see no direct shipping of wine (or spirits or beer) because it might cut into their sales (studies show it doesn’t). Make the taxes realistic, and let direct shipping happen.

Those are the issues I have with HB11. I’d like to see them addressed, or explained, before I solidly support this bill. I've been told that some such changes are under way, but HB11 shows no changes online. Until such time as a majority of these issues are addressed and the police-enforced monopoly is done away with, I do not support this bill, and I urge you to consider these points before you support it. We have paid -- Lord God, we've paid -- for the misguided morality of our Repeal-era legislators and Governor Gifford Pinchot. We've earned a better road to privatization; one that takes our concerns into account first.

Where are we going to get that? I hope that Governor Corbett is doing what I'm starting to think of as his Swan Routine: serene and quiet on the surface, paddling like hell out of sight under the water. From the way he's talked about HB11 after the PFM Report came out (more on that soon) -- "a place to start" -- I don't think he likes it any more than I do. So here's hoping he puts leverage on Representative Turzai (and Jim Mann), or better, puts out his own version of a privatization bill that actually writes privatization for citizens.

Is the PLCB on the ropes?

The efforts for privatization have gotten two major boosts recently (and yes, I am keeping track; it's just been really busy in my job, the money-making part of my booze-centered life -- my apologies for not keeping up here). One was related to the misbegotten wine kiosks (which I did predict would be a "public relations disaster for the PLCB", though that didn't take much brainpower), and I'll talk about that in a separate post; the other was a far-flying boomerang that came back and caught the PLCB in the back of the head.

Jonathan Newman, in favor of privatization

The boomerang, first: former PLCB Chairman Jonathan Newman, the Chairman for whom the original "Chairman's Selection" was named (because it was his program, and he picked the wines...ask PJ Stapleton how many of the "Chairman's Selections" he's selected), who brought the PLCB further into the 20th century (yes, while working in the 21st century, I know) than any other person, who was
Wine Enthusiast's 2003 Man of the Year because of his work at the PLCB, who resigned when Governor Rendell appointed* Joe Conti as "CEO" of the PLCB... Newman came out strongly in favor of privatization this past Tuesday. At a hastily-arranged press conference at The Wine School in Philadelphia, Newman was introduced by PA House Speaker Mike Turzai and stated his support for privatization of the State Stores. (Happily, "hastily-arranged" also meant that the speakers weren't harassed by scripted questions and chants from UFCW members and union president Wendell W. Young IV.)

I was there, and Newman sat me down at a table with Speaker Turzai, and we talked. Chances sound better than I'd been hoping; it looks like the votes are there for privatization in the House, the Senate is going to take more work. You may have heard that Senate Pro Tem Joe Scarnati questioned the need to privatize the State Stores right now. That came up, and while Turzai had nothing to say, others in the room nodded wisely when I brought up the Marcellus Swap Theory: is Scarnati signaling that he will support privatization if other legislators will support a Marcellus Shale tax/fee of some kind? I believe that's what's going on, and I say, that's a deal I'm willing to support.

I'm not nuts about Turzai's bill, and if some changes aren't made, I can't support it; I'm hopeful that it will get better. I did take the opportunity to ask if the bill takes away the Police-Enforced Monopoly. It does not, but Turzai said the Monopoly is not enforced (though he did admit that there are occasional instances when it is...usually having to do with personal issues with a local cop in a border town), and would not be enforced. I don't like that, I'd much rather see it formally done away with. That's one of the things I'll be pushing for. More to come on that, but about Newman...

The UFCW has, of course, already tried to tar Newman with doing this because of possible financial gain. First, Newman is doing this for the same reason we all are: the PLCB State Stores suck, and they've sucked more since Newman left. The PLCB has stepped in crap -- ethically, managerially -- so may times since Conti took over that it's hard not to link him to it. Second, if Newman stands to make some money off this -- he does have a wine wholesaling company -- well, so what? That's what private enterprise is all about! Of course he'll support it. Only the Union thinks making money is a problem. The Union thinks that the State should be collecting all profits, apparently. That is ridiculous, and one more reason we should privatize.

More soon. Things are rolling, and we've got to get loud in support -- and in making this a good bill.

*Rendell says he "hired" Conti, but that implies a regular hiring process applied to this $150,000 a year job, which it didn't -- which is why Newman resigned.

"PR": please call me

I just got a lengthy series of four comments on Rep. Turzai's proposed privatization bill from someone signing themselves "PR." I didn't post them: not because I disagree, or because I'm censoring them, or anything like that. I didn't post them because they're just way too long for the comments field.

So I'm asking PR: if you read this, could you leave a comment on whether it would be okay with you if I copied those comments -- in their entirety -- out of the moderation notification I got -- and put them up as a regular post on the blog? You raise some interesting points; it's just that they'll look like hell and be hard to read as comments. Let me know.

Privatization chances handicapped by experts

See that quote over to the right, from former PLCB chairman (1995-2002) John Jones? He's talking about Tom Ridge's attempt to privatize the PLCB in 1997, and why it didn't work: lack of support in the legislature and the public. Read it again:

"...there was [in 1997] no overarching passion within the General Assembly, or in the public at large, for privatization. Unless and until there is a general hue and cry, it is very unlikely there will be a privatization initiative that succeeds."

Jones and other former PLCB members are quoted at length in today's Scranton Times-Tribune, giving their impressions on the chances of privatization succeeding this time around. I found these quotes by Jones's predecessor, James A. Goodman, who served from 1987 to May 1995, to speak directly to Jones's previous statement.

"Since the system has been in existence, there have been bills in the Legislature" to privatize state-run liquor stores, Mr. Goodman told Times-Shamrock Newspapers on Monday. "But I would consider this to be the most serious threat for it to happen. You have the governor and you have the majority leader (state House Republican Majority Leader Mike Turzai, R-28, Pittsburgh) as the prime sponsor of the bill. That's a lot of juice. And you have newspapers ... editorializing in favor of it all over the state."

Don't think that means Goodman is in favor of privatization. He said he opposes it, apparently (the paper didn't quote him directly) because the system funds alcohol education and enforcement efforts. Well...given the problems we've had with enforcement efforts, maybe they could use some shaking up.

Here's something I just don't get. One of the arguments against privatization is brought up by John Reiley, who was the PLCB secretary for 29 years (WTF? Really?!): "One driving force behind the effort is "big business trying to latch onto those profits" that the state now sees through its monopoly on liquor sales, Mr. Reiley said." Well...yeah! That's what retail business does. It's called capitalism, and the profit motive, and that's the reigning model in the United States, has been since 1776. Supporting the PLCB against privatization is anti-business, plain and simple...which smacks of anti-Americanism.

One of the biggest balls of bull that's being batted around (on both sides of the debate) is the number on what the State might net by auctioning off liquor store and wholesale licenses (and real estate, and stock, and fixtures, and all that jazz). It's all either pie in the sky numbers from those in favor, or lowballs from those opposed (mostly the union, but also religious groups and anti-booze groups, who are really drinking the "control" Kool-Aid). We need real numbers; and the paper also has a report on a possiblity that the House will contract for an independent study on that. Good. We need real numbers.

Because this is important. Turzai is pushing to have a bill through the legislature by Memorial Day. To move that fast, we need real information, and we need real alternatives. My major issues with Turzai's legislation? Not enough licenses (we really ought to have at least 1,200, not 750), and not enough limits on who gets them (I really like the idea of no company getting more than three, but 10% is too many; and I'd really like to keep any current or former legislators out of ownership). And maybe some other stuff. Discuss!!!