Why the PLCB should follow the law, not "interpret" it

If the PLCB were a private citizen, it would most likely be in jail. It does things that the people — through their representatives in the legislature — never approved. It willingly and repeatedly violates the law, and consistently goes against one of the very foundations of English and American law: "Everything which is not forbidden is allowed." Also stated as "no crime without law," this is an essential freedom of the ordinary citizen. The PLCB, on the other hand, seems to work on the opposite idea, that "all that is not expressly permitted is forbidden." Sorta like North Korea.

Are they making broad interpretations of the laws for the benefit of the citizens? Good intentions are not an excuse for breaking the law. Never have been. The laws are for everybody, they don't say "except for when the PLCB wants to save us from ourselves" anywhere.  Let's take a look at some of the legal and common sense violations they are a party to.

Just this past week Giovanni's Pizza & Pasta, in Dormont, PA was trying to comply with all the written legal requirements so that they could deliver wine. But the PLCB isn't interested in just the legal requirements; their requirements have to be met as well. What are those requirements? They won't say. "That's a matter that is under review for consideration by our attorneys and our board. There's nothing in Act 39 that says it's illegal, but Act 39 did impose certain conditions that need to be met. We don't have a determination on that matter yet." - Elizabeth Brassell, director of communications for the Pennsylvania Liquor Control Board (emphasis added).

I'm sure we all remember the magic 12 pack case where they "interpreted" that a "case or original container" could mean a 12-pack, even though a case had been a case (and an "original container" had been ONE original container, not a pack of  12 of them) for as long as anyone could remember. How many times in the past 80 years had they refused to consider that?  More than we will ever know.

Why was the new interpretation suddenly different? No one knows. Of course there are the infamous Wine Kiosks that were never checked to see if they complied with federal law, The PLCB just didn't bother and really didn't seem to care in that case. Even after they were called out on it they still didn't check.

While moot now, state law did say that only 25% of State Stores could be open on Sunday. Since they don't care what the law says, the PLCB was about 18 stores over the limit when Act 39 took place, allowing more stores to open. They obviously didn't care about a legal limit that was written to apply specifically to them!

How about the ever-changing beer at gas stations gymnastics? "You can't sell beer at the same location where you sell gas, period, that's the law! Well, unless the property is actually next door. Oh, and they can't have an interior connection...unless we say it's OK, in which case, that's fine, for that one licensee, not for anyone else."

That's contrary to what the Liquor Code explicitly says: "No license shall be transferred to any place or property upon which is located as a business the sale of liquid fuels and oil." But according to the PLCB, if you have a business that sells gas and you build another store next to it, and then attach them together (and they are owned by the same company), it isn't a continuation of the original gas selling business. If not, then why do they have an interior connection? Common sense was never a PLCB strong point.

One of my favorites in the "Do as I say not as I do" category is that a licensee of one class can't provide anything of value to another class of licensee. So as a distributor you couldn't help a restaurant with how to display their beer selection for example. However, the PLCB has outside representatives that come in all the time to set up advertising displays in their stores, and hires outside companies to do the sets* in the stores too. But then there are no requirements for State Stores either. We shouldn't expect them to know how to stock shelves and sell things - should we?

Maybe if the PLCB just regulated and didn't run a half-assed retail booze monopoly, they would be able to do at least one thing well. I doubt it, but I'd like to find out.

Privatize.


* A 'set' is where every bottle goes and in what order they should be on the shelves. These are the people that decided to not have the 1.5L sizes next to the standard 750ML sizes of the same wine but to group all the 1.5L bottles together.  The same ones that destroyed the standard "top shelf" setup that liquor had been using for almost 100 years.  Of course, no place except PA state stores do this.

Can we talk, about these talking points?

Everything below is taken from the March UFCW Wine And Spirits Council talking points. This is what the State Store clerks' union is encouraging their members to use in communications with legislators and public groups to convince them that normalization of the State Stores would be a disaster. We found a few issues with their issues.

• This legislation risks the over $566 million in annual contribution from the PLCB.

Sounds terrible! Except that the PLCB has never contributed $566 million. They did collect taxes, but so did the Department of Revenue -- sales taxes, income taxes -- and they don't claim to have "contributed" $23 billion to the State.

• States that have privatized in the past, such as Iowa and West Virginia, saw dramatic decreases in revenue after they privatized their liquor systems.

But the report on privatization commissioned by Governor Corbett to study the effects of privatization based on the HB 790 plan that PFM* produced, the report that's so frequently quoted by opponents, says this: "Privatization was deemed successful (in Iowa) 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." Of course, Iowa and West Virginia only privatized retail, not wholesale, and Iowa lowered taxes too. Iowa has over 1,200 places to buy liquor now, with 25% of Pennsylvania's population. And a lower DUI fatality rate.

• PFM predicts there will be 10-­30 wholesalers who will carry a wide array of products in a private wholesale system. This is simply not true in other privatized states, due to only 1 or 2 wholesalers usually operating in private states.

Let's see how true that is. I can name over a dozen wholesale distributors in Washington State in only two years since they privatized. 1. Click 2. Columbia 3. Crown 4. King 5. Marine. 6. Pioneer 7. Stein 8. Vehrs 9. Clatsop 10. Dickerson 11. Maletis 12. Midway 13. Olympic Eagle 14. Sound 15. Tripp 16. Young's 17. Southern.
New York has at least 40 just for wine. Pennsylvania has one - the PLCB. Of course, you don't even need to guess how things will be in a privatized system in Pennsylvania, you can just look at beer. There are over thirty beer wholesalers in the Commonwealth. This one isn't even close.

• ... $1.4  billion over five years that will cost the state to transition from a public system to a private system according to the PFM report commissioned by former Governor Corbett. 

This is a lie that has been told over and over and over, to the press, to the Legislature, to the public, and it simply isn't so. The actual first heading on page 186 of the report is "Total Agency Operating and Transition Costs." So the $1.4 billion is the system's normal operating costs plus any transition costs. The operational costs are almost $1.2 billion! With a little math, you can figure out how much the cost is to keep the PLCB using the very same report. Over $2.2 Billion. How do you like me now?

• This proposal has the potential to put alcohol on every corner possible.

This is just fear mongering. HB 466, the current bill the passed the House, doesn't even get the state up to the national average for liquor stores, let alone for retail wine outlets. To hit average for 12.8 million people, we would need to have over 2400 liquor stores, and over 6,000 grocery stores selling wine.

• A peer-­reviewed study from a U.S. Centers for Disease Control Task Force recommended against any further privatization.    

While the statement itself is true, the entire study methodology and results were debunked by STATS.org. (Debunked by Forbes, too.) This study also said that privatization would lead to a 44% increase in consumption which hasn't happened in any state that privatized any or all of their liquor system. Not even close.

• Studies show that state employees have a much higher rate of carding minors than the private sector does.

Maybe, but Pennsylvania state stores are NEVER checked for compliance, except by "internal" audit. So you can't make a factual statement that it is happening here.

• The Turzai privatization proposal will lead to increased prices and decreased selection.

Somebody on the Council needs to stand in the middle of a Super Buy Rite or a Total Wines or Joe Canal's or BevMo or Binny's and say that. How selection is decreased when a store has more items on the shelf that the entire state of Pennsylvania stocks must be some kind of magic.

A real New Jersey Liquor Store; not near Philly or New York, either.

• No where in the private sector can you find that type of selection in each and every store in the state.

One size doesn't fit all and nowhere in the state can you even begin to find something like the store shown above. Not every PA State Store even has the same stock, and neither will every private store, but you'll certainly be able to find more in the private market.

• The proposal eliminates the 30% markup, yet keeps the 18% Johnstown Flood tax. This will result in dramatic price increases. 

Since the PLCB operates at an effective 45.2% markup and private business is far more efficient there seems to be some room to work with. Will everything be cheaper everywhere? No, just like one store doesn't have the cheapest price on everything. But then, the PLCB doesn't either.

• Prices have gotten so high, that Washington consumers have been driving across the border to both Oregon and Idaho.

Having lived in Washington State, I can tell you first hand: Washington had the highest liquor prices in the country before they privatized. Adding 27% in new "fees" at the time of privatization certainly didn't help. Although they did drop the fee schedule to just an extra 22% recently. Idaho has said their sales are up 7% along the border. Oregon is about the same. The total Washington yearly border bleed is less than 2 weeks of current PA border bleed, so what does that tell you?

• Those who purchased the former state liquor stores from Washington State are already out of business, as they were not able to compete with Costco, Safeway and others.

The one thing that hurt small liquor store owners in Washington was the WSLCB. It was just as bad in making decisions and rulings as the PLCB. They ruled that the small stores had to pay tax on resale product while larger distributors didn't, making the small stores products 17% more expensive for the bars and restaurants that they were selling to. That ruling has since been overturned, but it took over a year to do it. Box stores are still not the majority of sales in Washington. Small stores can compete just fine if given a level playing field. Look at New Jersey and California if you need examples.

• The Turzai proposal will lay off 5,000 Pennsylvanians who work in the Wine and Spirits stores.

Well...there aren't 5,000 people who work for the PLCB (total staff of 4,597 as of 3/15) and certainly not all of them work in the state stores (not with the bloated management structure that is in place). Nor will they all get laid off, either. There will still be a need for administration, licensing, audit and what have you. And a third of the employees in the stores are part-time.


The Wine and Spirits Council seems to believe that consumers, and more importantly, legislators, can't learn from what other states did. That we can't put in place an even better system based on real world data, and not bad reports formed from junk science, or scary commercials where family members get killed off one by one.

Private systems work: just look at how you buy everything else. We don't need State Stores or the people in them to sell a legal product. There are 27,000 licensed establishments in the state and none of them have state workers standing behind the bar, serving or managing. We aren't safer, we aren't better served, and we aren't satisfied and never will be by a state run system.


*Much of the UFCW's "scientific" support for the State Stores as a bulwark against booze-fueled lawlessness leans on a CDC "taskforce" report, largely exposed as junk science by this piece. They lean on cherry-picking out-of-context nuggets on the economics from a report on the impact of liquor privatization prepared by PFM, a Harrisburg think tank. Have a look for yourself; why trust the UFCW, why trust us?  

What they made, what they say they made.

Finally, a full 6 weeks later than last year the PLCB released their un-audited numbers to the public.  Now we all have heard that they made $660 million in a record sales year. That is like saying the PA Dept of Revenue "made" $23 Billion. Collecting taxes is not making money. The PLCB collected $520,483,384 in taxes and then overcharged the people of Pennsylvania $128,365,957 for the privilege of going to a state store.  To be fair they did pay for the BLCE to enforce the state monopoly that prevents the citizens from going anywhere else to purchase wine & liquor and to keep track of the all important beer registration list, neither of which they seem to do all that well.  They also paid out $2,567,319 or about half of their advertising budget to drug and alcohol programs. You would think that an agency charged with, "...exercise of the police power of the Commonwealth for the protection of the public welfare, health, peace and morals of the people of the Commonwealth and to prohibit forever the open saloon..." (PA Liquor Code 1-104) would at least spend less on advertising and more on education but that's not how they roll.

So what else does this latest set of numbers tell us?  I noticed that for the first time in at least two decades that they didn't take an advance from the state ($110 million the last few years) to get things going.  We'll have to wait and see if they can keep it up or if this is just a one time thing to make the numbers look good under the threat of privatization.  Liabilities would have gone up 10% if they had taken it verses the normal 2-3% for the past few years.  History isn't on their side.  Bailment was also something that would control costs but inventory, the thing bailment was supposed to reduce, went up 11% from the previous year.  Cash went down 44% from 2012 and Accounts Receivable decreased a whopping 94% which may be a good thing if other entities are paying their bills almost immediately or it may not be that good if the business isn't selling as much goods or services.  The published reports don't provide enough information to figure it out. Store operations only went up $2 million but they closed 8-10 stores (PLCB audit 2012 lists 608 stores, testimony in May says 596) and the Chairman says that they are short at least 250 employees so I guess that is one way to keep it even but how long can they keep this balancing act going is the question.

While record sales are nothing new to the PLCB I wonder why the record profits don't follow the same pattern.  It took 5 years for Operating Income to beat the FY 2008 total, There were record sales in FY 2009 and profits went down 24%, there were record sales in FY 2010 and profits went down another 36%. Three of the last four years ended with negative assets which had never happened before. Total Net Assets still hasn't passed 2006 levels. In terms of percent of Income Before Operating Transfers the BLCE and Drug and Alcohol programs get less now than they did in 2000.

At some point next year we'll see the official audited report and know exactly what happened but until then we have to deal with what little is released.

I, like the majority of Pennsylvanians fail to see the need to keep a exceedingly small minority in place to the detriment of 12.75 million residents. The numbers just don't justify the continuation of the state in the retail and wholesale spirits business.

Privatization is the Ultimate in Modernization.