Interview with Adam Harris

Adam Harris

We have some news that affects how things are going to work between Pennsylvania's brewers and the government, as represented by the PLCB and the Legislature. The Brewers of Pennsylvania (BOP), the state’s official brewers guild, has hired Adam Harris, former chair of Pennsylvania’s House Liquor Control Committee, as the organization’s new Deputy Director.
The BOP said, in a release put out on February 6, “The newly created position (shades of Joe Da CEO Conti!) will further bolster the BOP’s advocacy efforts and its quest for a more fair playing field within Pennsylvania’s antiquated three-tier system (manufacturer, wholesaler, retailer). In conjunction with Dan LaBert, BOP’s Executive Director, the BOP’s Legislative Committee, and Board of Directors, Harris will assist in outreach efforts to BOP members, potential members, elected officials, and other beer-interest entities to strengthen and expand Pennsylvania’s thriving craft beer industry. According to the Brewers Association, Pennsylvania craft beer ranks second nationwide in economic impact ($5,788,000) and first in barrels of craft beer produced per year (3,724,010).” (Thank you very much, Dick Yuengling and Jim Koch!)

Harris was hired to lobby the government, although as a recently retired House member, he won't be able to directly talk to House members until December of 2019 because of lobbying restrictions. Beer is his direct focus, of course, but as the former chair of the HLCC he's pretty damned familiar with what was going on with Pennsylvania's booze law changes.

So I asked the BOP if they could set me up with Adam for an interview. I'd met him at a Commonwealth Foundation event five years or so ago, and we had quite an affable conversation.

(One note: I tried my best to keep up with the conversation as I typed, but let's just say that everything I 'quote' Adam Harris as saying is actually a paraphrasing. I've also moved pieces around to make more sense of the flow as we went back to clarify things; there was no intent to change meaning. I tried to stay as true as possible to what we both said, but if there are any problems, I invite Harris or the BOP to send me an email and I'll be happy to discuss it.)

What are your top legislative priorities to create opportunity for Pennsylvania breweries?

The issue that's most time-sensitive is the taproom tax. We pushed it back once already. That would be a killer. The brewers were told in 2015 that the taprooms would be tax-free. So they jumped in. It would be a step backwards to tax that now. The governor wants a legislative fix. Our legislative side is talking to members.

Could you explain what we're talking about in a bit more detail? And I'll note that the tax has been delayed until June 1.

In 2015, the PLCB said, look, if you have a G license, a manufacturer license, you can have a tasting room. Now, a tavern is paying the sales tax on beer, but they're paying it at the wholesale level. They pay 6% on the wholesale price of the keg when they buy it. They want the brewers to pay the 6% sales tax by the drink. That's 4-5 times as much in sales tax. We'd love to keep the tax-exempt status, but we surely don't want to be paying more. Our attorneys are talking to the Department of Revenue, and they're getting that.

How did it happen? Who made the decision, and how did the tax get put in place?

It's hard to track down where this began, or who made the policy decision. There has been no legislation. Ironically, Department of Revenue came out with a statement that the taproom sales would be tax-free, and now they are changing that to a 6% per drink tax. On a premium pint, in Philly when it's already got a per-drink tax, that's a significant increase, and it trickles down to employees: fewer pints sold, fewer people employed. If it goes ahead, brewers are going to pass the tax on directly, and itemize it on the receipt so people know why they're paying more.

As I said, I can't lobby the House members for twelve months, so I'm talking to Senators, and to brewers to make sure they understand the issue, making sure they interact with their legislators. We meet with everyone we can in the Governor's office, and Revenue, and they've been receptive to the idea. The governor's office indicated he'd like a legislative fix to take the gray area out of it.

The thing is, if we run it as a tax code bill, that usually doesn't get passed until June 30. We're hoping we can get it done earlier. If you wanted to change the tax structure, you do it in a tax code bill, but if we're not changing taxes in the budget, there may not even be a tax code bill. But we do a budget every year, and it has to balance.

Why does it seem that it's always everything that needs to get done gets jammed into the last half of June?!

(Laughs) It does appear that June's when it all takes place. It all gets done in one month, and it's a hot month.

Drinking the good stuff. 

What's the Beer Equity program?

You have the manufacturer – the brewers – and the wholesalers, who have franchise rights to the brands once they contract to sell them. Those rights, that contract, runs in perpetuity. That's a PLCB ruling, from about a decade ago. There are very few opportunities to get out of those. Usually it's a great relationship, but a few aren't, and those people literally cannot get out those relationships. They can be traded to another wholesaler, or go to court, which isn't easy. We're trying to find a better way to open these contracts. We want legislators to know this is an issue for us. The wholesalers are great for us, and get the beer out where we couldn't. But the few exceptions, that makes it harder for a brewer to think about signing that contract. It causes a great deal of stress and anxiety. 'We're making great beer, getting great reviews.' But they don't know what to do. If the contract was just ten years, and had to be renewed, that would be better.

We got the end of the case law, and the regulatory workaround that allowed grocery stores to sell beer by installing a 30-seat “cafe” and buying a tavern license. Are there numbers on how much those two measures actually benefited PA brewers: sales increases, numbers of outlets?

Let me check on that. It was a huge win, no doubt, to see them spring up all over the state, give consumers that option.

On the flipside, there are problems with the grocery store beer sales situation. Taking limited restaurant licenses to use for grocery stores makes those licenses more expensive and scarce for on-premise businesses. The system is inherently unfair to smaller grocery stores. It does little to bring beer sales to convenience stores, a major sales outlet in other states. What we clearly need in PA is a grocery store license. Why can't that happen here?

It's becoming the game only the big guys can play. The rep in Carbon County has way too many R licenses and they're worth nothing, while in Chester County, how can a young couple start a small restaurant when the license costs $500K? Any time you talk about new licenses or transferring, you get into a fight that stalls out. We talked about transitioning D licenses, but there was considerable pushback. There are some distributors who are still doing really well, if they're willing to push the envelope. The landscape has changed.

You want to do what's right for the consumer, but this is people's livelihood. That sixpack sale, for instance, is how the tavern-owner pays their mortgage. My comeback was video gaming terminals for the taverns. We'd be down a whole new rabbit hole with that.

Why is the legislature so reluctant to take substantive action on creating a more open retail situation that would directly benefit both Pennsylvania brewers and Pennsylvania consumers? This is not the first time the PLCB has taken independent and somewhat arbitrary action that effectively rewrites the Liquor Code; they made a case a 12-pack, for instance, and then the legislature did away with the limits altogether. The Board has often shown no reluctance to defy the stated desires of both the legislature and governor. Is there any interest in the legislature to limit this power?

They are a bit of their own little fiefdom.

But the only negative feedback we had from brewers on the case law changes was, 'Hey, you just gave us 12-packs, and we re-did the package lines, now a few months later you give us singles. Could you stop giving it to us piecemeal?'

It really is strange. The ultimate backstop is that anything the legislature passes and gets signed is then the law. It might seem like they [the PLCB] spring surprises, but they're open about process. I don't think they anger people enough that we'd limit what they do. [Adam interjected at this point that PLCB member Mike Newsome has gone over to the Governor's office, so it's a 2-member board right now.] We could always call over to them and get things done. It never got personal or unpleasant. [He should know, but I'll note here that at PLCB hearings I was watching it most definitely got unpleasant on occasion.]

As the former chair of the House Liquor Control Committee, can you give me some insight on why it always seems that the interests of the FOURTH tier, the actual consumers, come last in considerations of alcohol legislature?

Say we wanted to get something done for the consumer. We'd pull the committee in, and we'd want to change things, and...personal relationships with voters and businesses in legislative districts stalemate things. The consumer is finally getting a few wins, but slow and steady wins the race in Pennsylvania. We'd do a big omnibus bill, and you'd get a lot of things. Some of it you liked, some you didn't. We've gotten away from that. The consumer's more engaged. They get more and they want more. I will say that I don't think there's that many anti-alcohol advocates in the general populace or the legislature as there were even ten years ago. For some of them it's a revenue issue, but with Uber and Lyft, there's no reason anyone would have to drive drunk.

Look, we're playing catch-up for sure. Got to get our guild solidified, talking to their legislators. I grew up in small-town Pennsylvania, in Juniata County, and all we knew was Yuengling. But there's no animosity among the brewers, there's cooperation. More than I saw in the legislature.

And that's that. Thanks, Adam Harris. 

Not Quite 10 Years Ago...

It's not quite ten years since I started this blog with this post. It was on April 22, 2008, and I should probably do the 10th anniversary post next month, but...it's snowing like mad out there right now, and I'm not going to be able to go do brewery visits like I planned, so I'm doing it now. What's a month?

Ten years ago things were pretty bad; they were worse than they are today. The State Stores were not under any kind of real scrutiny, they didn't have a useful website, and there hadn't been a serious push for privatization in 20 years. Beer was sold at distributors -- by the case and keg only -- or at taverns -- only 2 sixers at a time, and at a stiff markup -- and that was it...except for the occasional weird exception. The Legislature was in a long period of inactivity on the Almighty Liquor Code. And I was losing my mind after seeing how booze was sold all over the country.

So I started this blog...and things changed. I don't take any credit for this. Much like the success of my other crusade, the Session Beer Project, I don't feel that I caused any change. I just had a very sensitive ear to the ground, and caught the rumors and mumblings before almost anyone else did. At the most, I may have suggested lines of inquiry to reporters (who picked up on the blog fairly early; as did a suspicious number of IP addresses in downtown Harrisburg), and if that worked, well, that's always been the main aim and hoped-for audience of the blog. (A big hat-tip and thanks to my co-writer, the pseudonymous Albert Brooks, who picked up the pen while I was sidelined for over two years and has done a GREAT job feeding facts to that audience.)

What happened in the past ten years? Here's the dumb stuff.

• The PLCB spent $3.6 million on public image, advertising, and store layout, paid to a California-based marketing firm. They come up with a new name for the State Stores: "Table Leaf." In a rare rush of smarts, the PLCB realized that's idiotic (though they did keep an option on it; see below), and decided to go with the basic stupid rename: Fine Wine and Good Spirits Store. Governor Rendell was furious...and the PLCB blatantly didn't care. Your money wasted: it's a monopoly (a police-enforced monopoly, as we would point out many times), there's no need for marketing.
• The aptly-named Special Liquor Order (and they call it SLO, you can't make this up) system broke down again, and again, and again...
• The PLCB so badly screwed up their new inventory system in 2011 that store managers over-ordered so much wine that they had to store almost 100,000 cases of it in tractor-trailers...un-air conditioned trailers, in the summer. Renting the trailers and hiring security guards cost about $500,000. (Numbers are from an Auditor General report.) Good job, morons!
• Around 20 State Stores closed. A bunch more were moved for arbitrary reasons without input from local communities. And of course, we revealed that ten counties in Pennsylvania have only ONE State Store. There are ten others with only two.
• The Courtesy Contract. The PLCB spent $173,820 on training State Store System clerks "how to greet someone, where to stand, and how to read a customer's cues." And the company doing the training belonged to a PLCB regional manager's spouse. Real nice. 
• We saw several ethics investigations of the PLCB (one of which struck paydirt) and several harshly worded audits. The marketing director was found guilty of fraud...back in 2015, and he still has not been sentenced. Speculation is that he is cooperating in further federal investigations. Conti must be spooked. 
• We saw again and again that the PLCB often actively made it harder for licensees and wholesalers and brewers to sell beer. You know...their only competition in the booze biz. Not bad, when you make the rules. This included the harassment of three Philly bars and a major Philly beer wholesaler for selling "unregistered" beer, carried out by the BLCE and supported by the PLCB (and their soon-to-be-exposed flawed database). After armed raids, seizures of beer, disruption of private (beer) business, and a full-blown legislative hearing...the result was a warning letter. Harassment, and they should have been sued. 
• The Saga of Joe "Da CEO" Conti, from his disappearance, to his greatest failure, to his ignominious end, to his unlikely (and lucrative) return. We miss his shenanigans; his constantly wrong-footed instincts were the best thing that ever happened to privatization. 
• The Wine Kiosks. Nothing more need be said. Possibly their biggest failure in the last 40 years, and that's saying something. 
• Table Leaf: the brand. As mentioned above, they'd already (over)paid for this branding, so they used it for a house brand of wine. And then they decided to wield it as a weapon against their biggest suppliers...and Pennsylvania wineries. Who brought it to the Legislature's attention, and that was the end of another PLCB fiasco.
• Privatization was repeatedly brought up by the House, and squashed in the Senate, mainly thanks to the efforts of Senator Chuck McIlhinney.
• But in all the past ten years, the very worst thing that happened was that the Legislature let the PLCB have the one thing that they never should have: so-called "flexible pricing." This is the idea that the PLCB should not be forced to use the same set mark-up on every item; when they got a deal, they could pass it on (which is bullshit: they could always have done that). What it really means is that they charge more; we told you that for years, and golly, it was true. We're stuck with it, too.

  

  Ah, the wine kiosk. The Best Worst Thing.

Wow. I know I'm missing stuff, but those are the big ones. Yet somehow, these ding-dongs are still in business, still the sole wholesaler of wine and spirits in the state despite continual screw-ups.

Meanwhile, we did get some things, although almost all of them were mixed blessings. 

All right, break it up!

• The case law is finally gone! That was one of the big ones. We no longer have to buy an entire case of beer at the distributor. That'd be great, except we still can only buy a 12-pack at bars and grocery stores (more on that shortly), then walk out the door and walk back in and buy another...What kind of bullshit is that?
• We can buy beer and wine in grocery stores and convenience stores!! HOT DAMN! Whoa there, hoss. We can buy beer and wine in places that hold a restaurant license; that's always been true, but now these stores can buy those licenses (for as much as $500,000!), and put in a 'cafe' that seats at least 30, and sell sixpacks. About 450-odd stores have done so, out of the thousands in the state. So don't wet yourself with glee. And remember: a 12-pack of beer, or four bottles of wine, and it's out the door you go. 
• Direct wine shipment (and beer...but not liquor) is now a thing. That's a big deal for a small number of people. 
• The PLCB had to start telling the truth about their financials; specifically, their deep pension debt. And just like that, they were no longer making money, net of taxes. They still are paying money into the General Fund, because they have to, but they're doing it out of reserve assets. The day of reckoning is coming. 
• We got some really cool stuff: Pennsylvania booze producers can cross-sell their products. A winery can sell PA-produced beer, cider, spirits, mead...and, what, kvass, I guess? Any of that. And they can have satellite stores off their main production premises, which can also sell those other products, which has led to Pennsylvania Libations, the first privately-owned liquor store in Pennsylvania in almost 100 years. And that's cool. 
• About a thousand (I think) liquor licenses were blown out of escrow and auctioned off. Mostly picked up by grocery stores. So that's kind of good, but...all those grocery stores buying bar licenses is making the price of a license go up, a lot in some places, and that's putting the squeeze on indie mom-and-pop bars and groceries. This is going to give us a lot more chain groceries and chain restaurants, and that, my friends, ain't optimal. 

That's all I can think of right now. There have been some other side effects. One, the PLCB is running scared, and the selection is about as good as it's been in a while. (You're a fool if you think that will continue if the privatization talk dies down, so let's keep 'em scared.) Two, the BLCE has been scared to do any enforcement of the monopoly, so we can buy out of state with impunity. Three, people have a lower opinion of the PLCB these days after the corruption charges, and that's good. Four, McIlhinney's retiring, and maybe we can get someone who really gets it in there.

OTOH...The GOP has, overall, been a huge friend to privatization of the PLCB in the past 40 years, despite numerous missteps. The unpopularity of the Trump administration may lead to a loss of the solid GOP majority in the General Assembly. Overall, that's how things go, but for this issue? If the Democrats gain a majority, or cut the GOP majority, you can kiss further progress good-bye. Because the Dems have made it crystal-clear that they are opposed to any further privatization of the State Store System. We'll just have to wait and see.

Overall, though? Good progress at the 10-year mark. We got rid of the case law, and the PLCB's sales are suffering from the wine sales at groceries. This is what union boss Wendell W. "Windy Wendy" Young IV referred to as "the death of a thousand cuts." Here's hoping he's right about that, and that "flexible pricing" doesn't bleed us to death in the meantime.

I feel for you folks who are far from a border. If Philly were where State College is, away from the liquor stores of Jersey and Delaware, the PLCB would have been long gone. Let's keep the pressure on.

Let's Sum Up: the last nine years

It's not exactly nine years since I started this blog, but it's close enough, considering where we are. Seemed like a good time to take stock.

There was a lot of sturm und drang in the first seven years, "Told by an idiot, full of sound and fury, Signifying nothing." The idiots in this case, of course, were the Republican members of the Pennsylvania Senate, led by the surprisingly obstructionist Senator Chuck McIlhinney (R-10), who managed to consistently thwart a clear majority for liquor privatization in the House, led by Speaker Mike Turzai.

Me and King Dork

Whatever the reason, McIlhinney worked with the Democrats (de facto, if not actual hand-in-glove) to keep a solid privatization bill from being laid on Governor Tom Corbett's desk. Corbett would most definitely have signed it, too. McIlhinney knew that, so he never gave him the chance. Could Corbett have been re-elected if he'd been able to deliver liquor privatization? Maybe, and then we'd be in the middle of four more years of King Log, instead of the current ham-handed reign of King Dork, but it's impossible to know.

Then came the election in 2014, and things changed, in a strange way. The GOP increased their legislative majority, but the party's abandonment of Tom "One Term Tommy" Corbett made that less useful by giving us Tom "One Term Tommy" Wolf (I really want "One Term Tommy" to become a Pennsylvania colloquialism for any Governor who fails to win a second term, no matter what their first name actually is). That upset the balance, but once the long budget logjam finally broke (a nasty defeat for King Dork), suddenly things happened.

Lurking in the background; why is
he still allowed to drink in PA?

Bang! We got takeout wine sales at licensees (right, not at groceries or convenience stores, just ones with tavern licenses, and with the stupid "cafe" requirement, and a limit of four bottles, and it's gotta cost the same or more as the State Stores, and the PLCB is still the wholesaler, and of course no spirits sales), we got direct wine shipment (only from wineries, no out of state retailers or importers, and again limits), more stores open on Sundays...whoopee...and we got a surprising little grab bag of other kind of neat stuff like looser cider and mead regulation...none of which really affected the state's retail/wholesale monopoly. And of course, we also got flexible pricing, the gleaming hook inside all the colorful lure of the rest of it.

They were, unfortunately, almost all things that McIlhinney wanted. Why does this man, this second-rate hack from Bucks County who's in a variety of pockets, get to rule over the liquor reform we've wanted for decades? The GOP put him there, and continues to leave him there, despite the way he thumbs his nose at the House majority and the Speaker on these issues.

Yep: you can get the whole thing, or just one bottle.

Ye gods and little fishes. Of course, we also, finally, cross it off the list, saw an end to the much-hated Case Law. Which was awesome, and great, and all that...except of course that the Case Law's evil twin, the Two Sixpack Law that afflicts bars, restaurants, and grocery stores is still firmly in place. And I have to admit, I'm not sure if it applies across types; if I went into the State College Wegmans, could I get two sixpacks and four bottles of wine? Mind blown.

The sad thing is how excited we all are about this. We're whooping it up -- the Case Law is dead! We kin buy us wine at the Giant Eagle! -- so much that we don't even notice how sad it still is.

1. We still aren't even up to "normal," let alone "world class." New Hampshire is still better off: lower prices, better State Store System (much much better), and wine in stores all over the place; New Jersey is much better off, Maryland, Delaware...we're finally a step ahead of Utah, and that's cause for celebration? 
2. Spirits haven't changed a bit, except for the flexible pricing that will soon be costing us more.
3. And worst of all: the half-assed way that we finally were allowed to buy beer and wine at grocery stores -- by letting them buy one of the restricted number of tavern/restaurant licenses -- is causing the price of those licenses to skyrocket, as I warned here (I've warned about this for years). Over $500,000 for a liquor license, just for the piece of paper, so a Giant Market can sell sixpacks? That's putting small independent grocers out of the game (and likely out of business), and making it too expensive for restaurants to have a bar. Hope you like BYOB.

The Case Law is dead, and that's definitely progress. The changes for off-site and cross-license sales for Pennsylvania breweries/distilleries/wineries/cideries/meaderies are a tremendous opportunity (one the State Stores surely weren't delivering). And the 'zombie license' auction, even though it transparently benefits chain stores and the PLCB over everyone else, does, at least, free up some more licenses.

But we still have a long, long way to go.
We're not done till there's whiskey in private stores.
We're not done till they don't need a "cafe" to sell booze.
We're not done till the state's out of the retail and wholesale booze business.
We're not done till this whole thing gets sorted out.

And when we're done...what happens to the guys who got us through this stupid period? The GREAT sixpack shop owners and managers, the GREAT owners and managers of the exceptional beer distributors? You know, the folks who will now own a largely worthless business, as supermarkets and convenience stores undercut them relentlessly on prices, while inevitably shrinking selection (not completely, maybe, but it's never going to be their focus)?

What happens to all those State Store System employees, a significant number of which do a decent job at the register, and some of whom honestly do have a passion for what they're doing? Do they find new jobs? Do they open liquor stores?

What happens when the Legislature finally gets its gumption up and puts a real stake through the heart of this zombie relic of Repeal?

What then? WHAT THEN?

Gun it! The Finish Line is in sight!

I don't know. But specialist booze emporiums do survive and thrive in states where supermarkets sell booze. So they can work here, once we get to that point.

So let's get going, let's keep going, and get this done. Don't slow down, don't listen to the last ditchers who will tell you "We have to give these changes a chance to work out!" No, actually, we don't. We can admit that they were a compromise that didn't need to be made. The time to change this is now, before we have another entrenched set of entitlements.

We've got the momentum. Let's finish this.