State Line = State of Mind

Not too far south of the Mason-Dixon Line is an odd little Pennsylvania-like anomaly within Maryland: the Montgomery County Department of Liquor Control. It's the last municipal control county in the U.S. They actually go the PLCB one better (one worse?): they have a monopoly on spirits, wine and beer sales, wholesale and retail off-premise. But like the PLCB, they are being called out for not serving the customers well and there are calls to privatize the system.

The funny thing is, the calls are from the DEMOCRATIC leadership of the state.  Specifically Maryland Comptroller Peter Franchot (D), whose office is in charge of liquor regulation for the state. Unlike the Democrats here in PA who would never say  something like “The county’s monopoly is bad for consumers, bad for small businesses and for our local economy” about the PLCB, the Comptroller is not only saying that, but saying it out loud and producing these anti-control broadsheets:

Clearly Franchot is not a student of Wolfonomics. He even has put out a report detailing exactly how and why privatization is better.

Of course the Union (who else?) opposes any talk of privatization saying that privatization would not create real competition.
"Under Maryland state law, two wholesalers may not distribute the same product in the same market at the same time. There is always one approved, designated wholesale distributor in a given market for each brand or product. Private liquor will have its own liquor monopoly."

So there won't be competition when Smirnoff is in direct competition with the other 40 brands of vodka in their price range? Somebody needs to go back to school and take some Econ classes. Competition will hold except at the very ends of the bell curve where there is no suitable substitute for the product you want: like a 60 year old bottle of Glenfiddich Scotch or a half-liter bottle of MD 20/20. That's true for the majority of states and countries, and is considered the norm so it really isn't pertinent to the privatization argument.

Of course, this ignores the indisputable fact that there is NO COMPETITION at all, be it real or fake, in Montgomery County now.

We here at the blog wish you the best of luck, Mr.Franchot! May you show our legislature the way to satisfying the consumer and ridding us of the archaic system now in place.

What's wrong with this picture?

Let's play a fun game. First, watch this video from the PA AFL-CIO about why the State Store System is a good thing. Really, watch the whole thing (especially the part where the last State Store worker left standing...makes an odd noise).



Now, how many misleading or flat-out ridiculous statements can YOU find? I'll start you out with an easy one...

1. If the state stores are privatized, PA will lose $500 million in revenue. No, about $400 million of that is taxes that will still come in through a privatized system, just like we still collect sales tax from, say, drugstores.

It's your turn...what else can YOU find?

A response from the opposition

As noted earlier, I received some lengthy comments about Rep. Turzai's plan that, although presented as "neither for or against," seem pretty clearly posed to cast a bad light on privatization. No matter: I have always posted comments that are in opposition...but these were just too long, so I asked if it would be all right to copy them into a full post. Permission came (late last week, but hey, it was the weekend, and today was my birthday; I had other things that were more fun to do), so here it is, unedited and -- for now -- without comment, except to point out that Rep. Turzai's bill is only a proposal, and not the only way privatization can happen (so a problem with Turzai's bill is not necessarily a problem with privatization)...and that I apologize that this is so long. It is -- of course! -- "Anonymous." Here we go...

I have dissected HB 2350, Turzai's proposal of privatization. I have a few points I do want to bring to everyone's attention. I am disclosing that I am neither for or against any of these, but wanted to make light of "additional" changes that will be happening. The original bill will be in standard format, the changes will be capitalized unless otherwise indicated.

Point 1:

“Section 211. Enforcement. There is created within the Pennsylvania State Police a Bureau of Liquor Control Enforcement. The Enforcement Bureau AND MUNICIPAL POLICE DEPARTMENTS shall be responsible for enforcing this act and any regulations promulgated pursuant thereto. Officers and investigators assigned to the bureau OR A MUNICIPAL POLICE DEPARTMENT shall have the power and their duty shall be... to investigate.”

This includes both already established licensees such as restaurants, and also new Privatized Liquor Stores. Currently the way the situation works is that a municipality police force can respond to a call at the bar, give them civil citations, and are then reviewed by the Liquor Board to determine if the offenses were localized, or if they violated the liquor code. If any violations of the liquor code are found, the BLCE will conduct an investigation to make a citation which is held pending against a license when renewal time comes around. This new passage gives authority to the municipalities to determine if the liquor code has been violated. Currently, the liquor board can only object to the Renewal of a license based upon investigations by BLCE (with respect to murder/drug), with reference to local citations. The process would not change, but the Board may not be able to justify the refusal of a renewal with the chance that the evidence could be tainted or incorrectly collected if training is not done well. This could mean a costly price for training for the municipality officers (which may come from local funding), as well as oversight of these municipalities. The cost and or ramifications of this should be factored into consideration. We saw this in Philadelphia when the Philadelphia police did not register the complaints of a murder by a licensee, and with no adjudicated evidence, the board was legally unable to refuse the renewal. Now these very same officers will be in charge of determining whether or not a citation justifies an abuse of the liquor code.

Point 2: (All new addition)

“Section 305-A: Discontinuance of wholesale operations by the board and initial franchises. (b)(1)(4)(i-iii) No Applicant may hold more than 5% of franchises within the Commonwealth, and no more than 10% of the Franchises in any one county which has ten or more franchises, and no more than 1 franchise in any once county which has fewer than 10 franchises.”

A point to consider with this is that the "Purchasing Power" the state currently has will be gone. The state will be moving from one (albeit controversial) wholesaler to 100 (305-A(b)-Board shall establish 100 Franchises...granting authority to deliver liquor. I have no stats to support whether or not this will affect the pricing, as we may go from 1 bulk purchaser to 100. There is also a limit to the number of wholesalers within a county, in that there would not be one wholesaler who would be able to operate in more than 5 counties (or 5 in one county) (Pennsylvania has 67).

Point 3: (All New addition)

“Section 310-A Physical Limitations a(1) The premises of each wine and spirits store shall... (allow) the sale of liquor and permitted merchandise.”
In many other states, liquor stores also sell cigarettes, memorabilia, and many other items to supplement their earnings. Such items as wine screws and glasses would be permitted, but other items such as cigarettes/t-shirts, etc would not be permitted. Any struggling store would not be permitted to sell anything other than alcohol and alcohol related (necessary) items. Additionally, no more than 30% of sales can come from non-alcoholic beverages.

Point 4

“Section 313-A (All New Addition)(a) Sale of State Store Inventory. An awarded franchise and license shall grant the successful bidder the opportunity to bid upon the remaining inventory.(B) Schedule of closure. The board shall develop a schedule of closure for State stores, Under no circumstances hall any state store remain open for retail sales beyond 18 months.”

This section states that 1 bidder will be awarded the ability to purchase all remaining stock. Some stores will continue to be open for up to 18 months, resulting in a period of competition between the state and private business.

Point 5

“Section 317-A (All New Addition) (d)(2) Wine and Spirits store licensees may sell wine or spirits between 8am and 11pm on any day except Sunday.(e) Age Limitations - An employee of a wine and spirits store licensee shall be 21 years of age or older.”

While most State Stores are not open on Sundays, there are a few that currently do operate (in the past few years some are authorized to be open on Sundays.) This bill will renew the old statute, and no privatized store will be permitted to be open to the public on Sundays once again. The second clause here will limit the privatized store in their hiring process. Currently through the lcb a person must be 18 years of age (similar to a waitress that serves alcohol.) By having a lower age requirement, wages can often be lower since many of the current employees are part time (intermittent) college students. Based on the new law, this "temporary" work force will not be permitted to be employed by the new stores.

Point 6

“Section 342-A (All new addition) (a) Tax on retail sales of wine and liquor. A tax of 6% is imposed on each retail sale of wine and liquor for on-premises and off-premises consumption by a licensee to an unlicensed person.”

“Section 448 (New addition) A tax of 6% is imposed on each retail sale of malt or brewed beverages for on-premises consumption.”

and

“Section 401 (all New Addition) (b)... New tax rates (to be collected by manufacturer and/or importer)
$3.50/G wines<17%
$4/g wines>17%
$4.50g sparking wine
$5/g Liquor >17%
$6.50 17%>Liquor<55%
$7g Liquor>55%”

On the first point here, currently when you go to a wine and spirits store, you pay 6% sales tax, 18% emergency flood tax, and 30% mark up. What you do not pay is 6% sales tax on prepared drinks when you go to a bar or restaurant (at least, you are not supposed to be charged.) I was unable to find in the bill whether or not the 18% tax is being repealed, so if it is, please indicate the section for me. But add up the total costs here. 6% sales tax/18% flood tax + private store mark up. Then add the second tax of 6% for any on-premise sale and citizens may end up paying more (and in restaurant/bar) twice for the same alcohol. Furthermore, according to section 448, malt beverages for on-premise consumption would also be subjected to a 6% sales tax.

Previously to the best of my knowledge, licensees (restaurants) would pay the sales tax on the liquor from the state store or distributor, but were not permitted to charge sales tax on the poured drink. So in essence, if the 18% flood tax is not lifted, then by privatization (according to this bill) we as consumer's will be paying an ADDITIONAL 6% tax on alcohol (if you drink both in restaurants and at home.)

As for section 401 with the manufacturer tax. I was unable to find the current rates, however as this is new language in the bill and I could not find prior language, I am assuming here that this is also an increase.Based off this, the only savings that Pennsylvania citizens would see would be if the Retailer was willing to have a profit margin smaller than 30% (or in the case of licensee restaurants, 24%, and with diminished buying power (again, this is arguable and I am not taking sides), we may actually see a rise in prices instead of a decrease.

Again, please correct me with the passage if this is incorrect.

Point 7

“Section 491 (added information) (e) A direct shipper may ship wine on the internet order of a resident into this Commonwealth provided that the wine is shipped to a (Pennsylvania Liquor Store) WINE AND SPIRITS STORE selected by the resident.”

While this does not address direct shipping inter-commonwealth, it does lay to rest the argument of "why can't I get wine shipped to my house." Even under privatization, you will still need to pick up your alcohol at a liquor store, sign for it, and pay all applicable taxes. There will not be direct shipping. Again, I was unable to find the language that deals with inter-commonwealth, and I am unsure if this is meant to cover both instate and out of state transactions.

Point 8: (all new addition)
“Section 495 (c.1) In addition to the requirements of subsection (b) and (c), a wine and spirits store licensee, or the servant, agent, or employee of the wine and spirits store licensee, shall use swipe identification card technology to verify the age of any person who appears to be under 30 years of age.”

Currently, I believe most if not all state stores use this practice. This will not change under privatization. This can be seen as both a prevention of under age sales, or as a hurdle to stores that may feel looking at an ID is good enough. I would imagine that BLCE and now municipalities will be monitoring these systems and signatures more closely.
This will also mean that by law these stores will be required to card everyone who appears to be under 30, and scan their ID, even if they are a daily patron.

I just wanted to bring these few things up to those that read your blog, and to yourself. While you may still hold the premise that privatization is good for the act of privatization itself, it may not pan out the way most people expect. Any savings to the consumer may be a wash with the added sales taxes and manufacturing taxes, inability to hire "temporary" workforce college kids, and Sunday sales (where currently available) will be a thing of the past.

Again, if you find anything incorrect with my reporting please let me know. I will not take offense to corrections if you can find the information.

And that's that. As I said: unedited, and again, this refers to Rep. Turzai's proposal for privatization, which has not yet been through the sausage-grinder. Feel free to comment, or not.

The Fight for Privatization Starts Today

Well. I've been silent, and I regret it...but I've been really busy (and, I'll admit, doing more on Facebook and Twitter than here, which was probably a mistake and all my blogs have suffered for it). Still and all...

Hot damn! We appear to have hit the election jackpot, if only in terms of the abolishment of The State Store System. It's been a wild time since election day. Here's what's happened.

•                     Governor-elect Corbett (who is inaugurated today) confirmed that he is not only in favor of privatization, he's in favor of rapid privatization;

•                     Senator Dominic Pileggi and Representative Mike Turzai both confirmed that privatization was at the top of the legislative agenda;

•                     Turzai, who has the most comprehensive privatization legislation on the table, was elected House Majority Leader; Pileggi, who supports privatization, is Senate Majority Leader.

•                     Almost every newspaper editorial staff in the state has come out in favor of privatization;

•                     The groundhogs at the PLCB stuck their noses out into the harsh new light and decided that they didn't really need to put through that across-the-board price increase they'd told us they needed;

•                     And...the wine kiosks blew up, and the PLCB finally had to admit there were problems and took them offline right in the middle of the holidays, possibly the biggest impulse-buy season for wine in the whole year.

Whew. It's enough to make a man weep for joy. But you know...it wasn't complete until Wendell W. Young IV (president of United Food and Commercial Workers Local 1776, the PLCB employees union) came out of his cave to shake his booga-booga stick and warn us of all the terrible things that will happen if we privatize.

That's how I knew this was serious. Okay, serious in a funny kind of way, because the only players in this whole spectacle that are goofier than WWY4 are the loonies at the Independent State Store Union, the union that represents the PLCB managers (is it just me, or is the idea of a union for managers just so indicative of what's wrong with this whole clusterf – er, mess?). They babble and hoot, and release their manifestos about the evils of alcohol and long hours at the State Stores (guys...if you don't like alcohol, maybe you should consider a different line of work?), and sound a lot like late-night AM radio preachers.

But WWY4 at least plays it a bit serious, trotting out scary (irrelevant and incorrect) numbers, savage (ad hominem) arguments, and managing to insult the motives of everyone in favor of privatization. You can tell it's going to be ugly – he's decided to call people who support privatization privateers, get it? Like pirates? If that's the way it's going to be, get me my letter of marque, and give me clear seaway, I'm after some prizes.

One of his biggest arguments is that the sale of the system -- which is really the sale of retail and wholesale licenses; the stores and two of the three warehouses are leased -- won't really raise $2 billion as Turzai claims. Over and over, he repeats (and so do his UFCW drones) that those licenses will cost $2.3 million if Turzai's going to get $2 billion, and that's going to shut out mom and pop stores, and big box stores will get a monopoly on liquor and wine sales in PA. 

Okay...first, I don't really care about the money. It's about getting rid of a ridiculous state retail monopoly that doesn't work. It's about service -- Joe "CEO" Conti was recently quoted in the New York Times as pleased that State Store employees “aren’t incentivized to sell”, and by God, he's right -- it's about selection, it's about this is ridiculous in 2011.

Turzai agrees. “The fact is, government is not private business. It simply cannot compete with private industry by pretending it is something that it is not. When it comes to the PLCB selling wine and spirits, we all need to ask: ‘Should Pennsylvania really be in the business of selling alcoholic beverages?’ How can the government agency charged with educating the public and regulating the industry, be in charge of maximizing sales of wine and spirits in the Commonwealth?”

But look. Say those licenses go for $400,000 each; not unreasonable, and a once-in-a-lifetime opportunity to get part of a former monopoly. The 620 stores we have now are not enough; you can see that by looking at other states (that have no better or worse a record with alcohol problems than Pennsylvania). So let's say a nice round thousand stores. That's still half as many -- proportionally -- as they have in New York, and the alcohol problem stats there are about the same as in PA. So, a thousand stores at $400,000 each is $400 million, plus 100 wholesale licenses is another $100 million. $500 million. It's not $2 billion. 

But instead of making them pieces of property -- like we did with tavern licenses, which is stupid -- make them non-transferable. The license is issued, and you have to pay a reasonably substantial fee every year to maintain it -- $10,000? $20,000? -- and if you sell the business...the new owner pays the state for the license. Not you. The state charges for the new license whatever the going rate was in the initial auction, plus inflation.

Don't want big box stores owning all the liquor licenses? Simple: Massachusetts says no one/no business can own more than a small number of liquor store licenses (can't remember if it's one or three off the top of my head); do that here. Why not, the 21st Amendment says we can! That keeps mom and pop in the running.

Here's one that Wendell and his minions trot out all the time, flash it by you fast so you don't think: 

"If the privateers do their homework, they'll see that selling the Wine and Spirits stores can't replace the nearly $500 million a year they generate for Pennsylvania taxpayers. And they'll see that selling the state stores would be a onetime money grab at the expense of an asset that generates reliable, growing revenues."

The Wine and Spirits stores don't generate nearly $500 million a year. They collect about $400 million in taxes; they 'generate' about $100 million in profits. The taxes -- not in exactly that form, but still about the same amount -- will be collected by private stores, and the loss we're currently experiencing in "border bleed" will likely go away, resulting in higher tax collections in-state. I mean, if Canal's opens a store in Fairless Hills, I'm not going to Jersey any more (which, by the way, means I won't be buying gas in Jersey, or lunch, or groceries while I'm at Canal's...)!

The point he brings up that's honest is about the union jobs that will be lost: over 4,000. That's what he's really concerned about, and he should be: that's what he's well-paid to do (about twice as much as Joe "CEO" Conti gets, BTW). I get that, but...those jobs should never have existed. The state should never have been in retail. A bad decision 75 years ago, and we should keep paying for it forever? 

No. Cut the payroll, cut the never-ending pension benefits (how many of you have a guaranteed-benefits pension? Know any retail clerks that do?), cut that all out. Give them help finding work (and Turzai's bill does that), and if they're any good at what they do, they should be able to easily find work in a new private system -- good-paying work, with their years of experience -- or even open a store themselves. But running this big a jobs program for unnecessary work makes no sense in 2011.

Wendell smears the motives of everyone in favor of privatization: we're all in it for money. As a citizen, I take that as a deep personal insult. I want nothing more than to be treated like an adult, to have the simple freedom of being able to buy something in a store 15 miles away and bring it home without fear of arrest, to be able to shop in my home state in a way I can currently only do in another. I want to support local business, not a government fossil.

Today is inauguration day. Privatization starts today.