A closer look at the PLCB Cash Cow

The PLCB and the UFCW (the State Store clerks' union) have always fed the public (and the Legislature) a big lie about the PLCB Cash Cow. They make it sound like their bulging bovine is comprised of nothing but filet mignon, and shits millions into the General Fund.

What they want you to think

However, the Federal Government doesn't think so and with new accounting rules in effect, the real value of the PLCB is more starkly in focus. Remember a couple years ago, when pension debt was required to be included in the annual report, showing that the incompetents in Harrisburg were really $240 million in debt? Now other benefits besides just pensions have to be taken into account, and it turns out that the PLCB is OVER A BILLION BUCKS IN DEBT. with total liabilities of over $1.7 billion! Yup, billion.  With a 'B.'*

Let me say that again. The agency that has been stealing from the public and short-changing the clerks the benefits it promised (which it could never afford to begin with) for over 80 years, while telling us all that it makes money...is over A BILLION DOLLARS in debt.

Don't believe me?  Why not ask the PLCB themselves? Here's the minutes from their December 6th meeting; take a look at page 9.

The reality of 80 years of lies.

What does it mean? It means that even with stealing more from you with "flexible pricing," even after screwing us with rising prices just because they want to, even after cheating us out of the discounts given by the suppliers, even after purposely working against PA businesses with imported house brands...they still need more...a lot more. The lying political hack they call a Chairman could barely keep a straight face when he told this whopper: "And, as we’ve said all along, prices will increase for some items, when the supplier and PLCB agree that the market can bear the increase." 

Looking at page 10 of the minutes you can see that for October they claim a profit (Change in net position) of $8,623,941. That means that if they didn't do anything else besides pay down debt, it would take ten years just to break even for the debt due today. Of course, they would be accruing more debt, new debt during those same 10 years. This is a Ponzi scheme worthy of Bernie Madoff. No wonder they worked so hard trying to get the Governor's borrowing plan into place. It would further obligate the citizens into paying off their debts and for the next 20 years keep the people who care about limited government and fair treatment for the citizenry at bay.

What does it take to be rid of them? How incompetent do they have to be? How anti-consumer will they get trying to pay off what they owe? You know where this money has to come from, don't you? I got a hint: the wallet of someone you know really, really well.

Can we afford to keep the PLCB's cash cow? Are state stores worth it? 3,500 clerks should not hold hostage a state of 12 million people. Privatize.


(*) Now $1.8 Billion in liabilities for January)

Are Your Prices Variable Enough?

Just how much is the PLCB screwing us with "variable pricing"?

A good question, and one that the PLCB doesn't really want to answer. There is no sunshine at PLCB HQ; their mission is to hide as much as possible, keeping as much information away from the citizens as they can. And why? It's not like they have any competition to worry about, no business secrets to keep: no one else is in their business, they've made sure of that. They do it for one reason: to keep the owners — that's you, and I, and the Legislature — ignorant of what they're really doing; of how they're desperately shuffling prices and margins around to try to look "profitable."

Would the wine kiosks have passed if the citizens, if the press, knew about them, knew that the PLCB had been advised against implementing them...by their own people? Would Joe "Da CEO" Conti been brought back after having been found to have committed ethics violations if the citizens knew, and could do something about it?*(Correction: please see below.)  Maybe anti-competitive branding and placement wouldn't have taken place with citizen involvement. But that all did happen, mainly because the PLCB kept it all hidden away and secret, to the point of having records destroyed, to the point of appearing to have had secretive off-book meetings to make decisions that are supposed to be discussed in public.

Now they don't want you to know how much of a shaft you are getting on variable pricing, the one thing they wanted more than anything else from "modernization." Remember, the PLCB said that they couldn't negotiate prices for 82 years, even though there was nothing in the Almighty Liquor Code that prevented it, and then they said that they did negotiate on some things, but not most. ACT 39 changed that, and supposedly allowed the PLCB to do something they could have been doing all along...only now the game is rigged to benefit the PLCB and not the consumer. That sounds fair.

In the PLCB meeting minutes, you used to be able to see what new products were going to show up, and the cost for those products. Not anymore. The PLCB doesn't want you to know what they are paying and what they are going to charge,  because it will raise questions about why the consumer isn't seeing benefit from "variable pricing." They don't want you to know that they are making an extra $1.16 for every bottle of Jack Daniel's sold while you see no change** on the shelf.

Now, a real retailer wouldn't tell you this either. But the PLCB isn't a real business; they have a police-enforced monopoly to ensure their market share! A real business doesn't tell you this stuff, but their competition keeps them honest, and you can be sure that they're passing along savings to you; if they don't the competition will.

But the State Store System has no reason to benefit the consumer by lowering prices in order to increase market share or maintain their customer base. They don't have to worry about that, and there's nothing in the Almighty Liquor Code that says they do. Remember the founding principle of the PLCB, as stated by Governor Gifford Pinchot himself: “to discourage the purchase of alcoholic beverages by making it as inconvenient and expensive as possible.”

So what does the PLCB tell us about the effects of variable pricing? The Chairman said that they will not raise prices across the board, but with having to dip into reserves to pay more into the general fund, and trying to prevent privatization by making it look like they contribute more than a piddling amount to the state (not including the taxes, which would still be collected in a private system!), and having to pay off $260 million in pension debt...what do you think they are going to do? Keep their sinking ship afloat in any way they can, or benefit the consumer?

Last year the PLCB charged an average of 45.36% above cost for every product sold.  For the first eight months of this year it has risen to 45.46%, and I guarantee that will continue to climb as time goes on. If you remember, the Democrat's modernization plans said that the PLCB will make an extra $75-100 million because of this alone. That would mean they'll have to raise the charge above cost to over 60% — such a deal!

The choice comes down to this. Do we want to continue to have limited selection, limited convenience, Harrisburg bureaucrats selecting the booze for the entire state, and anti-consumer pricing? Or do we want the freedom of choice that the private market brings?

Privatize - all of it. Retail and wholesale. Why wait one variably-priced month longer?



*Correction: Conti was ruled to have violated the state's ethics code about a year after he was brought back as an 'emergency consultant' and paid about $67,000 more of your booze dollars. Our error, which we own up to...unlike Joe The Ethics Violator, who is currently on the faculty of the Fels Institute of Government, and a lobbyist with Triad Strategies. Great places for a known ethics violator.

** Since the PLCB hides all of their purchase information now, the $1.16 is just my best guess, but it is an educated guess...and it is most likely more.

PLCB 2015 Financials - Trying to make the best of a bad situation

Accountants speak their own language. I don't mean like from a foreign country: from a different planet altogether. They make money appear and disappear based on perceived changes in procedures, making it extremely difficult for the average person to figure out what the heck they are looking at when going over financial statements.

That's by way of presenting the PLCB's long-awaited Financial Statement for FY2014-15. Apparently they just couldn't delay it any longer (one little upside to the ridiculous delay in the state budget process). Instead, they resorted to Accountantese to make it hard to figure out just what happened. Not only have they changed some of the layout of their statements, they changed some of the wording for the exact same line or item in the current report and between last year and this year.

A quick example of how the same thing is called different names is on page 4 of the report: the difference between Sales Net of Taxes (gross sales) and Cost Of Goods Sold (COGS) is called "Gross Revenue from Sales." On page 5, the exact same number is now "Gross Income from Sales." A minor point, but why?

The big change this year is that because of new state accounting rules, the PLCB finally had to list pension obligations. While that causes comparison problems of its own (since they don't include last year's numbers so you can see any changes), it does show that without paying off pension debt at a much greater rate, the PLCB will be in the hole for years to come (as we've been saying all along).

It would have been nice to see if the overall debt went down for this fiscal year compared to last but those figures aren't provided.  However, there have been numerous sources that have stated that overall pension debt went up last year without actually providing any numbers to back it up. My belief is that pension debt did go up, but we'll have to wait and see next year's numbers to find out if it really did continue to increase over this fiscal year too.

Medical Liability went up from $63.63 million to $76.65 million from last year or about 20.5%  and Workers Comp increased an astounding 62% from $25.9 to $42.1 million. So including all of that the PLCB now admits to being "only" $240 million in the hole from being $77 million to the good last year. Just so you understand: that is $77 million from last year plus whatever they thought they made this year (about $80 million) and they are still $240 million down.

I'm going to look at how the stores did overall --  not how investments or deferred inflows and outflow went or the non-operating costs -- and compare them with last year. Without further ado, here we go. (Remember, you can follow along with their report here.)

Sales: Sales went up 4.2% while COGS only went up 4.1% and the effective markup moved up slightly to 45.35% from 45.2%.  No big surprise there: the population went up, prices went up, and the economy is getting better. The surprise would be if sales hadn't gone up; it's a monopoly, after all.

Operating Expenses: Now we come to the heart of the matter: how efficient is the PLCB in turning all those sales into what they call "profit" (what I call an unspent use tax). These numbers DO NOT include Pension, OPEB, and Workers' Compensation Accounting Valuation Expenses from Net Income. It isn't pretty.

• Purchase, Storage & Transportation costs up 13.6% 
• Stores' Operation and Supervision costs up 17.4% 
• Central Administrative Support costs up 11.2%.
• Gross Operating Income down 24.6% 
• Net Operating Income down 32.4%
• Operating Margin down 38% 

All this even though the total number of stores and employees were about the same and this is with record sales!

A real business grows profit by doing one or all of these three things;

• Increasing sales by taking them away from their competitors, which will never happen under the current system. Border bleed is not going to decrease - period. 
• Becoming more efficient and controlling costs, which means not having Operating Costs increase 17% in one year. Also not likely. 
• Becoming more innovative...and we all know what happens when the PLCB tries that: wine kiosks, cost overruns, and trailers full of boiling wine. 

Increasing sales are good, but not when costs increase at a much faster rate. That's just not good business...but we are talking about the PLCB, which is not a business. It's a government agency.

Any honest accountant would despair. Maybe the PLCB's accountants do.

To be fair: the PLCB did increase funding to the Keystone Kops of Booze, the BLCE, by 3.1%. However, to make up for that, they decreased Drug and Alcohol education funding by 48%. Peter, meet Paul; here's his money.

There are some unanswered questions in the report, such as why inventory totals went up over 11% when the much-heralded bailment was supposed to reduce those costs. It went up last year too, and the year before that. In fact, it has gone up about 31% over the last 3 years.

This might just be me, but...the valuation of land as listed on the PLCB reports hasn't changed since at least 1999 (which is as far back as I can go), and building valuation, another line item, has been within 1%, up and down, since 2005. A minor but interesting question. I know my land and buildings have changed value over the past 16 years, yours probably did too. You'd think all those amazing offices, conference rooms and "wine tasting lounge" would increase the value of at least one headquarters property, right?

I realize that these are unaudited numbers, but they aren't going to change that much (if at all), if and when an audit is done, so what you see is what you get. Another year with record sales and another year of lower Operating Income. The real question is how long can this trend go on before it isn't sustainable: how deep will the hole be next year?

Hey PLCB - you down there?

Modernization won’t do what the consumer wants – Part III

Today we are going to look at another part of  the PLCB's plan for “modernization,” called getting "the right people.” That's what point #9 of the Executive Summary of "Proposed Statutory Amendments of the PLCB" calls it; have a look:

9) Changes to Staffing and Human Resource Management:

• Restrictions imposed by the Civil Service Act and the Administrative Code impair the PLCB’s ability to effectively manage its workforce 

• Allowing the PLCB to make employment decisions outside of Civil Service, and giving the PLCB the authority to classify or reclassify its own positions and set the compensation of all employees will give the agency the autonomy and independence needed to place the right people in the right positions at the right rates of pay. 

• The PLCB currently pays the Civil Service Commission approximately $1 million dollars per year to administer examinations for store employees.

• Appropriate employment, classification, and salary policies would be put in place to provide necessary controls and structure to the Board’s decisions.

So...to get the “right people,” they want to set different rates of pay. Obviously, it has to be a higher rate to get those people, otherwise those people would be here now. Equally obvious is that the PLCB believes that they can’t train or teach the people they have now, and currently don’t have knowledgeable staff that could fill the positions that the “right people” would fill. (They've had 80 years to work on it, but they're only admitting that failure now.)

Since these “right people” currently won’t work for the PLCB because the salary -- even though it's at the highest end of retail compensation in America -- doesn’t match their needs, who is going to pay for the increase? You know who: us, the wine buyers, the taxpayers, because we are the ones who have to cover the increased pension obligations that these “right people” will incur since they are being paid more. The PLCB portion of the pension deficit is $550 million and expected to go to $600 million by the end of this year. But that isn’t enough. All that extra money the PLCB says they will be making; some of it will have to go to pay for these “right people” and their benefits. How much will be left over for the General Fund? Anything significant?

The only benefits to this scheme are really to the PLCB and the people who work for them. We consumers still won’t get the convenience and selection found in other states even if our “right people” are wearing world class aprons.

Privatization IS Modernization.  Contact your legislators and tell them so.