I Do Not Like These Changes

Take the Liquor Code out behind
the Capitol and beat it to death.

Watchdog.org asked me what I really thought about the PLCB and the Almighty Liquor Code in light of recent changes (the ones Governor Wolf said were "historic").

So I told them.

Favorite bit?  “If privatization means less booze-based revenue for the state, well, fine, let them find it in someone else’s pockets for a change. Moderate drinkers have paid more than our fair share for long enough."

Privatization IS Modernization. Rewrite the Code; the WHOLE Code!

Where the PLCB Money Goes: Then and Now - A Second Look

Let's have a look at what the PLCB has done with its money -- our money -- since the new millennium has started. I did this story almost 3 years ago so let's see what may have changed The numbers from 3 years ago will be in parenthesis. 

Fewer stores, more employees: In July 2000 there were 692 stores with 2,869 full time workers and 1,072 part-time workers In June 2016 there are 601 (604) stores, and as of May 15th, the last reported figure for FY 2015 there were 3,067 (3,080) full time workers and 1,606 (1,417) part-time workers. Stores decreased by 15.1% (it was 14.6% the first time I wrote this) and employees increased by 18.9% (13.5%). Just looking at it from 3 years ago there are 3 less stores but 176 more employees. 

Higher gross, lower margin: In 2000 the PLCB had record sales of $1,083,330,579 and record operating income of $89,868,893 or 8.30% of sales. In 2016 the PLCB had record sales of $2,430,209,796 ($2,171,946,398) and non-record operating income of $131,770,874 ($151,877,723) or 5.42% (6.99%) of sales a decrease of 53.14% (18.6%) in operating income for every dollar spent in sales compared to 2000. (Hardly surprising, given the increase in overhead represented by the previous point.) Looking at these numbers is there any doubt "flexible pricing" is going to cost you more?

Cost overruns: In 2000 the Auditor General found the PLCB incurred $408,000 in additional costs due to problems in Its implementation of a new computerized Warehouse Management System. In 2010 the Auditor General reported the PLCB incurred excess costs of $500,000 due to problems with the new inventory system (on top of being over budget). The inventory system was contracted for $25.8 million and as of June 2010 has cost $66.6 million, or 158% over budget. Of course, we are still paying the legal expenses for the wine kiosks too.  Who knows when that will end or how much it will total.

More for ads, less for education: In 2000 the PLCB contributed 0.76% of their expenses to drug and alcohol education.  In 2013, the biggest year they ever had up to that point, they donated only 0.66%, up from the 0.53% in 2012 (also a "record year"). This year it went up but only because they had to pay the $800,000 they shorted Drug and Alcohol programs last year. It is still below 2013 levels  The PLCB hasn't released how much they spend on advertising until this year where they said the spent "about $6,700,000" or over double what they spent on education.

More booze, less enforcement: In 2000, the PLCB gave 7.39% of their expenses to enforcement of the liquor code.  In 2015, the PLCB only did 5.51% (6.19%), a shortage that works out to over $9 million less for enforcement compared to 2000. So even though the number of licensed establishments increased and the population increased, there was less liquor code enforcement. State stores still aren't checked at all for compliance.

More embarrassment, less arresting? In 1992 the Auditor General reported that: "Policing bootlegging and illegal importation of liquor without payment of Pennsylvania taxes should be the primary mission of the liquor law enforcement personnel."  In 2013 there were 2 reported cases of “bootleggers” caught. It could be that the more support for privatization there is, the less border enforcement takes place...since that would highlight the huge problem of people who purchase out of state. It might have something to do with the $9 million the BLCE doesn’t get since they were no longer funded at year 2000 levels too. While I'm sure a few token bootlegging arrests were made in 2015 I haven't been able to find out how many.

The real PLCB new funding source.

Same lack of relevant experience: In 2000 no member of the Board has had any experience with running an enterprise anywhere near the size of the PLCB.  That hasn’t changed at all in any year since and they still only work 21-22 days a year. It hasn't changed with the current board, or ANY board either.

"Multiple weaknesses" in procurement: In 2000, the Auditor General reported that: “Weaknesses exist in the administration of the Pennsylvania Liquor Control Board's warehouse management system consultant contracts.”  In the 2010 Audit the Auditor General reported that: “…multiple weaknesses in the PLCB award process, including lack of documentation. As a result we could not verify the PLCB adhered to proper procurement standards or exercised proper due diligence in awarding the contract.” (Remember that one of the PLCB “modernization” plans is to have less oversight in procurement although thankfully that part of "modernization" wasn't part of ACT 39.)

The PLCB has not changed in the sixteen years since 2000...Act 39 will only cause a larger bureaucracy with less customer service and more problems, that spends less on its very reason for existence: control. The problems are systemic, pervasive, and totally ingrained in the PLCB's processes and workforce. They won’t be fixed until the entire system is replaced with privately-run wholesale and retail operations -- as it is in the majority of other states and countries -- and they are able to fully concentrate on regulation, compliance, and enforcement, and not sales.

Privatization is Modernization – accept nothing less.

Free Market or Socialist PLCB - who makes jobs?

The Legislature continues to ignore the drag the PLCB puts on the economy. Every place that has fully privatized has tripled employment in the industry. A side benefit is that a free market allows entrepreneurs to open businesses that a controlled market, by its very nature, limits. Since over a third of the PLCB is already part-time the claim of losing 5,000 "family sustaining" jobs from privatization is blatantly false.

Just one example of that limitation in jobs is craft distilleries. In 2012, the first year that limited distillery licenses were allowed — years behind other states — Pennsylvania had four. Now, four years later, the state has about 50. In contrast, Washington State — with about half the population — has 86 (as of mid-July). Since privatization of the state liquor monopoly in 2012, Washington has added 51 distilleries, added jobs, added tax base. Slow old Pennsylvania has added 50 in the same amount of time — with twice the market, and our proximity to big markets in New Jersey, New York, Ohio, and Maryland — an increase that should be well over 100, based on population ratios.

So what is holding things up? The PLCB's friends in the Legislature and the Almighty Liquor Code, of course. How many jobs, how much investment and taxes has the state lost because of the PLCB? Far more than the heavy hand has allowed in. What are we afraid of? Success? Money? Tax revenue?

While ACT 39 has added a few jobs (mostly in the PLCB hiring consultants to figure out how to implement it), there hasn't been the boon in employment full privatization would bring. No new warehouse jobs (union jobs!) that would be created by the formation of new distributors, because the state still controls wholesale. No new delivery jobs (more union jobs!) trucking wine and spirits to new stores, because there are no new stores, and besides, for the most part the PLCB doesn't deliver anyway. No new sales jobs because there still aren't any new stores. Poorer service because while private stores depend on good service for return customers, the state stores know you can't go anywhere else. Less selection because the PLCBureaucrats in Harrisburg are selecting the shelf stock for every single store for the entire state, instead of customer requests and demand, new product promotion, and American-style competition like how EVERYTHING ELSE  is sold in retail.

While the PLCB is a jobs program, it isn't a jobs program that benefits the citizens overall, just the lucky winners at the State Stores and warehouses. It benefits them by denying and disrupting the normal opportunity and jobs found in free and open markets.

If the Pennsylvania State Store System were really all that good...Well, think about it. 

• They wouldn't be afraid of competition. 
• Other places would be trying to emulate our system. What a ridiculous concept! 
• The citizens wouldn't want change. They do.
• Pricing would reflect buying power. Flexible pricing makes sure it doesn't.
• Qualified people with industry experience would be making business decisions, not political hacks. 
• People would come into Pennsylvania to buy; instead the state has the largest alcohol sales border bleed in the country.

We aren't safer, we aren't better served, and even with McIlhinney's four-bottle folly, we aren't satisfied. The only way to really satisfy the consumer is with a free market, not a closed system.

PRIVATIZE.

PA Democrats need to go to Iowa

When you're talking about getting a bottle of booze, and the words "freedom," "consumer choice," "selection," and "benefiting the citizens" are mentioned, Pennsylvania certainly isn't the first state that comes to mind.  But then, neither is Iowa, even though they are decades ahead of what our blinder-wearing Pennsylvania legislators have come up with for liquor policy.

Just like Pennsylvania at the end of Prohibition, Iowa instituted a state-controlled system for wine and liquor. Unlike the Commonwealth, they listened to their citizens and changed with the times. Maybe you're thinking that Iowa had a different societal outlook, that they were more likely to liberalize their liquor laws. Not even close: Iowa didn't even allow drinks by the glass until 1963. If you wanted a rum & coke, you drank at home or not at all. So for at least the first 29 years after Prohibition ended, we were doing better than Iowa.

Iowa also raised their liquor tax on licensees in the 60's from 10 to 15%, but they didn't hide it by calling it "temporary" for something that happened 30 years earlier as Pennsylvania did with the infamous Johnstown Flood Emergency Liquor Boondoggle Tax. They also didn't then bump it to 18%, either.

Since Iowa didn't have as many convoluted regulations and "interpretations," they were able to totally rewrite the liquor code in 1972, simplifying it from twelve chapters down to just one, all in one place in the code. When Pennsylvania "revised" The Almighty Liquor Code in 1951 they expanded it, and spread the regulations across multiple sections of the state code. Brilliant.

Kwik Star, Charles, Iowa

On May 4th,1972 the Iowa legislature decided that gas stations could sell beer...without having separate registers and cafes! Only 44 years ahead of PA, and they had hundreds of places instead of just nine. In 2011 they allowed gas station liquor sales, too. Don't hold your breath on that.

In 1981 Iowa, again decades ahead of Pennsylvania, allowed craft brewers to not only sell their own beer by the glass but ANY beer obtained from a licensed wholesaler for on and off premise consumption.  35 years later, we're just starting to catch up.

In 1985 the Iowa legislature started to unwind state control of wholesale/retail wine sales, acknowledging that they didn't have the knowledge or expertise needed to operate consumer-friendly outlets. The dual sale of wine in state and private stores took less than two years to show the clear winner, and the state closed state store wine sales in 1987. 20 years later, the Pennsylvania Legislature hatches McIlhinney's Mistake, and we're allowed to buy four bottles of wine at a time in a relative handful of grocery stores. Yippee, yay us.

Not in PA! You can only have 4, put one back.!

Shortly after wine was fully privatized in Iowa, retail liquor followed suit. The state transitioned from 221 state stores to 256 private stores in only four months. By the end of the four month period, Iowa had approved a total of 410 private stores. Even after lowering and eliminating some taxes — contrary to what State Store clerk union president Wendell W. Young IV says — the state of Iowa makes more money by not having state stores as reported by the state of Iowa itself.

Well before the U.S. Supreme Court Granholm v. Heald decision in 2005, Iowa legalized reciprocal wine shipping in 1996. It would be 20 years later, after almost eleven years of ignoring the Supreme Court's ruling, when Pennsylvania  finally came into compliance and allowed such shipments.

So here we are in the fall of 2016. Iowa and Pennsylvania started out roughly equivalent at Repeal, but the Hawkeye State has far outstripped the Keystone State in the race to booze normalcy. Iowa has far greater convenience, one stop shops, and no bureaucrats deciding which legal products are allowed to be sold in the state (the state still has a monopoly on spirits wholesale, but it isn't run in the draconian way the PLCB does it). Iowa is decades ahead in doing what their citizens want; in August, the governor announced another comprehensive review of the liquor code. Meanwhile, The Almighty Liquor Code has only gotten more convoluted and confusing (to legislators and licensees alike) since 1951. 

With over 1,400 retail liquor outlets serving a population a quarter the size of Pennsylvania's, do you know what else Iowa has? Less underage binge drinking, lower DUI fatalities (in both legal and underage drinkers), and lower DUI arrests.

What is the lesson of looking at Iowa? Simple. We don't need the PLCB: they're not convenient, they're not helping alcohol safety, and as we've been telling you for years, when you look at the entire financial picture, they aren't even making the state any money over and above the taxes that a private system could collect.

PRIVATIZE. It just makes sense.

"Flexible pricing" means someone's getting screwed again

Is four bottles of wine worth the screwing we're going to get from flexible pricing?

Oh, my pricing is flexible. You bet, Slick.

Ever since the State Store clerk's union and its president (Wendell W. "Windy Wendy" Young IV), the Democrats who do their bidding in the Legislature (yeah, they do, and if there's a Democratic legislator who can give me a real reason for keeping the State Stores other than "it gets me lots of campaign cash from the unions," they'll be the first one), and syndicalist economists put forth their plans for the "modernization" of the police-enforced monopoly of the PLCB, one thing has been the hidden poison in the sweet candy of concessions, the coiled and sharpened spring waiting to slash out of the intricately-ticking machinery of "improvement" and slice open our wallets — "Flexible pricing."

Whenever the laundry list of proposals came out — more stores open on Sundays, open later, hiring outside Civil Service rules (so they could hire some less dead wood) — flexible pricing was always there, about five or six bullets down the list, promising to break prices free of the mandated mark-up so that they could give us lower prices! Except it didn't say "lower pricing," it said "flexible pricing," and we told you over and over again, "flexible pricing," in the PLCB's control, was only going to "flex" in one direction: UP. 

Well, they got it, when Senator McIlhinney laid his latest mutated liquor bill on us, and Speaker Turzai signed off on it (there were some good things in there, but whether they were worth the cost...), and The Wolf Who Walks Like A Man signed it. Hurray! Free at last...a little!

Remember: Wendy said to look concerned.
But... Flexible pricing, guys! Hot damn!

And Wendell cried and pounded the podium, and told us that allowing supermarkets to sell wine was the beginning of the end, death by a thousand cuts...but he must have been smiling as he turned away from the cameras, a secret, villainous smile, because the PLCB and the union got the flexible pricing they wanted. It was limited to the 150 best-selling products (which is where most of the money comes from anyway), and it cost them a tiny little slice of their monopoly, allowing licensees to sell no more than four bottles of wine at a time (at prices guaranteed to be higher than the State Stores, because they had to be bought from the PLCB wholesale monopoly at rigged prices). 

But it was worth it to Wendell and his yellow-shirted minions in the PLCB. Now journalists across the state are finally waking up to what we told you years ago: flexible pricing means we're getting screwed. Again. The PLCB is finally using their long-heralded buying power to hammer down the price to them, but you'll never see a dime of that. Have a look. 

The Pittsburgh TribLIVE, October 5th: "Pa. LCB accused of using new 'flexible pricing' law to boost profits" — "Privately, though, wine and spirits officials said the LCB asked for specific percentage cuts in cost but without saying what markup would then be applied. That strategy means suppliers wouldn't know what the final shelf price would be for shoppers." 

Harrisburg PennLIVE, October 19: "Lawmakers need to go back and include liquor in 'liquor reform'" — "We urge the state to forego what it euphemistically calls "flexible pricing" for another two years. We urge the General Assembly to finish the job and complete privatization." 

Harrisburg PennLIVE, October 18 — "Here's how Pennsylvanians got hoodwinked by booze 'modernization'" — "The provision, known as flexible pricing, isn't likely to be very satisfying to anyone who shops for wine or spirits in Pennsylvania. It gives the Pennsylvania Liquor Control Board (PLCB) the ability to manipulate price, something it has long desired as a way of raising revenues." 

Pittsburgh Post-Gazette October 20 — "Pennsylvania's liquor ‘modernization’ hoax" — "Here’s an unfortunate reality about Pennsylvania’s so-called modernization of its liquor business: You’re going to pay a lot more for it. This isn’t modernization, but rather a step backward."

What does Windy Wendy offer in rebuttal? This almost incoherent mish-mash of his old arguments — the State Stores offer competitive prices (Really? How can they be "competitive" when there is, by law, no competition allowed?), they bring in lots of taxes (just like private stores would), and the new licensees will not match the selection or prices of the PLCB (that's actually true: because the law doesn't allow them to) — with a pathetic plea to 'stop picking on me': "Is it time for PennLive to perhaps take a different tack on the long-running battle over dismantling the Pennsylvania Liquor Control Board (PLCB) by, perhaps giving it a rest already?" Perhaps perhaps! He's so pissed he can't even speak straight; this is a direct quote from the op-ed piece that PennLIVE allowed him to dump on their website: "We opposed this law, Act 39, will cost taxpayers millions in lost revenue." [SIC] Sad, really. He's clearly got nothing, and his Democratic lapdogs in the Legislature have got nothing. 

Okay, headline...I got it!
"McIlhinney's Mistake Screws Us All"

So let's do something about this. "Flexible pricing" was foisted on us by Senator Chuck McIlhinney, for reasons known mainly to him. Why don't the newspapers ask McIlhinney why the PLCB got this one-sided tool without any restrictions on its use, or requirements for reporting on how it is used? Ask him why there's a four-bottle limit on wine sales at licensees? How about you ask him why his law favors big markets over mom-and-pop stores by requiring the whole separate "cafe" with separate registers and clerks to ring up beer and wine? Ask McIlhinney who he's compromising with. And ask the Democrats why not ONE of them has voted for real liquor privatization.

And the rest of us? The citizens? Ask your legislators, your reps and your senators, to put a two-year hold on "flexible pricing." Haven't we paid enough? Why should we pay more so the PLCB can continue to paper over the ruin that their spiraling operating costs are creating?

The best solution to all of this? Stop tinkering: PRIVATIZE. It works in over 2/3 of the other states, it works in over 85% of the countries in the world. Why not Pennsylvania? 

Apples to Apples

Philadelphia is a city of 1,550,000 people, with a metro area population of a hair over 6,000,000, making it the 7th largest in the country. 

San Francisco has a population of  864,000 (56% of Philadelphia's), and a metro area population of  4,656,000 (77.5% of Philadelphia's), making them the 11th largest metro area.

As anyone can tell you, they are very different cities geographically, historically, and culturally. One of the few things they have in common is that they both have whiskey festivals. One is controlled by unelected, unqualified bureaucrats who decide what the entire state is allowed to buy; the other is guided by the free market, where access to new and different products in response to consumer demand is the norm.

Which Whiskey Fest would you rather be at?

So how do they compare? The Philadelphia festival has 251 listed items of which 156 are whiskies of some form or another. That is about 62% whiskey and 38% other spirits. The San Francisco whiskey festival has 393 whiskies by my count. Nothing else needs to be said.

No PLCB means better selection: PERIOD. Full privatization is the only way it can be had. Accept no substitutes.

Questions that should be asked

Since the PLCB never faces any real questions, or a press corps with the tough ones, we thought we'd provide a look at how that might go. It's all fictional, but hey, the PLCB says they're a "business," so we're on solid ground.

Chairman Holden, board member Negra, and board member Newsome: welcome to Face the Citizens.

   (Holden) Glad to be here Al.

Glad to have you here, gentlemen. As you know, this program is dedicated to helping the Citizens of Pennsylvania understand exactly what the Board does, and the why and wherefore behind some of your decisions. We'll start with your experience for the job. Have any of you been a director-level executive — or higher — in a $2 billion revenue company? Anyone? A $1 Billion company? A $200 Million company? No? Well, do any of you have any experience in the liquor industry? Ahh, yes Member Negra!

Chairman Holden did not actually say these things.

   (Negra) I have a bottle of wine with dinner sometimes.
   (Holden) We used to get pretty hammered after some of the caucus meetings, so I have tried a lot of different spirits.
   (Newsome) No.

Okay, do you know anything about the three tier system? I see a few heads nodding. Could you explain it for the readers?

   (Negra) Well Al, it would take far too much time to properly get across the complexities of the three tier system. We'd need a whole program just for that.

Fine with me, when can you do it?

   (Negra) I'd have to check my schedule and get back to you about that. You know the PLCB keeps us pretty busy; it's at least two or three days a month. It barely leaves time for our other work.

Board member Negra did not actually say these things.

Do any of you have experience with such common business tools as sales price variance analysis, proximity analysis or inter-type agglomeration analysis?

   (Holden) Wait a minute,  there is math involved?  Nobody told me there would be math.

Surely Member Newsome, you used these tools at Wolf Cabinets?

   (Newsome) Not to any great extent. You see, the market for cabinets isn't at all like the market for wine and spirits. The wine and spirits market is a police-enforced monopoly, as God intended. People can buy cabinets anywhere, based on price and quality and outlet convenience. It's quite different.

Board member Newsome did not actually say these things.

Of course. Let's move on to beer regulation. Chairman Holden, you had been voting for giving gas stations licenses that met the café space and register separation requirements up until Member Skip Brion left, then you suddenly started voting against those licenses, saying that your reason was that you wanted to see what the State Supreme Court was going to do. However, they didn't even agree to take the case until three months AFTER you started voting no. Then when Governor Wolf asked the Board to "Free The Sixpack," you just as suddenly started voting for them again. Care to explain?

   (Holden) That's in the past Al, nobody wants to hear that ancient history. What's done is done is what I always say. Especially at legislative hearings.

I see.  How about your new Executive Director? You went from somebody that had a firm grasp of how real retail works — John Metzger — to Charlie Mooney, who has no real world experience. This, at a time when some of the ways the PLCB does things are actually shifting toward how a real business would run. Any comments?

   (Holden) Charlie is a great guy, he's been here forever and knows how we do things.

But isn't how you do things the reason that things are changing? If you were better at how you did things, like say New Hampshire, there wouldn't be all these pushes for change.

   (Negra) Oh, we're not changing, we're modernizing. Think of it like new math. The numbers didn't change, just how you used them. That's the PLCB!

I guess that's another whole program. Moving on again... Last year you had record sales for the umpteenth year in a row. You also claimed record "profits." Let's talk about costs, specifically, why did the pension debt the PLCB owes only decrease by $550,000 in a year when you had all these record sales?

   (Newsome)  That is easy, Al. We spent the money on other things!

What other things? 

   (Newsome)  Other other things. Look, we don't have to pay any interest on the pension debt, so there is no hurry to pay it off. As a state agency, we can't go bankrupt, so it just isn't that important. With all the consultants and relatives we'll have to hire because nobody in house can deal with Act 39, I doubt it will go down much next year either.

But doesn't the state have to pay interest on the money they borrow to cover that shortage?

   (Newsome) Of course the state does, but WE, the PLCB, don't. So...not on our balance sheet!

Thanks for being so upfront about that. It looks like we are just about out of time. Thank you for being on Face The Citizens. I look forward to you coming back again.

(Hot mic catches...)
   (Newsome) Nope,
   (Holden) Not gonna happen.
   (Negra) Don't bet on it.


Do I need to say it? PRIVATIZE.