Tuesday, February 15, 2011

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.”


“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.


Albert Brooks said...

For Point 1 made by the poster the local authority would have greater control over the establishments in their jurisdiction. You would,'t have to wait for the BLCE to decide if the place was too noisy, served Happy Hour too long or any of the other things that most normal police departments handle in the course of their regular duties. If anything Liquor Code enforcement should be better because the local police will be watching rather then waiting for the BLCE to get their act together. Also, these establishments will be licensed or zoned by the local municipalities too and will not have to solely depend on Harrisburg to decide if the establishment should continue in business.

For Point 2. Losing the purchasing power of the state is certainly not a detriment considering on how inefficiently they run things and without the "bottle fee" wouldn't even break even. Buying large quantities of wine that were rated 4 or 5 years ago and sat who knows where under unknown conditions is one of the reasons they get things so cheap, not because they are good shoppers. If you look at the 3 people in charge of the Chairman's selection program not one of them is certified in wine but they are the ones deciding for an entire state what we should drink. That will certainly improve under privatization.

For Point 3. Since we don't know what the "permitted merchandise” will be allowed to be this point is moot.

For Point 4. While there will be an overlap between some State Stores and Private Stores being open there won't be geographical competition. The open State Store isn't going to be across the street from the Private Store but there probably will be concurrent operations in a county. If anything it will show how badly the State Store system is.

For Point 5. raising the age of workers to 21 will not effect the workforce available to the establishment. Look at the current part-time workforce in all of the State Stores in Pennsylvania now and you'll find very very few under the age of 21. If anything this will help the new private stores hire the better displaced State Store workers.

For Point 6. The Gallonage tax rates are instead of the Flood tax. Section 341-A. "Excise tax on wine and spirits." gives the tax rates with no mention of the Flood Tax. However, it does seem that the 6% sales tax on the retail sale is new. Since under the current system the licensed establishments get a 10% discount now buying from the State Store (and that is up from what it used to be) which is in line with what private markets do, it won't shrink the profit margin to 24% as stated. If one believes that prices will be lower in the private stores it may actually increase their profit if their pricing remains the same.

For Point 7. While direct shipping seems to remain the same this is a proposal and not the final bill so that may or may not change.

For Point 8. The carding of people who look under 30 is the current requirement so that hasn't changed at all.

My Point 9. The state should NOT decide for me what legal products I, as an adult, should or should not be able to buy.

Unknown said...

Point 7: Everyone has a hot-button issue and quite frankly not being able to have wine I purchase over the internet shipped directly to my house renders this bill useless in my eyes.

Lew Bryson said...

Again, Raymond: it's a proposal. What you need to do -- if you support privatization in general -- is email your rep and senator about this. Tell them you're generally in favor of privatization, and most of Turzai's proposal, but that you really want to see "properly regulated" home delivery of wine, meaning an adult signature for delivery (which most services require anyway) and payment of PA taxes, which wineries handle for other states every day. (Really, there's no good reason for the state NOT to allow that anymore, especially if they can get the taxes off it.) But if you don't speak up, you will not be heard.

Anonymous said...

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.

Almost everything in this description of the process is inaccurate.

Anonymous said...

For Point 8. The carding of people who look under 30 is the current requirement so that hasn't changed at all.

Although many sellers (including state stores) voluntarily observe such a policy, there is currently no such legal requirement.

Nathan said...

It's important to note that this is the bill from the previous legislative session, which died in committee. There could be significant changes between HB 2350 and the bill that is introduced this session.

Lew Bryson said...

Correct, Nathan, and again, I'd remind people: if there's something you'd like to see IN that bill or OUT of the bill...NOW is the best time to let your reps know!

Unknown said...

As far as "Breaking the law occasionally", let's look at what can happen under the Almighty code, (that none of us ever voted on). A first offense costs you $25 per "package", plus court costs, or prison, not to exceed 90 days.[section 491.(2). If it's your 2nd offense, or a"commercial transaction", hold on to your hat! Now "Article VI, (a) Forfeitures" comes into play. Any "vehicle, boat, vessel, animals or aircraft used in the ...illegal transportation of liquor,...or brewed beverages... shall be deemed contraband, " and forfeited to the commonwealth. Don't worry about your car, though, you won't be needing it 'cause [sec.604] your license will be revoked. We're not done yet; [sec. 611 (a)] says "any room, house, building, boat, vehicle, structure or place, except a private home, where liquor, ... or brewed beverages are ... possessed, ... in violation of this act" are declared a common nuisance, and [c] upon the court's decree may order that "the room, house, building, structure, boat, vehicle or place shall not be occupied or used for one year thereafter..." Seems fair.

Unknown said...

ooops, my comment was meant for the article about 'Why can't I get Pikesvile Rye?"