Forget the Zombie licenses: raise the quotas!

There's a lot of hand-wringing and bluster going on about one of the provisions of Act 39, the "epic" change to The Almighty Liquor Code (as trumpeted by Governor Wolf, who didn't do anything except sign it). It's the so-called "zombie" license auction, wherein the PLCB has been directed to sell off the approximately 1,200 inactive liquor licenses that are in escrow, suspended, or otherwise not being used.

Many people are freaking out about this, but a lot of us wonder what the hell zombie licenses even are. Why aren't they out there earning a living?

Our weak-kneed, nanny-state legislators are more to blame for the current idiocy than you may realize. The idea of selling the zombie licenses is a futile attempt to solve a problem they created. For reasons known only to whatever power you pray to, the legislature, throughout the past 82 years — on BOTH sides of the aisle — dislikes bars and restaurants more and more with each generation.

When the PLCB was first created, it was decided that your great-grandparents would be allowed to have one "R" license for every 1,000 citizens. Then with Act 702 of 1951 that number was increased to one for every 1,500 citizens. Which was great for the "R" license owners, which was probably reflected in the campaign donations from the tavern and restaurant owners associations.

Then in 1972, Rep. G.R Johnson (R-Delaware) decided that the citizenry were eating out and having entirely too much fun, so he put forth HB 517 which (along with letting stadiums sell beer on Sunday, the sweetener) proposed raising the quota from 1 per 1,500 to 1 per 3,000 residents. After a few rounds of amendments, it was eventually set at 2,000. Why the House and Senate majorities thought this was a good idea is not recorded. So HB 517 passed and was signed into law as Act 108 of 1973.

Between 1935 and 1972 Pennsylvania's population went up about 22%, but the number of licenses per capita was decreased by 50%, relative to the original quota. A prime example how the legislature made things even worse than old Gifford Pinchot wanted in 1934!

But they weren't done. Deciding they hadn't sufficiently put the populace under their control, the legislature again took up the quota system in 1989. Rep Eugene Saloom (D-Westmoreland), the Chair of the House Liquor Control Committee, decided that he had to protect small businesses that didn't yet exist by raising the quota to 1 per every 3,000 residents.

This is a quote of the logic (or lack of) for his decision. "Some of the urban area's population is shifting to the suburban districts, and one thing they don't need are additional beer distributors and additional bars. We know that if it isn't changed there will be a lot of people in business not making a profit." A quota of 1 per 2,000 had allowed people to make a profit, but even if that didn't change in the suburbs, it suddenly that wasn't enough. Saloom's HB 1946 marched on to become Act 160 of 1990.

Now you can think that maybe this guy is just an idiot. But that means the entire legislature were idiots too. While the House and Senate were again controlled by the Democrats, this passed with overwhelming bipartisan support: 187-4 in the House and 48-0 in the Senate. Why was this so important?

It's 1991, population has increased only 150,000 (1.2%) since the last time the quota was raised in 1973 and the licenses were reduced by a 50% ratio AGAIN! This must have made the restaurant and tavern owners ecstatic. I'm sure that contributions just rolled in over and under the table.

To exacerbate the problem, licenses could be held without being used indefinitely, and those that were turned back into the state disappeared from the market completely, reducing the total number under the quota system, and thereby raising the price of those that were still active. Pretty nice when the state itself limits your competition, reduces entry into the market, and gives you ownership of the license unlike any other licensed activity.

Pennsylvania Legislators, both Republican and Democrat, need to pull off the blinders and stop putting band-aids on the sucking chest wound that is Pennsylvania alcohol policy. They can start by doing things that benefit the citizens. Not the clerks. Not the Tavern owners. Not the Beer Distributors. US.

Start with changing the quota back to what the cowering semi-Wets of 1934 thought was sufficiently draconian: 1 license per 1,000 people in a county. If that's too many, the market will sort it out quite efficiently, like it does when there are too many Starbucks in an area.


(edited 9/30/16 to update 1951 quota info)

Good ol' boys instead of real businessmen

In their continuing effort to change as little as possible (unless forced to by the threat of privatization), the PLCB appointed a bureaucrat lifer with no real world business experience to...ahem...lead them for the next two years (or until Wolf leaves office, whichever comes first). Charles Mooney, newly appointed as the PLCB's COO in July has been named the new Executive Director ("please don't call it CEO, we had one of those"), replacing John Metzger. With 37 years at the PLCB, you know he doesn't have an original idea in him; they've all leaked away years ago.

While the press release makes it sound like he was responsible for all improvement in the last decade, he was also around to agree with the wine kiosk debacle. Perhaps he will claim credit for the year it took to move the Mountaintop store 50 feet and the five years it took to put a store back in Renovo. He should also claim going against the wishes of the citizens in Lewisburg and Lock Haven.

In reality, as recently as 2013 be wasn't even listed as a Director in the PLCB Annual Report for 2012-2013. In fact, the only reason he even was promoted in FY 2013-2014 was that Jim Short (Director of Marketing and Merchandising) was found guilty of taking bribes. Dale Horst (Director of Retail Operations) moved over to that position (even though he had zero experience in marketing), and that left his position open. Just one more chance to get qualified people in the agency, ignored by the puppets on the Board. I guess they needed a "Yes" man instead of a business man.

Now that the PLCB has some breathing room thanks to McIlhinney's Mistake, the "Four Bottle Folly", the PLCB can go back to doing what they do best: as little as possible.

They certainly won't make things more convenient for the consumer (756 stores in 1973, 603 now, a 25% reduction); not using their buying power to keep prices down (as reported here and here). What they will be doing is using "variable pricing" to actually raise prices (as I noted here and here), and generally screwing the populace in order to keep themselves afloat (remember, they still owe almost $240 million and who do you think has to pay for that?)

A PLCB insider who hasn't done anything that isn't 50 years behind what the private sector has been doing is not an improvement. Privatize and rid ourselves of this fiasco of a business and fake business people.

Why the PLCB should follow the law, not "interpret" it

If the PLCB were a private citizen, it would most likely be in jail. It does things that the people — through their representatives in the legislature — never approved. It willingly and repeatedly violates the law, and consistently goes against one of the very foundations of English and American law: "Everything which is not forbidden is allowed." Also stated as "no crime without law," this is an essential freedom of the ordinary citizen. The PLCB, on the other hand, seems to work on the opposite idea, that "all that is not expressly permitted is forbidden." Sorta like North Korea.

Are they making broad interpretations of the laws for the benefit of the citizens? Good intentions are not an excuse for breaking the law. Never have been. The laws are for everybody, they don't say "except for when the PLCB wants to save us from ourselves" anywhere.  Let's take a look at some of the legal and common sense violations they are a party to.

Just this past week Giovanni's Pizza & Pasta, in Dormont, PA was trying to comply with all the written legal requirements so that they could deliver wine. But the PLCB isn't interested in just the legal requirements; their requirements have to be met as well. What are those requirements? They won't say. "That's a matter that is under review for consideration by our attorneys and our board. There's nothing in Act 39 that says it's illegal, but Act 39 did impose certain conditions that need to be met. We don't have a determination on that matter yet." - Elizabeth Brassell, director of communications for the Pennsylvania Liquor Control Board (emphasis added).

I'm sure we all remember the magic 12 pack case where they "interpreted" that a "case or original container" could mean a 12-pack, even though a case had been a case (and an "original container" had been ONE original container, not a pack of  12 of them) for as long as anyone could remember. How many times in the past 80 years had they refused to consider that?  More than we will ever know.

Why was the new interpretation suddenly different? No one knows. Of course there are the infamous Wine Kiosks that were never checked to see if they complied with federal law, The PLCB just didn't bother and really didn't seem to care in that case. Even after they were called out on it they still didn't check.

While moot now, state law did say that only 25% of State Stores could be open on Sunday. Since they don't care what the law says, the PLCB was about 18 stores over the limit when Act 39 took place, allowing more stores to open. They obviously didn't care about a legal limit that was written to apply specifically to them!

How about the ever-changing beer at gas stations gymnastics? "You can't sell beer at the same location where you sell gas, period, that's the law! Well, unless the property is actually next door. Oh, and they can't have an interior connection...unless we say it's OK, in which case, that's fine, for that one licensee, not for anyone else."

That's contrary to what the Liquor Code explicitly says: "No license shall be transferred to any place or property upon which is located as a business the sale of liquid fuels and oil." But according to the PLCB, if you have a business that sells gas and you build another store next to it, and then attach them together (and they are owned by the same company), it isn't a continuation of the original gas selling business. If not, then why do they have an interior connection? Common sense was never a PLCB strong point.

One of my favorites in the "Do as I say not as I do" category is that a licensee of one class can't provide anything of value to another class of licensee. So as a distributor you couldn't help a restaurant with how to display their beer selection for example. However, the PLCB has outside representatives that come in all the time to set up advertising displays in their stores, and hires outside companies to do the sets* in the stores too. But then there are no requirements for State Stores either. We shouldn't expect them to know how to stock shelves and sell things - should we?

Maybe if the PLCB just regulated and didn't run a half-assed retail booze monopoly, they would be able to do at least one thing well. I doubt it, but I'd like to find out.

Privatize.


* A 'set' is where every bottle goes and in what order they should be on the shelves. These are the people that decided to not have the 1.5L sizes next to the standard 750ML sizes of the same wine but to group all the 1.5L bottles together.  The same ones that destroyed the standard "top shelf" setup that liquor had been using for almost 100 years.  Of course, no place except PA state stores do this.

PLCB financials 2016. How'd I do?

In a surprise move showing more competence than....well...then they ever have before, the PLCB released its unaudited financials only 60 days after the end of the fiscal year. Sure beats the 122 days it took last year. I don't know if this is a trend or perhaps an outlier. (It's probably got something to do with no privatization bills currently under consideration in the Legislature. -- Lew)

As always they sent out a press release saying how great it was that a police-enforced monopoly that doesn't allow any competition, with a rising population and increasing prices, had record sales. I always like it when they claim how much they "return" to communities. Communities that would get the fees on their terms and their schedule if the PLCB wasn't mandated to act as the middle man.

And of course the big self-congratulations: "Hey, we collected taxes and turned it in!" Just like thousands of businesses do every year, only they DON'T send out press releases saying LOOK AT ME LOOK AT ME!!

Speaking of press releases, this one said to go to www.lcb.state.us to see the unaudited numbers.  You had to look hard because the link did't take you there! It wasn't found under the financials tab or in annual reports, but in the board meeting minutes. To their credit, they did move it to an easier place to find it when I mentioned it to them. Now if I could only get them to spell Jack Daniel's right...

So what did this really tell us, minus the hype? The big thing I got out of it was that total liabilities went up over $105 million in one jump and for all the crowing about record sales, the $238.7 million they were in the hole last year only went down by about $550,000. That's right: $550 thousand. Chicken feed. And inventory went up 9.4% again, even though the marvelous bailment was supposed to reduce it! It has gone up $70 million in four years, and if it jumps that much again next year, it will be higher than it was before bailment.

Well, how did I do on the predictions?  Let's see.

1. The normal amount of squawking about "record sales and profits" when that isn't going to happen. Collecting taxes is not making a profit even in PLCB Bizarro business world. Of course with a police enforced monopoly, rising prices, and more citizens,  why wouldn't there be record sales? A private system would generate even more sales.
This was really a gimme because we all know they were going to do that. Nailed it!

2. "Record amounts of taxes collected" will be big in PLCB world, but again, with a police-enforced monopoly, rising prices, and more citizens why wouldn't there be?
Again, who are they trying to impress?

3. I predict that "Net Operating Income" will decrease for the third year in a row, even with "record sales."
OK, I'm eating crow on this one.  Surprisingly it went up about 19%.

4. Prediction: "Store, Warehouse, and Transportation Costs" have gone up for the last few years, albeit only 3% last year but I think it will be 5% this year.
 Well....it didn't go up 5%, it went up 8.9%!

5. "Administrative, Alcohol Education, and Support Costs went up over 29% last year and 9% the year before. They will go up again by 8-10% this year.
Of course, the PLCB didn't group these together this year, so I can't compare apples to apples. But Alcohol Education did go up, so even if the others stayed the same, the total went up. I wonder if the education budget is higher then the advertising budget this year? They don't list that, so one never knows. Education is what they should be doing anyway, so after cutting it so much last year, it is good to see it up again.
 
6. The PLCB finished out last year almost $240,000,000 in the hole. I don't think that is going to change too much so I'll say a slight increase in that number for this fiscal year.
The total change was a whopping $550K. Just what are they doing with these "record sales" anyway?

7. Not really a prediction but an observation. PLCB "profit" return to the General Fund will be less than it was in FY2008 - which has been true for every year since then. Just where does all that record sales money go?
Nailed this one too. 8 years of "record sales" and they still haven't matched 2008.

There you have it for another two months, until the "official" numbers come out and I probe a bit more in depth. What this is really telling you is that take away the taxes, the entire PLCB contribution is 3/10ths of 1% of the budget. What it doesn't tell you is that they are a drag on the economy; always have been, always will be.

Fix that. Privatize.