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)

The Madness Just Won't Stop

Some random thoughts.

A little bit of turmoil at the top of the PLCB financial empire? First August Hehemann was let go on November 10, 2014 after saying the PLCB needed to raise prices to offset the continued growth of expenses...in other words, for telling the truth. His replacement,  Oren Bachman, barely makes 15 months and now they are looking for his replacement. Of course, the fiscal year ends in about 50 days, so you have to wonder how long it will take to spin the financials this year with a new guy (or not) there. It took 125 days last year.

One of the better comments about privatizing the PLCB in the past few months: "How seriously can we take the argument that unnecessary government jobs should not be eliminated...because then there will be fewer unnecessary government jobs?"

The PLCB, moving at a speed unheard of in real business, only took 5 years and 10 days to approve a new store in Renovo. Of course, it isn't open yet, and might take who knows how long to actually open, but it made the list.  The new store at 167 Seventh St. is a whopping 327 feet from where the old store was at 536 Erie Ave. This beats the old record of taking over a year to move the Mountain Top Store 50 feet. I wonder if the blogs of last year and this year helped move them along, and if it did how many more years would it have taken otherwise? "Convenience is our middle name.  PLCB convenience that is, we don't give a crap about the consumer" could be the motto of the state stores.

Crap!  I'll never finish modernizing like this!

Canada is again showing how much more progressive they are in some things. A recent court case tossed out provincial restrictions on the purchase and transfer of beer, wine, and liquor from one province to another. It could potentially change the entire Canadian system of trade between the provinces. This is something that Pennsylvania (and U.S. constitutional courts) should look closely at.

Why was it good to have a restaurant or bar license for every 1,000 people in your Grandfather's day, one for every 2,000 people in your Father's day, but not now when it is one for every 3,000 people? What has changed? The PLCB of course, not the citizens' desire to have a drink with their food or to go out. Why is it up to them and not local government to decide what is best for their local citizens?

The PLCB serves no useful purpose in retail, it does not provide better selection, it does not provide better service, and it does not provide the convenience the citizens want. It cannot even be proved definitively that it provides more revenue to the Commonwealth than a competitive private system would. It only provides jobs to the PLCB.

While I wait (and I've been waiting a very long time) for someone to come up with a quote about why a government monopoly on a retail good is something worthwhile, I'll leave you with this:

"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience."   - C.S. Lewis



PRIVATIZE.

Beer in Supermarkets: the Down Side

Giant Market plans to sell beer at their Stone Mill Plaza store in Lancaster County!

Weis Market opens beer cafe in Mechanicsburg!

Yeah, really, beer in Da Grocery Store in Da Commonwealth!!!!

Is this great? Or is it pathetic?

I asked that question seven years ago, when I first bought a beer at a Pennsylvania supermarket. It's high time that the question was asked again, because things are accelerating. We're seeing more and more big supermarkets adding "beer cafes" and selling sixpacks, and there are going to be consequences; we need to look ahead at what may happen and consider action to head it off.

It's a simple problem. It's great that Pennsylvania supermarkets have figured out a way to sell beer, a workaround that involves sacrificing part of their building to create a "cafe" where people could have a beer if they really wanted to (but mostly don't, with a few cool exceptions where the idea's been embraced) and buying a tavern license, which can be wicked expensive (check by county; hello, Chester!). But clearly the big chain supermarkets -- Giant, Wegmans, Weis, Whole Foods, Giant Eagle -- have found that the profit is worth the cost, because it seems like a month doesn't go by without another opening.

Why is that a problem? A few things. First, Pennsylvania has a "quota system" for liquor licenses: one per 3,000 people in a county. It's essentially a broken system, as it's never really kept up with population shifts, and there are a ton of "grandfathered" licenses in counties that have lost population, and there are a number of exceptions (The Almighty Liquor Code has a silly number of kinds of licenses), but essentially, there are no new tavern licenses being issued. If you want a liquor license, you have to buy one on the open market, because the Legislature foolishly made them transferable and salable. I say "foolishly" because when a liquor license -- a piece of paper issued by the State with no intrinsic value except what the State-enforced "quota system" has given it -- is sold in Chester County, for instance, for $270,000, the State gets next to nothing. Even though the full value of that license only exists because of State law. Yeah, I call that foolish.

That's a problem, because every time a supermarket simply wants to sell beer, it buys up another of these limited licenses, which then become more scarce, and therefore more expensive if you want to buy one to open an actual bar, tavern, brewpub (you need a license to sell anything other than your own beer or Pennsylvania wines at a brewpub), or restaurant. As licenses get more expensive, you get more chain restaurants and fewer independent operators opening (because they don't have the deep pockets); you get more nuisance bars (because they have to sell more booze to make their loan payment), and you get more high-end places with expensive booze (which isn't bad in and of itself, but if the ratio is unbalanced, people have fewer choices).

Another part of the problem is that it creates two tiers of grocery stores: the ones with beer and the ones without. I recognize that some grocery stores don't want to sell beer; especially in rural Pennsylvania, where there are some family-owned places that simply don't hold with alcohol at all. Fine, no reason to force stores to sell beer, but there are stores that would like to and simply can't afford the ridiculous unnecessary expense of buying a tavern license and tying up a substantial amount of retail space and equipment in a "cafe" with separate beer cashiers.

This was brought up at the McIlhinney Hearings in 2013, by a representative from Redner's Warehouse Markets, and Senator McIlhinney's response was essentially 'that's nice, but that ain't gonna happen.' Since then, there have been attempts to come up with a separate license for grocery store sales (of course, another type of license is exactly what we need!), none of which went anywhere. Given the tenacious opposition of the beer distributors to any expansion of grocery store beer sales (and the likely opposition of the already-licensed groceries), I doubt this will fly, and...

That is going to mean we'll have this half-assed workaround forever. The stores that got a liquor license won't be happy with anything that devalues that major investment, so they'll be fighting it. And Pennsylvanians are pathetically grateful for anything that even looks like buying beer in grocery stores (and having a liquor license actually puts the stores one tiny step away from selling wine, as there's already been a push to allow taverns to sell "to-go" bottles of wine), so if we think we have it, we're not going to push for it; we're just going to go to the stores that sell beer. That means that more and more supermarkets are going to go after tavern licenses, which is going to accelerate the scarcity issue (more chains and more nuisance bars!), and put even more pressure on the family-owned supermarkets to sell or close.

Well, hello, unintended consequences!

More crappy nuisance bars. Friendly neighborhood bars will sell their licenses at top dollar while they can, and the families will retire. And we get further away from a REAL solution to the problem.

This is yet another fine mess the PLCB and the Legislature have gotten us into, with the help of the MBDA and the behind-the-scenes maneuvering of Bucks County beer mogul (and SEPTA Board and Turnpike Commission member; and did you know he also owns 4% of the Sands Casino?) Pat Deon. Please note that I do NOT blame the supermarkets; they're just playing the hand that was dealt to them, and playing it well.

The only solution to Pennsylvania's alcohol beverage sales quagmire is going to be an all-alcohol solution, some grand bargain that fixes everything. More on that to come.