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Andrew Humphreys 5/1/13 Pennsylvania: The Privatization of Liquor stores Dr. Nicholas Since the end of the prohibition era in the United States, the state of Pennsylvania has been operating under the same liquor control regulations. P.A is one of only two states to have complete control over the sale of alcohol. This leaves many people wondering why they still rely on this archaic system, if almost every other state has already privatized. Throughout my research, I have found many examples of pros and cons of this, and also what people on both sides of the argument are saying. Both of these sides and other little stories will help in formulating the thesis of my research. Because this is such a current and hot topic, the information in my research is constantly changing and in some cases changes from day to day, and I would just like this to be known by the reader. The best way to begin the discussion on this topic would be to thoroughly look at the pros of privatizing liquor stores in Pennsylvania. Pennsylvania is virtually being split down the middle in this fierce debate. So where does one start to look, to try and decide what he or she wants to stand on this issue? The first place to look would be at the pros and cons of the decision. When you look at the pros first, you get a real good sense of what something is about, and the when you look at the cons you can compare them to the positive aspects. In this case it is going to be extremely helpful to understand the pros before you look at anything else. Under this old system, there are many flaws, which include the availability of liquor to consumers. All state stores have very limited hours, which does not give you much time in the evening to get to a store. According to Matthew Brouillette

in his article in USA Today, when he states that this was probably a goal of law makers from the very beginning of this law: When the state created the Pennsylvania liquor control board in 1933 following the passage of the 21st amendment, then gov. Gifford Pinchot said it would discourage the purchase of alcoholic beverages by making it as inconvenient and expensive as possible.1 Well Mr. Pinchot, you definitely succeeded with that. I am constantly hearing stories dealing directly with this, like in article written in the New York Post by Katharine Q. Seelye; she talks about a man who lives in Forest City, P.A and has to drive ten miles to get to a state store that is only open three days a week for a total of fifteen hours.2 This is a very common trend in many rural parts of P.A, and hopefully this new bill could help change some of that. It would give a chance for stores in rural areas to own a liquor license, and the residents of the area would not have to drive ten or fifteen miles just to get to another store. Other than lack of available stores, another problem this bill would hopefully fix would be, the high prices of inflation many customers see at these state run stores. Just like with any monopoly, the state of Pennsylvania has price setting powers when it comes to wine and liquor. There is no competition in the state in the liquor industry, and only some small local wineries are forced to try and compete with the state. This lets the state charge any amount they would like, because if you think about it consumers have nowhere else to go and buy inside the state. We are forced to buy from state stores. I know from my own personal experiences, last month I got a bottle of liquor at the state store here in Bloomsburg it cost me $32.50. A couple of weeks later when I was on vacation in New Jersey, where there are privately own liquor stores, I bought the same bottle of liquor for ten dollars cheaper. If and when stores in P.A get privatized, I think there will be a decrease in the price of most items. Stores will then be
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competing with each other to make more sales, and try to attract customers with lower prices. In an article I found from Fox News which was contributed to by the associated press, they state that the new bill would allow all currently operating beer distributors to bid on one of the proposed 1,200 available licenses. Groceries store would also be able to carry wine.3 This dramatic increase in selection would drastically change prices of many different types of alcohol. Another great plus that could come from the passing of this bill, would be the creation of many new jobs. As of now, the only jobs in the liquor business in P.A are located in state stores. With only six hundred of these stores state wide, this leaves a limited market for jobs. According to the article I found in USA Today, The proposal would triple the number of storesmostly small mom and pop businessesselling wine and liquor, and allow thousands of grocery stores to expand and carry wine. The result is thousands of additional jobs for Pennsylvania families.4 Not only will the addition of new stores lower the price of the product, it will also create a more competitive job market, which here in Pennsylvania is struggling. During my research, I found a very interesting point that I thought would be the opposite way around. When you think about it, having a state run monopoly on the liquor business seems like it would generate more money for the state than a privatized industry would generate. Well this is not the case in Pennsylvania. If you take into account the monetary factors the state incurs with running the liquor business, and then look at what privatization would generate, the findings are pretty surprising. The state now currently employs some 5,000 workers, who all are paid salary from the state. Even if these workers all received minimum wage and worked forty hours a week, that is over 75.4 million dollars the state is paying out alone in salaries. You have to think too that not all of the employees are receiving pay as low as minimum wage, so this number is
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potently higher. If privatization were to occur, the state would no longer have this large expense in the state budget. In the article written in the New York Times, The author states that the current annual profit from the state run stores is nearly ninety million dollars.5 Many oponents of the bill are afraid that this annual profit will not be met by the new system. In an analysis done on Governor Corbetts proposal by the PFM group, which is a private firm, found that from the sale of the 1,200 proposed private liquor licenses the state would generate approximately $391 million.6 Putting these tow figures together shows that the sale alone of these licenses will cover almost five years of what the state profits annually from the current system. In the news article written by Seelye, she says that the current state budget has a current gap of four billion dollars.7 If this is true, then the potential $391 million could be a great initial boost to balancing out the state budget. In the summary of the PFM groups analysis, they state that with taxes and other fees applied annually to these new stores, the state could see an annual profit of $225 million dollars.8 If this figure is correct, and if everything happens as planned in the bill, the new system of sales would generate more than double a year from what the state makes now. There are many factors which could change this number, but it is a pretty impressive figure for state legislators to ponder. If the state were to generate this new amount of income, the question arises of, where would this money go? With the 2013 P.A state budget having a $4 billion gap, you have to expect that funding had to be taken away from some areas of the government. With this budget those areas just happened to be education. Governor Corbett decided to cut funding for many areas of early childhood, secondary, and higher education in the state. Many of the governors critics were
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unhappy with this move, because they see education as something that should be a top priority of the state, not something money should be taken away from. Because of this, Corbett saw the chance to gain popularity for his new bill, by proposing that a majority of the revenue generated, be moved back into funding for state education. In a time where the job markets for teachers is less than favorable, I can speak for myself when I say that the expansion of schools in Pennsylvania is something the state needs; not only for the benefit of the teachers, but also creating a better opportunity for students to learn in our schools. According to Fox news, the bill its self does not say where the money would be spent, and that would be decided in future legislation. Later in the article Governor Corbett is quoted saying, the fees from the licenses at least hundreds of million, perhaps as much as $1.1 billion should go to improving public education.9 If this were the case, this would create a much needed boost to the public education system in Pennsylvania which is currently struggling. Every year my tuition here at the state run university seems to rise. As a state resident, I do not believe this should be happening. With this potential increase to stat school funding, future tuition increases may not have to happen. There are other projected areas of the budget which could see additional funding increase, but education funding increase is by far the biggest pro in the funding area. Before the discussion of the cons of this bill, it will help to know some of what the actual bill looks like. There have been many attempts made since 1933 to pass bills very similar to this one in the state of Pennsylvania. So what makes this bill different from the rest? How is this situation different, and why will it work? To answer these, I wasnt to take a look at the bill itself. House bill number 790 was introduced to the P.A House of Representatives on March 11, 2013. After many weeks of talk that this bill would be presented, House majority leader Mike Turzai brought

it to the floor.10 One reason why this bill has been accepted by so many is the fact that the state is trying put a system into place where no matter what the amount of revenue will exceed expenditures. According to section 4, subsection B no. 1 of the house bill this will be made possible, If the revenue raised by the fees imposed under the new act are not sufficient to meet all expenditures of the board over a two-year period, the board shall increase the fees by regulation, subject to the Regulatory Review Act, so that the projected revenues will meet projected expenditures.11 This subsection has caught the eye of many state legislators, by guaranteeing that this plan will not lose money. What also is helping this bill move along so smoothly so far is the fact that the P.A House of Representatives majority is held by the Republican Party. This party strongly backs the Governor on this plan, which is why the bill passed in the state house by a vote of 105 for and 90 against. After looking at the pros of the bill and what the bill actually looks like, it is helpful to looks at what people and groups on the other side of the argument are saying. There are many groups of peoples stepping up to voice their opinions on why this bill should not get passed, and one of these groups is local beer distributers. For beer distributers, many parts of this current bill could really hurt their business. In the current bill, supermarkets will be able to sell beer, wine, and spirits, with the purchase of a license. Distributors fear that all this new competition could destroy them. In the Patriot-News, an article interviewed a local distributor owner who voiced his opinion on the bill; he says, Eighty to 90 percent of our income comes from beer sales. How are we going to be making a living if everyone has it?12 His fear is very clear here, that if places like Wal-Mart can sell beer, then less people are going

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to be making the extra trip to the beer distributor. There is a counter argument to this though. Wegmans which is a large chain supermarket and Wise supermarkets have been selling beer in their store now for over a year. So far since then there has been no mention in drop of sales from distributors. These stores are only allowed to currently sell limited quantities of beer, but still there have been no drop in sales. Not all owners of small distributors are against the entire proposed bill. For nearly eighty years they have been fighting legislation to be able to sell smaller quantities of beer like six and twelve packs.13 In the same news article, another distributor owner was quoted in saying, many costumers, especially in a day ad age when craft beer is so popular, want to be able to buy smaller quantities of beer. Its something that those in the industry have been requesting for the past 76 years.14 Many distributors also fear that if the time comes, they will not be ready for the change financially. First year beer distributor fees could range anywhere from 7,500 dollars to 37,500 dollars, and also spirit licenses could be as much as $60,000.15 Store upgrade costs also have to be factored into these fees. We would have to add on, and put in another register, said one owner in an interview. These costs could put distributors back hundreds of thousands of dollars, just so they could compete with large supermarket type stores if the bill passes as it stands. Another group of opponents to the new bill, which did not come to my mind when I first thought about it, are religious groups and affiliates. Through philosophy and strong religious beliefs, the United Methodist church is sending strong messages to state legislators to oppose this new bill. They stand behind the current system of purchasing alcohol in the state, and do not want to see it changed. They are afraid of many societal conflicts which may arise from this proposed system. A quote from a newsletter on the

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United Methodists Advocacy in Pennsylvania web site states, We support the strict administration of laws regarding the sale and distribution of alcohol and controlled substances. We support regulations that protect society from users of drugs of any kind, including alcohol, where it can be shown that a clear and present social danger exists.16 The United Methodists church does not only exist in Pennsylvania, which means they are present in states where the liquor industry is privatized. Do they also fight legislation in these states, or are they just trying to keep their state from falling that way to? One of their main concerns posted on the web page is that alcohol would become much more available to underage drinkers, because of the rise in number of stores selling. They feel that the current state stores already do a perfect job of keeping this under control.17 The group also makes it clear that the Holy Bible states that drinking alcohol is a sin, and that privatization would only make this sin more prevalent in our state. 18 In the newsletter, group leaders are strongly encouraging United Methodists to contact their state legislators and voice to them their opinions. We believe this system needs to continue. This is an area where the government is doing a valuable public service by tightly controlling access. This was the last line of the letter, which neatly wraps up how this opponent group feels about the bill. Not only is public safety a concern of opponents, but the protection of jobs is another key argument to bring down this bill. Why fix what is not broke? This is an age old argument that usually comes up when some type of change is being proposed. This is the exact argument that labor union members and officials are using to try and fight House Bill no. 790. Under this new bill, there is absolutely no guaranteed protection of current state wine and spirits stores employees. If the bill were to pass

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as it stands, most likely all of the state stores would close. This would result in nearly 5,000 jobs lost. This is exactly what labor union leaders do not want to happen. What the labor unions do support though is a modernization of the current system.19 Wendell Young IV, president of United Food and Commercial Workers Local 1776 says in an interview done for an article by CBS Philly, Modernization should be the focus, extended Sunday hours, direct shipment and even opening wine and spirit stores within grocery stores.20 Even though they support this expansion, they still want the sales of wine and spirits to remain state run. They answer most peoples concerns with their proposal of modernization, so why is it not being considered more seriously? Their plans will not generate any extra revenue for the state, which is the main goal of most legislators for this bill. If anything their plans would incur more expenses for the state by having longer hours, and building state stores inside grocery stores. Like many legislative arguments, there seems to be no common ground for both sides to settle on. On the other side of the fence, beer breweries have also stepped in to give their say on how they think the bill should look. The Brewers of Pennsylvania, a trade group representing keystone breweries, is taking a very unique stand on this piece of legislation. It is a far different stand than other national breweries like Miller, and Anheusser-Busch are taking. It is fair to say that the keystone trade group is supporting most of the bill, while some parts make them a little worried. Most national breweries are completely against the bill. A representative of the trade group was interviewed in an online article from Penn Live and he said, Ultimately, the Brewers of Pennsylvania doesnt want to block legislation that could lead to a better environment for consumers, Covaleski said. So while not giving the bill a full-throated endorsement, the brewers group said the bill could be
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a viable vehicle for change.21 The groups biggest fear is that the bill will give an unfair advantage to the wine and spirits business and take away from beer sales. In the current piece of legislation grocery stores would be able to sell an unlimited quantity of wine and spirits, and they would be able to sell them anywhere in the store. Beer on the other hand could only beer sold in the restaurant portions of stores and sales would be limited to only a case per customer. This portion of the bill is also the most strongly opposed portion by larger national breweries.22 The trade group is also afraid that with local distributors getting the choice to own a wine and liquor license, they will see a decline in sales there also. Covaleski stated his concern about distributors making this choice later in the same article by saying, So theyd have to choose between offering more of a limited beer selection (something brewers do not want) or not offering wine and spirits. The group is especially worried that distributors facing a space crunch may opt to carry fewer offerings from smaller Keystone State breweries and save space for bigger national brands.23 So if this bill were to pass today as it stands, ultimately local beer distributers would seal the fate of some keystone state breweries, which is exactly where this group wants to stay away from. You would think more breweries would support the bill, but when it comes down to it, it seems like the wine and spirits industry will have more favorable results. This is where trade groups like The Breweries of Pennsylvania are stepping in to try and level the playing field before the bill goes up for a final vote. It is clear that private interests groups on both sides of the argument are voicing their opinions, but it is also good to look at what the citizens of Pennsylvania are saying.

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There are citizens in this state that are on both sides of the argument, but it is clear that the majority of them want to see an end to state run wine and spirits stores. Most if not all the comments you read on an online news article, are in support of this bill. Most of them just repeat what was stated earlier as the pros to this piece of legislation. In the article from USA Today, they present the results of a state wide poll on citizens opinions saying, The poll showed that 61% of all Pennsylvanians Republican, Democrat, Independents, even union households want the government to get out of the booze business.24 This is a pretty staggering number to digest, more than half of the commonwealth wants to see this change. So why hasnt anything been done sooner? Its all politics, politicians are going to do and vote on what is going to benefit them, and rarely do we see something that is done with the true interests of the public in mind. 77% of weakly customers at state run liquor stores voiced their opinion to USA Today by saying they would rather see an end to the stores than any other type of change.25 It is clear that the citizens want to have more choice when buying alcohol. The opposing arguments that are coming from citizens, are citizens who either will be directly negatively impacted, or have a loose affiliation with a private interest group that has a self interest in mind with this bill. Citizens will argue back and forth on this issue until the bill is voted on; but will it really matter? Senator Gordnor gave a perfect example of this on our field trip when all he talked about was how this bill will impact certain private sectors of business, I do not think he mentioned once what the citizens of his district were saying to him. So ultimately this passing of this bill will come down to how it will affect the private sector and the state, and not have much to do with what the general public thinks. Lastly I wanted to chime in on this matter with my own opinion of what I believe the state should do based on my research.

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It is fairly obvious that there is no clear cut path to the perfect solution to this problem. No matter what you come up with as an answer, one side or the other is going to take a loss. In my opinion I do not think it is the right time for the state to move toward a full fledge privatization of the liquor industry. I think we are moving in the right direction but just a little bit too fast. We should keep state store open, and possibly open up new locations so not as many people have to drive ten miles to get to a store. The stores should also be open for a longer period of time. People do not want to have to rely on getting their alcohol by 9 p.m. This would accommodate two issues that are at the heart of the debate, the state can keep their stores and if the open more location for longer periods of time, people would not feel as limited to choice of store. This would also keep the sale of alcohol to minors at a minimum, just like many opponents say they want. Next I would create a fair game for beer distributors and supermarkets. I would give the ability of selling six and twelve packs of beer to distributors, and let supermarkets keep tier current beer regulations but also be able to sell wine throughout the store. This way not one has an advantage in selling over the other, and breweries would also be very happy because they would be able to keep their products on both of the locations shelves. I know that this does not fix all the problems proposed by this bill, but in my opinion it comes as close as you will get to middle ground. It may not be perfect but it is probably better than what we will get. The Pennsylvania state House of Representatives made monumental history in the state on March 22, 2013 by passing House Bill no.790. There is clearly still a lot of work to do from this point on into the coming months. The State Senate is going to take a very close look at what the bill entails, and most likely will amend changes to it. Finding a point where everyone will be happy with the bill will probably never happen, but if the bill passes as is it is clear he citizens of

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P.A will be very happy. There is a lot to consider for a state legislator regarding this bill; not only do you have to have fiscal concerns, but also what is right for society at this point in time. I would not want to be in their shoes rite now. The research shows that there are clear pros to this piece of legislation, and there are clear cons; depending on what side you take will determine which ones out way the other, but no matter what side you take it is going to be interesting to watch what happens in the near future. Either way history is going to be made and our voices could help determine what way it will be written.