Harrisburg Prepares for Epic Fight Over Liquor Privatization

By Randy LoBasso
Add Comment Add Comment | Comments: 2 | Posted Aug. 23, 2011

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Back in 1933, when national liquor sales were re-legalized, some pols weren’t too happy. Prohibitionist Pennsylvania Gov. Gifford Pinchot was one of them. Because of that, he created the Pennsylvania Liquor Control Board, he said, to “discourage the purchase of alcoholic beverages by making it as inconvenient and expensive as possible.” Seventy-eight years later, we’re one of two states (Utah being the other) in which the government still controls both wholesale and retail sales of alcohol. Thanks a lot, Pinchot.

But times may have changed. The GOP controls the state Legislature and governor’s mansion, and we seem to be in an era of major government-program backlash. So a new bill that seeks to privatize the PLCB may be exactly what Pennsylvania needs to move into the 21st century.

Sources say the bill is very high on the Legislature’s agenda (No. 2!), and when House lawmakers return on Sept. 26, the fight over the PLCB is set to get down and dirty.

The man with the plan: Pennsylvania House Majority Leader Mike Turzai. In July, he introduced House Bill 11—called the LCB Privatization Plan—which he and others say would help both consumers and business owners while bringing in a ton of much-needed cash by selling off liquor licenses to private industry.

The first step would include auctioning off 1,250 private liquor licenses to the highest “responsible” bidders (the current government licenses, of which there are 621, would be defunct). That would include 750 “Class A” licenses—stores with 15,000 square feet of space, or more—and “Class B” licenses, for smaller stores. Turzai and others say the state would collect $2 billion immediately, though others, including the United Food and Commercial Workers Union Local 1776 say that number is inflated and based on estimates from 1997, the last time privatization was attempted.

Next, the lawmaker plans to eliminate the 30 percent PLCB markup and the “Johnstown Flood Tax” (18 percent liquor tax) to be replaced with a “Gallonage Tax,” the price of which is yet known. Twenty-six states employ a gallonage tax on liquor and 35 impose one on wine.

Turzai also hopes his bill will encourage independent stores and large retailers to hire back PLCB employees, many of whom are part of the UFCW, through tax credits; allow tuition reimbursements for employees who get further schooling in the subject; and provide a nonspecific “leg up” for former employees who choose to seek other civil-service work in Pennsylvania.

“[Turzai’s bill] restores the American way,” says Jay Ostrich, director of Public Affairs for the Commonwealth Foundation, a Harrisburg-based think tank that’s dedicated much of its research and lobbying efforts to getting the government out of the booze business. “The PLCB, as it stands today, is absurd. It’s a socialistic system and it certainly flies in the face of freedom.”

Liquor sales brought in a record $496 million in tax revenue for the fiscal year that ended July 7, according to a PLCB report. Critics like the Commonwealth Foundation call this number inflated, and say it does not take into account the more than $215 million in salaries, benefits and pensions to government employees, including “$90,000 per store spent in yearly taxpayer-funded advertising.”

Turzai’s legislative plans for getting this through is anyone’s guess (he did not respond to repeated requests for comment on this article), and when the House reconvenes there’ll be a mess of amendments to deal with on the issue, many of which State Rep. Mike O’Brien, who opposes the bill, plans on introducing.

“In this economy, the bill is nothing more than a fire sale,” says O’Brien. “You’re selling something that’s currently undervalued and [the state] is going to lose a lot of money if this goes through … A lot of people just don’t want to vote in favor of liquor-store clerks to lose their jobs right now.”

O’Brien, a self-described “pro-labor Democrat,” says there’s an estimated 3,500 UFCW Local 1776 employees who will be out of work should the bill be passed (he doesn’t believe it will get through the House, though; a coalition of Democrats, pro-labor Republicans and socially conservative Republicans will keep the bill from going through, he says). O’Brien believes large retail stores like Wal-Mart will purchase the bulk of Class A liquor licenses and move their current employees around so they stack liquor shelves in addition to their normal routines, creating no jobs.

State Sen. Larry Farnese doesn’t think the bill will make it to the Senate, either, and agrees there will be layoffs the state can’t afford if it does. “I’ve had conversations with my colleagues on both sides of the aisle, and I don’t see support for it,” he says. “It’s not going to be along party lines, either. You’re going to have broad-based opposition to this bill … The fact that there’s a real possibility that people will lose their jobs is not something we can afford right now.”

Wendell Young IV, head of Local 1776, has taken a front seat in the fight against this bill, testifying several times to the Pennsylvania House Liquor Control Committee. “If this were successful you would not only see my members all laid off but 5,000 Pennsylvanians would lose their jobs in the worst economy of our lifetime,” he says. “There’s no doubt about that. And Turzai walks around cavalierly, saying ‘They’ll be fine, they’ll be rehired’ but the evidence is abundantly clear by what goes on in other states that the lion’s share of licenses will be purchased by existing retailers who will allocate the assignments of their current employees.”

But Ostrich says pro-labor groups are the ones using scare tactics. He believes the bill’s incentives and two classes of liquor licenses ensures Young’s predictions don’t come true. “We don’t want to replace a public monopoly with a private one,” he says, pointing to a provision in the bill that would not allow one entity to own more than 40 licenses. “If Pennsylvania went to the per-capita national average, we’d have 2,800 liquor outlets [and] 6,600 wine outlets. The current measure doubles the number of existing stores to 1,250 but we’d like to see that number grow so it’s reflexive of a true free market.” Unlike the current system, he says, the free market wouldn’t cap the number of jobs.

To illustrate just how complicated liquor control has become, even former PLCB Chairman Jon Newman has publicly denounced the Board as a counter-productive entity that’s outlasted its welcome. He also believes, given two-thirds of Pennsylvanians currently favor privatization, it’s going to be hard for many state lawmakers to vote against Turzai’s bill.

“Pennsylvania has a real prohibitionist mentality,” Newman says. “But with the sophisticated populaces in places like Philadelphia and Pittsburgh, [lawmakers] owe it to their constituents to bring them into the 21st century. If this thing steam rolls and it gains excitement and momentum, it’s going to be hard for people not to vote their district’s interests.”

A source close to the Governor’s Office who wished to remain anonymous says if the legislation is struck down, Gov. Corbett may offer his own bill. Who knows, maybe Corbett would have better sway over the Legislature than Turzai to get the bill passed.

But if not, Newman says, “the bill is dead for our generation.”

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2. Anonymous said... on Jan 31, 2013 at 07:55PM

“? Let me tell you that the PLCB is a self sufficient state run system that puts money BACK into the coffers. If it is done away with, 4000 people will be ot of work. Only the big box stores, grocery stores, etc will be able to purchase the licenses as the cost will be prohibitive for mom and pop stores. Will prices drop? Very doubtful, the state hase such huge buying power, that no-one other than Walmart type stores will be able to force suppliers to low prices. Lets say I buy a small store in PA. Am I going to keep a wide variety of stock? Nope, just what SELLS, the basics, so your "choices will be farely nonexistent" except for basics, unless your store is in a bigger city. A huge area of PA is rural and most of this rural area will not benefit from the " so called positives" of the proposed plan. It would be a quick windfall for the state, but over the longterm, the money that the PLCB puts into the coffers each year will disappear. Don't quote me, but they put something like 200 million back into the state. So other than a get rich scheme, based in our capital city, (harrisburg pa) that is near bankruptcy, it would be shooting our selves in the foot, and putting thousands out of work and that loss of revenue. I can almost guarentee higher prices, big stores as owners (and they have deeper pockets to have lower prices) not many rural stores, less choices, poor product knowledge, no specialty oredering/transfers from nearby PLCB run liquor stores, and many other issues that I cannot go into detail. No I do not work for the state, nor am I affiliated with it. Just a concerned citizen who like to imbide once in a while. Also, who will head up alcohol education for our youngin's?

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