Bill killed at Governor’s desk, yet advocates hopeful of change

On July 6, Pennsylvania came as close as it ever has to privatizing the state’s wine and spirits retail and wholesale monopoly when both houses of the legislature sent a privatization plan to the governor’s desk.

Democratic Governor Tom Wolf vetoed the bill, but coyly left the door open to changes in the current system and continued negotiations as the state faces a budget feud. The move pushed privatization near the forefront, giving advocates a boost and creating a new sense of inevitability.

The bill would have created a three-tier system, selling retail and wholesale licenses, in a complete and total privatization. It would have given privately owned beer retailers (called “distributors” in Pennsylvania) and other licensees, such as restaurants and hotels, the first crack at 1,200 licenses that would allow them to sell wine and spirits.

With that plan nixed, Wolf and supporters of the current system call for “modernization” of the state system of 600-plus Wine & Spirit Shoppes operated by the Pennsylvania Liquor Control Board, PLCB.

Wineries looking for a key to the Keystone State should not be too encouraged – yet.

“This means the status quo continues,” said Michael Kaiser of WineAmerica, a lobbying and trade group based in Washington, D.C., who also serves on the board of Free the Grapes. Neither group has taken an official position on Pennsylvania’s privatization, but they monitor changes closely with an eye toward expanding direct-to-consumer shipping.

“I can’t see any kind of shipping bill getting through without privatization. They will forever be linked,” Kaiser said. “So any winery looking to break into Pennsylvania as a new market will still have to try to work with the PLCB.”

For at least twenty years, polls have shown a majority of Pennsylvania citizens want the state government out of the wine and spirits business. Governors on both sides have championed privatization: Democrat Milton Shapp in the 1970s, Republicans Dick Thornburgh in the `80s and Tom Ridge in the `90s. Each came up against the political marriage of social conservatives and pro-union liberals.

Political tendencies have changed. Today’s elected Republican is more likely to be a limited-government fiscal conservative, embodied by privatization champion and Speaker of the House Mike Turzai. While union enrollment has waned, its influence has not. Existing trade and government unions have viewed the state store jobs, about 3,500 of them represented by the United Food & Commercial Workers Union Local 1776, as a line in the sand.

“The old paradigm of social conservative and union liberal has dissipated,” said Matt Brouillette, president and CEO of conservative think tank The Commonwealth Foundation, based in Harrisburg, Pa. “But all unions – government and non-government – are circling the wagons, and as a collective force remain powerful and supportive of the state monopoly.”

Support for Privatization

Yet, popular support for privatization has grown as more Pennsylvanians experience how alcohol is sold in other states, and desire grows for buying wine online or directly from producers. People have bristled at controversial news about the PLCB, as nearly all local news organizations advocate for privatization in editorials.

“There’s a difference between want and priority,” said Albert Brooks, who blogs regularly about the state privatization battle on www.noplcb.blogspot.com. “For as long as we’ve had scientific polling, the majority of citizens has wanted privatization, but it doesn’t rise to level of issues like education, clean water and property tax reform.”

Privatization remains a bargaining chip in the state’s budget battle, offering some hope for a grand deal. But privatization advocates are accustomed to a long time horizon.

Brooks senses a deepening frustration among conservatives and believes the next election cycle could bring a larger GOP majority to Pennsylvania’s legislature that could punch privatization through or override a veto.

People like Brooks have been able to influence the conversation, using data to combat the now-seldom-invoked claim that government monopoly protects the state from alcohol’s damaging societal effects. “In any measure of alcohol ills Pennsylvania is never great, and anywhere from average to bad,” he said.

Border Bleed

Claims that the state monopoly is a cash cow are more difficult to debunk. The monopoly annually kicks in between $80 to $105 million to state coffers, though system supporters prefer to cite the $500 million, which includes sales tax, which would be paid by privately operated stores. But as an arm of the state, the stores don’t pay private sector business taxes. The long-term liabilities of guaranteed pension and retiree health care for store workers are carried by the state, i.e. taxpayers.

Then there is border bleed – alcohol purchases made out-of-state.

The PLCB’s own 5-year-old study suggests that border bleed accounts for $220 million in sales. But Brooks and others think that number is closer to $300 million. A look at PLCB sales figures showed greater sales in Pittsburgh than Philadelphia, which has more than four times the population. Unlike Pittsburgh, Philadelphia is right on the border of New Jersey, Delaware and Maryland, suggesting that the state system drives sales and economic activity out of the state.

But no one knows for sure how privatization would impact state revenue or how much border bleed would come back.

“The legislature has viewed the state stores system as a bird in hand,” said Brouillette of The Commonwealth Foundation. “They are afraid of the change and can’t see what that change would look like.”

National alcohol trade organizations have remained silent, choosing to not the bite the hand that regulates. The American Wine Society, a consumer group, officially endorsed the state’s privatization, arguing it would expand consumer access and choice.

“Everything points in the direction of us joining the 48 others states,” Brouillette said. “Common sense is winning over this vestige of Prohibition.”