Current Liquor Privatization Plan Unworthy

Current Liquor Privatization Plan Unworthy

“I don’t know…he’s either very smart or very dumb.”

– Quint, in ‘Jaws,’ trying to figure out the shark.

famous line perfectly sums up both Gov. Tom Corbett and the
Republican-controlled House as they push their liquor privatization
bill. They’re either very smart, trying to pull a fast one on
Pennsylvanians who expect better selection and lower prices (which they
know cannot happen with this bill). Or they’re very dumb, actually
believing the bill they’re peddling will actually accomplish those

Here’s betting on the latter.

No offense to Chris Christie, but anytime Jersey can do something better, you know you have problems.

clearly, buying wine and liquor is better there. Of course, that’s not
saying much, as 48 states have markedly better ways to buy liquor and
beer than Pennsylvania. Only Mormon-heavy Utah is also state-controlled.
Gee, what great company.

So huge numbers of Pennsylvanians
continue to stock up in other states, especially tax-free Delaware, to
the detriment of state coffers.

The fact that Corbett and the
House Republicans think that situation will change with the current bill
(which passed the House on Party lines) makes you wonder if they were
drunk while crafting such bad legislation.

Let’s review:

Despite being overwhelmingly
elected in 2010, in large part by promising to privatize liquor, Tom
Corbett did nothing in his first two years. Actually, that’s not true.
His big foray into that issue was commissioning yet another blue-ribbon
panel to – ready for this? – study liquor privatization.

Just thinking about that gives you a hangover.

now that they are officially on board with privatization – which is the
right thing to do – they vomit a bill that will neither increase
selection, nor, most significantly, reduce prices.

Only in Pennsylvania.

bill is a non-starter, and should it pass the Senate in its current
form – far from certain, since Majority Leader Dominic Pileggi, R-9, of
Chester,  is lukewarm and the GOP lost 10 percent of its seats in the
last election – the people will be vastly disappointed upon realizing
that prices will be the same, or even higher.

Here’s why:

whopping 18 percent Johnstown Flood tax (established to rebuild that
city after its 1936 flood) remains in place, on top of which is the
state sales tax. End of story for lower prices.

Being hamstrung
by such an onerous tax gives the wholesalers and retailers absolutely no
wiggle room, forcing them to keep prices substantially higher than
stores in neighboring states.

There are only a few players in the
nation with the capital to buy in at the wholesale level, which will
cost tens of millions just to get a seat at the table. And that’s just
the beginning.

Funny thing about liquor – it’s bulky and very
heavy. Transporting it across 45,000 square miles will take one hell of
a lot of trucks and drivers, neither of which come cheaply. There
will be the need for huge warehousing space in multiple locations.
Personnel requirements will be substantial, and the costs associated
with distribution networks and other ancillary logistical issues will be
considerable. And last we checked, fuel costs were near record highs.

These companies are not in business
to break even or lose money. Translation: you won’t be buying liquor
any cheaper than you can today.

Making this bill even less than
gin-dandy are the pie-in-the-sky revenue projections related to
licensing. Beer distributors would be able to sell wine and liquor, but
for a substantially priced initial license fee (and subsequent
renewals). Great, except for three big problems:

1) Most beer
distributors are small, undercapitalized mom-and-pop operations. They
have a hard enough time making ends meet, so where exactly are they
coming up with the cash required for a license? With so many licenses
up for grabs, most banks will balk at loaning the necessary funds to
acquire a license, as it is will be seen as far too risky.

Assuming a distributor could get a license, the capital outlay would
jump again, as they would have to add considerably more square footage
to their existing stores, or lease/buy a much larger space altogether.
Wine and liquor take up a lot of space, and recession notwithstanding,
that space isn’t cheap.

3) Distributors know nothing about wine,
so, in order to compete, they would have to hire additional staff with
knowledge of vino.

One of two things will occur. Many
distributors can’t or won’t apply for licenses, and for those who do,
their prices will increase to make up for their additional costs. When
you add in the mandated Flood Tax, it becomes obvious that overall costs
have to rise, perhaps dramatically. Distributors would also have to
compensate for the loss of revenue associated with the widespread
availability of six-packs and the elimination of the
buy-beer-by-the-case law.

Granted, many politicians are
slow, but this one should be a no-brainer. Eliminate the 18 percent tax,
and you eliminate the need to cross the border and give other states
Pennsylvanian’s money.

Some will ask where the revenue shortfall
would be made up should the tax be rescinded. That’s easy. First, you
don’t keep a tax that is wrong just because you happen to rely on the
revenue it provides. You fix it. Second, that’s the Legislature’s job
every budget: decide how much money goes where. If there’s a shortfall,
other slices of the pie get smaller. Tighten the belt like families do.

important, there wouldn’t be a shortfall. If the incentive is taken
away to go to other states, untold millions – which would be “new
revenue” – would find their way into Pennsylvania because of the massive
volume in liquor sales that would occur. Remember, as it stands now,
the state is getting zero from the millions currently flowing to other

Corbett and the Republicans need to
put down the bottle and either rectify their error of pushing a bill
they think is good, or stop the political expediency of rushing a bill
they know is bad but can deceivingly trumpet as a success purely for
re-election purposes.

Do liquor privatization right, or not at all. And you don’t have to be blitzed to know that.


Current Liquor Privatization Plan Unworthy

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.