Despite union presence, crowd supports privatization Pennsylvania and Utah are only states that control liquor sales

By on October 12, 2011

By: GARY P. KLINGER Record Express Correspondent, Staff Writer

The auditorium at Linden Hall was packed to near capacity for a Talk Back policy forum hosted by 97th District State Representative John Bear.

Topic of the evening on Oct. 5: whether or not to privatize the state’s liquor stores.

But that packed house was filled not just by concerned citizens, but approximately 30 members of the union under which employees of the state’s liquor stores belong.

On hand for the evening were Bear’s colleagues from the State House, including Rep. Ryan Aument, Rep. Bryan Cutler and Rep. Gordon Denlinger. House Majority Leader Mike Turzai was also there for the question and answer session and lead a discussion regarding his position in favor of privatization.

The evening’s session was highly interactive, with each person in attendance given a voting transponder to record votes on public opinion and sentiment throughout the evening. This gave attendees not only a manner in which to log their views, but to also see within seconds the collective feedback of the group.

According to data collected by the transponders, 78 percent of those in attendance were aged 50 and above, 69 percent were male with 59 percent having earned a bachelor’s degree or higher. Sixty-four percent of the crowd was made up of registered Republicans, with 94 percent of the group having voted in the 2010 general election.

Those in attendance were asked to help score how the state-controlled Wine and Spirits Shoppes were performing. Thirty-eight percent of those responding indicated that PA’s state stores have a worse selection than privately-run stores in surrounding states. Forty-nine percent felt prices in PA stores were higher, compared to 19 percent that felt they were better.

Established in 1933 in conjunction with the 21th Amendment to repeal prohibition, the PLCB is an independent government agency. According to then-governor Gifford Pinchot, it was created to "discourage the purchase of alcoholic beverages by making it as inconvenient and expensive as possible" to purchase and consume alcoholic beverages. The PLCB manages all wine and spirits wholesale and retail operations throughout the state. It is comprised of a three member board and CEO appointed by the board, and it employs approximately 4,300 individuals. Wholesale and retail licenses are distributed by a quota system within each county with retail licenses granted for every 3,000 residents while wholesale licenses are granted for every 30,000 residents. Restaurants and food operations must purchase their wine and spirits from the PLCB’s approved list.

House Majority Leader Turzai explained that all wine and spirits sold within Pennsylvania are subject to a $1.50 handling fee, plus a 30 percent markup, plus an 18 percent "Johnstown Flood Tax" and a 6 percent sales tax. This is where the PLCB currently gets its funding. Accordingly, for fiscal year 2009-2010 the PLCB transferred $105 million in "profit" to the state’s general fund, even though PLCB financial records only showed a profit of $49.5 million. Turzai explained that the majority of the dollars transferred to the general fund in that year came from the PLCB’s operational accounts. Since fiscal year 2006-2007, the PLCB has transferred $155.3 million more than they actually made from the sale of wine and spirits.

A key point stressed by Turzai was that regardless of whether the state privatizes its liquor stores, tax revenues will still be generated. He indicated that in fiscal year 2009-10 the general fund received $383 million from taxes on wine and spirits.

The representatives on hand for Wednesday’s session are all proponents of House Bill 11 which calls for privatization of the state’s liquor operations. They project that this would have benefits to the consumer, with a better selection and more reasonable prices, plus improved access and customer convenience. It would also yield fiscal benefits to the state and thus the taxpayers by getting the state out of the people, pension and storefront business. In doing so, privatization would yield a one-time infusion of cash to the tune of $1.5 to $2 billion by conservative estimates. Projections for a privatized liquor industry indicates that annual tax revenues would be maintained if not increased through tax reform and lower administrative costs.

Currently only Pennsylvania and Utah maintain complete control of in-state liquor sales.

One key driving point in the push for privatization is getting Pennsylvania out of a business legislators feel the state has no business being in to begin with. They question whether the entity that promotes the sales of wine and spirits should also be the same entity that polices those sales. Legislators point to improved controls and law enforcement supervision of sales with mandated used of I.D. scanners with age verification software, as well as "age compliance" checks on all retailers.

Under privatization, all wine and spirits would be subject to reoccurring revenue on several fronts. A gallonage tax would yield $8.25 to $12 per gallon based on the type of liquor an alcohol content. Turzai pointed out that currently 26 states use this tax for spirits and 35 states use this formula for wine. The state would also collect 6 percent in sales tax plus corporate taxes generated by those either wholesaling or retailing liquors.

House Bill 11 calls for the auctioning of 1,250 retail licenses to the highest responsible bidder with a reserve price based upon the fair market value. Of that number, 750 would be considered Class A licenses which would include retail outlets with 15,000 or more square feet of total retail space and at least 600 linear feet of shelf space. Five hundred Class B licenses would be auctioned to include retail outlets with less than 15,000 square feet of space.

Currently the state operates 621 stores.

"Already entrepreneurs are looking at the impact of privatization with a great interest in participating," said Turzai. "This would make the store much more competitive by allowing sales in grocery stores and niche markets which speak to specific types of markets. And this would allow a variety of operations to exist."

Turzai added that not only were potential entrepreneurs excited about the possibility of privatization, but the movement has the strong support of Gov. Tom Corbett and former head of the PLCB Jonathan Newman.

Bill, a Talk Back participant from Manor Township, noted polls which mirror the results generated locally in favor of privatization.

"This is supposed to be government of the people, for the people and by the people," he said. "Why not put this measure up for a referendum? The only thing left to do is to get it done. The people have spoken in favor of this."

But not everyone in the audience agreed with Bill. Joseph Burgine said he totally disagreed.

"What about those jobs?" questioned Burgine. "If these are privatized they will not hire the existing employees," he said, claiming that most of those businesses which would purchase licenses are European-owned companies with no allegiance or care for the employees.

Turzai indicated a belief that privatization would generate 6,000 to 7,000 jobs, which is an increase over the current 4,700 employees.

Robert Galt of Warwick Township expressed his concern about the types of jobs which might grow from privatization.

"They will only be willing to offer their employees minimum wage with no insurance and no state benefits," asserted Galt.

It was as Rep. Bear was weighing in on the matter that a degree of testiness began to take hold in the chamber.

"It is absolutely absurd that we are in this business," stated Bear. "We must stop this nonsense of fleecing the taxpayer. Those days are over."

Bear explained that his own father-in-law had worked full-time as a teacher and part-time in a liquor store and as such had been able to collect two pensions. While he indicated an admiration for his father-in-law’s willingness to work so hard, he highlighted his experience as an indication of some of "what’s wrong" with the current session.

This is when it became apparent that local police were stationed throughout the outside aisles of the meeting for good reason. It was revealed that the local union had packed the meeting with between 20 and 30 of their members who became loud, talking over others and standing up to demand time to be heard, even against requests by moderators to sit down, raise their hands and wait to be recognized. One member in particular took offense to the suggestion by Bear that the union was made up of "bullies" trying to strong-arm the state and protect key union jobs.

At another point a leader from the group stood, walked directly up to Rep. Turzai, attempting to intimidate the House Majority Leader into agreeing to invite him to a debate on the matter to be held at a later date by thrusting his hand toward the leader in demand of a hand shake.

"I intend to stick to the rational facts on the matter," stated an unruffled Turzai. "I would be glad to set up a debate in this area, and of course I welcome your feedback."

Resident Russ Combernack shot back in support of privatization.

"These unions are trying to take control of everything," said Combernack. "Don’t you care about what the taxpayers want? Please, stop the nonsense."

Union representative Wendell Young was on hand, dismissing Tarzai’s point of view as opinion, stating his view that there was little evidence to support his position.

"The stores are recording record revenue, profit and margin," said Young without offering facts to counter those presented by Tarzai.

And when pressed by Young on the assertion that the unions were resorting to bullying tactics, Rep. Bear stood firm.

"You do bully," asserted Bear, citing disruptive behavior, including jeering their opponents at a recent press conference held on the matter. Bear also pointed out that the union had attempted to pack the hall, with nearly a third of those present representing the union.

In the end, 56 percent of those in attendance indicated the state’s liquor stores should be privatized, with 35 percent opposed and 9 percent undecided.

The following day, Rep. Bear held a similar Talk Back session at Linden Hall on the subject of Marcellus Shale.

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