Pennsylvania: Privatizing any aspect of liquor sales is complex process, experts say

Source: Post-Gazette

September 24, 2015

Gov. Tom Wolf’s proposal to change the way the state handles the sale of liquor is the first step in a complex procedure that could make Pennsylvania’s process unlike that of any other state.

Of course, Pennsylvania’s liquor laws already are unlike those in other states.

As a result of the 21st Amendment – which put the matter of liquor sales in the hands of the states – the patchwork of laws from state to state is as quirky and diverse as the states’ license plates.

“Each state needs to find what works best for it,” said Margaret Barchine, spokeswoman for the National Alcoholic Beverage Control Association in Alexandria, Va. “The thing with regulating alcoholic beverages in all 50 states is that you really end up with 50 different models.”

That is a fact already known to anyone who travels across state lines and tries to buy alcohol.

Pennsylvania is one of 17 control states – as are neighboring Ohio and West Virginia – but it is unique in that it exerts that control in every facet of the purchasing process. For four years, Ohio has had a private, nonprofit agency called JobsOhio that handles the sale of liquor. In 1990, West Virginia privatized the retail end of the process, but kept control of the wholesale stage.

Mr. Wolf, in an attempt to work out a budget compromise with Republicans in the Legislature, last week proposed privatizing both the wholesale and the retail aspects of liquor sales in the commonwealth. The state, however, would retain authority by contracting out the process to a private bidder.

“The governor is a business person, and as a business person he understands that the liquor system as currently established and managed is under-performing for consumers, under-performing for taxpayers and also not doing a good job for its employees,” said John Hanger, secretary of policy for the governor. “He sees how poorly managed the distribution system is, in part because of restrictions in state law and regulations. Not that we don’t have the right people managing it. It’s more that it’s set up to fail.

”The governor wants to rip out the reasons why it’s under-performing. To do that, you have to move to a private-management system with a long-term contract and the power and authority to truly run the liquor system as a business. It would be the liquor business, not the liquor system.”

Though nothing has been determined yet, the governor hopes to give the contracting operator the ability to locate stores where they make the most sense. It could move stores and open new ones. It would have pricing authority, “although we would want to make sure that it wouldn’t do unreasonable pricing,” Mr. Hanger said. And the collective bargaining agreements with current employees would have to be honored.

“We are more than willing to talk about just about every detail, including who would sign the lease on behalf of the people of the commonwealth,” Mr. Hanger said. “It could be the [Pennsylvania Liquor Control Board], it could be the Department of General Services, which does a lot of contracting already, it could be a new, independent authority established by the General Assembly and the governor [the way the state opened the door to casinos]. We are open to discussing who ought to find the competitive bidder and who ought to monitor the lease terms.

“We’re not saying ‘our way or the highway.’ We’re very willing to talk about the details with the Republicans, as long as they are talking with us and putting on the table concrete education [funding] as well as concrete ways of paying for our budget so it is honestly balanced.”

The state is nearly 90 days into the fiscal year and still does not have a budget, though most of the government is functioning as usual. Mr. Wolf vetoed a Republican proposal June 30, and the two sides have been negotiating ever since.

Gig Robinson, a spokesman for the West Virginia Alcohol Beverage Control Administration, said his state still controls wholesale operations, but a retail licensing board oversees 178 privately owned stores.

“Our system works for us,” he said. “But with the differences in population between us and Pennsylvania, it’s like apples and oranges. There’s just so many facets – from the distribution chain to consuming – that each state works just a little bit differently.”

Mr. Hanger said Pennsylvania’s system of 601 state-run liquor stores could come to resemble Ohio’s.

“JobsOhio contracted with the Ohio Division of Liquor Control to market liquor,” said David Hopcraft, spokesman for the Ohio Department of Commerce. “It also has contracts with a private warehousing company and private trucking company to deliver it. We contract with 466 agency stores, and we then supply what liquor they order, and they sell it. They are private businesses that sell liquor to the public.”

“It is complex,” Ms. Barchine said of the alternatives Pennsylvania legislators will be considering. “Because every state has the right to regulate the product, it really isn’t easy. You have population cultures that are influenced by their environments and religions and so on, and this all bears on how a state would choose to regulate alcohol.”