By David L. McCorkle, PFMA President & CEO
I was one of many Pennsylvanians quite excited about a special offer that arrived in the mail recently from the WSJ Wine Club, a 15-bottle selection of special wines worth $239.99 with a $170 discount voucher -— net price $69.99 plus shipping. The discount wine venture is Pennsylvania-based with the processing center in Montoursville, PA. Unfortunately, the fine print on the priority order form disclosed that delivery is available in 32 states and the District of Columbia. Pennsylvania is not included. First, the PLCB’s wine kiosk; now, no possibility of legal enrollment in the prestigious and cheap WSJ Wine Club. To clarify, the WSJ Wine Club is not part of the of the Wall Street Journal’s news department.
Still, hope springs eternal for the 70% of adults in Pennsylvania who enjoy adult beverages and continue to believe that the current budget standoff will end the state store monopoly. Thus, isolating Utah as the only remaining state monopoly for wine and spirit sales. A review of the history of the PLCB and the tangle of relationships between the licensees and elected officials probably does not provide a clue as to what might resolve the “concerns” of the 40-50 interest groups and lobbying firms actively at play in the legislative policy arena. There has never been a true stakeholder process to sort fact from fiction in order to deal fairly with significant issues including:
• How can Pennsylvania develop a competitive business structure for beer, wine and spirit sales that will recapture sales and tax dollars lost to surrounding states?
• How can current malt beverage licensees be provided an opportunity to change their business model, or sell their license at a fair price, to interested retail buyers including supermarkets, convenience stores, pharmacies, big box stores and others?
• About 3,000 full-time union employees work in the Pennsylvania Wine and Spirit shops. Can each be provided the guarantee of a job, fair retirement, and career training paid by the state or other options to ensure a secure financial future?
• Can emerging Pennsylvania breweries, vineyards and distilleries be assisted with marketing funds and expertise to help build their brands?
• Can existing Pennsylvania Small Business Development Centers be tasked and funded to support the new private wholesale and retail sales structure that will replace the 82-year-old state monopoly?
• Can small businesses secure new licenses at a reasonable fee from the state in order to ensure competition in the marketplace?
When Governor Tom Wolf fulfilled his promise to veto HB 466 P.N. 1985 he missed an opportunity to provide the convenience, selection and competition in adult beverage sales that Pennsylvanians demand. But, what comes next?
Public policy makers have failed to heed the warning sounded by Pennsylvania’s Auditor General Eugene DePasquale and others. Simply, the PLCB suffers from what economist William J. Baumol has termed cost disease.
• Pennsylvania’s wine and spirit sales lag national growth by about 25% annually.
• From 1968 until 2014 the PLCB received an interest-free $110 million advance from the Pennsylvania General Fund to finance wine and spirit purchases. The amount was paid back in 2014 by delaying payment to wine and spirit manufacturers until the product was sold at retail. The “fix” is short-term.
• In 2014 the PLCB reported that sales growth has not matched PLCB cost increases for salaries, pension, healthcare, retiree medical costs and IT expenses.
• Industry experts estimate that a privately operated system would cut costs by 50%, increase overall employment and substantially increase the number of locations where beer, wine and spirits could be purchased.
• The PLCB’s balance sheet illustrates the “cost disease”: FY 10 (-$8.2 mil), FY 11 ($-31.2 mil) and FY 12 (-$9.8 mil) in the red. The repayment of the annual $110 million general fund advance and financed by the slowdown of payment to suppliers (bailment process) has temporarily improved solvency. However, higher prices for wine and spirits are inevitable.
• The PFM study concluded in 2011 that PLCB expenses “grew faster than revenues by 2% annually over the last 10 years.” Only a comprehensive business reform of Pennsylvania’s adult beverage sales structure that goes beyond the plan vetoed by the Governor will satisfy Pennsylvania consumers.
It is quite unfortunate that solving the problem of converting a public monopoly to a privately owned competitive wholesale and retail system has become such a partisan matter. It seems like Pennsylvanians will continue to cross Pennsylvania borders in large numbers to buy their beverage of choice. Too bad we can’t take advantage of the WSJ Wine Club.
I was one of many Pennsylvanians quite excited about a special offer that arrived in the mail recently from the WSJ Wine Club, a 15-bottle selection of special wines worth $239.99 with a $170 discount voucher -— net price $69.99 plus shipping. The discount wine venture is Pennsylvania-based with the processing center in Montoursville, PA. Unfortunately, the fine print on the priority order form disclosed that delivery is available in 32 states and the District of Columbia. Pennsylvania is not included. First, the PLCB’s wine kiosk; now, no possibility of legal enrollment in the prestigious and cheap WSJ Wine Club. To clarify, the WSJ Wine Club is not part of the of the Wall Street Journal’s news department.
Still, hope springs eternal for the 70% of adults in Pennsylvania who enjoy adult beverages and continue to believe that the current budget standoff will end the state store monopoly. Thus, isolating Utah as the only remaining state monopoly for wine and spirit sales. A review of the history of the PLCB and the tangle of relationships between the licensees and elected officials probably does not provide a clue as to what might resolve the “concerns” of the 40-50 interest groups and lobbying firms actively at play in the legislative policy arena. There has never been a true stakeholder process to sort fact from fiction in order to deal fairly with significant issues including:
• How can Pennsylvania develop a competitive business structure for beer, wine and spirit sales that will recapture sales and tax dollars lost to surrounding states?
• How can current malt beverage licensees be provided an opportunity to change their business model, or sell their license at a fair price, to interested retail buyers including supermarkets, convenience stores, pharmacies, big box stores and others?
• About 3,000 full-time union employees work in the Pennsylvania Wine and Spirit shops. Can each be provided the guarantee of a job, fair retirement, and career training paid by the state or other options to ensure a secure financial future?
• Can emerging Pennsylvania breweries, vineyards and distilleries be assisted with marketing funds and expertise to help build their brands?
• Can existing Pennsylvania Small Business Development Centers be tasked and funded to support the new private wholesale and retail sales structure that will replace the 82-year-old state monopoly?
• Can small businesses secure new licenses at a reasonable fee from the state in order to ensure competition in the marketplace?
When Governor Tom Wolf fulfilled his promise to veto HB 466 P.N. 1985 he missed an opportunity to provide the convenience, selection and competition in adult beverage sales that Pennsylvanians demand. But, what comes next?
Public policy makers have failed to heed the warning sounded by Pennsylvania’s Auditor General Eugene DePasquale and others. Simply, the PLCB suffers from what economist William J. Baumol has termed cost disease.
• Pennsylvania’s wine and spirit sales lag national growth by about 25% annually.
• From 1968 until 2014 the PLCB received an interest-free $110 million advance from the Pennsylvania General Fund to finance wine and spirit purchases. The amount was paid back in 2014 by delaying payment to wine and spirit manufacturers until the product was sold at retail. The “fix” is short-term.
• In 2014 the PLCB reported that sales growth has not matched PLCB cost increases for salaries, pension, healthcare, retiree medical costs and IT expenses.
• Industry experts estimate that a privately operated system would cut costs by 50%, increase overall employment and substantially increase the number of locations where beer, wine and spirits could be purchased.
• The PLCB’s balance sheet illustrates the “cost disease”: FY 10 (-$8.2 mil), FY 11 ($-31.2 mil) and FY 12 (-$9.8 mil) in the red. The repayment of the annual $110 million general fund advance and financed by the slowdown of payment to suppliers (bailment process) has temporarily improved solvency. However, higher prices for wine and spirits are inevitable.
• The PFM study concluded in 2011 that PLCB expenses “grew faster than revenues by 2% annually over the last 10 years.” Only a comprehensive business reform of Pennsylvania’s adult beverage sales structure that goes beyond the plan vetoed by the Governor will satisfy Pennsylvania consumers.
It is quite unfortunate that solving the problem of converting a public monopoly to a privately owned competitive wholesale and retail system has become such a partisan matter. It seems like Pennsylvanians will continue to cross Pennsylvania borders in large numbers to buy their beverage of choice. Too bad we can’t take advantage of the WSJ Wine Club.
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