Liquor Control Board Chair Patrick Stapleton told the Senate Appropriations Committee the Board could transfer $25 million more to the state General Fund than proposed by Gov. Corbett for FY 2011-12, saying the transfer number was an "artificial number."
Here is a quick summary of other issues discussed related to the Liquor Control Board.
Transfer To General Fund: Sen. John Pippy (R-Allegheny), Majority Chair Senate Law and Justice Committee, said the amount of money transfered from the LCB to the General Fund is an artificial number that varies from a low of $80 million to a high of $150 million as recently as 2006-07.
Patrick Stapleton, Chair of the Board, they should be able to transfer up to $105 million in the coming year, if they can continue to modernize their operations. There is an $80 million transfer proposed in the Governor's budget.
Stapleton confirmed the total yield to the state budget in FY 2010-11 was: $271 million in Liquor Taxes, $105 million in Sales Tax and $105 million in earnings for a total of $481 million, in response to a question by Sen. Jim Ferlo (D-Allegheny), Minority Chair Senate Law and Justice Committee.
Privatization/Moderization: Sen. Jim Ferlo said he did not understand why some members of the General Assembly wanted to give up "a great public asset" that provides good-paying middle class jobs and supports the state budget.
Stapleton outlined some of the moderization proposals the LCB has proposed under a three p's initiative-- pricing, personnel and procurement.
On pricing, the biggest change proposed by the LCB was to do away with the requirement in the Liquor Code to price all products with the same 30 percent mark-up. Giving the Board more flexibility on pricing could increase state profits by $20 million, according to Joe Conti. LCB CEO.
On procurement, the Liquor Code prevents the LCB from taking advantage of the current lower cost real estate market to locate stores and facilities because of the length of time it takes to get a lease through the state process.
Stapleton also said the LCB has to negotiate, along with the entire Commonwealth, on the use of credit cards and suggested the Board be able to negotiate by itself. Joe Conti also suggested the state RFP process was too long and involved and the Board cannot make market-based decisions fast enough.
On personnel, the LCB is bound by certain civil service requirements, like testing applicants. He said the current system does not allow them to test applicants on the knowledge of products carried by the LCB or on how to treat customers.
Sen. Lloyd Smucker (R-Lancaster) said he believed the decisions on pricing, personnel and procurement could be better done by private industry. The Senator asked how enforcement of underage drinking would be affected by privatization.
Stapleton said one of the privatization proposals would result in 130 more outlets for alcohol than the current state store system. He said research has shown if there is an increase in availability, then alcohol-related problems also increase. He conceded the specifics of access would be defined in any legislative proposal.
In response to a question from Sen. John Yudichak (D-Luzerne) on the potential loss of family-sustaining, union jobs with privatization, Stapleton said there would be some job loss associated with privatization among the LCB's 5,701 employees, but he could not quantify the loss.
Asked about how pricing and revenue to the state would be affected by privatization, Stapleton said the LCB has not been asked to develop information on that question, but noted a recent study in Virginia concluded average prices there would have to increase by over 24 percent.
Sen. Vincent Hughes (D-Philadelphia), Minority Chair of the Senate Appropriation Committee, said some studies show privatizing state stores could result in state revenue "shrinkage" from private businesses. Stapleton said the studies he was aware of showed a potential 16 - 20 percent loss of state revenue.
Sen. Jake Corman (R-Centre), Majority Chair of the Senate Appropriations Committee, said people are not knocking down his door asking for privatization because of the LCB's modernization efforts. He noted, at the same time, the LCB was talking like a private business and 31 other states have figured out how to have private businesses involved in liquor sales.
Sen. Corman asked if the LCB considered the option of contracting with private industry for retail sales or "agency shops" in some locations to address concerns by Sen. Mary Jo White and others. Stapleton said evaluating all these options needs to be done against a background of looking at the need to control access to liquor, particular for those underage.
Joe Conti said he believes the LCB is moving to do more privatization partnerships and the Commonwealth is getting the best of both worlds in terms of contributions to the state budget.
Direct Wine Sales/Consumer Choice: Sen. Lawrence Farnese (D-Philadelphia) said he receives many inquires about the problems with the direct sale of wines into Pennsylvania and he plans to introduce legislation on the subject. He said people want choice, not necessarily privatization.
Stapleton said direct shipping is not a bad choice for Pennsylvania as long as there are protections, like confirmation of age. He believes there is significant choice of products in state stores through ordering and just asking, noting the LCB carries over 25,000 products, but obviously not in every store. The average state store has about 3,000 products available. He said private liquor stores, in his experience, carry fewer choices, perhaps as few as 300 products. Sen. Mary Jo White (R-Venango) said more rural areas lack choices and direct shipping would be part of the solution. She said since the state has a monopoly on liquor sale, the LCB has an obligation to serve the public.
Joe Conti noted the Board has expanded its e-commerce site to make more wines and other products available online and even launched a wine club.
Sen. Pippy noted Sen. Jane Earll (R-Erie) has introduced Senate Bill 790 to provide for direct wine sales and the Senate Law and Justice Committee will be moving the legislation.
Partnering With Grocery Stores: Stapleton said they will continue to work with grocery stores to make products available, noting their floor space is very valuable and the cost of those projects and the number of products available is limited as a result.
Sen. John Rafferty (R-Montgomery) asked how much it has cost the LCB to defend the current law allowing grocery stores to carry beer from court challenges by beer distributors. Stapleton said the cases were handled by in-house counsel.
Sunday Sales: In response to a question from Sen. Lisa Baker (R-Luzerne), Joe Conti said they are at the statutory limit for the number of stores and outlets available for Sunday sales and would encourage the General Assembly to look at changing the number of outlets and Sunday hour limits again because the LCB could make more money for the state.
Craft Distillers: In response to a question from Sen. Pippy on the development of local distilleries, Joe Conti said the House will be considering legislation shortly to give local distilleries the same benefits as Pennsylvania wineries in the marketplace.
Johnstown Flood Tax: Stapleton said the so-called Johnstown Flood Tax is just another mark-up and if the LCB could be given flexibility on pricing the tax could be done away with.Special Enforcement Districts: Sen. Pippy said the Senate Law and Justice Committee will be exploring the creation of special liquor enforcement districts.
Advertising: Joe Conti said the Board has budgeted $4.3 million for advertising in the coming fiscal year, the same as the current year. Sen. Pippy also asked for the results of the $1.8 million branding initiative on store sales.
Video/audio files of the hearing will be available on the Senate Republican Appropriations Committee webpage.
