By Christopher Freind
Part 2 of 2 on the state’s liquor battle
“I don’t know...he’s either very smart or very dumb.”
---Quint in Jaws, trying to figure out the shark.
(CNBNews.net)Quint’s famous line perfectly sums up both Governor 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 things.
Here’s betting on the latter.
No offense to Chris Christie, but anytime Jersey can do something better, you know you have problems.
And 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.
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.
And 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.
This bill is a non-starter, and should it pass the senate in its current form --- far from certain, since Majority Leader Dominic Pileggi 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.
The 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.
2)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. Most 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 states.
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 reelection purposes.
Do liquor privatization right, or not at all. And you don’t have to be blitzed to know that.
Chris Freind is an independent commentator who operates FreindlyFireZone.com. He can be reached at CF@FreindlyFireZone.com