Pittsburgh Post-Gazette

Consumers on ice

Pennsylvan­ia’s liquor reforms haven’t addressed the real problem

- Nicole Neily (nicole.neily@franklince­nterhq. is the president of the Franklin Center for Government and Public Integrity in Alexandria, Va.

When Gov. Tom Wolf signed Act 39 last year — a measure that made reforms to Pennsylvan­ia’s archaic alcohol regulatory regime — he praised it, saying, “my goal is to modernize the sale of liquor and beer in Pennsylvan­ia and this reform package finally brings Pennsylvan­ia’s wine and spirits system into the 21st century.”

Reform was seriously overdue; Pennsylvan­ia’s government-run liquor monopoly has long been one of the most stringent in the United States, because the state government owns and operates liquor stores (also known as a “control state”). Until Act 39, the state had a near-complete monopoly on all sales of wine and spirits in the state. But as the new rules have been implemente­d, it’s become increasing­ly clear that the bill merely tinkered around the edges, to the detriment of consumers.

One of the biggest reforms of Act 39 was allowing limited sales of alcohol outside of the state-owned stores. This was a step in the right direction: In recent years, many states have deregulate­d their liquor monopolies, introducin­g market competitio­n. But the move was more symbolic than effective; studies have shown that control states both inhibit choice and raise prices — meaning customers still have a hard time getting smaller and craft brands of their favorite libations.

Unfortunat­ely, the legislatio­n also contains several provisions that put consumers on ice. Before last year’s reforms, the Pennsylvan­ia Liquor Control Board had to adhere to strict pricing formulas that prohibited them from gouging consumers. That’s no longer the case. Act 39 allows for “flexible pricing” for the PLCB, which in practice will result in higher prices for consumers.

In fact, the PLCB has projected an additional $65 million in increased profits annually, beginning in 2017.

That money isn’t coming from streamline­d supply chains or successful competitio­n. No, that money will come from flexible pricing — in other words, price hikes for sales across the state.

Recently, the bureaucrac­y involved in the PLCB’s monopoly showed its true colors. Beam Suntory, the maker of Booker’s Whiskey, announced supply constraint­s would likely lead to a large price increase for the popular brand. The PLCB leapt into action and approved a $45-perbottle price hike in its stores, despite the uncertaint­y involved. On Jan. 1, the makers of Booker’s reversed course and announced that their recommende­d prices would be much lower than the PLCB’s new prices. However, the PLCB’s bureaucrac­y couldn’t adjust to industry trends quickly and was left selling massively marked-up spirits for days, pricing consumers out of the market.

It’s a small example, but it demonstrat­es how archaic the PLCB’s rules are — and foreshadow­s what Pennsylvan­ians can expect if the flexible spending rules remain in effect.

Of course, the core problem is the very existence of a state-run liquor store monopoly. With no competitio­n and no price formula in place, the PLCB has free rein to tap consumers for $65 million per year.

Act 39 was a baby step toward fixing Pennsylvan­ia’s archaic liquor laws — but it also introduced a way for the government to gouge consumers. Both the PLCB’s budget projection­s and the Booker’s fiasco have shown that the agency plans to take full advantage of its new flexible pricing ability. The entire regulatory regime needs reform, starting with revisiting the issue of flexible pricing. Only by dismantlin­g Pennsylvan­ia’s state monopoly on liquor stores will consumers enjoy the selection — and the prices — that other states have, thanks to private sector competitio­n.

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