Is time right to sell state stores?

State senator pushes bill to privatize liquor sales

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A Montgomery County state senator wants Pennsylvania to get out of the retail wine and liquor business -- and one of his proposals involves selling a 51 percent stake in the state store system to a private equity firm to "wring out" inefficiencies before selling it off completely.

Other possibilities include an outright sale or contracting long-term leases.

"Quite frankly, I think private equity would be very interested in it," said attorney Lee Keevican, of Renaissance Partners, a Pittsburgh investment banking firm. "Just by its scale, I would think it would be pretty valuable."

Selling Pennsylvania's state stores is a decades-old idea, but Republican Sen. Rob Wonderling of Montgomery County thinks the timing may be right.

People who have lived in or visited other states are accustomed to being able to buy wine and beer in a grocery, he said. Pennsylvania is one of only 18 "control" states -- states that actually own the alcoholic product at some point -- and typically are grouped with Utah as among the most restrictive.

"Inevitably, free market competition always results in better quality at the best possible price for the consumer, and it does so exceedingly better than a public monopoly," said Mr. Wonderling.

Rather than spending tax dollars to support a state-run system and its employees, the government could use the money to fund health care or improve the state's highways and bridges, he said.

Mr. Wonderling plans to introduce the bill next month and, while too soon to know what kind of support it may receive, he said that "I think we are in an era where members of the General Assembly are oriented toward reducing the size of state government, not growing it."

The opposition could be formidable, though, including unions representing many of the 4,000 full- and part-time state store employees, the Liquor Control Board itself, and others who believe the state should maintain control of where, how much and what kinds of alcohol are sold.

"I don't know if we'll be supportive of the bill," said Rebecca Shaver, regional executive director for Mothers Against Drunk Driving. At his request, she is meeting with Mr. Wonderling today.

"We historically have not been in favor of the privatization initiative. We feel the state handles the sale of alcohol in a more responsible way than having alcohol sold by those who don't specialize in selling alcohol."

One of the biggest concerns, she said, is underage drinking. She is skeptical that a network of private retailers can match the state stores' training program for spotting underage, or intoxicated, customers.

"I just don't see how a private system can keep all those things in place."

Liquor Control Board Chairman P.J. Stapleton believes there are clear benefits to a state-controlled system.

"We provide a very important service in making sure that underage drinkers do not purchase wine and spirits, and we also make sure that obviously intoxicated customers do not purchase wine and spirits," said Mr. Stapleton.

"We provide a service without blatantly trying to sell as much of a product as possible, which I think would change under a private system."

He also noted that because LCB controls the revenue, there is no chance of "leaks" in tax collections that can occur in a private retail system. In 2005-06, that tax money that amounted to more than $300 million.

Last week, LCB itself was accused of being too focused on profit. Store managers represented by the Independent State Store Union picketed LCB's Harrisburg offices, protesting plans to "brand" stores, as well as recent board decisions that reduce the number of stores.

"We're going to get rid of small stores under the aegis of maximizing profits," said Ed Cloonan, president of ISSU -- a move he suspects is intended to dismantle the state system slowly. Eventually, small, rural communities would not have the selection or availability they have with state stores, he said.

"This is supposed to be a system of the common good for the commonwealth."

He also questions the motives of media covering the issue -- Mr. Cloonan says the Lancaster New Era is the only Pennsylvania newspaper that has not endorsed privatization -- because of the additional revenue they would get from private retailers purchasing ads.

Mr. Wonderling is unconvinced that private retail store owners would be less vigilant about selling alcohol to minors, saying the possible loss of their license would be an effective deterrent.

He also points to precedent: Since the end of Prohibition in 1933, the uniform direction of most states has been toward privatization. None have reverted to state control once they went private.

"The retail sale of alcohol is no longer a core function of state government. It's a function we can no longer afford in times of limited public resources."

Mr. Wonderling has cited proposals to privatize the Pennsylvania Turnpike as one factor that led him to conclude that the state should stop selling liquor, too.

Not everyone is ready to group highways with liquor sales, though.

Steve Schmidt, of the National Alcohol Beverage Control Association, said privatization would mean greater availability of alcohol, through more outlets and longer operating hours.

"As you increase availability, you increase problems because you increase consumption. There is a pretty clear association."

A system run by the government, on the other hand, "has a motivation that is rooted in service to the public," he said.

"They have employees who are very connected to government and as such do not have a profit motive to push a product. They are often more responsible in how they provide the product at point of sale" -- and it's not always the owner behind the counter making the sale, he added.

As for inefficiencies in a state-run system, Mr. Keevican speculates that a private equity firm more likely would look at closing unprofitable stores in remote areas, rather than replacing experienced clerks with minimum wage workers.

"My experience is that private equity guys don't want to run the stores," he said.


Steve Twedt can be reached at stwedt@post-gazette.com or 412-263-1963.


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