Consumers on ice: Pennsylvania’s liquor reforms haven’t addressed the real problem
March 23, 2017 12:00 AM
By Nicole Neily
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-per-bottle 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.
Nicole Neily (email@example.com) is the president of the Franklin Center for Government and Public Integrity in Alexandria, Va.
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