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April 13, 2011 | By | Posted in Legislature

Pennsylvania Liquor Control Board proposes ten ideas for modernization

Conti: “We have to be more nimble” 

By Darwyyn Deyo | PA Independent

HARRISBURG — The leader of the Pennsylvania Liquor Control Board on Wednesday offered 10 proposals to lawmakers to modernize the board’s operations.

The Liquor Control Board operates the state-run liquor stores in the state. Joseph Conti, the board’s chief executive officer, appeared before the Pennsylvania Senate Law and Justice Committee Wednesday to offer suggestions for improvement in an effort to stave off a move to privatize the stores launched by state Rep. Mike Turzai, R-Allegheny, the Majority Caucus Leader.

The hearing addressed nine of the 10 measures, with a separate hearing scheduled for the 10th proposal  — to allow market-based pricing in the state-run stores, though the prices would be the same across the state to prevent any regional bias.
That way, a bottle of Grey Goose Vodka would cost the same in Philadelphia, Harrisburg or Pittsburgh, regardless of local competitive pricing.

Moves to expand service
The first proposal would allow the Liquor Control Board to implement a Consumer Relations Marketing program and to issue coupons to customers to “recognize and reward regular customers.” The proposal identifies three coupons: general discount coupons for any product in the store; volume discount coupons; and discounts based on how much is purchased.
S.B. 81 from the 2009-2010 session included the language but was vetoed by former Gov. Ed Rendell in May. The CRM program is included in the current session’s H.B. 260, introduced by state Rep. John Taylor, R-Philadelphia.
The second proposal would allow the state-run liquor stores to begin direct shipping and direct delivery to adults 21 and older living in Pennsylvania.
Jennifer Eckinger, executive director of Pennsylvania Wine and Wineries, an association of wineries, said the organization did not have a policy on the Liquor Control Board shipping directly to customers from a competitive standpoint.
“We just recognize we have the ability to ship within the state,” said Eckinger. “We’d like to retain that right because that expands our ability to do commerce. We weren’t really looking at that from a competitive standpoint, but from expanding our wineries commerce.”
The proposal also seeks to impose the 18 percent Johnstown Flood Tax in addition to the state sales tax of 6 percent. Wine purchased through direct shipping is not subject to the Johnstown Flood Tax, established in 1936 to assist victims of the Johnstown Flood, and since has been reallocated to state liquor sales.

State Sen. John Pippy
, R-Allegheny, chairman of the Senate Law and Justice Committee, said such a proposal in the midst of a session working on a “no-tax” budget would require more discussion.
“I think what they we’re probably referring to is the uniformity on the sales,” said Pippy, “but that’s a significant policy decision, and I think it’s too early to even comment on that.”
He did suggest support from the committee for some of the more “consumer-friendly” proposals, including the CRM program and the proposal to allow more stores to stay open on Sundays.
“I think some of the items, the ones that dealt with consumer friendliness, giving more options to the consumer, are ones I think seem to get support in the committees,” said Pippy. “I think there was discussion as to positive direction towards allowing the (Liquor Control Board) to be a little more consumer-friendly with marketing programs.”
The proposal would also put Pennsylvania in compliance with the Supreme Court ruling Granholm v. Heald, commonly referred to as the Granholm decision, which ordered that states that allowed in-state wineries to ship wine directly to customers must also permit out-of-state wineries to ship directly to customers in that state.
John Kramb, co-owner of Adams County Winery near Gettysburg, said the big issue facing the Legislature was the resolution of the Granholm decision in Pennsylvania.
“The big change has to come from the Legislature before they allow out-of-staters to ship to Pennsylvania residents,” he said. “There is one state (Pennsylvania) that has not addressed the Granholm decision, and it would take a legislative act.”
The third proposal would remove the requirement that no more than 25 percent of the state liquor stores can be open on Sunday, arguing the prohibition negatively impacts sales on what is seen as the second busiest retail day of the week.
“In terms of traffic, it is one of the biggest sale days in terms of household shopping,” said Stacey Witalec, director of external affairs for the Liquor Control Board. “Our Sunday sales are strongest.”
The proposal would grant the board discretion to decide which stores stay open on Sundays, It is included in H.B. 160, introduced by state Rep. John Payne, R-Dauphin, though H.B. 260  also would  extend store hours to 9 p.m. That move could potentially increase sales at stores already open on Sundays between 10 percent to 20 percent or $160,000 to $400,000.
Conti said allowing stores to stay open later on Sundays bring in $10,000 more in revenue per store. Stores are open on Sunday from noon to 5 p.m. 

Trip Ruvane, owner of the Barley Creek Brew Co. in Tannersville, doubts liquor stores being open on Sunday would significantly impact beer pubs.

“I think (the Liquor Control Board’s) goal is to go ahead and make as many concessions as possible before the issue of privatization becomes a no-brainer,” said Ruvane. “I think it’s all about what the consumer is looking for. If a consumer wants to be able to buy (on Sunday), does it affect breweries? I don’t think so. There might be a very small percent of guests who might have gone out to dinner.”
The Board also is proposing it become a Pennsylvania Lottery retailer, meaning customers could buy liquor and a lottery ticket at the same time by using self-service lottery machines. The board estimates the move could increase revenue by some $8 million a year, or $2 million for those machines at liquor kiosks only.

Moves to increase penalties and handling costs
The board also introduced a proposal to increase fines for violations to its regulations and the state Liquor Code. The fines not been adjusted since 1987, and are too low to cover the cost of enforcement.
In 2010, more than $1.8 million in fines were collected by the board, with the cost of enforcement calculated to be $26.758 million. In 2009, the cost comparison was $2.18 million in fines collected and $25.24 million for enforcement, according to board estimates.
Fines are most common for sales to a minor and sales to a visibly intoxicated person, both of which carry fines between $1,000 and $5,000.. The board estimated if all the fines in 2010 had been doubled, the state would have collected an additional $2 million in revenue.
Another proposal would increase licensing fees by “assessing an administrative fee on licensing applications,” which has remained unchanged since 1991. The proposal estimates that with a $700 administrative fee assessed on all renewing and validation licenses, $14 million in revenue would result every year.
The proposal includes a schedule of all liquor licenses issued by the board, ranging from $150 to $5,400.
Another proposal would allow the Board to charge fees to suppliers so that the board would own the warehouses in which suppliers store the inventory of liquor. The board estimates that could present a one-time cash realization of $60 million to $80 million by freeing up existing capital resources.

Management changes
The board is also seeking proposals to change the way it buys its goods, currently managed by the state Procurement Code, including the purchase of items such as bags. The board also wants to change the way it hires and pays employees.
“We have to be more nimble,” said Conti.
He also argued the move away from the state’s Civil Service Act would allow the board to work with employees through collective bargaining, which Conti said the board would prefer.
The Office of Administration has “to flip the switch on the (inventory management) system to get people paid,” said Conti, “so in essence they have control.”
“We could go for injunctive relief and legal things, (but) who wants that kind of drama?” he asked. “Or we could try to address this legislatively.”
He said employees on the job now would be able to stay in the Civil Service.
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