New Pa. Bill Won’t Stop Drinker Exodus

Friday, 12 Apr 2013 03:41 PM

By Chris Freind

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“I don’t know . . . He’s either very smart or very dumb.”
  
Quint’s line from “Jaws” sums up Gov. Tom Corbett and the Republican-controlled Pennsylvania House as they push their liquor privatization bill. They’re either very smart, trying to pull a fast one on Pennsylvanians expecting better selection and lower prices. Or they’re very dumb, believing their bill will work.
 
Here’s betting on the latter.
 
No offense to Chris Christie, but anytime Jersey does something better, you’ve got problems.
 
Clearly, buying wine and liquor is better there. But that’s not saying much, as 48 states have better ways to buy liquor and beer than Pennsylvania. So huge numbers of residents stock elsewhere 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.
 
Let’s review. Despite being elected in 2010 in large part by promising to privatize liquor, Tom Corbett did nothing on the issue in his first two years except commission yet another blue-ribbon panel to (ready for this?) study liquor privatization.
 
Just thinking about that gives you a hangover.
 
Now that they are officially on board with privatization — the right thing to do — they come up with a bill that will neither increase selection, nor, most significantly, reduce prices.
 
This bill is a non-starter, and should it pass the senate in its current form — far from certain, since 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 higher.
 
Here’s why: 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.
 
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.
 
First, you need wholesalers, and there are only a few players with the capital to buy in at that level, as the cost will be enormous.
 
Consider:
  • Liquor is bulky and very heavy. Transporting it across 45,000 square miles will take 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
  • The costs of distribution networks and other logistical issues will be considerable
  • Fuel costs are near record highs
These companies are not in business to lose money. Translation: Liquor won’t be cheaper than it is today.
 
Making this bill even less than gin-dandy are the pie-in-the-sky revenue projections related to retail licensing. Under the bill, beer distributors will get first crack at wine and liquor, which comes with hefty licensing fees (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 are they coming up with the cash for a license? With so many licenses up for grabs, most banks will balk at loaning the necessary funds, as it is will be deemed 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. Wine and liquor take up a lot of space, and recession notwithstanding, that space isn’t cheap.
 
3. Beer 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 prices have to rise, perhaps dramatically.
 
Granted, many politicians are slow, but this is a no-brainer. Eliminate the 18 percent tax, and you eliminate the need to cross the border and give other states Pennsylvania’s money.
 
Some will ask where the revenue shortfall would be recouped. That’s easy. First, you don’t keep a bad tax just because you rely on its revenue. You fix it. Second, that’s the legislature’s job: 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 would remain in Pennsylvania. Remember, the state now gets zero from the fortune flowing to other states.
 
Corbett and the Republicans need to put down the bottle and revamp the legislation, stopping the political expediency of rushing a bad bill that can be deceivingly trumpeted for re-election 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 columnist, television commentator, and investigative reporter who operates his own news bureau, Freindly Fire Zone. Read more reports from Chris Freind — Click Here Now.
 

 
 

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