Both sides in LCB debate state their case to senators

HARRISBURG -- The fight between Gov. Tom Corbett and the state Liquor Control Board boils down to a simple question: privatization or modernization?

The LCB is trying to stave off the former by touting the latter, including permitting direct shipping to buyers' homes, expanding Sunday hours and putting in more wine kiosks, measures it outlined at a Senate Appropriations Committee hearing Tuesday.

Mr. Corbett, a conservative Republican, and legislators like Rep. Mike Turzai, R-Bradford Woods, want to privatize, meaning leasing the 620 state-owned-and-operated liquor and wine stores (and creating 130 new stores) to private operators, for one-time fees that could reach $2 billion.

But board chairman P.J. Stapleton and executive director Joe Conti, a former state senator, have a different idea. They want to modernize the 78-year-old system to make stores and their products more attractive to customers, a process that has been under way for several years.

Mr. Stapleton outlined proposed measures to the Appropriations Committee, telling members that the changes are also aimed at increasing the amount of money the LCB turns over to the state's general fund -- a welcome idea since the state budget deficit is estimated at $4 billion.

The LCB gives the state about $400 million a year in taxes from the 18 percent Johnstown flood tax (in place since 1936) and the 6 percent sales tax (7 percent in Allegheny County and 8 percent in Philadelphia.) The LCB turns over an additional $100 million a year from profit, generated in part by an automatic 30 percent markup imposed on all of its 25,000 types of wine and liquor. That profit amount has been declining, from $150 million in 2006 to only $80 million next year, a decline that senators expressed concern about, in light of the state's severe fiscal problems.

The proposed changes, which would need legislative approval, included:

• Increasing Sunday state store hours from noon until 7 p.m. or 8 p.m. (from the current 5 p.m. closing time)

• Eliminating the current limit of permitting only 25 percent of the stores open on Sunday; allowing any of the 620 stores to be open if there were consumer demand.

• Allowing direct shipment of wine and liquor that consumers order online or by phone or mail, so buyers get their orders at home instead of having to go to a state store to pick up their product, as they must do now.

• Allowing the flat 30 percent markup to vary from product to product, which would affect the price of bottles, some rising and some falling.

• Continuing to put wine kiosks in groceries, a move that was plagued by technical problems in late December. Only about 30 stores have kiosks now but Mr. Stapleton said he hoped to add another 30 in groceries and possibly 24 in Walmarts. He said the LCB was in negotiations with Wal-Mart over the possible kiosks.

Mr. Stapleton urged legislators to give the LCB the flexibility to mark up some items more than 30 percent and some less. The markup has been the same for all liquor and wine since Prohibition ended and the agency started in 1933.

He said he could support the direct shipment of wine and liquor to private homes, for purchases made online or by mail or phone, as long as "appropriate" age-verification precautions were taken to ensure that underage youths weren't buying liquor. The exact amount of tax to be charged for online purchases also must be worked out, probably either 6 percent or 18 percent, said Mr. Conti. Mr. Stapleton also said customers could special order items from state stores if they didn't find them on the shelves.

"I am glad to hear you aren't opposed to direct shipping," said Sen. Mary Jo White, R-Venango.

There is currently a bill introduced by Sen. Jane Earll, R-Erie, to allow direct purchases of wine and liquor. It will be discussed by the Senate committee that oversees liquor, said the panel chairman Sen. John Pippy, R-Moon.

Mr. Stapleton said the amount the LCB gives yearly to the treasury could be raised by anywhere from $20 million to $75 million if the changes were made, including greater flexibility in civil service rules.

Sen. Jim Ferlo, D-Highland Park, urged the LCB officials to fight Mr. Corbett's effort to privatize the liquor system. He called it "a foolhardy idea," which would end the profits the system gives the state each year, along with the 5,000 "family sustaining" jobs the system provides.

Mr. Stapleton couldn't say if the current LCB workers would all lose their jobs under privatization or how many might get jobs in privately owned liquor and wine stores.

"I suspect there would be job losses but it's hard to say," he told senators.

Later Tuesday, Kevin Harley, a Corbett spokesman, said the proposed modernization ideas wouldn't deter the governor from trying to sell off the state store system.

"It's not about whatever additional revenue we might get [from privatization]. It's about the principle. Government shouldn't be in the liquor business. Selling wine and spirits isn't a core function of government."

Sen. Jake Corman, R-Centre, asked how many states had private enterprise for liquor, and Mr. Stapleton said 31, with the rest having some degree of state control. But Mr. Turzai has said only that Pennsylvania and heavily Mormon Utah have complete control, and he wants to end it.

"I hear you saying that you want to be more like a private business. That [raises] the question of why not just privatize like 31 other states," Mr. Corman told agency officials as they wrapped up their appearance.