The Lead

Who should determine how much booze costs in Pennsylvania: a formula or the liquor board? 

By: - September 10, 2019 5:18 pm

Most vintages improve with age.

But liquor producers are still sour on a three-year-old policy that allows the Pennsylvania Liquor Control Board to determine how much consumers are paying for wine and booze.

Representatives from the board, industry groups, and organized labor testified at a House Liquor Control Committee hearing Tuesday on a bill that would roll back a provision included in the 2016 reform of the commonwealth’s liquor laws.

The changes, which brought beer to gas stations and wine to grocery stores, also lets the state liquor board decide the retail markup on bottles of wine and spirits. This is known as flexible pricing.

Previously, the difference between the wholesale price — or how much the board pays the vineyard or distillery for its products — and the sale price for consumers was dictated by a set formula, made up of the various taxes and fees the state charged.

Now, the PLCB can make its own changes to pricing to take into account demand or stock.

Representatives of multiple national and international distillers decried the change as nothing more than scattershot taxation.

“A legitimate fee would only cover the operating expenses,” David Ozgo, chief economist for the Distilled Spirits Council, a national trade organization, said at the hearing. “Any amount above that is a tax.”

While the behavior is typical of any private wholesaler, Pennsylvania’s state monopoly on liquor sales makes the arrangement unique. If out-of-state producers feel they aren’t being fairly negotiated with, they can’t go to another seller.

Trade groups representing the liquor industry are backing a bill from Rep. Jesse Topper, R-Bedford, to go back to the old formula system of pricing.

But Liquor Control Board Chairman Tim Holden, a former Democratic congressman from Schuylkill County, told the Capital-Star after the hearing that the old system also meant that “the suppliers know exactly what the retail price was going to be.”

Distillers could design their offers to undercut competitors and overall had the upper hand while selling to the board.

“We had no opportunity to negotiate what we were going to pay them for that product,” Holden said.

Wendell Young, president of UFCW Local 1776, which represents 3,000 state liquor store workers, was more blunt.

He said repealing flexible pricing would be “just another handout to wealthy spirits producers.”

According to the PLCB, the new pricing authority — combined with other changes from the 2016 reform — has led to rising board profits, from $103 million in 2016 to $193 million last year. 

These excess revenues are then funneled into the state’s General Fund, where they join the millions on taxes levied on liquor sales. PLCB revenue also funds programs related to addressing the effect of alcohol consumption, from public health to enforcement.

Lawmakers on Tuesday went back and forth over the farines of the state board’s pricing, with both sides sharing anecdotal evidence of residents crossing state lines to either stock up on Pennsylvania-sold hooch or run booze back into the Keystone State.

In 2017, the Philadelphia Inquirer compared the old and new cost of wine and booze, and found “952 bottles increased and 881 decreased in price.”

Looking at the 20 most popular bottles, the paper found Pennsylvania’s price tag beat neighboring Delaware — which has no sales tax whatsoever — and New Jersey in some cases. But the total cost in Pennsylvania was more expensive overall.

According to the board, the price of 84 percent of its items has not changed since the new markup system went into place. 

Lawmakers and the board agreed by the end of Tuesday’s hearing that more communication and transparency on pricing could help solve the problem without necessarily revoking the PLCB’s new power.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.