2--Reforming the Liquor Control System

To control or not to control…?

OK, that’s a lame and shameless paraphrase of the Bard from Stratford-upon-Avon.  But (aside, perhaps from the submission of his first state budget), that really WAS the most immediate question confronting Governor Robert P. Casey and his new Administration when it took hold of the reins of state government in January of 1987!  Not so much whether to control the sales of alcoholic beverages in Pennsylvania…but how. 

State control of liquor sales has been a way of life under the mandate of Pennsylvania law since national Prohibition was repealed in 1933.  Lawmakers of that era apparently believed the most responsible public policy in the aftermath of Prohibition was to at least contain the availability of spirits by restricting sales to a network of state-established liquor stores.  The State Liquor Control Board, in fact, was organized for business only four days before liquor sales in the Commonwealth became legal once again in December, 1933.  Thus it has been, ever since. 

In the intervening years, liquor control in Pennsylvania grew into a substantial enterprise…a very substantial enterprise…for state government.  Almost 700 state stores are located strategically across the Commonwealth.  Some 3,000 people are employed by the enterprise in its administrative, compliance and sales functions.  Most importantly, the multi-million-dollar sales generated at state liquor stores each year return millions of dollars in tax revenue annually to the state General Fund coffers.  The fate of the system is now…and long has been…a very consequential public policy decision for the Commonwealth

Democrat Milton Shapp was the first governor in my memory to broach publicly the notion of privatizing the system in the mid-1960s…about the same time he was removing token boxes from toilets on the Pennsylvania Turnpike.  But the idea never went very far beyond the discussion stage until Dick Thornburgh succeeded Shapp in the executive office.

Governor Thornburgh, of course, launched the most serious assault on liquor control when Senate Democrats…for their selfish political interests related largely to political fund-raising and jobs…obstructed the confirmation of his nominees to the state Liquor Control Board.  He aggressively joined forces with the privatization folks…largely liquor industry interests whose profit motives made them more than disinterested stakeholders.  The privatization movement found an important ally in the media, newspaper editorial editors in particular, who added considerable voice to the chorus of so-called free-enterprise advocates.  Of course, the potential revenues the media could reap from liquor advertising under a free enterprise system—advertising that was banned under the control system—was not inconsequential, either. 

Arrayed against privatization was a substantial bloc of legislative and social interest opposition.   Legislative Democrats were almost unanimous in their opposition.  It was largely a jobs issue with them…the LCB’s 3,000-plus employees enjoyed some form of job protection either through unionized collective bargaining or by civil service status.  There were no job protection guarantees for this work force in a decontrolled environment.  A considerable number of legislative Republicans also were opposed, though for entirely different reasons having largely to do with unfettered access to the purchase and consumption of booze.  Church groups and other social interest organizations such as MADD shared their concern.  Together, their collective opposition was powerful enough to turn back the Thornburgh initiative.  But the mere power of his office gave the issue a high-profile political visibility that would not diminish easily or quickly.      

What was driving the debate in January of 1987 when Governor Casey assumed office was the so-called “Sunset” concept of legislating…a reform theory to law making very much in vogue at the time.  The theory held that every program or agency funded by the state should be reviewed for its performance and cost effectiveness every three, four, five years or so.  Those not expressly reauthorized in law by a date certain simply would fade out of existence and into the sunset (thus the term “sunsetted”…neat, huh?).  The date certain for liquor control was June 30, 1987.  And the stakes were high because without any statutory authority, the state store system would be out of business, and, unless replaced (which was not likely in such a short time frame), no one would have the legal right to sell liquor any where, any time, in any way throughout the Commonwealth. 

What compounded the political situation for the anti-privatization forces was the fact that the State Liquor Control Board was an agency very much discredited at the time in the arena of public opinion.  Two of its members were active Democrats; the third was an active Republican whose primary role was to press the Thornburgh privatization agenda in any way he could.  The Board’s repeated squabbles in their public sessions only put a stronger focus on the issue.  But the Democratic majority on the Board was its own worst enemy.  Their posture was so arrogant…so insensitive to legitimate consumer concerns…so tone deaf to the groundswell of opposition growing around about them…that the privatization forces had no better target than the board itself, and their managers of the liquor control system.  The Democratic majority members also were naïve.  They thought all they needed to survive was a friendly governor.  They were wrong.      

Casey had committed to continued liquor control as the most responsible public policy in his campaign for election.  But his support was conditioned very squarely on the institution of major, demonstrable and measurable reforms in the system and its management.  So virtually from Day 1, the mission was to pull together a major, demonstrable, measurable reform package that would be acceptable within a short five-month time frame to a General Assembly with some sharp divisions on the subject of liquor control.  It was the first assignment given to me that February of 1987 when I joined the administration as Deputy Secretary for Legislative Affairs.   

My role was principally that of a facilitator.  Working with administration lawyers, and our allies in the General Assembly on both sides of the political aisle (of which there were considerable numbers), a proposal was shaped which removed enforcement of the liquor laws from the LCB and placed that responsibility in the state police; took the power to hold hearings and render judgments on violations of state liquor law out of the LCB and established a quasi-judicial, independent cadre of administrative law judges; and, more importantly in terms of customer concerns, 1)--empowered the LCB to exercise its volume purchasing power—the largest single purchaser of spirits in the world—to secure better prices for its customers…2)--authorized sales, discounts, rebate coupons and credit cards in the liquor stores… 3)--permitted variable operating hours consistent with the shopping patterns of particular regions of the state…4)--retained the ban on liquor advertising…and 5)--established a Bureau of Consumer Affairs as a standing arm of the LCB.  (As a SOP to privatization legislators largely from southeastern Pennsylvania…the wine and cheese crowd…the legislation called for the establishment of at least four wine specialty shops throughout the Commonwealth…each of which ultimately proved unable to sustain itself financially and eventually had to be discarded after a reasonable pilot test.)    

But most important, once the bill was enacted, Casey nominated three very credible appointees to replace the incumbent board, including the Democratic chairman who endeared himself to the Senate Democratic leadership by his political fund-raising prowess.  The chairman was more than surprised and upset with his removal…outraged would be more like it.  But whatever he felt, he was gone.  The Casey nominees were confirmed, by Senate confirmation standards, in fairly short order.  The Democratic appointees were former State Representative James Goodman of Schuylkill County and Oliver Slinker, a Dauphin County businessman.  The Republican was former Allegheny County GOP Chairman Bob Fohl, who Casey came to know when they both served as delegates to the 1967 Constitutional Convention.  (One of the concessions the Administration made during the legislative process was to add a requirement that no more than two members of the board could be of the same political party as the appointing governor.  Senate Republicans demanded that, and it was an easy trade-off to make.)   

The Governor was very explicit in his charge to the new board:  Make the system work in a professional, consumer sensitive way.  And they did.  The first two major hires were a professional director of operations with a background in commercial retailing and a professional director of administration with an academic degree in administrative procedures.  With the new professionals in charge and the cronies either gone, demoted or neutralized, a new order set in.  The liquor stores were redesigned; prices were stabilized; sales were introduced; hours improved; variety brands were made available in adequate supply, and point-of-sale referrals on customer request  were instituted.  One technique I found particularly compelling was that those distillers offering customers a break on prices were given prominent display space in the stores; those that did not were not.  Leveraging, I think they call it.  Made good marketing sense, too.     

Reauthorization of the liquor control system was, without question, my most demanding and, once accomplished, my most professionally gratifying experience in the year I spent in the Governor’s legislative office.  It was also very revealing…regrettably, in a disillusioning way.  I thought from my 13 years on the staff of the Pennsylvania Senate I had come to know the legislative personality.  And I came to regard most of the members of the Senate and House with whom I came into contact to be essentially decent, intelligent, well-motivated and fairly modest people.  I was proud to have been in their employ and associated with them in the legislative process.  But when I moved to the executive side of state government, I came to see another side of the legislative personality…a side that was not pretty.  I found not all, certainly, but too many legislators…to my great dismay, moreso on the Democratic side of the aisle than on the Republican (though Republicans say the converse was true when they held the Governor’s office)…to be often petulant; frequently petty; almost always demanding of their Governor; seldom satisfied, even at attempts to meet them more than half way.  I would have thought they would want to serve causes greater than their own self-interest and political survival.  Too many of them, in my view, did not.  That was disappointing.  

Before we move on, let’s reflect just a bit about prices and quality of life issues.  First, prices.  Let there be no mistake:  Liquor prices in Pennsylvania are not driven by the fact the system is a control system.  They are driven by the taxes that are levied on each bottle of spirits sold in the Commonwealth.  There’s the state’s sales tax; there’s federal excise taxes; and there’s an emergency liquor tax enacted in the mid-1930s to provide relief from the Johnstown flood.  The latter was supposed to be temporary, but it has yet to be repealed.  The point is this.  Customers will never see major relief in liquor prices, whether in a control or privatized environment, until something is done about the taxes imposed on each sale of spirits.  It hasn’t happened to this point.  It’s not likely to happen any time soon, if at all.

As for quality of life issues…well, in my view, they should not be casually dismissed or undervalued.  When, for example, was the last time you saw crowds congregating or loitering…or traffic congesting, for that matter, around state liquor stores?  Particularly state liquor stores located in metropolitan neighborhoods where the potential for civil unrest on hot summer days or nights is always a matter of concern to authorities.  When was the last liquor store you visited surrounded by litter or garbage? Or when was the last time you read about an underage drinker buying his or her spirits from a state liquor store?  Seldom, if ever, because the much maligned (though unfairly so) state store clerks have the responsibility to guard against that.  Are we comfortable the same care would apply in a profit-making system?  I’m certainly not. And we cannot ignore societal problems surrounding driving under the influence.  Tragic as DUI always is, it is doubly so when it involves teenagers.  I know of no case where teenage victims of DUI  purchased their alcoholic beverages from a state liquor store. 

Will life as we know it go on if the state control system is converted some day to private enterprise?  Probably so.  But given my druthers, I’d stay with control primarily for the quality of life reasons above all others.  Prices are not at all out of line with surrounding states; access is not at all inconvenient; and the shopping experience is not all unpleasant.  What’s to complain about?    Pennsylvania may have been only 1 of 18 states with a liquor control system in force at the time of the Casey reauthorization.  Today, it may be one of only two or three.  So what?  In the course of the debate over great human events, where you purchase you liquor is not even a burp in the discussion.  Like I said, life goes on.      

In point of fact, the Casey plan to modernize and reform the Pennsylvania liquor control system worked.  So much so that almost 20 years later, liquor control as a major consumer and/or political issue is essentially non-existent, though it certainly hasn’t disappeared.  It surfaced slightly in the 2002 campaign for governor.  Republican nominee, Attorney General Mike Fisher, a long-time privatization advocate, and one of Governor Thornburgh’s principal Senate managers in his failed drive to end liquor control, pressed the issue once again in his campaign against Democratic nominee, former Philadelphia Mayor Ed Rendell.  Rendell was, basically, new to the issue and said he supported some unspecified tinkering around the edges.  But liquor control had no legs in the campaign and certainly was not a major factor in the outcome (Rendell won).  Meanwhile, the LCB in 2002 and 2003, on its own initiative, was taking steps of its own to make the system more price sensitive and consumer accessible.  The Board launched a pilot plan to permit discount state stores to operate in selected locations on Pennsylvania’s state borders; and later unveiled a plan to open liquor stores adjacent to grocery stores for more customer convenience.  Strikes me, that’s two ways to privatize the system without actually privatizing it.  There are probably more in the pipeline.      

Some 20 years later, I’m remain very gratified by what we did with liquor control in 1987.   There were a whole lot people who deserve the credit for restoring credibility and confidence to the control system.  Working with control advocates like the late Senator John Shumaker, a Dauphin County Republican and the chair of the Senate Law and Justice Committee, the reform that was outlined for the Governor’s consideration was truly bipartisan.  Once the Governor endorsed the approach without reservation, the lawyers crafted the legislative language.  Legislators from both sides of the aisle and social interest groups such as the Council of Churches and MADD, perhaps for different rationales, rallied to support it.  Big Jim Manderino’s support as House Majority Leader was absolutely critical to our success.  Tony Barbush and Marc Volavka, his principal aides, were invaluable in assisting the administration (and me) work its way through the labyrinth that can often be the legislative process.   Once enacted, the new board made certain the reforms worked as intended.  The Governor signed House Bill 1000, “An Act relating to alcoholic liquor…” into law just days before the June 30 deadline.  I was never one to accumulate a lot of personal testimonials for any minor successes I might have had in any of my career endeavors.  But I was proud of this one.  To commemorate the event, I have hanging on the wall of my office at home a framed copy of the first page of House Bill 1000.  It is inscribed:  “To Vince Carocci, With Thanks for Helping to Make This a Reality.”  It was signed, “Bob Casey.”