An Explanation of Benefits

Control-state agencies are, as Jim Sgueo, president & CEO of the National Alcohol Beverage Control Association (NABCA) puts it, in the midst of “a perfect storm.”

“We have had more turnover in our agency members in the last year than we have ever had, with [this latest round of] gubernatorial elections and retirements,” he said. Of course, when governors change, so, often, do their appointees, including the heads of their states’ control agencies.

Sgueo continued, “More than 50 percent of our board [members] have less than two years of experience on the board and we expect to lose another two or three.”

This is more than just the regular cycle of politics. Sgueo, with 23 years at the NABCA, is used to the turnover of governors and control-agency directors. But this time, he pointed out, “The economy has been extremely dire, plus there was a strong anti-government sentiment in the past election. The philosophy of having a control state tends not to be as easily accepted by ‘less government is better’ politicians.”

“And,” he continued, “all governors by necessity are looking to cut back” on their budgets. Governors, many of them new to their jobs, are looking for ways to plug immediate gaps in their states’ finances. In Virginia, North Carolina, Pennsylvania, Ohio and Washington State, in particular, this has led governors and legislators to explore the possibilities of privatization.

In the past year, said Sgueo, the NABCA has put forth a “huge effort, out of necessity, not necessarily planned, to get as much education and information about control states as possible to our [new control-agency] directors and staff and to state legislators and governors.”

These newcomers need to understand the control agencies in their states: what they do, how they generate revenue, how they protect the public.

Hence, the theme – “Acknowledging the Benefits of Control” – chosen by incoming NABCA chairman, Patrick Stapleton, though originally meant to celebrate the association’s upcoming 75th anniversary, couldn’t have come at a better time.

And Stapleton, chairman of the Pennsylvania Liquor Control Board (PLCB) is the right man for the job. He’s been at the PLCB since 1997 and has been its chairman since 2007. He has been an NABCA director for more than four years and has headed the association’s finance committee. Stapleton is a lawyer and was once named one of Pennsylvania’s “Super Lawyers” by Philadelphia magazine. “Patrick brings a lot of experience to the table,” said Sgueo. Stapleton runs the largest control-state operation in the country – and one of the most cutting-edge control operations in the world.

The PLCB “since the 1980s has probably done more than anyone else to adapt to the 21st century consumer,” said Sgueo. “And since it is the largest control state in the US, when another control state is looking at an issue, it often looks to how Pennsylvania responded to it.” The PLCB, for instance, was the first control state to offer the ability for licensees to renew their licenses online and, back in 1997, it was the first retailer of any type to start using ID-checking devices to verify a person’s age. And it has been a presence on Facebook and Twitter for the past year. In 2010, the PLCB was recognized by the technology company Oracle for “retail excellence,” alongside Abercrombie & Fitch, Disneyland Parks & Resorts, Gymboree and Lowe’s, while that same year it was named a Computer World Honors Program Laureate.

When it comes to discussing the pros and cons of control versus privatization, Stapleton has recently added a lot of that specific experience to his resume as well. Pennsylvania is one of the control states where the idea of privatization has been most conspicuously raised.

Pennsylvania’s new Republican governor, Tom Corbett, campaigned on the idea of privatizing the PLCB in order to help balance the state’s budget, which is currently running a deficit of $4 billion. During the campaign, Corbett predicted that the sale of the PLCB and its 621 stores could generate $2 billion, a figure privatization opponents say is overstated.

In a March 3rd, 2011 article in the Philadelphia Inquirer, Wendell Young IV, president of the United Food and Commercial Workers Local 1776, which represents some PLCB employees, pointed out that to raise $2 billion, the price for the licenses to take over the 621 state stores in Pennsylvania would have to average $2.3 million each. In contrast, Young pointed out, in West Virginia, which privatized its stores in 1991, the average price for such a liquor license has been $200,000.

On April 11th, the state’s new House Majority Leader, Mike Turzai countered that his privatization plan would be to increase the number of liquor stores to 750 and would also create 100 wholesale licenses, all of which would be auctioned off. He stood by the projection that such privatization could raise $2 billion.

In other words, there has been a lot of rigorous debate, a lot of back and forth, in Pennsylvania about privatization, the reasons for it and the possible effects, both in the Pennsylvania government and in the media. Pro-privatization people have their polls, such as one showing that 66 percent of those polled favor privatization, while privatization opponents have their polls, such as one showing 86 percent of their respondents saying that they are satisfied with the state stores.

And into this fray, Chairman Stapleton and Joe Conti, the PLCB’s chief executive officer, must wade. “We don’t take a position,” said Stapleton. “It is the state legislature that makes decisions about everything we do. We simply provide information. There is a lot of information about control that is unknown to legislators and governors. We shed light.”

For instance, many people assume that a monopoly, which is technically what the PLCB is, will provide less selection to consumers than an open market. Ordinarily, a monopoly could do that because a monopoly, being the only show in town, can. “That’s the perception,” said Stapleton, “but the reality is different. In reality, we carry over 25,000 skus. Not a retailer in the world has that. And those skus are available to every customer in the state.” No store in the PLCB system carries less than 3,000 skus as a matter of course and a customer can ask for any of the over 25,000 skus available in the state and have them shipped to the nearest store. The PLCB is the largest purchaser of wines and spirits in the world and approximately 10 percent of its purchases of wine and liquor are direct import. “That difference between perception and reality of product selection is true of many control states,” said Stapleton.

“And control doesn’t mean that prices will be higher,” Sgueo pointed out. “New Hampshire’s prices are the lowest in the country.”

Indeed, it seems people often hold unexamined assumptions about control systems. In a December 31st, 2010 New York Times article, journalist Katharine Q. Seelye interviewed customers at a small rural PLCB store, who all complained about the inconveniences of control. She went on in the article to point out, however, that the store, which operated at a loss, would probably not even exist as a private store. The only reason the state kept it open is that the next nearest state store is 11 miles away. Like most control-state agencies, the PLCB is charged with making wine and spirits reasonably available to all legal consumers throughout the state, something private retailers are not.

Stapleton and Conti are using their testimony before various state legislature committees as an opportunity to ask those legislators to let them modernize the operations at the PLCB even more. Stapleton explained that they are asking for changes in three separate areas. One is how the PLCB prices products. Right now, it is required to use the same 30-percent mark-up on every product. “We’d like to have more latitude, to be more like a private enterprise,” explained Stapleton.

The second area of change is in how the PLCB procures things for its operations, such as the store spaces it leases and the credit-card processing companies it uses. Though wines and spirits are exempt from the state rules, the PLCB must abide by the regulations for all its other needs. “It makes for a slow and arduous process,” said Stapleton. “If we could procure things on a more timely basis, it would save vast amounts of money.”

The third change the PLCB would like to make is in how it hires and places its employees. Right now, like other state employees, PLCB staff must pass a civil-service exam. “But the civil-service exam asks general questions of everyone applying for a certain broad category of government job,” Stapleton pointed out. “It doesn’t cover customer service or product knowledge.” The PLCB wants more freedom to hire the right people for their job openings and to place people where they are most suited.

Stapleton also testified that the PLCB wasn’t opposed to direct shipping – right to the customer’s home instead of to the nearest state store – as long as there was a system in place to verify that the purchaser is of legal age.

In addition, the PLCB also asked the legislature to approve expanded Sunday sales, both raising the number of state stores that could open on Sundays (currently capped at 25 percent of all stores) and allowing them to stay open longer that day: from noon to 8 pm rather than from the current noon to 5 pm.

It seems that the tide of opinion, at least among state legislators, might be turning. Although House Majority Leader Mike Turzai had been widely expected to introduce a privatization bill early, he has yet to do so and Governor Corbett has not called for one to help with this year’s budget. Instead, Corbett has commissioned an independent impact study, whose findings are due in July.

Meanwhile, three Democratic state senators have drafted legislation that would allow the PLCB to make the three changes Stapleton and Conti testified about.

The NABCA, meanwhile, continues to strive to publicize what control-state systems in general accomplish. “A multitude of peer-reviewed scientific research over the last several decades has shown the positive impact control systems have on public health,” said Sgueo. For example, in April, the US Centers for Disease Control’s Task Force on Community Preventive Services released a report recommending against further privatization of alcohol sales. This task force, made up of 12 medical and public-health experts, reviewed 21 studies of the impact of privatization on consumption. “Based on its charge to identify effective disease and injury prevention measures,” the task force wrote, it “recommends against the privatization of alcohol sales in settings with current government control of retail sales, based on strong evidence that privatization results in increased per capita alcohol consumption, a well-established proxy for excessive consumption.”

At this year’s NABCA annual conference, held May 11th through May 15th in Phoenix, Stapleton will moderate a seminar called “The Monopoly Factor,” (on Friday, May 13th) where supplier panelists – Mark Teasdale, CEO & president of Proximo, Bill Newlands, president of Beam global and Donn Lux, president and CEO of Luxco – will talk about the perception of control-state agencies carrying less selection when they often carry more than private retailers. A past PLCB chairman, John E. Jones, III, now a judge of the United States District Court, will be one of the panelists of the seminar “The Push for Privatization,” held on Thursday, May 12th.

In other words, the NABCA is already hard at work holding the idea of control up to the light to see exactly what it does and what it is. And as incoming chairman, Pennsylvania’s Stapleton is ready and able to give people a clear-eyed explanation.

“Patrick is a veteran, with 14 years of experience,” said Sgueo. “I look forward to working with him.”


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