Sworn Testimony on PLCB Privatization by Wendell W. Young IV, President, UFCW Local 1776,February 24, 2011

Testimony by Wendell W. Young, IV

President, United Food and Commercial Workers Local 1776

Pennsylvania House Democratic Policy Committee

February 24, 2011, Philadelphia, PA

Mr. Chairman and Members of the Committee:

First, I want to thank you for giving me this opportunity to testify today on the proposed dismantling of our Wine and Spirits Shop system -- a public asset that delivers for all Pennsylvanians.

Before I address this latest assault on more than 4,000 family-sustaining jobs, I want to congratulate this Committee for agreeing to hear from the public and for deciding to travel outside of the Harrisburg beltway to hear from Pennsylvanians across the state.

I believe it is more important than ever that our representatives in Harrisburg look outward and gather input, so, again, I commend you for convening these hearings.

I do not hide from the fact that I work for the clerks who staff the Pennsylvania Wine and Spirits Shops. As Chairman of the United Food and Commercial Workers Pennsylvania Wine and Spirits Council, my primary concern is to make sure that all of our members are treated fairly and paid fairly for a good day’s work. My colleagues and I work hard, every day, to ensure that our members have a good standard of living – one that they’ve earned – and that they are able to take care of their families.

This system is an asset – one that delivers a strong return to all Pennsylvanians. This is a complex issue, and you will cover a lot of ground today. But I want to break down my testimony into three important areas:

First, the math: Every time we have this debate in Pennsylvania, the privateers cook the books and bake up phony numbers. Any independent, rational look at the numbers shows that a sale of the system makes zero financial sense. It would cost all of us – as taxpayers and consumers.

Second: There is no question that the negative societal impacts of a privatized system would prove to be devastating to many families and communities in our Commonwealth. Virtually every independent peer-reviewed study proves this fact.

Third: I think it is important to focus on consumers – your constituents. The very simple fact is prices will not go down; selection and convenience will not improve. Consumers would lose under any privatization scheme.

THE MATH

A few weeks ago, the privateers were telling the world that an auction of 850 licenses, which includes 100 wholesale licenses, would generate $2 billion or more. That’s a myth, and they’ve finally conceded that it’s bunk because now, as we all know, the House Republican leader is going to commission a study to see what the system is really worth. The fact is, to get $2 billion the licenses would have to average $2.3 million each. That just doesn’t happen anywhere in this country. Nowhere. Other states that have gone down this path will tell you that. The private sector will tell you that. A few quick points:

A just completed audit by the Virginia’s legislature found that 1,000 licenses would have to be sold to raise $200 million, a per license average of $200,000. Virginia, by the way, is running away from any privatization scheme after a long debate.

In West Virginia, 89 of 165 store license sold for less than $200,000 in 2010. Another 45 sold for less than $100,000.

A New Jersey license broker recently told The Philadelphia Inquirer that the market is down 30 percent since 2007.

A Pittsburgh businessman and founder of a liquor retail chain recently told The Tribune-Review that he recently purchased two licenses in Florida — one in Naples for $385,000 and one in Miami for $75,000.

Mr. Chairman, you just don’t see $2 million licenses. The $2 billion-plus estimate is pure fantasy.

The second part of this equation is the annual revenue that our current system generates.

Each year, Pennsylvania’s Wine and Spirits stores generate more than $500 million for the taxpayers. The privateers claim that roughly $400 million of that total would continue to come in because it is tax revenue.

Mr. Chairman, they don’t understand our current system and they haven’t read the latest proposal.

Today, our state controls the wholesale, the mark-up rate, and the tax structure. The state is able to establish the profit. But if you look at the latest privatization proposal, the state would give up the wholesale component of the system. We no longer would be in position to set prices.

You also have to understand that the latest proposal changes the tax structure from a dollar-based tax to what is called a “gallonage tax.” Our tax revenues would not grow with inflation as they do now because the gallonage tax is based on volume. In addition, the data shows that the non-control states with a gallonage tax typically collect anywhere from only one-tenth to one-third of the revenue that we collect here in Pennsylvania.

I also have to note that we collect 100 percent of the taxes owed because, obviously, the state manages the system and there is no delinquency of tax revenues. Compare this to the collection rate of liquor taxes in other states, or for that matter compare the collection rate of liquor and sales taxes by the PLCB to all other retailers in Pennsylvania. You will see that maintaining public ownership of the PLCB is the fiscally responsible position on this important issue.

I invite you to ask the duly elected fiscal watchdogs of the Commonwealth, Treasurer Rob McCord and Auditor Jack Wagner, to look into this issue. I’m sure that they will show you plenty of evidence from the revenue side to support maintaining and improving the operations of the PLCB as opposed to privatizing it.

The bottom line is that no matter how the proponents of privatization cook the books, the math just doesn’t add up.

IMPACTS ON SOCIETY

I am not a sociologist or a researcher, but I can read the studies and I can count. We’ve provided the Committee with a summary of dozens of studies and empirical reviews of actual data. Very simply, every independent study that is an honest study leads to the same conclusion: the private side does not do as good a job as the public sector in controlling the sale of alcohol. Allow me to cite just a few statistics:

Pennsylvania has the nation’s 7th lowest rate of youth drinking and youth binge drinking.

The alcohol-impaired driving fatality rate in Pennsylvania is nine percent below the national average; for people under 21, it is 25 percent below the national average.

We have the lowest alcohol-related death rate in the nation. And we rank second overall in revenue generated by the sale of wine and spirits.

14.5 percent fewer high school students reported drinking and 16.7 percent fewer reported binge drinking in states which keep control of alcohol sales one study found.

Lower consumption rates are associated with a 9.3 percent lower alcohol-impaired driving death rate in states which keep control of alcohol sales.

The University of Victoria reported that there was a 27.5 percent increase in alcohol-related deaths for every extra private liquor store per 1,000 British Columbians.

I’m not asking this Committee or members of the public or the media to take my word for it. I am asking that people simply take the time to review any of the dozens of honest, independent peer-reviewed studies that are readily available. The science tells us that a private system would hurt Pennsylvanians.

There is a reason why SADD and the PA DUI Association and others are opposed to the effort to privatize. They recognize that increased sales to minors and to the visibly intoxicated is not good for Pennsylvania. They recognize that my members do not sell to minors, and that they have no motive to do so. We have found two instances in the past seven years when one of our members has sold to a minor. My members know that there is no second chance\. Sell to a minor and you’re fired.

IMPACT ON CONSUMERS

Mr. Chairman, I would like to ask you a direct question: How many times in a given week or month or year do you receive a constituent call regarding our Wine and Spirits shops? I know we don’t bat 1,000 percent. I know that we can always do better – all of us can. But we are a far cry from the counter store system of a few decades ago. Our selection continues to grow and our prices are competitive. Is there really a statewide problem with the current system? The fact is that the privateers talk about price and selection and convenience and how the private sector will do so much better. It isn’t true.

A few quick points:

In 2008, a newspaper – one that is by no means a pro-union publication -- did some shopping in 10 locations in West Virginia, Ohio, Delaware, New Jersey and Maryland. They found that those other states were not a Mecca for savings.

They shopped for five popular brands and they found that alcohol bought out-of-state was more expensive in 26 cases, less expensive in 24 cases. They found that the out-of-state alcohol was $3 per bottle more expensive in 11 instances, and $3 per bottle less expensive in only three instances.

We’ve heard a lot of noise about so-called border bleed – the claim that Pennsylvanians from this region of the state are driving across the borders to New Jersey and Maryland and Delaware because our prices are too high.

Mr. Chairman, people drive to Delaware to shop for everything – clothing, furniture, food and, yes, alcohol. Why? Because there are no state taxes. That will not change.

Some people might drive to Maryland, but that’s because Maryland has a very modest excise tax on liquor. That will not change.

People drive to New Jersey to shop for everything. People in South Philadelphia and West Philadelphia and not far from this room shop in New Jersey at the Deptford Mall, the Cherry Hill Mall or at the so-called “lifestyle” stores located at the former race track in Cherry Hill – only a couple of miles over the Ben Franklin Bridge. And while they’re shopping there, yes, they purchase wine and spirits. That will not change.

The fact is that along our northern border with New York, our borders with Ohio and West Virginia and along our northeast border with New Jersey, people drive into Pennsylvania to shop for wine and spirits precisely because we have better selection and better pricing.

Many of our wine and spirits stores have up to 6,000 items on the shelves. At any of our stores you can order from our total stock of more than 30,000 items.

Let’s talk for one minute about consumers, some of your constituents, who live in rural communities.

What happens to these Pennsylvanians when only the profit motive drives where stores are located and what the price and selection is? Right now, there is a wine and spirit store in every one of Pennsylvania’s 67 counties. That was the case in West Virginia, too, before the system went private. Now, five rural counties have NO stores at all, and several others have licenses held only by convenience or drug stores. This means a few shelves of liquor in the corner of a store, next to snack foods and milk, sold by a part-time, minimum wage clerk who likely knows nothing about what he’s selling.

We all know that prices in convenience stores are typically higher than elsewhere. The prices that Pennsylvanians pay will not go down in a private system. It hasn’t worked that way in any other state that has privatized.

WHY ARE WE HERE

Finally, why are we having this debate? There’s no question that the math doesn’t work in favor of the taxpayers. There’s no question regarding the impact on society – we do a better job in managing the sale of wine and spirits than the private sector. Yet here we are, talking about the latest wave in a new assault on the public sector. In one statehouse after another, it has become fashionable to blame unions, more specifically public sector unions, for deficits and for the recession.

This movement is starting to spread from state to state. This attempt to privatize the PLCB is the first evidence of it here in Pennsylvania, and it is very important for our elected officials to view this latest attempt in that context.

Why did our economy collapse? Privateers like to blame the teachers, the firefighters, the police, nurses, state workers and the clerks in our Wine and Spirits shops. In their world, providing a family-sustaining job is bad for the economy. Making sure that our middle class has access to quality healthcare is bad for the economy. To provide a pension – to which all public employees contribute and contribute mightily – is somehow unfair to Pennsylvania taxpayers.

What the privateers conveniently ignore is that my members are also taxpayers and citizens of Pennsylvania, not a class apart.

Our nation’s economy collapsed because of the unchecked greed of Wall Street speculators. Our economy collapsed because $5 million bonuses weren’t enough. They had to create trillions of dollars in bogus paper wealth to generate $50 million bonuses, and they wreaked havoc on the economy; destroying millions of jobs in the process.

Just last week, Governor Tom Corbett authorized an additional $42 million in taxpayer dollars to maintain jobs at the Aker Philadelphia Shipyard. A report in the Philadelphia Inquirer noted that of the 400 workers still on the job at Aker only 120 of them were metal trades union members. The rest were foreign employees of subcontractors based in other countries.

In the late 1990’s former Governor Tom Ridge gave this same operation $429 million in taxpayer dollars to create and support 1,000 private sector jobs at the same time that he was trying to put more than 4,000 PLCB workers on unemployment.

If Governor Corbett is willing to keep putting millions of our tax dollars into a foreign-owned operation in order to save a few good jobs, then it makes no fiscal sense to put 4,500 Pennsylvania workers and taxpayers out on the street by privatizing the PLCB wine and spirits stores at the same time.

This push to privatize our system, to destroy a valuable public asset, makes sense only if you’re an investment speculator looking to turn a quick profit by investing in and then flipping licenses. It makes sense only if you’re a chain store retailer looking to clear some shelf space and you want your untrained and inexperienced minimum wage clerks selling this product.

It certainly won’t create any new jobs and it won’t create jobs for the current Wine and Spirit employees. The experience in other states demonstrates that that the licenses have gone to existing stores who use their existing employees to stock the shelves.

New jobs, too, are part of the privateers’ myth.

I have spent my entire adult life working to secure good jobs with good pay and benefits for my members. It is the right thing to do and I am hoping that the members of the General Assembly will agree and, once and for all, say “no” to this idea.