Pennsylvania’s Liquor Privatization Plan Forgot about the Beer

Beer wholesalers are testifying yesterday morning in the Pennsylvania Senate, expressing their opposition to the proposed plans to privatize the state-run liquor store system. As John McGinley, vice president of Wilson-McGinley Inc. in Pittsburgh noted, “The beer industry is private. We don’t need to privatize an already private business.”

He is right, the beer market in Pennsylvania is private, but that doesn’t mean it’s free and certainly doesn’t mean it couldn’t be improved. Currently, Pennsylvanians wanting to buy beer have few choices. In most parts of the state they have two options; either buy a six-pack at high cost from a bar or buy a full case from a distributor shop. And for brewers wishing to get their beer into those bars or shops, unless they are based in Pennsylvania they have to sell to wholesalers first. While the wholesalers oppose the proposed privatization plans, some think that they don’t go nearly far enough. More changes need to be made to Pennsylvania’s alcohol regulatory system—if only to bring it into compliance with constitutional law.

Along with selling off the state-run liquor stores to private interests, the House bill will allow grocery stores to sell wine (and beer if they have a separate eating space and a special license) and will give beer distributors to sell 6-packs as well as full cases and would also give them the option to sell wine, as well. It’s understandable that the wholesalers fear this new form of competition. But the proposal still leaves a glaring problem on the book: Pennsylvania is in violation of the Constitution’s Commerce Clause.

As David Scott highlighted in his paper for CEI, “Don’t forget the Beer,” released last week, brewers in Pennsylvania are allowed to bypass the three-tier system, that is, distribute their own beer instead of going through wholesalers, while out-of-state brewers must sell their beer to wholesalers in order to gain access to the PA market. This, as Scott notes, is similar to Michigan’s wine regulations until the Supreme Court determined that treating in and out of state alcohol producer differently was a violation of the constitution and that state, along with others, was forced to change its laws. Pennsylvania has yet to do so.

Back in 2009 a bill was introduced to remedy this problem. HB 2009-291 would have mandated that all producers, whether based in Pennsylvania or outside the state, would have to go through wholesalers, but it provided an exemption for brewers producing less than 150,000 barrels in the previous year—they would be allowed to continue to bypass wholesalers and to self-distribute up to 75,000 barrels, regardless of whether or not they were a Pennsylvania brewer. Unfortunately, while the bill passed in the house it died in the Senate. And when discussion about modernizing Pennsylvania’s alcohol regulations picked up again last year, there was no mention of the constitutional violation ingrained in its current regulatory scheme.

The current proposal for privatization still does not address this issue; perhaps if it did the wholesalers would be less inclined to oppose the bill. However, as David Scott puts forth in his paper, the best remedy is not to force all brewers into the three-tier system, but rather to exempt them all, regardless of place of origin or production size. That is, make the mandatory three tier system a voluntary system.

We don’t yet know how this bill will look when the Senate sends it back to the House, but hopefully it will seize this opportunity to not only free consumers from the monopoly of a state-run liquor store system, but to free them from the grip of the mandatory three-tier system and bring Pennsylvania into compliance with the constitution.