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LCB considering flexible pricing

| Friday, Dec. 31, 2004

HARRISBURG -- Pennsylvanians would enjoy reduced prices on some liquor and wine sold near borders of neighboring states and at special events statewide under legislation that will receive a renewed push in 2005.

State Rep. Ron Raymond, R-Delaware County, chairman of the House Liquor Committee, said he will introduce legislation to authorize flexible pricing for the state Liquor Control Board wherever the agency sees an opportunity to make a buck. Now, the LCB is required to levy a 30 percent mark-up on all bottles.

The proposal is aimed primarily at stopping the flow of Pennsylvania consumers' dollars to liquor and wine stores in New Jersey, Delaware and Maryland in the eastern part of the state, where out-of-state stores often offer cut-rate prices.

Under the plan, Pennsylvania also would offer discounts on some products at special events including auto races and wine festivals, said LCB spokesman Bill Epstein.

LCB Chairman Jonathan Newman says there also are "pockets in Western Pennsylvania" where people travel across state lines to buy booze. Epstein added, though, that the problem is "not as pronounced" as in other parts of the state.

To run the state's liquor agency effectively, the LCB can't afford to have "its hands tied," Newman said.

"We're anxious to stop the border bleed," said Epstein.

Ultimately, successful border state pricing, combined with other innovative measures at the LCB, may enable Pennsylvania to generate enough revenue to eliminate its 18 percent tax on liquor and wine -- the so-called "Johnstown Flood Tax" levied in the 1930s, Raymond said.

"It really handcuffs Newman and the LCB" in terms of competitive pricing, Raymond said.

Raymond proposes eliminating 3 percent a year for six years until the tax is wiped out. But that would cost Pennsylvania about $30 million annually. In a year when the state could face up to a $1 billion deficit in the Medicaid budget, proposals to eliminate revenue won't be warmly met.

Newman concedes that it's a "long shot."

The LCB turned over $370 million to state coffers last year, and Newman says he's seeing continued "strong growth."

The variable pricing plan would be considered independently of the tax cut proposal, Raymond said.

Raymond said chances are excellent for passage of legislation to give the LCB more flexibility in pricing.

But the flexible pricing plan faces opposition from the Pennsylvania Restaurant Association. That group cites the inequity of restaurateurs in some parts of the state paying higher prices for the same bottle of liquor sold for less in other areas. All restaurants now get a 7 percent discount.

The plan poses opportunities for abuse, they say, in the hands of the wrong chairman or liquor board.

Patrick Conway, CEO of the restaurant lobby group, says he has confidence in Newman. Still, "it's still too much discretionary power to put in anyone's hands," Conway said.

A bill containing variable pricing for the LCB was poised for House passage in late November at the end of the 2003-04 session. Raymond said he believes he had sufficient support in the House and Senate. But the restaurant association raised objections, and Gov. Ed Rendell asked lawmakers to hold off until the issue is studied more thoroughly.

The bill was "on the fast track operating below the radar screen," said Conway.

"We think it's a sweeping change of the liquor code that ought to be done in the public light," Conway said.

Conway says the association is open to working with the LCB and lawmakers.

The restaurant association also supports eliminating the 18 percent liquor tax.

Rendell believes eliminating the 18 percent tax would create a significant hole in the budget, his spokeswoman Kate Philips said. The governor isn't willing to consider that until there is revenue to replace the loss, Philips said.

Rendell isn't sold yet on flexible pricing. If he can be convinced it will work, he'll consider it, said Philips.

"The governor has asked to see how this could work. Could this increase sales, and if so, by how much?" Philips added.

In a broader sense, Philips said Rendell is "very interested" in proposals to increase revenues at the LCB.

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