COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES
APPROPRIATIONS COMMITTEE BUDGET HEARING
LIQUOR CONTROL BOARD
STATE CAPITOL HARRISBURG, PENNSYLVANIA ROOM 140, MAJORITY CAUCUS ROOM
WEDNESDAY, FEBRUARY 27, 2019 3:00 P.M.
BEFORE:
HONORABLE STANLEY SAYLOR, MAJORITY CHAIRMAN HONORABLE MATT BRADFORD, MINORITY CHAIRMAN
MAJORITY MEMBERS PRESENT:
HONORABLE ROSEMARY BROWN HONORABLE LYNDA SCHLEGEL-CULVER HONORABLE SHERYL DELOZIER HONORABLE GEORGE DUNBAR HONORABLE JONATHAN FRITZ HONORABLE MATT GABLER HONORABLE KEITH GREINER HONORABLE SETH GROVE HONORABLE MARCIA HAHN HONORABLE DOYLE HEFFLEY HONORABLE LEE JAMES HONORABLE FRED KELLER HONORABLE JOHN LAWRENCE HONORABLE JASON ORTITAY HONORABLE CLINT OWLETT HONORABLE CHRIS QUINN HONORABLE JAMES STRUZZI HONORABLE JESSE TOPPER HONORABLE RYAN WARNER HONORABLE MARTINA WHITE
Pennsylvania House of Representatives Commonwealth of Pennsylvania 2
1 MINORITY MEMBERS PRESENT:
2 HONORABLE DONNA BULLOCK HONORABLE MORGAN CEPHAS 3 HONORABLE CAROLYN COMITTA HONORABLE AUSTIN DAVIS 4 HONORABLE MARIA DONATUCCI HONORABLE ELIZABETH FIEDLER 5 HONORABLE MARTY FLYNN HONORABLE EDWARD GAINEY 6 HONORABLE PATTY KIM HONORABLE STEPHEN KINSEY 7 HONORABLE LEANNE KRUEGER HONORABLE STEPHEN MCCARTER 8 HONORABLE BENJAMIN SANCHEZ HONORABLE PETER SCHWEYER 9
10 NON-COMMITTEE MAJORITY MEMBERS PRESENT:
11 HONORABLE DAVE MILLARD HONORABLE SUE HELM 12 HONORABLE MARK KELLER HONORABLE DAN MOUL 13 HONORABLE TIM O'NEAL HONORABLE MATT DOWLING 14 HONORABLE FRANK RYAN HONORABLE CRAIG STAATS 15 HONORABLE BARRY JOZWIAK HONORABLE JEFF PYLE 16 NON-COMMITTEE MINORITY MEMBERS PRESENT: 17 HONORABLE SCOTT CONKLIN 18 HONORABLE TOM CALTAGIRONE HONORABLE MALCOLM KENYATTA 19 HONORABLE BRIAN SIMS HONORABLE DAN FRANKEL 20 HONORABLE DAN DEASY HONORABLE MARY ISAACSON 21
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1 COMMITTEE STAFF PRESENT:
2 DAVID DONLEY REPUBLICAN EXECUTIVE DIRECTOR 3 RITCHIE LAFAVER REPUBLICAN DEPUTY EXECUTIVE DIRECTOR 4 MIRIAM FOX 5 DEMOCRATIC EXECUTIVE DIRECTOR TARA TREES 6 DEMOCRATIC CHIEF COUNSEL
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1 I N D E X
2 TESTIFIERS
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4 NAME PAGE 5
6 CHARLIE MOONEY EXECUTIVE DIRECTOR, 7 LIQUOR CONTROL BOARD...... 5
8 TIM HOLDEN CHAIRMAN, 9 LIQUOR CONTROL BOARD...... 8
10 MIKE NEGRA BOARD, 11 LIQUOR CONTROL BOARD...... 9
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14 SUBMITTED WRITTEN TESTIMONY 15 * * * 16 (See submitted written testimony and handouts 17 online.)
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1 P R O C E E D I N G S
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3 MAJORITY CHAIRMAN SAYLOR: I'll reconvene
4 the Appropriations Committee hearing. And I want
5 to welcome Chairman of the Liquor Control Board,
6 Tim Holden, former Congressman, and Sheriff, I
7 believe, right?
8 I'm getting old if I know all of those
9 things. But also, we have the Executive Director
10 of the Liquor Control Board. We have Charlie
11 Mooney. We also have Board member from the
12 Liquor Control Board, Mike Negra. Welcome,
13 gentlemen.
14 MR. NEGRA: Thank you.
15 EXECUTIVE DIRECTOR MOONEY: Thank you.
16 MAJORITY CHAIRMAN SAYLOR: If you would
17 all rise that are going to give testimony, raise
18 your right hands.
19 * * *
20 (Testifiers sworn en masse.)
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22 MAJORITY CHAIRMAN SAYLOR: Thank you.
23 And we'll start off with our first questioner as
24 Representative Dunbar.
25 REPRESENTATIVE DUNBAR: Thank you, 6
1 Mr. Chairman.
2 Welcome, gentlemen. As usual, I went
3 through all of the financials and looked at
4 everything and scribbled out all of my notes and
5 tried to figure out where everything was, got
6 everything prepared that I was going to say. And
7 I looked at the video of last year when
8 Commissioner Negra was here with others and
9 realized it's the same things I said last year
10 that I was getting ready to say this year, which
11 is the same thing I said the year before that and
12 the year before that.
13 So it feels like it's deja vu all over
14 again. And basically, I understand that you guys
15 are doing everything you possibly can. And I
16 have the ultimate respect for what everybody is
17 doing at the LCB to try to make this work, but
18 the economic reality of it is, we've gone through
19 a process where several years ago our projected
20 revenue increases were five percent. And then a
21 couple of years ago, we lowered them out to 4.7
22 percent.
23 And then, that was prior to Act 39, and
24 Act 39 was going to solve a lot of problems.
25 Last year we lowered our projected revenue 7
1 increases to 3.4. Now this year, it's down to
2 2.5 for this -- for next year; 2.75 thereafter.
3 Shrinking revenues. At the same time, we have
4 growth of the LCB expense line, which is the most
5 volatile line item there. All of the other line
6 items, you know, costs of goods sold and
7 everything, pretty much go equally across the
8 board.
9 Economic -- the growth on the LCB expense
10 line is four percent every year, 2.5, 2.75
11 percent increase in revenue, four percent
12 increase in cost. Sooner or later you're going
13 to be upside down, which we already are, to tell
14 you the truth. Last year, the operating income
15 was greater than 185 million dollars that you
16 remitted to the State.
17 Your scheduled -- your schedule shows
18 future years -- shows every year, with the
19 exception of this present year's disbursements,
20 being greater than receipts, meaning they're
21 being a negative. Our long-term liabilities have
22 increased from June of '15 of 480 million to 598
23 the following year, 646, and then 2018, 1.129
24 billion dollars in long-term liabilities.
25 Granted, I understand there was an 8
1 adjustment because of other post-retirement
2 employee benefits, but still, going in the wrong
3 direction. You're sitting right now with total
4 assets of 547 million dollars and total
5 liabilities of 1.6 billion dollars.
6 This is scary. This really is scary. As
7 an accountant, you know, this is where I start
8 getting concerned. I know I sound like a broken
9 record, but are we going to be able to make
10 185-million-dollar payments every year going
11 forward? That's what we're depending on.
12 And again, I'm not placing blame. I do
13 thing it's a failed business model, though.
14 CHAIRMAN HOLDEN: Well, Representative
15 Dunbar, as you mentioned, you know, you're
16 counting in our exposure to our retirees' health
17 care and our pension plan and so forth. And
18 we're no different than the entire Commonwealth
19 of Pennsylvania, but I believe we're one of the
20 few agencies that has to put it on our bottom
21 line. So it comes to your attention very quickly
22 compared to other agencies.
23 And again, we're just like everybody in
24 the Commonwealth of Pennsylvania as far as that
25 goes. 9
1 REPRESENTATIVE DUNBAR: But at the
2 same --
3 CHAIRMAN HOLDEN: There's not much we can
4 do about that. But on --
5 REPRESENTATIVE DUNBAR: But at the same
6 time, we're still going backwards year after year
7 after year.
8 CHAIRMAN HOLDEN: Well, we had 2.8
9 percent growth last year. The first six months
10 of this fiscal year, our growth was 3.5 percent.
11 And we're hoping --
12 REPRESENTATIVE DUNBAR: But if
13 expenditures are growing at a larger rate, you're
14 still in a negative cash situation.
15 CHAIRMAN HOLDEN: If you're not talking
16 about our legacy costs, I'm not sure it's 100
17 percent accurate. I'm not doubting you, I'm just
18 curious.
19 MR. NEGRA: Well, one of the things
20 that's not being mentioned there is our gross
21 margins. Our gross margins went up about 90
22 basis points. And so our sales, from a 2.5
23 percent increase or a 2.8 percent increase don't
24 necessarily reflect the profit margin that we're
25 able and the money that we're able to put onto 10
1 the bottom line.
2 And so that's reflected, you know, in our
3 balance sheet. It's reflected in our ability to
4 have 249 million dollars in cash flow and an
5 additional 20 -- positive cash flow from last
6 year -- and 28.9 million dollars in net cash flow
7 after the 1851 and all the other moneys were
8 transferred. So last year we didn't have to dip
9 into reserves.
10 REPRESENTATIVE DUNBAR: But your
11 projections for the next three years on here are
12 a negative, disbursements greater than receipts.
13 MR. NEGRA: Well, yeah, up until '21-'22,
14 '23-'24.
15 REPRESENTATIVE DUNBAR: Yes.
16 MR. NEGRA: Are they conservative
17 numbers? Yeah, they're conservative numbers, but
18 we believe --
19 REPRESENTATIVE DUNBAR: Is there anything
20 else we can do to change this?
21 MR. NEGRA: Is there anything that we can
22 do to change it?
23 REPRESENTATIVE DUNBAR: Yeah, to make it
24 better. We heard Act 39 was going to do it. It
25 helped a little bit, but -- 11
1 MR. NEGRA: Act 39 has definitely helped.
2 REPRESENTATIVE DUNBAR: Yeah.
3 MR. NEGRA: In terms of other changes, I
4 mean, the demands, from a cash flow standpoint,
5 from the General Fund are certainly great on the
6 Agency. I think the demands from other agencies
7 in the State government are demanding on us, as
8 well. There are probably proposals out there
9 that are asking for a million here and a million
10 there. And to my knowledge, I don't think we're
11 allowed to print money yet, but you know, we're
12 trying to.
13 So we're trying to meet the desires of
14 everyone that we can through our existing store
15 network. We're attempting to get into e-commerce
16 in a much better manner. So we are looking at
17 this business and the cash flow of it and the
18 profitability of it and the expense efficiency on
19 a daily basis. That's Charlie and his executive
20 team, and Tim and I as Board members.
21 REPRESENTATIVE DUNBAR: And we are out of
22 time. I do apologize, but I will say I do
23 appreciate that you guys are doing everything you
24 possibly can, but I think it's either going to be
25 one of two outcomes here. I'm either going to be 12
1 Chicken Little screaming that the sky is falling,
2 the sky is falling, or a couple of years from now
3 I'm going to be saying I told you so. And I
4 really fear it's going to be the latter.
5 Thank you.
6 MAJORITY CHAIRMAN SAYLOR: Representative
7 Sanchez.
8 REPRESENTATIVE SANCHEZ: Welcome. I
9 wanted to commend you on some of the
10 modernization efforts you've put in. I can see
11 that reflected in the pricing. This may be
12 anecdotal evidence, but I'm a wine shopper and
13 I've shopped in different States, always find
14 very competitive pricing when I shop at the State
15 store, so I applaud that.
16 One item, though, that I wanted to give
17 you the opportunity to talk about, the Board's
18 mission to be a responsible seller of alcohol,
19 you know, aside from the pricing and the
20 successfulness as a kind of a quasi business
21 operation or a business operation. I think
22 that's very important when dealing with something
23 like alcohol and the sale of it.
24 So could you comment on that and the
25 efforts? 13
1 CHAIRMAN HOLDEN: Absolutely,
2 Representative. You know, oftentimes we only get
3 a chance to talk about our profit transfer and
4 what we're doing to improve our stores, and we
5 take that very serious. What we also take very
6 serious is our responsibility for responsible
7 alcohol consumption. We invest heavily into
8 that. We could do more. We should do more.
9 We invest from poster contests for grade
10 school children, all the way up to -- we have a
11 campaign going on right now, Know How, Know When,
12 that targets parents of kids, ages 9 to 12.
13 Because through our surveys, we found out that's
14 when we really need to have parents communicating
15 with their kids. So we have targeted an ad
16 campaign that you probably saw on television or
17 heard on the radio towards that.
18 We think that -- we do have a dual
19 mission, and we take them both very seriously.
20 We are doing what we can, but we need to do more
21 and we're going to plan to do more.
22 REPRESENTATIVE SANCHEZ: I think that's a
23 great highlight you noted, I believe, the
24 education as young as eight years old, you know,
25 very important to catch. 14
1 CHAIRMAN HOLDEN: And we also do grants
2 for colleges and universities, residence
3 assistants' guidance, how they in their role as
4 residence assistants, also can communicate with
5 the residents there. So we're working on it, but
6 it's something we take very seriously.
7 MR. MOONEY: Representative Sanchez,
8 every new store that we open, we take 10 or 15
9 minutes to talk about this side of our business.
10 And the statistics are scary. As Tim mentioned,
11 the Know When, Know How campaign that we're under
12 right now, one in three children, ages eight to
13 12, have tried alcohol. And then -- that's 33
14 percent -- when you get to ages 11 or 12, it's
15 two in three children have tried alcohol.
16 And what we tell everybody that's at our
17 stores and in our campaigns is they're trying the
18 alcohol in their homes, and they're getting
19 access to the alcohol in the cabinet, in the
20 refrigerator, in the cellar. And the campaign is
21 aimed at how to have a real strong educated
22 conversation between parents and a nine-year-old.
23 And that's the campaign's objective.
24 REPRESENTATIVE Sanchez: Well, thank you.
25 And again, I applaud those efforts. That's 15
1 something I'm not sure we would see if this were
2 left up to, you know, private industry unless
3 that was forced upon the industry. So I commend
4 you for that, and please continue that. Thank
5 you.
6 Thank you, Mr. Chairman. That's all I
7 have.
8 CHAIRMAN HOLDEN: Thank you.
9 MAJORITY CHAIRMAN SAYLOR: Representative
10 Ortitay.
11 REPRESENTATIVE ORTITAY: Thank you,
12 Mr. Chairman.
13 Off to your right over here. I want to
14 start off -- I'm going to focus a lot of my
15 questions on the point of sale software and
16 hardware, but first, I wanted to ask, when is the
17 last time that credit card transaction fees were
18 negotiated?
19 EXECUTIVE DIRECTOR MOONEY:
20 Representative, I believe that was three years
21 ago. The Commonwealth, General Services, put an
22 RFP out for what we call merchant services, and
23 it was negotiated at that time.
24 REPRESENTATIVE ORTITAY: How often do you
25 put RFPs out, or how often do they put RFPs out 16
1 to renegotiate the terms?
2 EXECUTIVE DIRECTOR MOONEY: I don't have
3 the terms in front of me, but I'd say like every
4 five years, every five to seven years.
5 REPRESENTATIVE ORTITAY: Okay. I just
6 want to check on that because I know that a lot
7 of people do business -- a lot more business with
8 credit cards these days, and I know that eats
9 into your margins. So the better rate we can get
10 on those transactions, the better, especially
11 with the mere volume that you guys do.
12 CHAIRMAN HOLDEN: I think we're over 60
13 percent --
14 EXECUTIVE DIRECTOR MOONEY: Our plastic
15 is rising, to your point. We're up over 63
16 percent, and it's climbing. So I couldn't agree
17 with you more.
18 EXECUTIVE DIRECTOR MOONEY: Okay. And
19 coming from the banking world, that's also why I
20 focus on that. I did want to talk about the
21 point of sale software and the hardware.
22 When's the last time that your software
23 has been replaced or upgraded?
24 EXECUTIVE DIRECTOR MOONEY: Software --
25 we do employ -- we do employ some staff 17
1 augmentation in our building right now on a
2 yearly basis to maintain the software and develop
3 patches in the upgrades.
4 REPRESENTATIVE ORTITAY: Well, when's the
5 last time that you had a big overhaul? I know
6 that there's --
7 EXECUTIVE DIRECTOR MOONEY: The overhaul
8 is 10 years old.
9 REPRESENTATIVE ORTITAY: Okay.
10 EXECUTIVE DIRECTOR MOONEY: All right.
11 So that was a complete hardware/software
12 replacement back in 2008-9 --
13 REPRESENTATIVE ORTITAY: Okay.
14 EXECUTIVE DIRECTOR MOONEY: -- and we've
15 been maintaining it since.
16 REPRESENTATIVE ORTITAY: All right. So I
17 guess I'll get to the crux of my next question.
18 I've talked to several employees back home, and
19 they say that they have hardware sitting in the
20 back of their stores that was bought, never used
21 and it's still sitting back there. They're still
22 using the old hardware.
23 Can you comment on that?
24 Was there a purchase made, and then
25 software wasn't implemented and then you bought 18
1 new equipment and it hasn't been implemented yet?
2 Does anything like that sound familiar?
3 EXECUTIVE DIRECTOR MOONEY: No, that's
4 not true. I'd like to have a sidebar with you --
5 REPRESENTATIVE ORTITAY: Absolutely.
6 EXECUTIVE DIRECTOR MOONEY: -- and check
7 what stores and I'll get you a clarification. We
8 have a lot of equipment in our back room that
9 puts the communications to and from Central
10 Office in Harrisburg. But we have -- we are
11 running the same POS system for 10 years now.
12 I'm knocking on wood because it's running very
13 well.
14 REPRESENTATIVE ORTITAY: Okay.
15 EXECUTIVE DIRECTOR MOONEY: And I'll just
16 add for the conversation that we're in the
17 process of doing an evaluation as to where we
18 want to go and what our next step is.
19 REPRESENTATIVE ORTITAY: Do you have a
20 time frame on when you might do the next step?
21 EXECUTIVE DIRECTOR MOONEY: We're looking
22 at a decision in the next eight to 10 months.
23 REPRESENTATIVE ORTITAY: Okay.
24 EXECUTIVE DIRECTOR MOONEY: And
25 implementation in the following year. 19
1 REPRESENTATIVE ORTITAY: And I noticed --
2 is that what the 9.1 million dollars is being
3 budgeted for, to enhance that --
4 EXECUTIVE DIRECTOR MOONEY: Yes, it is.
5 REPRESENTATIVE ORTITAY: -- or to start
6 that?
7 EXECUTIVE DIRECTOR MOONEY: Yes, it is.
8 REPRESENTATIVE ORTITAY: Okay. I just
9 wanted to verify that.
10 MR. NEGRA: 7.9 million of that would be
11 in hardware, and 1.2 is in our software,
12 maintaining our software licensing and so forth.
13 REPRESENTATIVE ORTITAY: All right. And
14 now, kind of back to credit cards again. The
15 card readers, those are all fully functional?
16 I know there were a couple of little
17 glitches here and there, but are you planning to
18 upgrade those next year, as well, or has that
19 already been established with the new -- with the
20 chips?
21 EXECUTIVE DIRECTOR MOONEY: We just
22 replaced all the pin pads in our stores this past
23 October. It's a brand new system. It's working
24 well, and it's independent of our decision going
25 forward. If we get new hardware and software, 20
1 it's a plug and play. So we just replaced all
2 our pin pads and all of the pins and chips are
3 working very well.
4 REPRESENTATIVE ORTITAY: Okay. And the
5 next questions I have are mainly about some of
6 the contracts that you have, and I'm referring to
7 them from the book. A lot of them start on page
8 11, 12, 13 from SkillNet to Deloitte to Oracle.
9 I just wanted to make sure that everything was
10 moving along as you had planned with those
11 contracts as far as implementation and service.
12 I know in the State we always seem to
13 have a little bit of a problem implementing and
14 rolling out IT projects, so I just wanted to give
15 you the floor to update us on that.
16 EXECUTIVE DIRECTOR MOONEY: SkillNet is
17 our contractor for our point of sale system.
18 Deloitte, other things, KPMG, we have reduced our
19 IT dependency on consulting, I think I want to
20 say over four million dollars just in the last 15
21 months. So we have a lot less consultants in the
22 building than --
23 REPRESENTATIVE ORTITAY: Are you doing it
24 more internally?
25 EXECUTIVE DIRECTOR MOONEY: We are doing 21
1 it more internally. We're trying to recruit
2 better employees. And what we're actually trying
3 to do is bring a consultant in, have a product,
4 have a knowledge transfer at the end of the term
5 and not just linger for years and then the term
6 is over and we terminate the contract.
7 REPRESENTATIVE ORTITAY: Well, I
8 certainly appreciate that, as well as the
9 taxpayers.
10 Thank you, Mr. Chairman.
11 MAJORITY CHAIRMAN SAYLOR: Before I move
12 to the next questioner, I wanted to announce that
13 we've been joined by some members who are not
14 members of the Appropriations Committee. We've
15 been joined by Representative Matt Dowling,
16 Representative Ryan, Representative Jozwiak,
17 Representative Staats, Representative Heffley and
18 Representative Isaacson. Welcome.
19 With that, we'll move to Representative
20 Donatucci.
21 REPRESENTATIVE DONATUCCI: Thank you,
22 Mr. Chairman. And thank you, gentlemen, for
23 being here today.
24 I think that modernization of the liquor
25 stores is working. I think that there's more 22
1 customer convenience. There are longer hours. I
2 think there's even more convenience with wines
3 being sold in grocery stores. I think it's
4 generating significant revenue.
5 So having said that, wine expanded
6 permits have changed the licensing atmosphere
7 drastically over the last two years.
8 Can you tell me what changes the PLCB has
9 made to the work with the WP licensees regarding
10 inventory, demands and delivery needs?
11 CHAIRMAN HOLDEN: We created a separate
12 department that deals totally with the wine
13 expanded permit holders. We have people
14 dedicated to do that. We have direct delivery
15 from our warehouses to their distribution
16 centers, with the larger ones. So I think we
17 work very closely with the wine expanded permit
18 holders. And we're working well with them,
19 keeping them stocked, and like you said,
20 increasing revenue.
21 MR. NEGRA: I would add to that that our
22 mission in our wholesale department is not only
23 for wine expanded permits, but also for
24 licensees.
25 CHAIRMAN HOLDEN: Right. 23
1 MR. NEGRA: Probably more attuned to the
2 larger licensees, the Applebee's of the world and
3 so forth, but still, it's an important part of
4 our wholesale operation, as well.
5 REPRESENTATIVE DONATUCCI: Okay. So
6 since we're talking about wine, let's go to
7 direct shipment that, you know, has become
8 available under Act 39.
9 Has direct shipment been successful, and
10 how many wineries are participating?
11 MR. NEGRA: Over 1,000 direct wine
12 shippers are out there. Successful -- it depends
13 on who you're talking to. The money really
14 doesn't flow in through the Pennsylvania Liquor
15 Control Board, other than the licensing fee,
16 which is a 250 dollar renewal and licensing fee.
17 It's a very touchy subject when you talk about
18 direct wine shipping and who's doing it legally
19 and who's doing it illegally.
20 And what I mean by that is, we're not a
21 State that allows retailers to ship in to the
22 State of Pennsylvania. There's 14 or 16 States
23 around the country that do that. Sorry for not
24 being sure about that number.
25 But still, we think it offers a great 24
1 service to the consumers of the Commonwealth by
2 giving them access to specific wines that we
3 would never carry. They're smaller cult wines.
4 The average price is like 46 dollars a bottle.
5 So those wines would never hit our stores.
6 And from that standpoint, we think it's
7 successful, from a consumer standpoint. From an
8 LCB revenue generating standpoint, not really.
9 From the Commonwealth revenue, you'd have to talk
10 to Treasury in terms of how much money they've
11 made, but I think that it's been positive for
12 them, as well.
13 CHAIRMAN HOLDEN: Yeah, but it hasn't
14 been as positive as it should be. We've had
15 meetings with Attorney General Shapiro and Major
16 Scott Miller of the Pennsylvania State Police
17 Liquor Enforcement, and there's a lot of money
18 that the Commonwealth is not receiving because
19 it's being shipped illegally. And it's very
20 difficult to track, but they're both working on
21 it.
22 REPRESENTATIVE DONATUCCI: Okay. Because
23 that was my next question, if it was impacting
24 profitability or tax revenues.
25 Are the taxes being collected on it? 25
1 CHAIRMAN HOLDEN: Some.
2 REPRESENTATIVE DONATUCCI: Some. Yeah,
3 and my next question you already did answer. And
4 I'm going to tell you what happened to me. I did
5 go looking for a direct shipment and all of a
6 sudden a thing popped up that said, we don't ship
7 to Pennsylvania. And I was going to ask you, can
8 suppliers or wholesalers or distributors, you
9 know, do direct shipment? Obviously, they can't.
10 You just said that, but I think the public needs
11 to know that also.
12 But now can they get the DWS licenses or
13 only producers?
14 MR. NEGRA: Who, a retailer?
15 REPRESENTATIVE DONATUCCI: Uh-huh.
16 MR. NEGRA: It's only a producer of the
17 wine can ship legally into the State of
18 Pennsylvania. There's a gallonage tax and a
19 sales tax that's collected and put right through
20 to Treasury. It doesn't go through the LCB at
21 all.
22 REPRESENTATIVE DONATUCCI: Okay. Thank
23 you.
24 Thank you, Mr. Chairman.
25 MAJORITY CHAIRMAN SAYLOR: Before I move 26
1 to the next questioner, I wanted to recognize two
2 of our former members that are here today,
3 Representative Raymond and Representative Payne,
4 as well.
5 With that, we'll move to Representative
6 James for questions.
7 REPRESENTATIVE JAMES: Thank you,
8 Mr. Chairman. Over here, gentlemen. Welcome.
9 I'd like to spend a little bit of time on
10 something that's kind of near and dear to me.
11 It's the wine expanded permit holders and the
12 results thereof.
13 But before I ask the question, I want you
14 to know that I have friends who travel a lot and
15 who grew up in other States, and they used to
16 laugh at me because of the way we handled wine
17 sales and that sort of thing, and now they've
18 stopped laughing at me. So they appreciate the
19 move that we've made.
20 For those who don't know, restaurants and
21 hotels can now sell up to four bottles of wine
22 for off-premise consumption. And that's kind of
23 important to folks that are interested in that.
24 I'm wondering about how many permits you actually
25 sold up to now and do you expect it -- 27
1 CHAIRMAN HOLDEN: Nine hundred, I
2 believe.
3 REPRESENTATIVE JAMES: Nine hundred?
4 CHAIRMAN HOLDEN: Seven hundred active.
5 EXECUTIVE DIRECTOR MOONEY: Yeah, there
6 are over a thousand permits that have been
7 applied for.
8 REPRESENTATIVE JAMES: Okay.
9 EXECUTIVE DIRECTOR MOONEY: And we're
10 actively delivering product to roughly 700. The
11 bulk of those are the grocery stores and the
12 convenience stores. But to your point, the
13 restaurants are able to do that also, and there
14 are some bottle shops that are also able to do
15 that.
16 REPRESENTATIVE JAMES: Okay. We
17 appreciate that.
18 How much wine has actually been sold by
19 your organization to these 700 --
20 CHAIRMAN HOLDEN: One hundred and six
21 million dollars worth, I believe. I think it's
22 106 million dollars.
23 REPRESENTATIVE JAMES: And is that
24 growing?
25 CHAIRMAN HOLDEN: Yes, it is growing. 28
1 Yes.
2 REPRESENTATIVE JAMES: Okay.
3 MR. NEGRA: It's even starting to level
4 off a touch.
5 CHAIRMAN HOLDEN: Yeah.
6 REPRESENTATIVE JAMES: Has it had an
7 impact on wine sales from your stores?
8 MR. NEGRA: Oh, sure.
9 CHAIRMAN HOLDEN: Oh, sure. Yeah. Our
10 transactions were mostly on spirits, you know,
11 because if you're in Wegman's and you're getting
12 your supply for dinner that night and you see a
13 bottle of wine and you want to take that home for
14 dinner, you don't see what we have on sale for
15 spirits. So our transactions were initially down
16 about two percent; and it's under one percent now
17 that our transactions are down.
18 So they have to buy the wine from us to
19 get the 10 percent discount. But wine sales grew
20 at 2.4 percent last year, I believe.
21 EXECUTIVE DIRECTOR MOONEY: Yes.
22 REPRESENTATIVE JAMES: Okay. So net,
23 it's a slow gain. That's a good thing.
24 Has it had an effect on your distribution
25 and storage costs to your bottom line, your 29
1 operating budget, do you think?
2 EXECUTIVE DIRECTOR MOONEY: Initially,
3 sir. Initially, Representative. We have been
4 successful dealing with the -- I'll just call it
5 the grocery industry, and the convenience stores.
6 When the bill took effect, they were doing direct
7 store shipments directly from the DCs to the
8 backs of the grocery stores to the Sheetz and
9 Rutter's of the world.
10 We've been successful in getting them out
11 to a drop trailer program or to a direct shipment
12 to their warehouse. There are different licenses
13 they can get from us. It's not very hard. And
14 they've been successful in doing that. So we
15 have about 75 percent of our total business now
16 not going to the back of the store.
17 Wegman's, for example, is doing drop
18 trailer up at our distribution center in
19 Scranton. Weis is taking shipments directly from
20 our DC into their warehouse. And Sheetz and
21 Rutter's, they're all doing the same thing. So
22 it's worked out really well. Costs have come
23 down.
24 And better yet, we're not spending labor
25 in our store waiting for the truck to get to our 30
1 store because it's stuck at the back of the
2 grocery store.
3 MR. NEGRA: And keep in mind, when you
4 say costs come down, those costs are passed along
5 to the wine expanded permit. I mean, it's a
6 positive cash flow for us from a warehouse
7 standpoint.
8 REPRESENTATIVE JAMES: Okay. Another net
9 gain.
10 Since I have a little bit of time left,
11 same church, new pew, Sunday sales. When you
12 balance the --
13 MR. NEGRA: We got that one.
14 REPRESENTATIVE JAMES: When you balance
15 the cost of keeping your stores open to the
16 revenues which are generated, are we doing a good
17 job there, are we positive or where are we on
18 that?
19 CHAIRMAN HOLDEN: Well, Act 39 gave us
20 the discretion to see what stores we wanted to
21 have open instead of 25 percent of them. Out of
22 the 605 stores, I think we have 310 or so that
23 are open. And we're evaluating how the profits
24 are, and we're not going to guarantee we're going
25 to keep 310 open. It might be 320; it might be 31
1 300. We're seeing how we're doing on it.
2 MR. NEGRA: And then at the holidays, we
3 can open more. So it gives us that flexibility
4 to be able to operate our business like a
5 business.
6 REPRESENTATIVE JAMES: Okay. So it's
7 like a work in progress and we're not quite ready
8 for an answer to that one?
9 EXECUTIVE DIRECTOR MOONEY: We are
10 currently analyzing the profitability of our
11 Sunday operations. Since that inception of
12 Act 39, we have probably closed 20 and added
13 another 31 somewhere else. We take our
14 recommendations from our district field
15 personnel. So it's an ongoing evaluation and an
16 analysis.
17 REPRESENTATIVE JAMES: Okay. Thank you,
18 gentlemen.
19 MR. NEGRA: Thank you.
20 REPRESENTATIVE JAMES: Thank you,
21 Mr. Chairman.
22 EXECUTIVE DIRECTOR MOONEY: Thank you.
23 MAJORITY CHAIRMAN SAYLOR: Representative
24 Flynn.
25 REPRESENTATIVE FLYNN: Thank you, 32
1 Mr. Chairman.
2 Nice to see you, Chairman Holden.
3 Currently, how many employees does the
4 entire Liquor system employ?
5 CHAIRMAN HOLDEN: Charlie, have you got
6 the figures right here?
7 EXECUTIVE DIRECTOR MOONEY: Current
8 filled positions are 5300.
9 REPRESENTATIVE FLYNN: And what's the
10 average wage for the employee?
11 CHAIRMAN HOLDEN: Well, we start at over
12 12 dollar an hour, but the average wage, I'm not
13 sure we have that right here in front of us.
14 REPRESENTATIVE FLYNN: Can you tell me a
15 little bit about the worker complement, minority
16 employees, women --
17 EXECUTIVE DIRECTOR MOONEY: I'll give you
18 the quick rundown. There's 5300 employees:
19 full-time is 3100, part-time is 1700. Currently,
20 there are about 500 what we call seasonal
21 positions, where we employ in the summer and
22 through the holidays. Of the total, there are
23 1275 minority hires, and that represents 23
24 percent of the workforce.
25 REPRESENTATIVE FLYNN: So it's safe to 33
1 say that the liquor store operation is basically
2 a pretty large-size business in the State of
3 Pennsylvania.
4 EXECUTIVE DIRECTOR MOONEY: System
5 deposit into the General Fund?
6 CHAIRMAN HOLDEN: One hundred eighty-five
7 million dollars.
8 EXECUTIVE DIRECTOR MOONEY: No.
9 CHAIRMAN HOLDEN: Oh, that's just profit
10 transfer.
11 EXECUTIVE DIRECTOR MOONEY: Over 700
12 million dollars total, including taxes.
13 REPRESENTATIVE FLYNN: Seven hundred
14 million dollars?
15 EXECUTIVE DIRECTOR MOONEY: Correct.
16 REPRESENTATIVE FLYNN: That's
17 interesting.
18 How much did we offer Amazon?
19 EXECUTIVE DIRECTOR MOONEY: I don't know.
20 REPRESENTATIVE FLYNN: So 700 million
21 last year transferred over. That's a pretty
22 sizeable amount of money.
23 EXECUTIVE DIRECTOR MOONEY: Yeah.
24 REPRESENTATIVE FLYNN: And for all of our
25 viewers out there, how much did it cost the 34
1 taxpayers of Pennsylvania?
2 CHAIRMAN HOLDEN: We're self-funded.
3 REPRESENTATIVE self-funded, so taxpayer
4 money doesn't go toward the liquor system?
5 CHAIRMAN HOLDEN: No, it doesn't.
6 MR. NEGRA: It's all user generated.
7 REPRESENTATIVE FLYNN: User generated,
8 okay.
9 UNIDENTIFIED SPEAKER NOT ON CAMERA: You
10 don't drink, you don't pay us anything.
11 REPRESENTATIVE FLYNN: Thank you,
12 Mr. Chairman.
13 MAJORITY CHAIRMAN SAYLOR: Representative
14 White.
15 REPRESENTATIVE WHITE: Thank you for
16 being here today. I appreciate you taking the
17 time. I just wanted to discuss the ability for
18 you to be cracking down on the stop and goes in
19 Philadelphia. If you could, just talk to us
20 about how that's been going, if you've been
21 receiving a lot of reports out of Philadelphia,
22 in particular, with regard to any violations, and
23 if you've been suspending licenses or not.
24 I would love to hear your thoughts.
25 CHAIRMAN HOLDEN: Oh, absolutely, 35
1 Representative White. Act 44 gave us the
2 authority to close down a premise upon inspection
3 for over the square footage if they did not have
4 400 square feet, seating for 30 people, food for
5 30 people and a health certificate. We have
6 received numerous complaints across the
7 Commonwealth, primarily from Philadelphia.
8 I have to say that Major Scott Miller and
9 his entire team have been a great partner in
10 Philadelphia on this enforcement. Since the
11 first of the year, we've held every week with the
12 Pennsylvania State Police Liquor Enforcement and
13 the City of Philadelphia and other parts of the
14 Commonwealth, we've been doing inspections.
15 I believe we did 145 since the beginning
16 of the year. I believe we shut down about 70.
17 Upon reinspections, I think there's only about 10
18 or 12 that are still shut down, but we're getting
19 their attention and we're going to continue to do
20 it.
21 REPRESENTATIVE WHITE: And how are you
22 handling the facilities that are being inspected
23 that aren't open when you go to inspect?
24 CHAIRMAN HOLDEN: Well, we close them
25 down. We just -- 36
1 REPRESENTATIVE WHITE: You just
2 automatically --
3 CHAIRMAN HOLDEN: -- upheld by the
4 administrative law judge on a fine for that
5 today. Well, that was before Act 44, but yeah.
6 REPRESENTATIVE WHITE: Okay. I was just
7 curious. Thank you so much.
8 MAJORITY CHAIRMAN SAYLOR: Representative
9 Culver.
10 REPRESENTATIVE CULVER: Over here. Thank
11 you, Mr. Chairman.
12 Act 39 of 2016 authorized about a million
13 dollars or up to a million dollars for annual
14 grants for our craft beer and our wine industry.
15 I just have a couple of questions about that
16 program.
17 Can you tell me, did we give out a
18 million dollars in grants in this last fiscal
19 year?
20 MR. NEGRA: I think it was 996 in wine,
21 and I want to say in the 800s for beer.
22 REPRESENTATIVE CULVER: And can you --
23 MR. NEGRA: Or seven hundreds.
24 REPRESENTATIVE CULVER: Go ahead. Could
25 you also maybe tell me or the Committee some 37
1 examples of the grants that were awarded and what
2 the use was?
3 MR. NEGRA: Well, I don't have the list
4 in front of me. We can certainly get that to
5 you. But a lot of them were tourism based.
6 Okay. I think the majority of it would be
7 tourism, i.e., I can speak to Centre County.
8 There's a wine tour in the Centre County area.
9 There are some that go to Penn State
10 University, for example, for research, especially
11 with disease and how it's affected various
12 vineyards in Pennsylvania. And that's probably
13 even beneficial to the United States as a whole.
14 So it's really more, I think, research and
15 tourism based.
16 REPRESENTATIVE CULVER: And it's an
17 annual application, correct?
18 MR. NEGRA: Annual application, and it
19 comes through the Malt Beverage Board, and the
20 Wine Boards make the recommendations to us. We
21 vet those, and as a Board, approve or disprove or
22 ask for more information, but the process is
23 outside of the Liquor Control Board. We're the
24 final say.
25 REPRESENTATIVE CULVER: Okay. So you 38
1 guys have the final say, but the recommendations
2 come from the --
3 MR. NEGRA: They come from the Department
4 of Agriculture.
5 REPRESENTATIVE CULVER: Okay. And I
6 assume these are competitive, fairly competitive
7 grants?
8 MR. NEGRA: I would think so, sure. I
9 mean, people are --
10 REPRESENTATIVE CULVER: Do we -- I mean,
11 are there a lot of applicants for a small pot of
12 money?
13 I'm just trying to figure out do we need
14 a larger pot of money, do we have enough
15 applicants.
16 MR. NEGRA: I don't know.
17 Representative Dunbar, do we need a
18 larger pot of money?
19 I mean, we only have so much, you know,
20 but I think a million dollar is -- we're only a
21 couple of years in this.
22 REPRESENTATIVE CULVER: Right.
23 MR. NEGRA: And do I think that we're
24 meeting demand? Yeah, I do.
25 REPRESENTATIVE CULVER: Okay. 39
1 MR. NEGRA: There are probably some
2 things that are not relevant, you know, although
3 they're still asking for that sort of money. And
4 I think the Wine Board and Beer Board do a real
5 good job in terms of vetting what's important to
6 the industries as a whole.
7 REPRESENTATIVE CULVER: Are there any
8 specific projects you're looking for in the grant
9 process?
10 MR. NEGRA: No.
11 REPRESENTATIVE CULVER: Okay. And then,
12 do you feel, I guess in your opinion, that the
13 grants that have been awarded, have they
14 benefitted both the wine and the craft beer
15 industry?
16 MR. NEGRA: I'm going to say I hope so.
17 I mean, it's good money that they're spending. I
18 haven't really gotten a lot of feedback on that.
19 Some of these grants, you know, are two-year
20 grants because, you know, the projects themselves
21 take a little while to build, especially the
22 research and the agricultural, you know,
23 disease-based research that has to be done.
24 Tourism-wise, I believe so. We haven't
25 gotten any feedback that, hey, this isn't 40
1 working.
2 REPRESENTATIVE CULVER: Okay.
3 MR. NEGRA: And we haven't gotten --
4 well, everybody always wants more money, but I'm
5 going to make the assumption that it is until
6 we're told otherwise.
7 REPRESENTATIVE CULVER: So there's no
8 follow-up. You know, you don't look back a few
9 years and see was the grant well spent, was it
10 productive?
11 MR. NEGRA: It's been too new, okay, from
12 my perspective.
13 REPRESENTATIVE CULVER: Right.
14 MR. NEGRA: Do I believe that we will
15 have that follow-up? Yes.
16 REPRESENTATIVE CULVER: Okay. All right.
17 I just -- actually, I love the program. I did
18 have an applicant go in who didn't make it
19 through the process, but I did talk to some of
20 the evaluators who explained maybe what had
21 happened, but I have a few extra craft brewers
22 coming into the mix who are interested.
23 And I just, for the sake of people
24 watching and people that are unaware of the grant
25 because it is fairly new, I sort of wanted to 41
1 flesh out some of the details. Thank you for
2 your time.
3 And thank you, Mr. Chairman.
4 MR. NEGRA: Thank you.
5 MAJORITY CHAIRMAN SAYLOR: Representative
6 Kim.
7 REPRESENTATIVE KIM: Over here. Good
8 afternoon, gentlemen. I didn't have any pressing
9 questions, but one of your answers sparked just a
10 couple of curiosity questions. So other than the
11 profitability when you close down a State store,
12 what other factors play into that?
13 And with these empty buildings, I was
14 talking about blight with DCED. I hate to have
15 the State creating their own blight.
16 What kind of re-use have you seen with
17 these buildings?
18 Are they still on the market?
19 And then, what is your funding source for
20 new State stores?
21 I know it depends on where they are, but
22 how much would it typically cost to build a new
23 one in a new area?
24 CHAIRMAN HOLDEN: Well, we lease all of
25 our spaces. 42
1 REPRESENTATIVE KIM: You lease all of
2 your spaces.
3 CHAIRMAN HOLDEN: We do not own any of
4 them.
5 REPRESENTATIVE KIM: Okay.
6 CHAIRMAN HOLDEN: So when we would leave
7 a facility, say we re-brand it, went to a
8 location nearby, but a better space, we believe
9 it would be back to the landlord to try to market
10 the space, so we don't do that.
11 REPRESENTATIVE KIM: Okay. And the
12 factors in closing, other than profitability
13 losses or whatnot --
14 EXECUTIVE DIRECTOR MOONEY: The factors
15 for closing stores are -- we don't just close
16 stores. We more or less consolidate them.
17 REPRESENTATIVE KIM: Okay.
18 EXECUTIVE DIRECTOR MOONEY: If we move to
19 a bigger facility and there's a smaller store
20 nearby, we'll take that into consideration and
21 we'll call it a consolidation. We rarely just
22 outright close stores. We are operating -- this
23 is a sore subject sometimes, but we are operating
24 close to 70 stores that are technically
25 unprofitable today and that's because they're in 43
1 very rural areas where it's 10, 15, 20 miles in
2 between communities and stores, and we have an
3 obligation to serve the whole Commonwealth.
4 REPRESENTATIVE KIM: And then, when you
5 combine or consolidate, are there job losses in
6 that process?
7 EXECUTIVE DIRECTOR MOONEY: No, that does
8 not happen.
9 REPRESENTATIVE KIM: That does not
10 happen?
11 EXECUTIVE DIRECTOR MOONEY: No.
12 REPRESENTATIVE KIM: You give them the
13 opportunity to travel further out?
14 EXECUTIVE DIRECTOR MOONEY: Yeah, the
15 employees are moved to different stores. There's
16 a bidding process according to seniority and the
17 union contracts that we have. There's a whole
18 system put there that -- you would bid on the new
19 store. And then where you bid, you bounce
20 around, but nobody is furloughed.
21 REPRESENTATIVE KIM: Okay.
22 CHAIRMAN HOLDEN: But when you add in the
23 18 percent tax that's in our mark-up, that's in
24 our retail price, that's not 70, it's closer to
25 15, isn't it? 44
1 EXECUTIVE DIRECTOR MOONEY: Yeah.
2 CHAIRMAN HOLDEN: Unprofitable.
3 REPRESENTATIVE KIM: Okay. Thank you.
4 MAJORITY CHAIRMAN SAYLOR: Representative
5 Topper.
6 REPRESENTATIVE TOPPER: Good afternoon.
7 I have a question about flexible pricing, which
8 we allowed the -- we gave that authority, I think
9 it was in 2016, through our Liquor Code. So I
10 had my kind of vision of how that would work, and
11 maybe it might be a little different.
12 Could you just very briefly, before I ask
13 a couple of other questions, how do you feel it's
14 going?
15 Do you feel it's been an effective tool?
16 CHAIRMAN HOLDEN: Go ahead.
17 MR. NEGRA: No, go ahead.
18 CHAIRMAN HOLDEN: Mike and I were
19 anticipating this question, so you go ahead.
20 MR. NEGRA: Absolutely. It's an
21 effective tool for us. You know, just a little
22 history lesson. In the past, we had a -- there
23 was a formula, okay. And the supplier would come
24 to us. And their retail price was $29.99, and
25 they would back out all the various mark-ups that 45
1 we had, including the 30 percent mark-up, and you
2 would land at what our cost was going to be.
3 Okay.
4 Nowadays, those questions begin on every
5 single SKU. And we have an opportunity to set
6 our own retail price in our store. The supplier
7 can sell it to us for whatever they want to. We
8 can make a decision in terms of what we're going
9 to sell it for.
10 REPRESENTATIVE FLYNN: So is the
11 advantage coming to the consumer?
12 Is the advantage for the stores, for the
13 system, or is it -- do you consider it both?
14 Because I'm not sure it's an advantage,
15 obviously, for the supplier or vendor,
16 necessarily.
17 MR. NEGRA: Well, I think in the past, it
18 was certainly an advantage for the supplier. We
19 were, you know, all the research that we did
20 showed that we were paying an awful lot more
21 money for the same product than other surrounding
22 control States.
23 When it comes to an advantage for the
24 consumer, yes; an advantage for the Commonwealth,
25 yes. 46
1 REPRESENTATIVE TOPPER: Okay.
2 MR. NEGRA: In my first two years on this
3 Board, we were giving between 80 and 100 million
4 dollars. We're giving 180 million dollars
5 profit. So I think we've been able to now treat
6 our business like a business and more like the
7 suppliers who we are used to dealing with in
8 non-control States.
9 REPRESENTATIVE TOPPER: Do you foresee
10 initiating another round of price increases or,
11 you know, coming up any time soon?
12 MR. NEGRA: It's organic. Every day,
13 okay, we are talking with suppliers. And when
14 they visit our Marketing and Merchandising
15 Department, they are talking about one particular
16 product or another particular product and where
17 that stands in terms of their competition. We
18 are reviewing prices from surrounding States via
19 Nielsen Studies.
20 And so it's a constant conversation back
21 and forth. There's not going to be, hey, on
22 April 1st, we're going to --
23 REPRESENTATIVE TOPPER: That's my -- I
24 was going to say, are there --
25 MR. NEGRA: -- raise X number of prices. 47
1 Every day, prices change; every month, prices
2 change.
3 REPRESENTATIVE TOPPER: So you can make
4 that decision now --
5 MR. NEGRA: Absolutely.
6 REPRESENTATIVE TOPPER: -- at any time?
7 And you would call the, you know, get together
8 with the vendor or the supplier and say, you
9 know, we've decided that now it's going to be
10 this, at any point?
11 MR. NEGRA: We give them the opportunity.
12 If we say, for example, that there's a price --
13 we need to increase a price by, say, a dollar.
14 Okay. We'll let the supplier know that we
15 believe that the retail price has to go from
16 $24.99 to $25.99. We give them an opportunity to
17 react to that and say, no, I'd like to lower your
18 FOB cost, and so let's maintain that $24.99.
19 We'll maintain -- we'll increase our
20 margin by reducing our cost of goods, and
21 everyone is happy. So we don't force price
22 increases on suppliers without conversations with
23 those suppliers.
24 REPRESENTATIVE TOPPER: Okay. All right.
25 Thank you. 48
1 Thank you, Mr. Chairman.
2 MAJORITY CHAIRMAN SAYLOR: Representative
3 Deasy.
4 REPRESENTATIVE DEASY: Thank you,
5 Chairman. I appreciate you giving me the
6 opportunity to be here.
7 And thank you, gentlemen, for being here.
8 I just have a quick question regarding compliance
9 checks. I know it's been about a year since the
10 start of the compliance program. Just curious,
11 your thoughts on the complement, the number of
12 employees that we have, and if additional
13 resources are needed to accommodate that
14 compliance program.
15 CHAIRMAN HOLDEN: Well, we initially
16 thought we were going to need personnel, but we
17 didn't rush into it. I think it's working out
18 now with the current complement.
19 Do you want to expand on that?
20 EXECUTIVE DIRECTOR MOONEY: Yeah. We're
21 -- our complement is sufficing for the time. To
22 Tim's point, when we started the compliance
23 program, we didn't know exactly how many
24 complaints we were going to get. The compliance
25 program is complaint-driven, but we've had -- we 49
1 have not had to increase complement very much.
2 We've filled some vacancies that we had attrited.
3 And I believe we're at full staff now, and we
4 have a field office up in the Allentown area that
5 we pull from when need be. So right now, we're
6 not in any type of a backlog.
7 REPRESENTATIVE DEASY: Also, as a
8 follow-up, how's your level of cooperation been
9 working with state and local enforcement offices?
10 CHAIRMAN HOLDEN: As I mentioned earlier,
11 I can't say enough about Major Scott Miller and
12 his team working with Tisha Albert in our office
13 on compliance. It's really been a true
14 partnership. The other counties in the
15 Commonwealth that we have been doing inspections
16 on, I think the cooperation is fine.
17 EXECUTIVE DIRECTOR MOONEY: I want to
18 echo that. I agree.
19 I would like to point out to the Board,
20 the Board and I and several of our staff have
21 taken a very public tour of these so-called stop
22 and goes is what they're referred to as. Tim and
23 Mike and I, we actually went in to five and saw
24 for ourselves what the complaints are about.
25 And I think our staff has done a 50
1 tremendous job with State Police, with the city
2 of Philadelphia, with the Department of Health.
3 We have been on these compliance checks
4 now, and we get nothing but total cooperation.
5 REPRESENTATIVE DEASY: Thank you,
6 gentlemen. I appreciate it.
7 MAJORITY CHAIRMAN SAYLOR: Representative
8 Pyle.
9 REPRESENTATIVE PYLE: I was waiting for a
10 drum roll, Chairman.
11 Chairman, exposure of all my cards, I met
12 with LCB before this hearing today and we talked
13 about quite a few things. I just have some real
14 simple ones for you. Earlier, we heard about the
15 effect of Act 49, direct shipment of wine.
16 Could you please explain for the panel
17 what exactly you're doing to cut down on illegal
18 shipments?
19 CHAIRMAN HOLDEN: Well, as I mentioned
20 Mr. Chairman, it's hard. It's very hard to
21 enforce. Like I said, we met with the Attorney
22 General, and we met with the state police. They
23 are doing the best they can.
24 But didn't Major Miller tell us that they
25 had them shipped right to their headquarters? 51
1 MR. NEGRA: Yeah, that's happened. We
2 have two meetings planned, coming up with UPS and
3 FedEx, to talk about their successful and
4 unsuccessful programs in other States. It is an
5 issue. It takes -- if I'm a retailer and I'm --
6 REPRESENTATIVE PYLE: It's a lot of lost
7 sales for LCB.
8 MR. NEGRA: It is. If I'm a retailer and
9 I have a chance to sell to someone in
10 Pennsylvania, I might take the chance and ship it
11 in. You know, they're running, I don't want to
12 say a bootleg operation because it's obviously
13 legal hooch, but at the same time, they might not
14 work under the same rules that we have when it
15 comes to, you know, a signature required, you
16 know, a variety of things like that. The UPS
17 driver or the FedEx driver might not even know
18 it's alcohol.
19 REPRESENTATIVE PYLE: Is USPS postal
20 service or is the Federal --
21 CHAIRMAN HOLDEN: No, they're not allowed
22 to.
23 REPRESENTATIVE PYLE: Okay.
24 MR. NEGRA: This is DHL and UPS and
25 FedEx. 52
1 REPRESENTATIVE PYLE: Yeah, commercial
2 carriers.
3 MR. NEGRA: We're going to work with them
4 as hard as we can to try and stop it at the
5 source.
6 EXECUTIVE DIRECTOR MOONEY: Chairman,
7 there was an insert in the paper not long ago in
8 Harrisburg that dropped out and said, we can now
9 ship into Pennsylvania.
10 REPRESENTATIVE PYLE: Yeah.
11 EXECUTIVE DIRECTOR MOONEY: I took it out
12 of the paper. I brought it to the staff sitting
13 behind me, and they said, no, they can't. It was
14 in the Patriot News.
15 REPRESENTATIVE PYLE: A fool and their
16 money are soon --
17 EXECUTIVE DIRECTOR MOONEY: I'll add to
18 Mike and Tim's comments that we have checked with
19 neighboring States, controlled States. I will
20 applaud the State of Michigan, who has done a
21 much better job with compliance for direct
22 shipping in. We're in a constant dialogue to
23 learn from them, and we're going to continue down
24 that road.
25 REPRESENTATIVE PYLE: Well, the members 53
1 here have expressed interest. If you could, just
2 keep me in the loop of what you're doing. Maybe
3 there's something we could do to help you out
4 with that.
5 Second question. Pennsylvania is a
6 control State. Our liquor licenses are divvied
7 out by county, according to population. You guys
8 occasionally -- and we've seen this in the last
9 census. There are counties that greatly grow and
10 counties that greatly drop.
11 What is the liquor license process, the
12 auction process, for us to know?
13 Like we spoke earlier, Monroe County
14 right now needs licenses, Cambria does not.
15 What is the auction process?
16 THE WITNESS: We're in our eighth
17 auction, and the Board and I and the staff pick
18 how many counties we're going to put in an
19 auction and how many licenses -- we know how many
20 licenses are available in each county. So right
21 now, we're running an auction in 25 counties. We
22 don't know how many bids we're going to get from
23 there, but the earlier auctions, as we talked in
24 your office, if you're in the southeast corner of
25 the State in Chester or Bucks or Montgomery -- 54
1 REPRESENTATIVE PYLE: You can't get a
2 license.
3 EXECUTIVE DIRECTOR MOONEY: Right.
4 They're very valuable. Where there are different
5 parts of the State, the center part of the State,
6 Wilkes-Barre, Scranton, Tim's home county of
7 Schuylkill and Cambria, and so on and so forth,
8 where they're not as valuable.
9 MR. NEGRA: And when these auctions came,
10 they were called zombie licenses because they
11 were dead licenses. And so I think they go back
12 to, what, 2000; is that right?
13 CHAIRMAN HOLDEN: Yeah.
14 MR. NEGRA: So any license that had been
15 given up, you know, after 2000 --
16 REPRESENTATIVE PYLE: Are into this pool.
17 MR. NEGRA: -- are into this pool, on a
18 county by county basis. And that's where they
19 originate from. And from a sales standpoint,
20 we've run eight auctions, as the Chairman said,
21 and I guess the eighth is opened in March at some
22 point in time.
23 So there are some counties that we're out
24 of. Centre County doesn't have any, for example.
25 REPRESENTATIVE PYLE: Gee, why would 55
1 Centre County be out of liquor licenses? I'm
2 baffled.
3 MR. NEGRA: There's some school up there.
4 REPRESENTATIVE PYLE: My daughters are
5 both in school there. I get it.
6 Last question, and this partly goes to
7 Representative Culver's question earlier about
8 the growth of the micros. I read in my Sunday
9 paper that Pennsylvania is now the home of more
10 microbreweries than any other State in the union.
11 How is LCB approaching -- I mean, it's
12 been an impressive rapid growth of the micros:
13 micro wine, micro distill, micro brew. I've got
14 to imagine that those are eating up a lot of
15 liquor licenses, true, false, what do you think?
16 MR. NEGRA: No, that's their own
17 category. It has nothing to do with the quota.
18 REPRESENTATIVE PYLE: Okay. I was just
19 curious.
20 CHAIRMAN HOLDEN: Every county is over
21 the quota, anyway.
22 REPRESENTATIVE PYLE: Well, these things
23 are very popular.
24 MR. NEGRA: Well, they are, in fact,
25 because there aren't any licenses so as a micro 56
1 distiller, I can sell Pennsylvania --
2 REPRESENTATIVE PYLE: Product.
3 MR. NEGRA: -- winery product. I can
4 sell beer and basically have a micro pub, per se.
5 REPRESENTATIVE PYLE: Okay.
6 MR. NEGRA: You can't sell Tito's at it,
7 but you can sell a Pennsylvania product in it.
8 REPRESENTATIVE PYLE: I've heard of this
9 Tito.
10 Anyway, those are my questions, Chairman.
11 Thank you very much. I look forward to working
12 with you, as does my Committee.
13 Thank you.
14 MR. NEGRA: Thank you.
15 MAJORITY CHAIRMAN SAYLOR: Representative
16 Cephas.
17 REPRESENTATIVE CEPHAS: Thanks, Chairman.
18 And thank you for coming to testify. I'm
19 not going to belabor the issue because two of my
20 colleagues have already brought it up, but in
21 reference to the stop and go issue -- I'm from
22 Philadelphia -- and as you know, some of these
23 establishments, just all of the things that it
24 brings, has the potential to block economic
25 development opportunities. 57
1 Like in my district, I literally almost
2 lost a 50-million-dollar project as a result of a
3 stop and go that just could not and refused to
4 control the audience outside that was doing drug
5 trafficking, creating violence, and things like
6 that. But trust me, they're on your list, so we
7 don't have to worry about that.
8 But I want to get a better sense on what
9 role is the citation during this new process
10 going to play in your determination as to whether
11 or not to take their license away during the
12 license renewal process. And I know we're going
13 through that now, and I know you have a series of
14 establishments in Philadelphia that have been
15 impacted by this law, but could you give me a
16 sense on the role that it will play in your
17 future determination of removing their licenses?
18 CHAIRMAN HOLDEN: Their citation history
19 will be taken into consideration upon their
20 renewal every two years. Yeah.
21 REPRESENTATIVE CEPHAS: And considering
22 that it was just implemented, can you give me
23 some insight as to how many establishments, based
24 on the citations during this process that you
25 will be considering, especially with this being 58
1 so relatively new?
2 CHAIRMAN HOLDEN: Well, I can't speak to
3 what citations were issued by the Penn State
4 Police Liquor Enforcement, but as I mentioned
5 previously, we have done 140-some inspections and
6 closed down 80, and I think there's still 10 or
7 11 that are still closed down. I'm not aware of
8 what citations were issued by the State Police,
9 though.
10 If there were any, it would be taken into
11 consideration on the license renewal.
12 REPRESENTATIVE CEPHAS: Okay. Great.
13 Thank you so much.
14 MAJORITY CHAIRMAN SAYLOR: Representative
15 Brown.
16 CHAIRPERSON BROWN: Thank you,
17 Mr. Chairman. And thank you for being here this
18 afternoon.
19 The LCB had planned to implement the
20 Customer Relations Marketing Program, and the
21 revenues that were anticipated to come from that,
22 2016 and '17, were about $8.5 million. And I
23 think every year after that, it was expected to
24 be about 12 -- 10 million every year after that.
25 Can you give us a little idea of why that 59
1 has not been implemented?
2 And then, also the who, what, when, where
3 and why of that program, hopefully moving
4 forward.
5 CHAIRMAN HOLDEN: Yeah, I'm going to let
6 Charlie answer that, but it's still on our agenda
7 to get done. We found out it's a lot more
8 expensive than we thought, so we're taking a
9 good, hard look at it, but I'm going to yield to
10 Charlie on that.
11 EXECUTIVE DIRECTOR MOONEY: So what
12 happened is the staff and I went to a request for
13 a proposal. We brought -- to the conversation
14 earlier -- staff in from Deloitte to help us put
15 up a model and tell us what we should do with it.
16 And the pro forma that came back on the CRM
17 program was not profitable in year one, was not
18 profitable in year two, was a little profitable
19 in year three. And we were four out and five,
20 and we were looking at ourselves saying, what are
21 we doing?
22 So we are implementing smaller steps of
23 the Customer Relation Program. We are going to
24 electronic signature on our pin pads. We have
25 run different promotions that the CRM legislation 60
1 allows us to do, like packaging two and giving it
2 a different price. We couldn't do that under the
3 law before. Buy one for $7.99, get two for
4 $11.99.
5 So we're taking the steps that we can for
6 our consumers -- to help our consumers. We are
7 going to revisit this CRM process as soon as
8 we've got our new e-commerce headquarters store
9 up and running, which is open. We're going to
10 launch a new website for our e-commerce in July
11 of this year.
12 And we are -- I've mandated my staff, we
13 are going to start same-day delivery in the five
14 county Philadelphia area as early as June or
15 July. So we're taking steps to get those done
16 first, and we'll come back to CRM.
17 REPRESENTATIVE BROWN: Okay. So the
18 initial numbers in the projections, where did
19 they come from, the 8.5 million and the
20 10 million that were so far off?
21 CHAIRMAN HOLDEN: I'm really not sure
22 where that came from. I know you're reading it
23 right there.
24 REPRESENTATIVE BROWN: Yeah. Well, it's
25 just interesting, being the fact that it was 61
1 revisited to say, hey, it wasn't going to be that
2 profitable and it wasn't really going to be well
3 worth the, you know, until it was reorganized.
4 So it's interesting that the numbers, the
5 projections are 8.5 for the first year, and then
6 10 million. It went up every year after that.
7 So you know, I was just wondering where
8 those numbers came from.
9 EXECUTIVE DIRECTOR MOONEY: Well, they
10 didn't come from us. And I'm happy to say that
11 when we didn't see the 8.5, we didn't go ahead
12 and implement it just because something on paper
13 told us to go and do that. It was not a good
14 business model that we saw, and we weren't going
15 to implement that.
16 REPRESENTATIVE WHITE: Okay. So do you
17 have -- you don't have any new projections?
18 Once you were to start it, you were going
19 to start it off smaller, but you don't have any
20 revenue projections from that smaller scope yet?
21 EXECUTIVE DIRECTOR MOONEY: Not yet.
22 REPRESENTATIVE WHITE: Not yet. Okay.
23 Now, I'm going to take you to a
24 completely different subject. The Gaming Control
25 Board, a little bit earlier, asked a question -- 62
1 I asked a question in regards to -- which I know
2 you're very familiar with -- Act 39 of 2016. The
3 liquor licenses for the casinos to allow for 24/7
4 service of alcohol were an option in there,
5 although none have yet been applied for or are
6 being utilized. So at this point, the casinos
7 can serve, charge -- or for free -- alcohol until
8 2:00 a.m. --
9 CHAIRMAN HOLDEN: 7:00 a.m. till
10 2:00 a.m.
11 REPRESENTATIVE WHITE: -- correct, right?
12 CHAIRMAN HOLDEN: Same as any restaurant
13 license.
14 REPRESENTATIVE WHITE: Same as any
15 restaurant license.
16 CHAIRMAN HOLDEN: 7:00 a.m. until
17 2:00 a.m. I have a concern based on a situation
18 up in my area.
19 What is the enforcement, and what's
20 happening to ensure that after 2:00 a.m. free or
21 charged alcohol is not being served?
22 CHAIRMAN HOLDEN: That would be --
23 REPRESENTATIVE WHITE: And have there
24 been issues, that this is something that's come
25 to your concern? 63
1 CHAIRMAN HOLDEN: Well, the enforcement
2 is the Pennsylvania State Police Liquor Code
3 Enforcement. Any complaints we receive, we pass
4 on to them.
5 REPRESENTATIVE WHITE: So because it did
6 mention you, and obviously the State Police --
7 CHAIRMAN HOLDEN: Yeah.
8 REPRESENTATIVE WHITE: -- working
9 together with this situation.
10 CHAIRMAN HOLDEN: Yeah. Our staff was
11 listening to the hearing, and that was not -- we
12 do not have the enforcement responsibility.
13 REPRESENTATIVE WHITE: So it would come
14 to your attention first, though, correct, and
15 then go to the State police?
16 CHAIRMAN HOLDEN: If it came to our
17 attention, that's where we would send it.
18 MR. NEGRA: But it doesn't have to come
19 to our attention.
20 REPRESENTATIVE WHITE: It doesn't have
21 to.
22 Are you aware of any situations that are
23 currently of concern?
24 MR. NEGRA: I'm not.
25 CHAIRMAN HOLDEN: No. We had one casino 64
1 who had a problem with serving minors. They were
2 severely fined and paid it. That was a couple of
3 years ago. I haven't heard anything sense.
4 REPRESENTATIVE WHITE: Okay. So at this
5 point, the State Police or the LCB does not have
6 any concerns about any alcohol being served -
7 MR. NEGRA: We can't speak for the State
8 Police.
9 EXECUTIVE DIRECTOR MOONEY: We didn't say
10 we didn't have any concerns.
11 CHAIRMAN HOLDEN: We're not aware of any.
12 EXECUTIVE DIRECTOR MOONEY: We should all
13 be concerned if there's alcohol being served
14 after 2:00 a.m. Whether it's in a casino or any
15 restaurant, we would bring that to the attention
16 of the State Police. And the Board and I have
17 routine regular meetings with BLCE.
18 As a matter of fact, we were just out
19 there a couple of weeks ago and we go over all of
20 the highlights, and this was discussed.
21 REPRESENTATIVE WHITE: Okay. I'll follow
22 up again with the State Police, as well. Thank
23 you very much. Thanks for being here.
24 MR. NEGRA: Thank you.
25 CHAIRMAN HOLDEN: Thank you. 65
1 MAJORITY CHAIRMAN SAYLOR: Representative
2 Lawrence.
3 REPRESENTATIVE LAWRENCE: Thank you,
4 Mr. Chairman. And gentlemen, thank you for being
5 here today in front of the Committee. I
6 appreciate it.
7 First, a quick question. Could we --
8 could the Committee get a breakdown -- I don't
9 expect you to have this right in front of you,
10 but could we get directed to the Chair a
11 breakdown of the taxes collected and the profits
12 earned by the LCB on wine sold in the State
13 stores versus wine sold in grocery stores and
14 other locations authorized under Act 39?
15 Could we get that breakdown of those two
16 things, both taxes and profits from wine?
17 EXECUTIVE DIRECTOR MOONEY: Very quickly,
18 yes.
19 REPRESENTATIVE LAWRENCE: Great. Thank
20 you.
21 Second thing, under Act 39, the sale of
22 alcohol has to occur at a designated register.
23 CHAIRMAN HOLDEN: Correct.
24 REPRESENTATIVE LAWRENCE: And I remember
25 there was a lot of conversation when we moved 66
1 this legislation about where the license premises
2 would be and if it would be segregated from the
3 rest -- I'm talking here like a grocery store.
4 So there are some grocery stores that set up kind
5 of the beer cave or the wine cave or whatever.
6 So it's segregated from the rest of this store.
7 A location in my area got very creative
8 with their -- I mean, they really sharpened their
9 pencils -- and so their licensed premises goes
10 all over the store in a giant kind of spaghetti
11 noodle that goes around, and it's very thin in
12 some spots. So as you walk through the grocery
13 store, you see beer stacked up all over the place
14 in seemingly random spots.
15 So that five-foot wide strip from here to
16 there, that's the licensed premises. I don't
17 know that that was necessarily the intent of the
18 legislature. And I don't want to put you right
19 on the spot on this, but I guess my question is,
20 when these come in, when these proposals come in
21 to the LCB, who is reviewing them?
22 In other words, the idea that this is
23 going to be a segregated area versus our licensed
24 premises is going to be a very interestingly
25 constructed line that, unless you had that map, 67
1 you would never be able to tell where the
2 licensed premises begins and ends.
3 CHAIRMAN HOLDEN: Yeah. Our Department
4 of Regulatory Affairs sends inspectors and looks
5 at every proposal that comes in. The fact is
6 they're trying to be too cute by a half. We know
7 that. But any place in the Commonwealth that's
8 in compliance, is contiguous. So as you say
9 winding around like a spaghetti noodle, that's
10 possible.
11 They kind of duck into the back room and
12 come back out over here and not have contiguous
13 supply of alcohol, but they are getting fancy
14 with it. We're aware of it.
15 Our rule right now is it must be
16 contiguous, correct?
17 EXECUTIVE DIRECTOR MOONEY: Yeah. After
18 this is over, I'd like to know where that store
19 is.
20 REPRESENTATIVE LAWRENCE: So I will say
21 that the --
22 EXECUTIVE DIRECTOR MOONEY: We'll be
23 there tomorrow.
24 REPRESENTATIVE LAWRENCE: -- the creative
25 drawing of this licensed premises would put the 68
1 7th Congressional District to shame in the way it
2 was gerrymandered in this grocery store.
3 CHAIRMAN HOLDEN: They said that once
4 before. I'm familiar with it, gerrymandered.
5 REPRESENTATIVE LAWRENCE: Very good.
6 I'll touch base with you afterwards. Thank you,
7 gentlemen.
8 Thank you, Mr. Chairman.
9 MAJORITY CHAIRMAN SAYLOR: Representative
10 Struzzi.
11 REPRESENTATIVE STRUZZI: Good afternoon,
12 gentlemen. Over here.
13 My question, I know that Representative
14 Pyle had mentioned the microbreweries, micro
15 distilleries, wineries that have been around for
16 some time. And my question pertains to the
17 opportunity to have more local products sold in
18 the State stores.
19 And a specific example, we have a
20 distillery in Homer City in Indiana County,
21 Disobedient Spirits. A very fine establishment.
22 They make very good quality vodkas, brandy,
23 things like that. And I had been speaking with
24 them several months ago. They were attempting to
25 go through the process to have their products on 69
1 the shelves in the State stores.
2 And they were very frustrated, almost to
3 the point where they felt like they were being
4 deterred from having their products sold in the
5 stores. And my question then is, with all of
6 these various wineries that are out there,
7 distilleries that are popping up -- and I
8 understand it's fine wine and spirits, so
9 sometimes quality is a factor -- but in these
10 cases, they're topnotch.
11 What is the process?
12 What is the view on that?
13 And is there being more effort made to
14 allow local Pennsylvania products to be sold in
15 the State stores?
16 Because they're using Pennsylvania
17 agriculture. They're hiring people. I mean,
18 this is an in-state business that wants to grow
19 and it's -- they feel like they're being
20 deterred.
21 MR. NEGRA: Well, I mean, I'll jump in on
22 this -- and Charlie, from an operational
23 standpoint -- the PA Preferred Program allows 10
24 stores, okay, 10 stores have their choice, all
25 right, for them to place product. I'd be very 70
1 interested in getting the contact of that
2 particular distillery so that we can contact them
3 and find out why they're frustrated.
4 They still have to send the product in
5 for tasting, but still, they have the right to be
6 able to -- now, they might not be able to
7 distribute to the entire State, you know --
8 REPRESENTATIVE STRUZZI: Right. Right.
9 MR. NEGRA: -- but they can choose the 10
10 stores of their choice, right, to place their
11 products in. Now, again, if somebody has 20
12 different SKUs, we can't accommodate, you know,
13 every single distiller, especially as many as we
14 have nowadays and wineries, but they'll have some
15 representation of their product in our stores.
16 It's an important part. We have a Made
17 in Pennsylvania Program in every one of our
18 rebranded stories, at least, maybe not every
19 single store, but it's an important part of our
20 approach to business and an important part of
21 your mission.
22 REPRESENTATIVE STRUZZI: Is there special
23 consideration given related to pricing for the
24 Pennsylvania Preferred Program?
25 MR. NEGRA: They set their price. 71
1 EXECUTIVE DIRECTOR MOONEY: They set
2 their own price.
3 REPRESENTATIVE STRUZZI: Okay.
4 MR. NEGRA: What they can't do is they
5 can't sell it for less at their distillery than
6 what's the retail price in our store.
7 REPRESENTATIVE STRUZZI: I see. I see.
8 MR. NEGRA: That's the one thing they
9 can't do. But from a price standpoint, they set
10 it.
11 REPRESENTATIVE STRUZZI: So there are
12 efforts out there to try and incorporate more
13 Pennsylvania wines and liquors into the State
14 stores?
15 CHAIRMAN HOLDEN: Absolutely.
16 MR. NEGRA: Absolutely.
17 REPRESENTATIVE STRUZZI: All right.
18 Thank you, gentlemen.
19 MAJORITY CHAIRMAN SAYLOR: With that,
20 it's the conclusion of our hearing today. I
21 appreciate the Chairman, you and Charlie and Mike
22 being here today. I appreciate all of your
23 answers and look forward to working with you as
24 we go through the budget process.
25 CHAIRMAN HOLDEN: Thank you very much. 72
1 EXECUTIVE DIRECTOR MOONEY: Thank you
2 very much, Chairman Saylor.
3 MAJORITY CHAIRMAN SAYLOR: God bless.
4 We will reconvene tomorrow morning at
5 10:30 for the Department of Health and Human
6 Services, at 10:30 tomorrow morning.
7 (Whereupon, the hearing concluded.)
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25 73
1 CERTIFICATE
2
3 I hereby certify that the proceedings are
4 contained fully and accurately in the notes taken
5 by me on the within proceedings and that this is
6 a correct transcript of the same.
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9 ______
10 Tiffany L. Mast, Court Reporter
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