New special interest comes to PA liquor privatization party

HARRISBURG — Inside Pennsylvania's liquor privatization debate, everyone wants a taste.

A new special interest is asking for a seat at the table after the state legislature's actions threaten the finances of its members.

The Liquor Store Real Estate Owners Association is the latest opponent to liquor privatization. The group is comprised of property owners who have lease agreements with the Pennsylvania Liquor Control Board.

Among their ranks is David Neal, a Philadelphia real estate owner who owns the property for the state-owned wine and spirits shop on South Street.

His lease, like all others in the state store system, has a termination clause, one without any penalties if the agreement ends. This generally is not a concern, because the state is a reliable tenant.

"You doubt that the Liquor Control Board is going to go out of business. And people are going to buy alcohol," Neal said. "When times are good, people drink. When times are bad, people drink."

But when Neal heard news of the plan to get government out of the liquor business – and saw the House of Representatives successfully vote to privatize, that termination clause could suddenly make or break his bottom line.

So Neal and several other liquor store owners organized, started the association, sent out mailings, launched a website and effectively joined the special interest cavalcade in the privatization debate.

House Bill 790, passed by the House of Representatives in late March, proposes a gradual phase-out of state stores. Under the proposal, the state would shut down stores after a certain number of private wine and liquor stores licenses have been scooped up, based on county size.

The proposal is now in the hands of Sen. Chuck McIlhinney, R-Bucks, who is chair of the Senate Law and Justice Committee. He's holding a third hearing on privatization in early June, and expects to have a proposal drafted about two weeks later.

Groups like beer distributors, unionized liquor store employees, public safety advocates like Mothers Against Drunk Driving and business interests have had their say in public hearings and other events. But the folks the LCB leases space from were not in the loop. At least, not at the outset.

Neal himself found out about privatization plans through a news article.

"You start realizing the chairs are getting occupied and you know the music is gonna stop soon," Neal said. "So, you better do something."

Neal estimates his association has about 15 percent of the state store property owners as members. He's asking for member fees to cover costs and so the group can hire a lobbying firm to drive its point home.

Matt Grossmann, an associate professor of political science at Michigan State University who specializes in researching group representation and influence, said it's not uncommon for special-interest groups to quickly organize when proposed legislation is discussed.

But being new has its disadvantages.

"It hasn't generally been an effective strategy to come into the middle of the debate as an interest group no one has heard of," Grossmann said. "It tends not to be able to overwhelm the relationships that already exist, and the reputations interest groups already have for working on behalf of certain views or constituencies."

Terry Madonna, political science professor at Franklin and Marshall College, said while the ability of the group to make a difference at this point is arguable, its very existence could make "full-on privatization," or a sell-off of the state stores, more difficult.

"It adds another complexity," Madonna said. "All of a sudden there's another player at the table who doesn't want privatization."

Madonna said it's not surprising there's a new interest cropping up. With high-profile legislation that puts millions, even billions, of dollars at stake, all sides come to the table to protect their pocketbook, Madonna said.

"Everybody wants a piece of the action," he said.

After about three months of lobbying, Neal said his group has seen modest success.

"They listen to what we have to say, because no one else is saying it," he said. "That in and of itself tells me quite a bit."

Neal said a gradual phase-out would leave several hundred property owners like himself in an unpredictable place. Some may have multi-year mortgages that relied on the state store agreement as a long-term source of income. And, as in Neal's case, a recent renovation to expand the store's collection can come at a high cost to the property owner. Those expenses are built into the lease agreement – but if the agreement is terminated, the property owner wouldn't see compensation from the state.

Neal said getting rid of the state store system could affect more property owners than those who lease space to the LCB. Private liquor stores won't fill the space, Neal said, if grocery stores and beer distributors wind up buying the private licenses.

"If you don't get a new tenant in and a new tenant that is going to bring in customers, how is it going to affect other stores in the area?" he said.

Steve Miskin, communications director for House Majority Leader Mike Turzai, R-Allegheny, who spearheaded HB 790 passage in the House, said property owners have had as much notice about the privatization debate as other groups.

He dismissed the groups' claim that they wouldn't be able to find anyone to take over retail spaces vacated by the LCB.

"If the locations leased by the LCB are the best locations for liquors then any private licensee would obviously try to locate there to capture that already-established customer base," Miskin said.

He cited the LCB's pace on lease agreements and store openings as detriments to good business. For example, it took the state three years to re-open a store in Mountain Top after it was shut down.

"Frankly, those property owners would have an easier time dealing with the private business owners than the state," he said.

State stores fill about 270 individual locations and more than 300 storefronts in shopping plazas and malls, according to figures provided by the association.

Figures from the PLCB show the state spent $38.7 million renting 605 stores in the last fiscal year. Individual lease agreements could vary greatly, as terms will be determined by the size of the store, the location and factors particular to the building.

Annual rent in a lease agreement could be as low as several thousand dollars a year for a 1,200 square-foot store in rural Bedford County, to $410,000 for a 10,300 square-foot store in King of Prussia.

"The lease terms vary depending on the size of the store and the stability of the market," said Stacy Kriedeman, communications director for the PLCB, in an email. Some leases, for example, may have three to five-year primary terms with renewable five-year options. "That particular term gives us the ability to hold prices steady for as long as we can."

Other stores, like those that house Premium Collections, carry 10-year terms with five-year options because of the investment involved, Kriedeman said.

In deciding where to locate a store, or whether to expand, PLCB considers area population, demographics, sales of the current store and whether it's a growing area.

"Once we decide we want to be in a certain area, we'll look for the location most advantageous for our consumers and our business," Kriedeman said. "For example, we understand that consumers want convenience, so whenever possible we will look for locations with supermarkets in close proximity or we'll look for strip malls that have a supermarket as an anchor store."

Contact Melissa Daniels at melissa@paindependent.com