Breaking News: Jonathan Newman resigns!

[MarketStEl]

We can hope that new PLCB Chairman Patrick Stapleton is serious about continuing the Chairman's Selection program, as he was quoted as saying in this morning's Inquirer.

And while it may well be the case that the LCB really did need a chief executive officer to oversee operations and that the three-member board should be relegated to a policy-setting role, I also agree with the outgoing chairman that the way in which the post was created and filled smells.

However, there was one item I did not see in the Inquirer story that did appear in today's Daily Times, and that item might shed some additional light on why Newman's boss made the move he did:

In July, the board announced that for the third consecutive year, revenues had increased by more than 7 percent to nearly $1.6 billion. For the 2005-06 fiscal year alone, the PLCB said it would contribute $80 million in profits to the state while returning $315 million in taxes.

On the other hand, [PLCB member Thomas] Goldsmith previously said the agency’s profit dropped by $12 million over the past year, something he said Conti would be able to address.

Now if profits are falling on increased revenues, that's usually a sign that management or operations are slipping in some way. One of the usual responses that a corporate CEO might make in such a situation is to reshuffle top executives or managers. If a corporate board of directors becomes alarmed by the situation, it might ask for the head of the CEO on a platter. If the passage above accurately describes the PLCB's fiscal performance this past year, it might explain why the Governor felt it necessary to implement a quick management change.

This does not, however, invalidate Chairman Newman's criticism about the way the change was implemented.

[cdh]

What is the difference between PLCB "profits" and taxes? Both are money paid in to the government's coffers. While in any non-state-owned business there is a huge difference, in this case, I can't see one unless there is some sort of statutory accounting rule that allocates profits back to the Board and makes taxes part of the general fund or some such. It is all money going into the hands of the government.

While we hear that revenues are up and profits are down, doesn't increased revenues translate into increased taxes? What is the bottom line figure here? That's what matters.

[wkl]

to make an issue of tax revenue being returned is a little bit of spin don't you think? wouldn't the tax revenue be there wether the sytem was state controlled or private?

[mike volker]

1. Sandy...do you think Rendell's done running? There is always Senator...Veep...

2. My problem with Conti is that he hasn't got any experience running a show this big. I think it smacks completely of politics.

Best,

Mike

[KatieLoeb]

I received confirmation to post this here.

In his own words...

RESIGNATION STATEMENT OF JONATHAN H. NEWMAN

I am resigning as Chairman and as a Member of the Pennsylvania Liquor Control Board effective January 12, 2007. I will certainly make myself available after that date to assure a smooth and seamless transition. I have enjoyed my 7-1/2 year tenure, the last 4-1/2 years as Chairman of the Board. I would like to sincerely thank all the hard working employees of the Board who have taken this Agency to the next level in customer service and promoted social responsibility. The substantial increases in revenue and record profits generated over the last few years have benefited all taxpayers in the Commonwealth.

There are so many accomplishments that I am proud of that have fundamentally changed consumer perception of the PLCB and the vibrant retail shopping experience we have created. However, it has become abundantly clear to me during the past few weeks that this Administration is adamant in standing by its decision in hand picking a CEO without any true process whatsoever that is consistent with transparency and good government. There was no public discussion about whether the decision to bring in a CEO was appropriate, no national search process to find the best qualified individual, and no opportunity for public comment or media scrutiny before this rushed decision was completed. I am hopeful that the Pennsylvania legislature will review this entire process and determine if it is appropriate for the Commonwealth and the future direction of government.

Since the Board's statutorily mandated full time responsibilities have been abrogated and the Board will only provide regulatory and policy authority, I do not believe I can remain at the Board and justify taking my $65,572 salary from the taxpayers. Part-time board members from other control states like Oregon receive per diems for participation in board meetings that would now certainly be more appropriate in Pennsylvania given the fact that the day to day and other important responsibilities have been removed.

I would like to thank the citizens of this Commonwealth and express my appreciation for all the well wishes I have received.

[Neuronix]

I can only hope this will be turned into a push to rid us of the state monopoly on liquor in PA.

[MarketStEl]

I can only hope this will be turned into a push to rid us of the state monopoly on liquor in PA.

←

It's more likely that the new PLCB Chairman will continue Chairman Newman's improvements than that what you hope for will happen. As this turn of events illustrates, the state liquor monopoly is useful in more ways than one to the boys in Harrisburg. You can't park a defeated legislator at the home office of a chain of privately run liquor stores.

As for Chris Holst's question: You do have a point that in this case, the difference between taxes and profits is basically one of bookkeeping, but in theory, it's non-trivial. Let's say for sake of argument that the state finally did as Neuronix wished, abolished the Liquor Control Board in favor of a licensing and regulatory agency, and sold the PLCB's assets to private enterprise(s). Those taxes could, and most likely would, remain in place; the only difference would likely be that the private retailers would not fold them into the shelf price of the products they sold, the way the PLCB does with every tax it collects save the state sales tax. The end result might well be that the Pennsylvania electorate rises up in righteous indignation to demand that some of these archaic taxes (insert everyone's favorite example here) be repealed at long last. Neither party in Harrisburg really desires this outcome. Having the state run the liquor stores is a convenient way for both parties to hide revenue-raisers they would have a difficult time getting passed by the usual process.

[Mummer]

I can only hope this will be turned into a push to rid us of the state monopoly on liquor in PA.

←

This will happen right after the state sales tax is eliminated.

Unlike the very expensive to operate roads, the liquor monopoly is a cash cow bundled with several thousand jobs. It's here to stay.

[herbacidal]

I can only hope this will be turned into a push to rid us of the state monopoly on liquor in PA.

←

This will happen right after the state sales tax is eliminated.

Unlike the very expensive to operate roads, the liquor monopoly is a cash cow bundled with several thousand jobs. It's here to stay.

←

The monopoly can be fine for consumers if managed well, like it was in the last few years, and getting better.

There's advantages and disadvantages both to privatization and state-owned, both to the state and consumers, not to mention everyone else.

[lancastermike]

I received confirmation to post this here.

In his own words...

RESIGNATION STATEMENT OF JONATHAN H. NEWMAN

I am resigning as Chairman and as a Member of the Pennsylvania Liquor Control Board effective January 12, 2007.  I will certainly make myself available after that date to assure a smooth and seamless transition.  I have enjoyed my 7-1/2  year tenure, the last 4-1/2 years as Chairman of the Board.  I would like to sincerely thank all the hard working employees of the Board who have taken this Agency to the next level in customer service and promoted social responsibility.  The substantial increases in revenue and record profits generated over the last few years have benefited all taxpayers in the Commonwealth.

There are so many accomplishments that I am proud of that have fundamentally changed consumer perception of the PLCB and the vibrant retail shopping experience we have created.  However, it has become abundantly clear to me during the past few weeks that this Administration is adamant in standing by its decision in hand picking a CEO without any true process whatsoever that is consistent with transparency and good government.  There was no public discussion about whether the decision to bring in a CEO was appropriate, no national search process to find the best qualified individual, and no opportunity for public comment or media scrutiny before this rushed decision was completed.  I am hopeful that the Pennsylvania legislature will review this entire process and determine if it is appropriate for the Commonwealth and the future direction of government.

Since the Board's statutorily mandated full time responsibilities have been abrogated and the Board will only provide regulatory and policy authority, I do not believe I can remain at the Board and justify taking my $65,572 salary from the taxpayers.  Part-time board members from other control states like Oregon receive per diems for participation in board meetings that would now certainly be more appropriate in Pennsylvania given the fact that the day to day and other important responsibilities have been removed.

I would like to thank the citizens of this Commonwealth and express my appreciation for all the well wishes I have received.

←

Just like everyone else I have found the PLCB under Newman to have made huge strides in so many ways, selection and service being the two major ones. He deserves major credit for these changes. I adore the Chairman’s Selection program, but that program got Newman as much ink as it did the wines. Having said all this, I find Mr. Newman's statement above to be just a little much. Politics on the level that he is involved with is one tough game. He and his mother the former Supreme Court member both know this. Jonathan is no little kid who just wandered into the LCB office and started working. He is a player and if he got out gamed by the top player, Big Ed, well he is not the first or the last to be out gunned by the top dog of Harrisburg.

I have been around Harrisburg politics for a while myself. Mr. Newman will be back in one way or the other and the statement he issued sounds like the beginning of a candidacy for office if I ever heard one.

Edited January 4, 2007 by lancastermike (log)

[Tim Dolan]

Before I found this site, with all these great threads, I knew as much about wine as a kindergartener knew about physics. Now I'd say I'm closer to an 8th grader starting to learn about algebra. Who knows, maybe one day I'll be like Einstein . Thanks for the help, Chairman.

[Neuronix]

The monopoly can be fine for consumers if managed well, like it was in the last few years, and getting better. 

There's advantages and disadvantages both to privatization and state-owned, both to the state and consumers, not to mention everyone else.

←

I fail to see any advantages to state-owned liquor stores. All it does is line the state's pockets. Sure, it's gotten somewhat better over the past few years. That doesn't mean it's right and that doesn't mean it's anywhere as good as it should be or is in other states for consumers. Competition is a good thing. We force all the other industries to have it for a reason.

Edited January 4, 2007 by Neuronix (log)

[Bobby 2 Shakes]

It's all good. I was getting tired of calling him Chairman Newman, anyway.

Now, Governor Newman, that has a nice ring to it.

Anybody who could reform the stodgy, hidebound, old PLCB...

Well, who better to reform the stodgy, hidebound, old political system of Pennsylvania?

Time to yank off those liquor store blinders, roll up those sleeves, and dive into the rest of the Commonwealth's problems.

[KatieLoeb]

Bob:

You're a genius! And first in line for Campaign Manager.

I'll be close behind...

[Jonathan Newman]

Dear Friends:

It has been most heartwarming to hear all your kind words and well wishes. This has obviously been a challenging month for me. I have resigned from a job that I loved where I felt like I was making a difference as a consumer advocate.

I was asked by the Administration to do something that I felt was highly inappropriate because it was bad government and would have compromised my ideals. It would have meant "rubber stamping" a bad decision which has given the word "politics" such a bad name.

I decided to leave the PLCB now because the discussion needs to be about the integrity of the political process and transparency in government. I am hopeful that public outrage and indignation over these recent events will not diminsh as I know the Adminstration certainly wants this issue to fade away as time passes. And it should not be about me and my job but about the political process and future direction of government in this state.

I know that the PLCB needs to make a lot more progress and there are still many frustrations about government control of alcohol beverages in our Commonwealth. Nevertheless, I attempted to modernize the system and make it the very best it could be and empower our employees to take pride in their jobs. Over the last several years, there have been almost one thousand egullet posts about these modernization efforts and I am so appreciative of all the words of encouragement and this made me work harder to achieve many of your suggestions and remedy some of your frustrations in the system.

And consumers voted with their pocketbooks and we have posted record profits over the last 4 years. In the past fiscal year alone our sales were up over a hundred million dollars and our total revenues provided to the Commonwealth increased by $46 million. Expenses as a percent of gross sales have remained consistent and this fiscal year is on target for record numbers. Our gross sales are up 25% in the last three years in part because many people who shopped out of state came back to our stores because we did a better job with better product selection, beautiful Premium Collection stores, more knowledgeable staff and hot pricing like the Chairman Selection wines.

I have agreed to participate in the Philadelphia Inquirer's Q&A Forum at philly.com over the next several days and look forward to continuing the discussion we have had over the years.

With Warm Regards.

[Jeff L]

We all wish you the best in whatever it is you end up doing. You've done an outstanding job with an impossible system here in PA. It is our loss as consumers to no longer have your extensive knowledge in wines of all types and more importantly, your ability to negotiate with vineyards around the world bringing unheard of price points to consumers via your Chairmans Selection program.

Edited January 5, 2007 by Jeff L (log)

[MarketStEl]

The monopoly can be fine for consumers if managed well, like it was in the last few years, and getting better. 

There's advantages and disadvantages both to privatization and state-owned, both to the state and consumers, not to mention everyone else.

←

I fail to see any advantages to state-owned liquor stores. All it does is line the state's pockets. Sure, it's gotten somewhat better over the past few years. That doesn't mean it's right and that doesn't mean it's anywhere as good as it should be or is in other states for consumers. Competition is a good thing. We force all the other industries to have it for a reason.

←

There is a reason I always inject New Hampshire into the discussion whenever the discussion about the PLCB comes round, as it always does, to whether or not the state should be in the business of selling booze at all.

Before I do so for the 7963rd time, let me concede that in principle, Neuronix is correct. Competition almost always results in more choices and better value for the consumer. (But let us note that the competitors are not really all that different from the state in one regard: If they had their way, they would also be the only supplier of the product they make or sell. That way, they could extract profits beyond what they would otherwise be entitled to by taking advantage of artificially produced scarcity. This sort of thing is what the economists call "rent-seeking behavior." Where barriers to entry by rivals are low, as they are, say, in distilling whisky, there will be almost no "rent" for the competitors to seek. Where they are high, as they are, say, in the provision of cable TV service, the lucky providers can rake in the "rent.")

However: States all over the world can, and have, maintained monopolies in the provision of certain goods and services. In the US, they usually exist for one or both of the following reasons:

1) To restrict the supply of something.

2) To make buckets of money for the state government without having to resort to broad-based taxation.

The PLCB was originally established for the first purpose, and over the years, its mission has grown to embrace the second. Since the early 1980s, when the state made its first halting steps towards making the LCB system consumer-friendly, there has been a growing tension between the two purposes, a tension which Chairman Newman broke by hauling the State Store system firmly away from reason 1.

Which brings us back to the Granite State. New Hampshire is unique among the "control" jurisdictions in that its government liquor monopoly was created solely for reason 2. New Hampshire prides itself to this day on being the only one of the 50 states with neither a state income tax nor state sales tax, but maintaining that distinction means the state has to resort to all sorts of nickel-and-dime or beggar-thy-neighbor measures to raise revenue lest local property taxes, already higher in many towns than they otherwise would be, shoot through the roof.

One of the easiest beggar-thy-neighbor measures is for the state to coax as much money out of the wallets of Massachusetts residents as it can by selling booze for less than any private retailer in the Bay State could. This it does. And by putting most of the state liquor stores within a short drive of the Massachusetts line--including on the turnpikes that connect Massachusetts with Maine and NH's principal cities--it ensures a high volume of out-of-state traffic to patronize those stores.

How does this relate to Pennsylvania? I'm sure it's not escaped the notice of some in Harrisburg that many Pennsylvanians living near the border routinely drive to other states to buy cheaper booze from bigger stores than they could find in Pennsylvania. (It certainly hasn't escaped the notice of the Pennsylvania State Police.) Chairman Newman figured out that since he heads the largest wholesale buyer of wine and spirits in the country, he could meet this challenge head-on by implementing programs that might drive traffic in the opposite direction. And so it is now that while there's still no single store in Pennsylvania as vast as Total Wine & More in Claymont, there are now stores that offer a much better selection of higher quality products -- and, in the case of the Chairman's Selections, offer those products at prices no one else can match. If it weren't for those bundled taxes, I imagine that he could have done the same for distilled spirits--the prices at the "warehouse outlet" stores and the in-store "outlet price" specials at the regular Wine & Spirits shops were actually competitive with prices in neighboring states, and while they weren't low enough to lure Marylanders or Delawareans northward, they were low enough to cause some Pennsylvanians to think twice before heading south.

The difference between this approach to running the PLCB and the operating philosophy of the New Hampshire Liquor Commission (note the absence of the word "control" from its name) is one of degree, not kind. Were the PLCB's buying power used the same way Wal-Mart uses its buying power -- which has now happened in the arena of fine wines -- Pennsylvanians would benefit every bit as much as they would from a competitive free-market regime. And so, in all likelihood, would Harrisburg, given that PLCB revenues have climbed smartly upward in each year of the now-departed chairman's tenure.

[wkl]

"Were the PLCB's buying power used the same way Wal-Mart uses its buying power -- which has now happened in the arena of fine wines -- Pennsylvanians would benefit every bit as much as they would from a competitive free-market regime."

That may be true strictly on price, but that really is only going to work with large producers of wine and spirits. Smaller, well made wines, that are priced very reasonably btw, are not going to show up in your market place strictly through buying power. I just don't think a gov't run enterprise will ever truly capture the passionate wine enthusist. Someone who is truly passinate about wine and buys alot of it, doesn't have price as a main criteria for many of their purchases.

The other thing state control of liquor/wine does is prohibit a citizen from going into the business for themselves. If you are a Pa citizen and love wine enough to open your own shop, you have to leave the state to do it. How is that good?

[chrish1]

I was disturbed last night when I read this thread as I'm sure most were. Some mentioned emailing the governor, I believe, but think it would be a good idea to contact our local legislators. We should let them know how outraged we are that such an important policy decision was made without due process. I have met and talked to my local representative and senator and they are always eager for feedback from the constituents. On the occasions I have emailed my rep. he has personally replied promptly.

[LindaJ]

On the premise that living well is the best revenge, I'm all in on the concept of Governor Newman.

I'll also be e-mailing the usual suspects with my voter outrage.

[MarketStEl]

"Were the PLCB's buying power used the same way Wal-Mart uses its buying power -- which has now happened in the arena of fine wines -- Pennsylvanians would benefit every bit as much as they would from a competitive free-market regime."

That may be true strictly on price, but that really is only going to work with large producers of wine and spirits. Smaller, well made wines, that are priced very reasonably btw, are not going to show up in your market place strictly through buying power. I just don't think a gov't run enterprise will ever truly capture the passionate wine enthusist. Someone who is truly passinate about wine and buys alot of it, doesn't have price as a main criteria for many of their purchases.

The other thing state control of liquor/wine does is prohibit a citizen from going into the business for themselves. If you are a Pa citizen and love wine enough to open your own shop, you have to leave the state to do it. How is that good?

←

Oddly enough, I think Chairman Newman's tenure underscores your point.

The Chairman's Selection program works as well as it does because Newman was "someone who is truly passionate about wine." Sure, it did lead to some wineries dumping stuff they couldn't sell onto the PLCB, but those cases were the exception to the rule.

If -- as is now happening -- someone who is not passionate about wine takes the helm at the PLCB, there will be no in-state alternative for oenophiles if the Chairman's Selections turn into fire sales for plonk because whoever runs the program doesn't know wine.

So here's some free advice for the new chairman and for CEO Conti: Create a position of manager of the Chairman's Selection Program and conduct the sort of search that should have been conducted for the CEO position to fill it. The minimum qualification is that the occupant must be knowledgeable about wine.

Edited to add: And while I'm sure that price is indeed not the primary consideration for passionate oenophiles, I'm also sure that even they don't mind saving money on the stuff if they have a chance to.

Edited January 6, 2007 by MarketStEl (log)

[wkl]

but, my point is you don't have to have "chairman's selections" to become a serious wine outlet. moore brothers is a good local example. they rarely, if ever, discount their wines. they have two sales a year, when the wines are discounted a whopping 10%. It is an extremely successful business.

for the plcb to be taken seriously by knowledgable wine consumers, they must have better trained sales people, a commitment to temperature control of the wines, a strong selection of german reisling, a futures program for burgundy and bordeaux (i stand corrected if they offer this, i'm not aware of it). consistent offerings of inexpensive wines from the rhone, langeudoc, rousillon, beaujolais, loire valley, northern and southern italy, etc.

if they just compete on price for wines that are not hard to find, like beringer for example, they will continue to miss out on alot of sales from big purchasers of burgundy, bordeaux, barolo, etc. this type of wine consumer buys ALOT of wine and generally is not concerned with price. they are more concerned with service, and getting the product in good shape. (ie, temp control from the source all the way through the distribution channel).

they also must do something about the silly johnstown flood tax. i read that it is something like 15%?!? is that true? plus a 6% state tax! so every bottle of wine in pennsylvania has almost 20% tax built into the final price? that's absurd.

Edited January 6, 2007 by wkl (log)

[mrbigjas]

they also must do something about the silly johnstown flood tax. i read that it is something like 15%?!? is that true? plus a 6% state tax! so every bottle of wine in pennsylvania has almost 20% tax built into the final price? that's absurd.

←

18%. and in philadelphia sales tax is 7%...

[shacke]

they also must do something about the silly johnstown flood tax. i read that it is something like 15%?!? is that true? plus a 6% state tax! so every bottle of wine in pennsylvania has almost 20% tax built into the final price? that's absurd.

←

18%. and in philadelphia sales tax is 7%...

←

The cement of the PLCB prison walls is fashioned with the Flood tax, shipping laws and the oligopoly of distribution. The Chairman's selections and the smiling warden made the food taste better for some of the inmates but that's about it.

The locks are gonna get tighter.

Edited January 6, 2007 by shacke (log)

[mike volker]

Nice article by Andrew Cassel in today's inky.

"After seven years in charge of the state store system, he had come to believe he was running a liquor business, as opposed to a patronage farm for the pols in Harrisburg"

Pretty much sums it up, and after Conti's comments the other day, its a good thing that we're close to NJ and DE.

Best,

Mike