Task Force Dives Into Liquor Abyss
Former Senate President Kevin Sullivan recalled an effort years back to review and revise the complicated tax code and regulations governing liquor sales in Connecticut. “One week later we stared into the abyss, stepped away, and ran like hell,” he said.
But staring into that same abyss was exactly what Sullivan, as current Revenue Services Commissioner, and his colleagues on the Competitive Alcoholic Liquor Pricing Task Force Meeting were doing Wednesday.
The task force must examine, review, and analyze Connecticut alcoholic liquor taxes, quantity and volume discounts, existing liquor permit restrictions, minimum pricing and price posting. It’s also expected to compare those findings with other states and note the impact on consumers and industry stakeholders.
For its second meeting the group heard from Sullivan and Department of Consumer Protection Commissioner William Rubenstein, who attempted to summarize the general concepts which guide how alcohol is sold in the state.
Rubenstein said that there are strict restrictions dictating who can possess permits to sell alcohol, how many, and where. However, over the years the legislature has “chipped away at” those restrictions carving out exceptions here and there, and leaving the state with a fairly complicated permitting system.
But with the exception of the recently legalized sale of alcohol on Sundays, the general rules haven’t changed in a long time, Rubenstein said.
“The regulatory structure in Connecticut has been in place largely since the end of Prohibition. It has not undergone a major overhaul since then. However, the statute is replete with lots of little changes, nuances, exceptions that were implemented over the years,” Rubenstein said.
As a result, the statutes are often difficult to read, he said, describing the rules as “sometimes arcane.”
“For every general rule there is some sort of exception,” Rubenstein told the task force.
As it stands now, liquor prices in Connecticut are both fixed and uncompetitive with neighboring states like Massachusetts. It’s part of the reason lawmakers established the task force, which was an alternative to more sweeping changes Gov. Dannel P. Malloy proposed.
Though legislators chose to study the issue rather than pass many provisions in the governor’s proposal, it hasn’t stopped him from pushing the issue.
“I think we are anti-consumer in this state,“ Malloy said last month. “We’re driving up costs artificially, we’re hurting ourselves. It wasn’t just Sunday sales, it was Sunday sales and pricing that was causing us $570 million worth of sales,” to flee the state.
Part of what Malloy wanted to change is Connecticut’s system for pricing alcohol. For the most part, retailers are prohibited from selling alcohol below “cost.” But as Rubenstein explained Wednesday, “cost” doesn’t equate to the cost of acquisition and may be higher or lower than what the retailer paid for the alcohol depending on the type of product.
“Cost” is usually dictated by prices posted monthly by wholesalers in the industry. After posting their prices wholesalers have four days to compare notes and make changes before the prices become locked for the following month.
Rubenstein said there is no uniformity in the amount of markup required by retailers, even between different sizes of the same product. For instance, during one month retailers were required to mark up a 1.75 L bottle of Jim Beam by 18 percent and only required to mark up a 1 L bottle by 1 percent.
“There’s no real uniformity here,” Rubenstein said of the price differences. “... This is an example of how minimum pricing works when we talk about minimum pricing in Connecticut and whether or not there is actually a rhyme or reason that we can discern for how we arrive at minimum pricing.”
But small package store owners argue that minimum pricing allows them to operate on a more level playing field with big chain stores, who without regulation could buy alcohol with bulk discounts and sell for far less.
Rep. Kathy Tallarita, a Democrat from Enfield and co-chairwoman of the task force, asked whether Connecticut dictated to retailers what they need to charge for any other consumer product. Rubenstein said with the exception of things like electricity and cigarettes, the answer was “no.”
Sullivan said it seemed like the alcohol industry itself may be at the root of much of the “statutory scheme” surrounding the sale of booze in Connecticut.
“Agency heads and legislators are often beaten up in the world, particularly in the business world, for over-regulation. It doesn’t often take long to find out that much of that over-regulation is a creation of the business world,” he said.
After the meeting, Tallarita agreed.
“You have some really good lobbyists up here that have done their jobs in the past. Maybe at the time those regulations, laws that we passed were actually needed. But as in everything, things change,” she said.
One of those lobbyists, Carroll Hughes, head of the Connecticut Package Store Association, said that the industry wasn’t responsible for all the rules and regulations on the books. Rather they spend much of their time finding a way to work through them. He said lawmakers think up no shortage of changes to alcohol regulations on their own.
“Look up liquor under each year and you’re going to find 25 bills over a decade, or you’re going to find 30 bills and they’re all disparately different,” he said.
Hughes said the tax force has yet to delve into all the ins and outs of liquor regulation, and might be surprised by how much they find in the coming weeks.
“Kevin described it properly—it’s not quite an abyss, it’s just a huge Grand Canyon,” he said.