Liquor Control Board's Open Records Fight is Regulatory Capture at its Worst

(Grocery stores like Acme can get restaurant licenses now, and have been bidding up costs | Photo: Jon Geeting)

How many liquor licenses are available to bid on in Pennsylvania counties?

It sounds like a simple question that should already be public information on the Liquor Control Board's website, but amazingly, Jan Brewer reports that the LCB doesn't publish these figures, and they're even going so far as to appeal an order to release this by the Office of Open Records. Worst of all, they're saying plainly it’s because they want to protect inflated values for liquor license holders.

A state lawmaker is finding his quest for records to help him decide whether to support a bill that would increase the number of restaurant liquor licenses has led him into a court battle with a state agency.

Using the state’s Right to Know Law process, state Rep. Frank Burns, D-Cambria County, asked the Pennsylvania Liquor Control Board for the number of out-of-service or revoked restaurant liquor licenses in each county that are able to be auctioned [...]

The PLCB denied his request, calling that information a trade secret and confidential proprietary information. Burns appealed the agency’s denial to the state’s Office of Open Records, which ordered the records released. The PLCB then appealed that denial to Commonwealth Court, which is where the matter sits now.

This is an unusually clear example of the 'regulatory capture' phenomenon that shows the LCB has lost all sight of who they’re really supposed to be serving. Regulatory capture is a type of government failure where a regulatory agency that's created to act in the public interest instead gets "captured" by the dominant special interest groups in the industry it's charged with regulating, and advocates for narrow interests instead.

An LCB that was truly serving the public interest would view their mission as supporting economic development of food and beverage businesses throughout the state, and facilitating safe and responsible alcohol sales by reputable establishments. That’s the public service they’re there to provide. Advancing that mission necessarily involves printing lots of new licenses—which are currently capped at too low of a number—since that's the best way to get more food and beverage businesses opening up on our Main streets and commercial areas.

But LCB seems to be abandoning any pretense of serving the broad public interest, and instead see themselves as the wealth managers of the incumbent license holders, charged with defending inflated license prices at all costs—including publishing really basic information about the license market like how many licenses exist.

They don't even try to hide that this is what they're doing:

Liquor control board spokesman Shawn Kelly defended the agencies’ decision to keep the records confidential.

“To preserve the short- and long-term value of licenses, we’ll refrain from commenting on the remaining pool of licenses that may be auctioned,” he said. “We believe the information sought by Representative Burns is proprietary and trade secret, and that releasing it will have significant impact on the [value of the restaurant liquor licenses held by individuals or businesses.] As such, we believe defending our position is responsible both to Pennsylvania taxpayers that benefit from our operations and to license holders looking to preserve the value of their licenses.”

LCB's claim that their preference for sky-high license costs is really in the broad public interest is unconvincing. It makes sense that this is what license holders would want, but is it actually good for Pennsylvania's restaurant economy overall for would-be new business owners to have to pay $400,000 for a license as part of their start-up costs? It should be pretty obvious to lawmakers and to the LCB why license scarcity is actually a huge drag on that sector, that diverts more and more money to the license holders and less to the restaurant workers and business owners over time.

The "trade secret" claim is also silly. LCB is a government agency, not a business, and there's no such thing as a "trade secret" or "proprietary" information that the government owns. Liquor licenses are government-created pieces of paper that can only serve as a store of value because of the arbitrary scarcity of them, which is also imposed by the government. The claim that this is a trade secret for the government rather than the license owners shows how fully captured the agency is.

The agency also doesn’t have a bottom line the way a business does, so fluctuations in the price shouldn't be an issue for them. If state lawmakers think revenue generation needs to be the highest priority concern, there are better ways to accomplish this than trying to inflate existing license costs: they could create more new licenses to sell, or charge existing license owners capital gains taxes annually based on the value they accrue. There's been some good recent progress on reforming our broken licensing policies in the state legislature, but much more needs to be done to clean house at the Liquor Control Board and reposition the agency to serve the broad public interest instead of industry gatekeepers.

To stay in the loop on this issue, along with other political news, events, and updates from Philadelphia 3.0, sign up for our email newsletter and follow us on Facebook and Twitter

Be the first to comment

Please check your e-mail for a link to activate your account.