News Column

LCB may raise prices to offset projected 20 percent income drop

August 12, 2014

By Kari Andren, Tribune-Review, Greensburg, Pa.

Aug. 12--The Pennsylvania Liquor Control Board is considering raising its markup on wines and spirits to stave off a projected 20 percent drop in net income, according to a financial memo obtained by the Tribune-Review.

In the July 30 memo to board members, finance director August Hehemann proposed raising the LCB's markup on products from 30 percent to 35 percent starting Feb. 1 in an effort to cover the $24.5 million loss for the 2014-15 fiscal year.

Hehemann said personnel and benefit costs will rise by $32.1 million while operating expenses, including IT projects and licensing upgrades, "which were postponed in prior years," will tack on another $18.5 million to agency expenses.

Although wine and spirits sales are expected to grow this year, expenses are outstripping that growth by nearly 12 percent, the memo states.

LCB spokeswoman Stacy Kriedeman said the memo is typical of the agency's annual budget discussions.

"As is usual in these discussions, we talk about initiatives to increase sales, discuss options to control and/or reduce expenses and review the agency's product markup structure," Kriedeman said. "An increase in the product markup is typically discussed as part of the budget process. ... We continue to look at alternate ways to increase revenue in an effort to leave the markup as it is."

The LCB has not increased the markup in more than 20 years.

Hehemann said in his memo that higher markups may lead vendors to lower their prices so the shelf price for consumers remains unchanged, but noted many unknowns remain.

"Many vendors will wait and see how their competition responds to the increase before revising their prices," Hehemann wrote.

If the LCB raises the markup on Feb. 1, it would generate an estimated $17.4 million more for the agency over the remaining five months of the fiscal year.

Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Bradford Woods, who has championed privatizing the sale of wine and spirits, said the memo contradicts the rosy picture LCB officials paint of agency finances during hearings before state lawmakers.

"Either somebody was intentionally not telling the truth or as an agency they made a decision to mislead the legislature and the public," Miskin said. "There was never even a hint of anything negative, anything in the red."

Kriedeman said the agency is in strong financial shape.

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Source: Tribune-Review (Greensburg, PA)

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