Malloy: Liquor Laws Need (Partly) Free Market Fix

The governor wants liquor stores to better compete with surrounding states, both for the sake of consumers and Connecticut's tax revenues. Not everyone is on board.

Flanked by cases of Budweiser, Four Loko and even Arizona Iced Tea, Gov. Dannel P. Malloy toured the sprawling headquarters in Orange. The company serves more than 3,000 bars and stores in Fairfield, New Haven and Middlesex counties and it’s no coincidence that Malloy stopped by on Tuesday. 

In an attempt to update Connecticut’s liquor laws and remove restrictions imposed by state government, Malloy talked up his plan to have Connecticut compete with surrounding states.

“They’re eating our lunch,” said Malloy, referencing the money lost to out-of-state alcohol sales. “They’re literally eating our lunch.” 

Connecticut’s regulation of alcohol sales would make most free-market enthusiasts shudder. Price controls make it illegal to sell alcohol below a certain price. The blue laws make it illegal for business owners to sell alcohol on Sunday except at a bar or restaurant. Other laws forbid package stores from selling snacks -- even peanuts.  Currently, it’s even forbidden for one person to own more than two package stores.

Malloy wants to change all this and more. 

Liquid Revenue

Malloy’s plan would allow the free market to play out (with one key exception) more than the laws currently allow. He describes the modernization plan as a good thing for consumers, with prices for a case of beer projected to drop $2-$5 and wine bottles from $2-$7. Malloy also sees the law changes as a panacea for some of the state’s fiscal woes.

With Connecticut facing a $145 million deficit in 2012, alcohol sales are seen as a way to help close that gap. Officials hope to raise $8 million a year in additional revenue through the proposed law changes. A study cited by Malloy estimates that Connecticut is losing $570 million in sales [note: the study itself could not be found at the time of publication but will be added later].

Edward Crowley, who oversees 215 employees as president of Dichello Distrbutors, agrees with Malloy.

“The state of Connecticut wins because we keep tax revenue within our borders from sales, keeping them from our neighboring states,” he said at a press conference after the tour.

Medallions Not Just for Olympians

While most of Malloy proposed changes favor opening the market up, a medallion system that would cap the amount of alcohol sellers in the state has a different intention.

Malloy said, “As we modernize, and as we become far more pro-consumer in pricing, how do we retain value for a set of current license holders?”

His solution is a system that rewards existing liquor store owners with a medallion that provides financial incentives while potentially limiting competition. If someone else would like to open a store, they would have to purchase the medallion from someone else at a market price or else they won’t be able to start the new business.

The maximum number of medallions - which are essentially permits - is up to the legislature to decide if they adopt the laws. As past examples in history show, there could be unintended consequences if the cap is set below the demand of consumers.

In New York City, a medallion system has been in place since the 1930s.  In 2011, scarcity forced the price of a taxi medallion up to $1 million. In Washington D.C., there’s an ongoing debate as to whether medallions should be issued to taxis. This is what D.C.’s chief fiscal officer determined in a study:

There is broad consensus among economists that such restrictions allow a small group of private citizens—those who are among the first round of recipients of medallions—to earn windfall profits at the expense of consumers and drivers without medallions. Evidence from other jurisdictions suggests that limiting entry into a taxicab market leads to a decline in overall service.

When asked about the possibility of exhorbitantly expensive medallions, Malloy doesn’t see similar issues arising in Connecticut.  He said liquor stores per capita are the highest in the country already.

“How many more liquors store do we want to have per capita than every other state?” Malloy said.

Opposition from Small Stores

While Malloy’s plan has the support of beer wholesalers in the state, the Connecticut Package Store Association opposes allowing liquor sales on Sunday.

“The overhead of adding hours and days increases costs to retailers making it worthless to open. Any revenue gain would best be described as blood money, as the public and personal unintended consequences of this proposal become known. Stores sell six days a week, 72 hours a week. If a person cannot obtain alcohol in this time, availability is not the problem,” wrote the association on their website.

Grocery stores, which are already open on Sundays, would be given the advantage since selling alcohol that day comes at no additional cost to them.

The organization also doubts the state’s project revenue increases. To make $5 million more in taxes, the group says there would have to be an additional consumption of 5 million more gallons of beer, 300,000 bottles of wine, 100,000 bottles of spirits or a “combination of these" to generate that much revenue.

TJC February 16, 2012 at 01:39 PM
I disagree with the honorable Governor. No other state is "literally eating our lunches." English 101.
Creeky February 16, 2012 at 03:56 PM
"“The overhead of adding hours and days increases costs to retailers making it worthless to open. Any revenue gain would best be described as blood money, as the public and personal unintended consequences of this proposal become known. Stores sell six days a week, 72 hours a week. If a person cannot obtain alcohol in this time, availability is not the problem,” wrote the association on their website." I've made the run to New York, on a Sunday, more times than I can count. Not every get together is planned. I'm not much of a drinker but, that doesn't mean I won't go to some effort to entertain my guests. And I'm far from alone. Stop by the liquor store off the Merritt, just inside of New York, and count the CT plates in the parking lot. The Connecticut Package Store Group is just another lobby. Like all lobbyists, their words are a mix of truth, half truth, and flat out lies, to serve their agenda. I guess that is the norm today, tell whatever lie you like to serve your agenda. Ethics are dead. I wasn't a supporter of this, as I don't think more revenue is the solution; I think less spending is. I guess it is the contrarian in me, because you are lying to serve your agenda, I now support this law change. All you had to do is say, "in our opinion," or publish up a study supporting your case. Nope, you are just lying. Our government has been completely broken by lobbyists. We need to break the lobbyists.
SR February 17, 2012 at 03:39 PM
@Creeky Your statement sounds jaded. This proposal by the gov. is a terrible idea. If these laws are passed it will force many small business/mom and pop package stores to close. This will result in a loss of many jobs. Sunday sales are only the tip of the iceberg. The changes to no minimum pricing and quantity discount will destroy businesses that don't have extremely deep pockets. The end result in this will be big mega stores similar to what home depot did to hardware stores. Save small businesses and jobs!!
Creeky February 17, 2012 at 07:25 PM
SR, Your statement sounds reasonable. How come The Connecticut Package Store Group resorted to lying? I am jaded, and bitter. I'm not insensitive to the plight. My own small business is under huge duress due to a asinine and corrupt decision making by a local town government and DEEP. I'm looking at the big picture. And the no minimum and quantity discount issue? I just don't take issue with it. I also continuously lose business to large and online retailers. I don't support no regulations but, I do prefer a generally free market approach, whether it is hurting or helping. Also, is there a specific requirement that the store open on Sunday in the proposal? My own local didn't jump at the 9:00 closing when that law went through. I've stuck with them, only driving further if it is after 8. It comes down to this: I believe the false statement is unethical behavior, and I do not want that rewarded.
SR February 18, 2012 at 01:20 AM
I believe that someone is in Malloy's pocket. It makes no sense to screw up such a good thing. I work in the industry, and don't take issue with Sunday sales and the later hours. However, I do believe the quantity discount will clog the market with big name brands and force the small boutique wineries and small stores out. Did you know that stores will be forced to buy 6 months of stock on an item just so they get the best price? On a high priced item like Ketel One that will force them to spend thousands of dollars on one item. Now think of all the major brands off the top of your head, that's 50k + in inventory just on liquor.
Creeky February 18, 2012 at 01:51 AM
Somewhat calmer and less reactive, I agree SR. The proposed bill very much favors larger corporations. Is that 6 month stock requirement actually part of the law? Can you post up a link to that?


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