Commentary: Five Questions for New Liquor Advisory Committee

In recent weeks, Gov. Rick Snyder has appointed two new members to the five-person Michigan Liquor Control Commission, and the Department of Licensing and Regulatory Affairs announced the creation of a new committee to review existing wine, beer and liquor market rules and recommend changes. Any changes should place consumer interests ahead of both state government interests and those of the 60-plus beer and wine wholesalers and distributors who dot the state with their territorial monopolies.

For the uninitiated, Michigan is one of 18 so-called “control” states, in which the government is the initial buyer of all of the hard liquor consumed in the state. This state then tacks on a 65 percent mark-up, plus several taxes. The mark-up becomes a mandated minimum price, below which stores are prohibited from selling their wares. As recently reported here, a comparison of liquor prices at the Meijer stores in Angola, Ind., and Coldwater, Mich., provides anecdotal evidence that Michigan consumers and/or taxpayers are treated unfairly by this archaic system.

In contrast, the state does not initially purchase all the beer and wine consumed here. Instead, it forces brewers, vintners or their national distributors to enter into exclusive contracts with a particular wholesaler/distributor, who then has a regional monopoly on that producer’s product. This almost certainly forces the state’s beer and wine drinkers to pay more.

How much more? An April New York Times guest editorial by David White suggested that consumers may pay 18 percent to 25 percent more as a result of the wholesaler activities. In addition, as a Mackinac Center video produced by Ken Braun and Kathy Hoekstra showed, this so-called “three-tier” system also costs jobs and inhibits growth at Michigan-based microbreweries.

Given what may be an opportunity to reform alcohol-related regulations in the Great Lakes State, here are some questions for the new advisory committee and LCC commissioners:

1. Why did the Liquor Control Commission (and to a degree the Michigan Legislature) largely ignore reform recommendations made by their own “Customer Advisory Committee” report on liquor licensing in 2005?

This committee recommended 10 substantial reforms designed to reduce the time it took for the LCC to decide licensing matters, but the ideas were not fully embraced. The committee had hoped to see the licensing process reduced to a 90-day affair for applicants and to “strive to further reduce that licensing time to 60 days or less.” This was at least the third such streamlining attempt since 1979, according to the report. LARA’s new commission should start their investigation into LCC reform by reading the 2005 advisory committee’s report, which its members can do here.

2.     Why does the state feel compelled to retain its role as primary state liquor wholesaler almost eight decades after the end of Prohibition?

Only 18 states today act as liquor wholesaler. The old “health and safety” rationales are belied by growing evidence that at worst there is no statistically significant safety difference between liquor control states and free or “license” states.

3.     Why is the state in the price control business?

Michigan imposes a minimum shelf price for hard liquor that limits potential savings for consumers and the state economy as a whole. If the goal is to discourage consumption by jacking up prices, then apply a straightforward excise tax and otherwise let competition reward sellers who provide better value. If the goal is just to inhibit competition, then stop it.

4.     Why does the state limit price changes that can be made to beer and wine?

By law, monopoly beer wholesalers who do want to cut prices in their territory must jump through regulatory hoops and then wait 180 days. Wholesalers must also seek permission to change wine prices outside of a system of regular quarterly price updates submitted to the LCC. These examples of regulatory overkill impose additional costs on consumers.

5.     Why does the state limit wine shipments directly to consumers?

In 2005 the United States Supreme Court ruled as unconstitutional state laws that allowed in-state delivery of wine directly from wineries to consumers but prohibited the same commercial activities from out-of-state suppliers. Michigan ultimately amended its Liquor Control Code in 2009 in such a way that would permit out-of-state shipments, but only through state-approved suppliers, thus limiting purchase options for adult consumers.

With the state set for what could be its fourth major review of Liquor Control Commission policies and procedures since 1979, it is high time someone looked at our current system of control from the perspective of the individual consumer. For too long Michigan government has interfered to an unnecessary degree in the choices of grown adults and the legal product of which many choose to consume. This could be an unprecedented opportunity to normalize relations between the state — and those who benefit from its regulatory privilege — and Michigan consumers.

The new appointees and advisory committee have their work cut out for them and might serve well Gov. Snyder’s administration and consumers alike by first pondering on the questions above.

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Michael LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.