News Story

State Liquor Commission Should End Rules that Hike Prices

An open letter to the Regulatory Reform Committee

Dear Legislators:

I am writing to ask the Regulatory Reform Committee to examine why the Michigan Liquor Control Commission continues to maintain “post and hold” rules designed to facilitate tacit price collusion between Michigan’s beer and wine wholesalers. The result is to keep prices of those products artificially high, which pads the bottom line of a handful of politically well-connected special interest beneficiaries at the expense of consumers.

How much does this cost the residents you represent? One study estimates that post and hold rules raise the price of beer and wine products by 6.4 percent to 30 percent.

These rules mandate that beer and wine manufacturers and wholesalers post prices of their products with the commission, which then makes them available to anyone who wants to review them – namely other manufacturers and wholesalers. Once posted, the prices may not change for a length of time that depends on the product. This rule suffocates competition by alerting other industry players to price changes, and then freezes those prices (the "hold" in "post and hold") in place.

Before your committee on Wednesday sits Mr. Andy Deloney, chairman of the Michigan Liquor Control Commission. It is my hope that the committee might use this opportunity to inquire as to why such anti-competitive rules continue to be maintained by the commission. Remember, these are rules that are adopted by political appointees, not laws voted on by our elected representatives.

You should know that I attempted to ask Mr. Deloney these questions myself. Through a spokesman Mr. Deloney responded that “The rule was promulgated in 1954. It is not readily apparent which arguments – pro or con – the commission found compelling when it promulgated the rule.”

The commission doesn’t know why the rule was created, but Mr. Deloney omitted a response as to why the rule was still justified. I’m not surprised. There is simply no economic justification whatsoever for maintaining a rule that transfers vast sums of wealth from consumers to a few dozen crony capitalist beer and wine wholesalers. I’m hardly the first to raise this concern.

For example, in 1979 none other than Gov. Bill Milliken also did so in a letter to the commission’s then chair, Stanley Thayer, writing that such rules (post and hold among others) “stand in the way of real price competition, a cornerstone of our free enterprise economy.” He asked that such rules be amended or rescinded.

In a related Detroit Free Press story titled “Beer Profiteering is Probed,” an assistant director at the Federal Trade Commission in Washington, D.C., argued that the state’s post and hold rules sound “... like a legal way to fix prices. Somebody, rightly or wrongly, has set up a system (in Michigan) to eliminate competition. If anyone suffers, it’s the consumer.”

As you know, state law allows for residents to request rule rescissions and changes. I requested last June that Michigan’s post and hold rules be stripped from the Administrative Code. The commission’s response, recorded in official meeting minutes, was to deny my request and for reasons that were contradictory at best. You can read my full rejoinder to their denial here.

Tuesday, I learned that the Office of Regulatory Reinvention did approve the liquor commission's request to review the Administrative Code’s Beer and Wine rules late last month. It is my hope that the commission will see the wisdom of repealing these harmful rules during the review process.

Lastly, you should know that the Mackinac Center Legal Foundation filed a lawsuit against the commission on Jan. 22 over Freedom of Information Act fees related to my continuing research on post and hold.

The commission insisted that we pay $1,550 to copy 6,000 pages of documents despite the fact that we made it clear physical paper copies were unnecessary. All we sought at this stage of our research was to acquire an electronic copy of 2.5 months’ of spreadsheet data kept by the commission on prices submitted in conjunction with the post rule. We eagerly await the commission’s response.

This may not be the last lawsuit we file related to the state’s post and hold rules. Recent cases elsewhere suggest that courts take a dim view of such competition-stifling regulations.

In the meantime, your committee could perform a valuable public service by getting the chair of the Michigan Liquor Control Commission to justify precisely why these competition-suppressing rules continue to remain in the state’s Administrative Code. If he cannot do so then perhaps you should consider following up by advancing legislation to repeal it.

To see a compendium of the Mackinac Center’s work on alcohol regulation, visit www.mackinac.org/1933. It won’t surprise you to learn that post and hold rules alone are not the only regulations on the books that directly benefit Michigan’s beer and wine wholesalers at consumers’ expense.

Thank you for your time,

Michael LaFaive

Director

Morey Fiscal Policy Initiative

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

News Story

Litigants Ask Supreme Court to Review County Land Bank Cherry-Picking Prime Property

Lawsuit wants to prevent government land bank from cutting in front of private investors

Some private real estate investors have asked the Michigan Supreme Court to review their case against the Kent County Land Bank, the Kent County treasurer, Kent County and the City of Grand Rapids after the Michigan Appeals Court rejected their claims involving tax-foreclosed property. They had argued they were deprived of the ability to purchase properties at a public auction because the land bank, a government agency, was able to cherry-pick and purchase them first, for the minimum bid.

Judges Douglas Shapiro and Cynthia Stephens of the Michigan Court of Appeals wrote the 20-page opinion, affirming a trial court’s order granting summary disposition and denying a motion to set aside quiet-title and foreclosure judgement. Judge William Whitbeck, who seemed to favor the plaintiff’s arguments during oral arguments, grilling the defense on the concept of “sham,” resigned several weeks before the opinion was issued. Whitbeck was appointed to the appeals court in 1997 by Gov. John Engler. Shapiro and Stephens were appointees of Gov. Jennifer Granholm.

The judges said that if they were to side with the plaintiffs, they would have had to read language into the statutes that wasn’t there.

“Thus, once Kent County purchased the tax-foreclosed properties from (the) Kent County Treasurer pursuant to MCL 211.78, there was no requirement that its later sale of those properties be by public auction,” stated the opinion.

Ronald VanderVeen, the plaintiffs’ attorney, said, “What the appeals court is saying, is you can do what was done here, as long as you set up a straw person and route the sales through there,”

In the case of tax-foreclosed property in Grand Rapids, the Kent County Land Bank gave the city money to purchase the properties from the Kent County Treasurer. The city then conveyed the properties back to the land bank.

“The transfer process is spelled out in the statute and we believe the court missed the interpretation in the statute, making the land bank section meaningless. The statute says the treasurer can’t transfer property to the land bank until after it goes through the sale and transfer process in the tax sale,” said VanderVeen. VanderVeen says the transfer is similar to forbidding your teenager from driving to a particular city. The teen, then drives to another city and leaves from there.

In practice, the Kent County Land Bank deems properties to be “blighted,” and takes possession of them by skipping ahead of private buyers at an auction.

The case involves the sale of several hundred properties for the minimum bid amount to the Kent County Land Bank between 2012 and 2013. The investors claim that not only were they deprived of purchasing the property fairly and as required by law, but that the sale cheated county taxpayers.

“I am a former Byron Township supervisor and a level 2 assessor. What concerns me the most is that the KCLB takes taxpayers' money away from the general fund of the county,” said Dan Hibma, one of the plaintiffs. “This diversion amounts to millions less dollars going to the general fund while at the same time county government, really all governments, are always asking for more taxes. It isn't right. And, we're going to see if the courts agree or disagree with what the KCLB is doing.”

VanderVeen says it could take one to two years to get a final decision from the Michigan Supreme Court, if it decides to consider the case.  In the meantime, Kent County is racking up legal bills to defend itself. Between December 2012 and September 2014, land bank litigation has cost the county $128,602, according to the county’s corporate counsel.

Two of the county’s commissioners responded to a request asking whether defending the land bank has been worth it to the county, which has a fraction of the tax foreclosures seen in some counties on the east side of the state.

“Counties have frivolous lawsuits brought against them from time to time. This is an example of a frivolous lawsuit,” said Commissioner Stan Ponstein.

Commissioner Mandy Bolter has a different view.

“I am opposed to government programs that directly compete with the free market,” Bolter said. “I know of many people who provide for their families through the real estate market – they shouldn't have to compete with the government to make a living. In my experience, tax dollars should not go toward anything that could be provided more efficiently and effectively by the private sector – saving tax dollars. There are great reasons to have a land bank in Kent county but I think this lawsuit serves as a perfect example of possible areas within the structure of our land bank that may need to be revisited or reconsidered – finding a solution or structure that could work for everyone.”

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A past video report on the Kent County Land Bank:

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.