Story originally printed in the La Crosse Tribune or online at www.lacrossetribune.com

Published - Friday, July 25, 2008

Study: State’s minimum gas markup law costly

By JASON STEIN / Lee Newspapers

MADISON — As gas prices have soared, so has the effect of a Depression-era state law that mandates gas stations mark up the price at the pump, a new study by a conservative research group argues.

The state law requires filling stations to raise the wholesale price of gas by 9.2 percent. That was one thing 10 years ago when the wholesale price of gas was 64 cents a gallon; the effect is far greater when the price is $3.29 a gallon as it is now, the Wisconsin Policy Research Institute said.

“Consumers should be irate,” said Christian Schneider, the report’s author. “It shouldn’t be the government’s job to make sure that they’re paying more for gas.”

The study — harshly criticized by those who see the law as a needed defense for mom-and-pop filling stations against big business — comes as state lawmakers renew a call to repeal the controversial minimum markup law.

The 1939 law is meant to ensure competition and help consumers by preventing big gas sellers — then the Standard Oil Co., today such giant retailers as Walmart — from driving smaller stations out of business with low prices only to jack them up later.

With retail gas prices hitting more than $4 a gallon this month, the markup law calls for upping the price of gas by as much as 30 cents a gallon, up from 5.9 cents a gallon in January 1998, the study found. That’s nearly equal to the 32.9 cents per gallon the state charges in gas taxes.

After allowing for what gas stations normally would charge to make a profit without the law, the markup could add up to 8 cents a gallon, or $278 million a year, in extra costs for state motorists, the study estimates.

Protecting small stations

A representative of the state’s small gas stations ridiculed that claim, saying in practice gas stations don’t usually impose the full markup.

That’s because a clause in the law allows retailers to lower their price to meet those of a competitor, including those across state lines where gas taxes are lower, said Matt Hauser, president of the Wisconsin Petroleum Marketers and Convenience Stores Association.

“That (study) assumes that every gallon of gas sold in Wisconsin includes a 9 percent markup,” Hauser said. “That’s just not happening.”

In Madison, the average price of gas was near its peak July 17 at $4.08 per gallon, Hauser said. Assuming a $3.42 wholesale price and allowing for state and federal taxes, the average markup for stations that day was about 15 cents — half of what they could have received under the markup law — and actual profits were just pennies on the gallon, he said.

In the long run, the law keeps prices lower by ensuring competition, Hauser said, citing a 2001 study done for his group. Even though the full markup isn’t common, he said, the law provides a recourse for gas stations that see prices severely undercut by a competitor.

“Mom-and-pop stations are alive and well here,” he said. “The big retailers know that once they push them out, they’re not coming back.”

Andy Reschovsky, a University of Wisconsin economist, agreed repealing the law probably would hurt some smaller retailers. But that’s only because it likely has kept prices artificially higher than they otherwise would be, he said.

The government doesn’t set minimum profits on a bag of groceries or a hamburger and fries at a fast-food restaurant, Reschovsky said. “Why is it different for gasoline?”

Markup law challenged

Wisconsin is among 18 states with laws barring retailers from selling gasoline below their cost. The law has survived a number of challenges from both Republicans and Democrats in recent years.

Tuesday, state GOP Reps. Leah Vukmir of Wauwatosa and Bill Kramer of Waukesha urged Democratic Gov. Jim Doyle to call a special session to repeal the markup law. Doyle, who also supports repealing the law, said Wednesday he wouldn’t call lawmakers back into session if “the votes aren’t there.”

Doyle said eliminating what he sees as an antiquated law would help drivers but won’t eliminate the unwelcome reality of $4-a-gallon gas. “It would help on the margins but not in a major way,” he said.

Pam Moen, spokeswoman for AAA Wisconsin, said that was reason enough to dispense with the law. “It’s doing more harm than good,” Moen said.

But Ed Francois of Belleville, Wis., doesn’t see it that way. His business, Francois Oil, runs 12 gas stations in Dane and surrounding counties and supplies other independent stores with fuel.

He’s a strong advocate of the law, calling it the only thing that allows him to be able to continue serving his customers.

“It’s protecting a guy like me against Walmart,” Francois said. “With this law off the books, I will be history. It will take five years, but it will happen.”

Jason Stein is a reporter at the Wisconsin State Journal in Madison.