Category Archives: Department of Liquor Control

Adam Pagnucco, Department of Liquor Control, Hans Riemer

Is This Moving Into the 21st Century?

By Adam Pagnucco.

Montgomery County Executive Marc Elrich has announced that he is “focused on building a 21st century economy that will help the County maintain its leadership position in the State, while being more competitive in the Washington D.C. metropolitan region.”  And how will that be done?

By marketing the county’s 1930s-era soviet liquor monopoly, of course!

The county’s Alcohol Beverage Services (ABS), formerly known as the Department of Liquor Control, has a monopoly on wholesale distribution of alcohol from which only small, local craft breweries and distilleries are exempt.  Through its county liquor stores, ABS also has a monopoly on off-premises retail sales of spirits.  This structure has been in place since the end of prohibition.

The original purpose of the liquor monopoly was to “control certain obnoxious practices” and “keep the county an attractive place to live.”  Now, however, the purpose of the monopoly is to make money.  During the current fiscal year, ABS is projected to contribute $28 million to the general fund and an additional $9 million to pay off county debt service.  Despite its overall profitability, ABS is under heavy pressure to make even more money for four primary reasons.

First, the county projected a $100 million revenue shortfall back in December.  It’s unknown whether that number will change when the executive’s recommended budget is released next month, but if there is a shortfall of close to that amount, that’s a problem.

Second, the county has been raiding its retiree health care fund to balance its budget in recent years.  A statement by Wall Street credit agency Moody’s warned the county to stop doing that.  If the county takes heed, how will it replace that money?

Third, the county council clearly has no appetite for tax increases at the moment.

Fourth, Council Member Hans Riemer recently revealed that the county liquor stores as a group are actually losing money, not making it.  That prompted an explosive reaction from ABS Director Bob Dorfman amid questions about whether the stores should continue operations.

An excerpt from an email by the county executive calling for a 21st Century economy and simultaneously promoting the liquor monopoly.

ABS has now proposed a solution for increasing the stores’ profitability: it wants to rebrand them.  In a council session on February 20, the council reviewed a letter from the county attorney asking for permission to hire outside counsel specializing in trademarks to secure a new name.  The county’s chief administrative officer told the council that the specific name being considered is “Cork and Barrel,” which a simple Google search confirms is widely used around the country (including in Maryland).  The initial outlay to the trademark attorney is expected to be less than $6,000.  But if ABS does go through with a name change, there will be many additional expenses for logo design and changes to facilities and equipment.  Last summer, when water and sewer utility WSSC proposed a name change, the projected expenses totaled $850,000.  Council Member Evan Glass raised the experience of WSSC and said, “If a government monopoly or a quasi-government monopoly needs a marketing and outreach strategy then there is a problem.”

Three council members – Riemer, Glass and Andrew Friedson – voted against the appointment of counsel.  Friedson and Glass have gone on record in opposition to the liquor monopoly.  Riemer thinks it is time for the county to close its retail liquor stores.  The rest of the council voted in favor of hiring outside counsel.

The county council has almost no power to control the liquor monopoly under state law.  But the General Assembly does and its vision for the monopoly is very different from the Elrich administration’s.  In 2017, the General Assembly passed a state law enabling the monopoly to contract with private stores to allow them to sell spirits.  (Right now, only county liquor stores may sell hard alcohol – a crucial advantage for the county.)  But ABS has ignored the law’s intent and has so far refused to allow private retail sales of spirits.  Its rationale is understandable: without its retail spirits monopoly, its stores might never be profitable.  No dissenting votes were cast in Annapolis against the law that the monopoly now flouts.  Will MoCo’s state legislators hold it accountable?

As for the name change and marketing expenses, consider this.  State law requires private beer and wine stores to purchase products from the county liquor monopoly’s wholesale operation.  Their payments will now be used to rebrand and market the county liquor stores that are in direct competition with them.  In essence, they will be required to pay for the county’s attempt to raid their market share and take away their business.

How is this a legitimate function of government?

How can Montgomery County do this and claim that it is business friendly??

MoCo faces a choice.  It can move into the 21st Century and allow competition.  Or it can have a 1930s-era soviet liquor monopoly.

It can’t do both.

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alcohol, Department of Liquor Control, District 18

Mila Johns: End the Monopoly

By Adam Pagnucco.

District 18 House candidate Mila Johns has sent out a mailer calling for an end to MoCo’s liquor monopoly.  The mailer contains an endorsement from Comptroller Peter Franchot, a hero to monopoly opponents who has been calling for its end for years.  This is the first mailer we can recall seeing on this subject and we appreciate Johns’s courage in calling this question so publicly.

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Adam Pagnucco, alcohol, Department of Liquor Control

Is the Liquor Monopoly Improving?

By Adam Pagnucco.

Once again, Montgomery County’s liquor monopoly is a hot issue in local politics.  As far as we know, MoCo is the only county in the nation in which the county government has a monopoly on the distribution of beer, wine and spirits and also a monopoly on retail sales of spirits.  Candidates for office disagree on whether it is needed.  In a response to David Lublin’s recent post on the subject, Department of Liquor Control (DLC) Director Bob Dorfman claims it has improved.

Has it?

We will give the monopoly credit for one thing: it did not see system-wide distribution failures in the critical week between Christmas and New Year’s last year as it did in 2015 and 2016.  That has not stopped two anti-monopoly groups from forming in the last few months, one representing licensees and another representing consumers.  But what’s really going on?  Let’s look at the data.

According to Gallup and the U.S. Department of Health and Human Services, alcohol consumption tends to be correlated with education and income.  That makes sense – people with college and graduate degrees tend to make more money, and people with more disposable income have more money available for alcohol purchases.  MoCo has lots of highly educated and wealthy people so we should be one of the leaders in alcohol spending in Maryland.

The Comptroller of Maryland, who collects alcohol taxes, posts annual reports of alcohol sales per capita for each of Maryland’s twenty-four jurisdictions on his website.  We collected the last ten fiscal years of that data and present it below.  Let’s remember when recent changes at the DLC occurred.  After many revelations of bad performance in 2014, DLC launched an “Action Plan” to improve performance in June 2015.  George Griffin, the former DLC Director who was blamed for the first New Year’s Eve meltdown, left in January 2016, about halfway through Fiscal Year 2016 (which ended on June 30).  Bob Dorfman, the new DLC Director, started in December 2016, about halfway through Fiscal Year 2017.  If these events were associated with genuine operational improvements, we would expect to see significant increases in both per capita sales and rank among jurisdictions over the last three years.

That has not happened.

Below is data on per capita sales of spirits, wine and beer in Montgomery County over the last ten fiscal years.

Spirits sales per capita have increased over the last decade, although they have barely changed since 2013.  Wine is stagnant.  Both wine and spirits fell in FY17, the first year of the new Director.  Beer sales per capita are down over the last decade and rose slightly in FY17.  But here’s the thing: MoCo’s new craft breweries are exempted from the liquor monopoly and, as a result, are doing really well.  The tiny gain in beer could be due to FREEDOM from the monopoly, not better operations at the monopoly.

Now let’s compare MoCo’s rank in per capita sales to the 23 other local jurisdictions in Maryland.

Because of its education and wealth, MoCo should be one of the leading counties in per capita alcohol sales.  It’s not.  In terms of spirits, the only county that’s worse is Somerset, which perhaps not coincidentally has its own monopoly on spirits sales.  In terms of beer, MoCo is dead last.  In terms of wine, MoCo has slid from ninth in the state to fourteenth, moving down a spot in FY17.  Jurisdictions in which residents bought more wine per capita than MoCo in FY17 included Anne Arundel, Baltimore City, Baltimore County, Calvert, Carroll, Cecil, Frederick, Garrett, Harford, Howard, Kent, Talbot and Worcester.  Does anyone believe that residents of counties with two-thirds of MoCo’s household income (or less) drink more wine than we do?

What’s happening is that consumers leave the county to buy alcohol.  That’s why numerous D.C. liquor stores are located within blocks of the MoCo border.  That’s why a fifth to a quarter of customers at Total Wine stores in McLean and Laurel come from MoCo.  The state’s Bureau of Revenue Estimates found that if MoCo customers were to return to the county to shop for alcohol in the absence of the liquor monopoly, the county would see a surge of almost $200 million in new economic activity, enabling a path forward for the county to replace every cent of lost revenue.

Dorfman is a better manager than his predecessor and we believe he is genuinely trying to improve DLC.  But Dorfman won’t be there forever and DLC has a long history of problems.  The monopoly also has a long history of promising improvement, mostly resulting in fleeting or ineffective fixes with quick relapses.  Even modest liberalization passed by the General Assembly to allow some private retail sales of spirits has been blocked.  What the above data on per capita alcohol sales shows is that, despite claims to the contrary, not much has changed.  And unless MoCo starts behaving like a normal county and allows private sector competition, true change may never come.

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Department of Liquor Control

No Free Drinks for Me: The DLC Bites Back

Yesterday, the Director of the Montgomery County Department of Liquor Control wrote me regarding about my recent post on the DLC. It’s unusual for a civil servant to dive into public political debates involving his department, especially during an election, so I thought I would print his email and my response.

David,

As I finished reading your blog ON “THOSE GOOD UNION JOBS” AT THE DEPARTMENT OF LIQUOR CONTROL, I was inclined to finally respond to your ongoing one-sided, dated, often inaccurate portrayal of the DLC, and particularly your lack of knowledge of the Federal and State alcohol regulations.

Simply put, you need to get out more.

Even our most vocal critics have acknowledged the significant improvements that we’ve made. You should come and see for yourself.

We can disagree with this or that policy but the demeaning and disparaging comments that you made about our several hundred hard working and dedicated DLC employees really crossed the line. I am proud of the work they do. You should be ashamed of yourself.

Regards,
Bob

Here is my reply:

Bob,

I did not disparage the work. I also did not attack the job done by the employees as a group. However, I think it is well within my rights to describe the service experience as variable despite the stores having seemingly more staff than equivalent private competitors inside and and outside the County. It’s also utterly reasonable to think that the DLC should exist to serve county residents, not that we exist to provide employment at the DLC. I just saw your latest sales figures and I see little sign of any change in the sales pattern that would indicate residents perceive a change. Certainly, I have heard little in the community or from restaurant operators.

More broadly, I’m entitled to my opinion, and one voice countering the weight of the DLC and county government agitprop hardly seems close to balance. In any case, I get vocal pushback on many posts, but heard less criticism than I thought I’d get on that one.

I call them as I see them and I see no shame in that.

If you have good news to share instead of shaking your finger at me, please let me know. I’m always glad to learn more.

David

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alcohol, Department of Liquor Control, Montgomery County

On “Those Good Union Jobs” at the Department of Liquor Control

MCGEO has done quite a number on county residents. When discussing the hot issue of privatization of Montgomery County’s liquor monopoly, politicians automatically express concern about the potential loss of those “good union jobs.”

People would be a lot less sympathetic to the idea of protecting liquor store or distributor employees. Why on earth should we maintain an antiquated, inefficient monopoly to protect their jobs but not spend money to protect the grocery store cashier or bank teller threatened by automation?

What makes all the angst about losing “good union jobs” even more galling is that private liquor distributors are unionized by the Teamsters – a little fact that never seems to get mentioned in all the handwringing.

Privatization doesn’t threaten union jobs. It threatens union jobs that pay dues to MCGEO. So MCGEO President Gino Renne, who was paid $196,700 by his local union and an additional $20,000 by his international union last year, is naturally quite concerned. As Gino likes to say, “Just keeping it real.”

Sadly, no one seems concerned about all these Teamsters Union jobs lost due to the monopoly depriving them of a livelihood. Not to mention the restaurant jobs lost because of extra costs that make it harder to turn a profit and frustration with the Department of Liquor Control that stops businesses from opening or expanding in Montgomery.

The other unasked question is why does the DLC perform so poorly if these jobs are so great? Service at DLC stores is variable at best and most employees are unfamiliar with their product. Beyond the stories about the DLC failing to deliver product at key moments, such as right before New Year’s, I’ve also heard about the DLC dumping shipments in the middle of the bar during happy hour.

It’s almost as if Ernestine left the phone company once Ma Bell was broken up and sought refuge at the DLC. “We’re the DLC, we don’t have to care.”

It’s not as if the DLC is understaffed. Somehow, Montgomery County-based Total Wine manages to keep in stock and much better organized a far greater range of product. They do it with fewer employees who yet also seem to know about the product that they’re selling and are more likely in my experience to provide good customer service. Other stores do the same.

Similarly, I’d like to know the share of DLC workers who live in Montgomery County. While some might argue that this is irrelevant, why must Montgomery County citizens keep in place a costly system to subsidize workers who don’t even live here? Even this question has totally lost the plot as government should not be a make-work program but should provide services to residents.

Councilmembers defend the DLC because it brings in money to the county. It would be a miracle if a monopoly on booze in the DC area did not. The sad truth is that it brings in far less than it might. The amount of beer and spirits sold per capita in Montgomery is lower than almost all other jurisdictions in Maryland as well as the Virginia suburbs. Does anyone seriously believe that we drink phenomenally less than people in Fairfax? Greater efficiency would also increase profit. Couldn’t we just tax alcohol and try to grow the economic pie instead of clinging desperately on to a stagnant unloved system?

None of this means that we shouldn’t pay county employees decent wages or we should just chuck the DLC workers out of a job. But nor should taxpayers be obligated to maintain a system that doesn’t work and myopically hurts the economy in perpetuity.

It’s time to call the question and end this outdated monopoly.

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Adam Pagnucco, Department of Liquor Control

Licensees Complain of Ordering Outage at Liquor Monopoly

By Adam Pagnucco.

The Montgomery County Licensed Beverage Association, which was founded by licensees as “a voice for Montgomery County retailers and restaurants against unjust DLC practices,” is complaining about a maintenance outage in the liquor monopoly’s iStore and iSupplier ordering systems.  This is the second complaint about the monopoly this week after the co-owner of a closing Silver Spring restaurant blasted it as having a “bloated and antiquated bureaucracy.”  We reprint the association’s Facebook post, which contains DLC’s notice, below.

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Adam Pagnucco, Department of Liquor Control, Silver Spring

Co-Owner of Closing Restaurant Blasts Liquor Monopoly (Updated)

By Adam Pagnucco.

A co-owner of The Classics Restaurant, a Silver Spring steakhouse, has issued a statement placing part of the blame for his decision to close on the county’s liquor monopoly.  Co-owner Elliott Rattley said in part:

After some eleven and a half years, the Montgomery County Government has yet to show any support for the independent businessman in this area. Along with the onerous burden that the ineffective Montgomery County Department of Liquor Control places on an independent operator by their over the normal, for every local jurisdiction, pricing structure to support a bloated and antiquated bureaucracy, and the unfriendly business climate that Montgomery County in general creates, the continuance of this business is untenable. Of course, the loss of a Fortune 500 company directly across the street hastened this decision. (Discovery Channel)

Source of the Spring has the full statement.

In 2015, Delegate Bill Frick (D-16) introduced a bill that would have allowed MoCo voters to decide whether to end the monopoly.  An online petition initiated by your author gained more than 2,000 signatures from consumers, retailers and restaurant operators in favor of Frick’s bill.  County Executive Ike Leggett and the entire County Council except for Council Member Roger Berliner fought the bill and the delegation declined to pass it.  Seventh State asked Frick, Berliner, Council Member Marc Elrich and Council Member George Leventhal, all of whom are running for Executive, for their positions on the monopoly.  You can read their responses here.

Update: Patrick Lacefield, the county’s Director of Public Information, gave us the following on-the-record statement: “Our records indicate A single complaint ever (December 29, 2015 about an item not delivered).  Plus a $1000 fine for serving an underage person on December 5, 2013.  That’s pretty slim evidence.”

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Bill Frick, Department of Liquor Control, George Leventhal, Marc Elrich, Roger Berliner

County Executive Candidates on the Liquor Monopoly

Question: The county’s liquor monopoly has come under heavy criticism–not least from Seventh State. If at all, how would you reform or change, or press the state legislature to change, the Department of Liquor Control?

Roger Berliner

At the county level, I have been the chief advocate for ending our unique – and counterproductive – liquor monopoly.  As someone who has fought monopolies most of my professional life, I know in my bones that monopolies are rarely, if ever, in the public interest.  Government monopolies are generally even less efficient.  And a government monopoly that tries to do a job that the private sector does in the rest of the country is almost always less efficient.  That is true in MoCo.  As a result, our residents vote with their feet.  Almost one-third of our purchases of liquor are made outside Montgomery County.  Our restaurants hate it.  Top flight restaurants have said that they would never come here. Bottom line: our monopoly needlessly perpetuates the reputation of our county being anti-business and anti-consumer and stunts our economy.

However, the state is a critical partner in this conversation.  It is state law that created our monopoly, and state law must be passed to change it.  The positive side of this dynamic is that the state would be the principal, direct beneficiary of increased liquor sales.  I would work with the Governor and our legislature to split the savings that the state would derive and hold the county harmless as it weans itself from this monopoly.  The dollars are not that significant given that our retail operations should continue to do well – assuming that they can compete!  And in the long run, our county will prosper more without the monopoly than with it.

Marc Elrich

Any discussion of the Department of Liquor Control (DLC) must acknowledge that the Montgomery County budget relies on over $30 million in liquor revenue per year.  That is no small amount of money, and it supports critical county services, including almost $11 million for bond payments.  Nobody who has proposed privatizing the county’s liquor supply has a workable plan to fill the budget hole privatization would create, likely because there is no way to do so that doesn’t create other problems for the state.

Privatization proposals thus should not be taken seriously; instead, we should continue to look for ways to make the DLC more efficient and effective than it has been in the past, and to increase sales so that we can increase the revenue that the DLC generates.

We’ve already changed the way the DLC is run by bringing in industry professionals, including the director and the warehouse manager, who have improved the operations of the liquor system and brought in a philosophy of continuous improvement.  I’ve also encouraged introducing lower markups for more expensive items, which they did, and I’ve supported and will continue to support efforts to help local breweries and wineries sell and distribute their goods.  Both the new director and I want to hear and consider other ideas for helping transition the DLC from something that the county has long taken for granted into a professionally run system.

In fact, if a private-sector business had a division that produced a substantial profit but was identified as having management problems and customer service issues that prevented it from being more profitable, its most likely course of action would be to change management, work to improve services, and strive for greater profits.  That is exactly what we have been doing with the DLC.

Bill Frick

I have been the state’s leader on fixing this abysmal broken system.  My “end the monopoly” effort, helped immensely by the Seventh State’s Adam Pagnucco, fell short in 2016 in large part because of vigorous opposition from the Council and County Executive.  We agreed to let the Executive lead a work group on the issue, but that work group served no real purpose other than to push the issue onto the desk of the next Executive.

This is a great opportunity.  The DLC has value, and I have proposed to ensure that the value stays with Montgomery County by selling off the DLC’s assets, such as its franchise rights to beer distribution, its stores and warehouse, to generate millions in capital dollars that can be spent on school construction.  Because the elimination of the DLC will generate millions in repatriated sales and excise tax dollars, I would work with my colleagues in the legislative leadership to help return some of those revenues to the County.  Finally, we all know that the work of alcohol distribution will not disappear with the end of the DLC, rather, those jobs will migrate to the private sector and will likely grow in the County as our consumers come home to buy their beer, wine and spirits here.  I will work with the private sector distributors and unions to find the best outcomes for current DLC employees as we get the County out of the liquor business.

George Leventhal

I am willing to entertain serious negotiations with parties who are willing to make a serious offer to purchase the right to distribute beer, wine and spirits in Montgomery County. In FY 2018, that enterprise generated more than $33 million in surplus revenue over expenses to the county’s general fund, of which $11 million was spent on debt service for approximately $100 million in Liquor Control Revenue Bonds, which were issued more than a decade ago to pay for transportation improvements, including the Montrose Parkway. I think we should commission an independent economic analysis of the present value of a guaranteed revenue stream of more than $30 million each year. My understanding is that it would come to hundreds of millions of dollars – more than enough to retire the bonds. I do not think the county should simply give away these valuable rights, which belong to the people of the county. However, serious offers from serious buyers should be considered. Simply giving the rights (and the associated revenues) away would require that the bonds be retired or refinanced through other means. If general obligation bonds were used to refinance the Liquor Control Revenue Bonds, it would reduce the county’s ability to construct new schools and other capital projects by $100 million.

In the absence of a serious offer to buy the rights to the entire enterprise, I continue to support the County Council’s 2015 proposal to privatize special order sales of beer and wine. Problems with delivery of special orders comprise the vast majority of complaints from restaurants, but the Montgomery County delegation to Annapolis declined to take up the County Council’s proposal in the 2016 session after County Executive Leggett asked for more time for study.

The Montgomery County delegation also declined to take up proposals for immediate privatization or for a voter referendum. Candidates for County Executive who have concerns about the Department of Liquor Control’s shortcomings should remember that liquor laws are made in Annapolis, not in Rockville. I would also support action by the state legislature to allow sales of beer and wine in grocery stores. Beer and wine stores will soon be able to sell spirits under legislation that passed in the 2017 session, which I supported.

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