Category Archives: alcohol

Adam Replies to Gino on Liquor Control, Part III

Guest Blogger Adam Pagnucco replies to MCGEO’s Gino Renne

My reply to MCGEO President Gino Renne’s response to my post on the county’s Department of Liquor Control (DLC) concludes.

  1. The union says that if DLC were eliminated, union jobs would be replaced by non-union jobs.

MCGEO: “Mr. Pagnucco claims that privatization would not result in the loss of high paying union jobs. This is his most egregious of claims, especially for a former union employee. Where’s the evidence that ‘many private wholesalers’ are represented by IBT? Or even evidence that union membership will not suffer a net loss? Mr. Pagnucco needs to explain himself on this one.”

I’m happy to do so. As MCGEO states, I am a former union employee. I spent sixteen years working as a strategic researcher on organizing campaigns in the building trades. When President Renne writes, “It’s extremely difficult to organize a union in your workplace these days,” he’s absolutely correct. I have seen the extreme tactics that some employers use to keep their workers from unionizing. If I thought that the only alternative to DLC was a group of exclusively non-union employers, I would have misgivings about that.

Fortunately, that is not the case here. The International Brotherhood of Teamsters has been organizing beverage manufacturers and distributors for more than a century and has a Brewery and Soft Drink Conference to represent their workers. The union is also active in our local area. Washington Wholesale LLC, a distributor in D.C., is organized by Teamsters Local 639. Republic National Distributing Company, the second-largest distributor in the nation, is organized in Maryland by Teamsters Local 355. Reliable Churchill LLLP, the largest distributor in Maryland, is organized by Teamsters Local 570. If DLC loses market share to the private sector, it’s likely that unionized firms like these will pick up at least part of it.

This is deeply troubling to President Renne because non-union workers and Teamsters members have one thing in common: neither group pays dues to MCGEO. And that’s the real issue here.

So here’s a question for President Renne: what would happen if private distributors were allowed to compete with DLC? Restaurants and retailers who are happy with DLC could stay with them. Those who are unhappy could buy from the private sector. If DLC has lower prices as MCGEO claims and if their customer service is improving, they should hold on to most of their market share. If not, why should they be protected by a state-mandated monopoly? What do you say, President Renne? Can your members compete with the Teamsters?

  1. The union defends the County Council’s proposed “do-nothing fee” for DLC.

MCGEO: “The ‘fee’ Mr. Pagnucco complains about is paid by the distributor to allow for its participation in the Montgomery County market. Its structure has not yet been determined, just that there will be a fee.”

A quick briefer on the do-nothing fee. DLC has many commonly consumed beverages in its regular stock, but it often has trouble filling orders for specialty items it does not usually carry. These are known as special orders. Here’s a typical complaint:

Mike Hill, general manager of Adega Wine Cellars & Café in Silver Spring, said they have problems getting specialty wines and craft beer.

“If we like a beer or wine and we want to bring that into our store, the turnaround time can be eight days if we’re lucky or two to three months to not at all in some cases,” Hill said.

The County Council has recommended that restaurants and retailers be allowed to go directly to private distributors for special orders, but there are two big caveats. First, DLC determines what is in its regular stock and what is a special order. Second, the council wants to allow DLC to collect a fee on any direct sale by a distributor to “replace DLC estimated revenue lost by allowing the sale of special order beer and wines by private wholesalers.”

DLC loves this because it will get paid without having to do any work. Distributors aren’t so crazy about it. They would have to incur the costs of direct delivery to customers (of shipments that in some cases would be very small) and pay the extra fee on top to DLC because… well, the county just wants the money. Multiple distributors predicted in a hearing before the council that the economics would prevent them from participating in such a “reform.”

But the attitude behind the do-nothing fee is itself even worse. Whoever came up with this idea must believe that our county is soooooo much better than all of our neighbors that we can get away with imposing ridiculous impediments to doing business that no one else in our area would dare to do. Well guess what, folks? Residents and businesses have options. MoCo is a great place to live, shop and work, but so are the District, Frederick, Howard, Northern Virginia and most places near here. If you put enough measures in place to punish employers and consumers, they can and will go elsewhere. That’s the problem with the do-nothing fee and, indeed, DLC itself.

Comptroller Peter Franchot, the state’s top enforcer of alcohol laws and a MoCo resident, says of DLC, “Montgomery County is the last bastion of a medieval state system where the county, if you can believe it, sells all the spirits, alcohol, and we’re not just talking retail, we’re talking wholesale… This is a system that is incredibly slanted against the consumer and the ordinary citizen.”

He’s right. Why are we putting up with this? No one else in the Washington metro area has to deal with anything like this. We are the only ones.

It’s time for a revolt. It’s time to End the Monopoly.

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Adam Replies to Gino on Liquor Control, Part II

Guest Blogger Adam Pagnucco replies to MCGEO’s Gino Renne

My reply to MCGEO President Gino Renne’s response to my post on the county’s Department of Liquor Control (DLC) continues.

  1. The union claims that state monopolies on alcohol sales enhance public safety.

MCGEO: “Dr. Roland Zullo, a research scientist at the University of Michigan, examined the impact of state ownership of retail alcohol distribution on 23 different crimes grouped in six categories. Dr. Zullo finds that state control of retail alcohol distribution is associated with statistically significant reductions in crimes that have been linked to alcohol consumption, including domestic abuse, assault, and fraud. Control states also had lower rates for vehicle theft and vandalism (using a slightly lower threshold for statistical significance, the 10% rather than the 5% level).”

Guess what? This “research” was financed in part by DLC. That’s right, the study MCGEO is citing is an unpublished, non-peer-reviewed working paper paid for by the National Alcohol Beverage Control Association (NABCA), a trade group of government alcohol merchants. George Griffin, DLC’s Executive Director, is a former President of NABCA and a current member of its board. The organization’s budget is partially financed by dues payments from its members, one of whom is DLC. NABCA is fighting efforts to end government alcohol monopolies and was greatly dismayed when Washington state voters got rid of their state monopoly in 2011. So NABCA paid for the working paper cited by MCGEO and it was completed a year and a half later.

For what it’s worth, the study found no statistically significant relationship between state control of alcohol sales and crime for 20 of the 23 measures it examined. Maybe NABCA needs to pay for a better study!

  1. The union opposes blogging(!)

Maybe this is beside the point, but it is too hilarious for me to resist.

MCGEO: “This [County Council DLC] resolution came after months of hearings, testimony and input from stakeholders. If you don’t like the way the process was playing out, Mr. Pagnucco, why didn’t you participate in it? Why are you using your friend’s blog to post your opinion without allowing for public input or participating in the public forum?”

So MCGEO regards blogging as an illegitimate way to participate in public discussions. Who knew? I have a long history of writing in favor of MCGEO’s positions and they have never before uttered a peep of protest. To the contrary; they republished two of my blogs on their website and used another on a handout. Their former Executive Director once asked me to write a piece supporting legislation the union wanted that would have allowed library workers to unionize, and since I favored the bill, I did. But in the one instance when I have publicly disagreed with them, I am told to cease my annoying prattling!

Do you think that MCGEO will resume its recognition of the value of blogging once I start agreeing with them again?

I will finish up tomorrow.

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Five Myths About MoCo’s Department of Liquor Control

Today, I am pleased to present a guest blog by Adam Pagnucco.

Few issues in county government have received more attention over the past two years than the operations of its Department of Liquor Control (DLC). In most parts of the United States, the alcohol industry has been divided into three tiers since the end of Prohibition: producers, distributors and retailers. DLC, which is a county department but derives its authority from state law, inserts itself into this structure as an extra middle-man between distributors and retailers. Instead of being able to sell directly to Montgomery County-based retailers, distributors must sell their products to DLC which in turn sells them to stores and restaurants. DLC then charges an extra mark-up which, after paying for its cost of operations, is returned to the county’s general fund as revenue. DLC also has a complete wholesale and retail monopoly on hard alcohol and sells it through county stores.

A sure way to increase costs, delays and inefficiencies in any distribution system is to add more middle-men, especially ones who do not add value to compensate for their fees. DLC is no exception and has been the subject of complaints for years. But mounting problems, growing press interest and the emergence of the agency as a political issue in last year’s election have brought DLC to the forefront of public attention.

It’s time for a hard look at the myth and reality of DLC.

Myth 1. The county needs DLC’s net income to function.

In Fiscal Year 2016, DLC is expected to transfer $24.5 million in net income to the county’s general fund. That amount represents 0.48% of the county’s total $5.1 billion in projected revenues.

The county regularly adapts to revenue shortfalls of much larger amounts. Its six-year fiscal plans contain revenue estimates that vary up and down by tens of millions of dollars before actual revenues are recorded. The council just approved a $54 million reduction in its recently passed operating budget. The Silver Spring Transit Center is $50 million over budget (and counting). Between Fiscal Years 2013 and 2015, the council reduced energy tax revenues by a cumulative $31 million per year. And in 2010, the council approved a $191 million reduction from the prior year’s tax-supported budget. None of these adjustments were painless, but the county got through them and the world did not end.

The county government can survive without DLC’s money. It simply chooses to collect it because it can.

Myth 2. DLC’s monopoly is needed for public safety.

Last year, Council Member Craig Rice claimed that “county control of liquor sales promotes safety, particularly when it comes to sales to those who are under age 21.” The DLC does indeed vigorously regulate alcohol licensees. It has an eleven-person Licensure, Regulation, and Education program that conducts 400 minor consumption compliance checks annually and trained more than 1,300 licensees in safe alcohol service last year. Additionally, the county’s Board of License Commissioners issues liquor licenses and can revoke and suspend them for violators. But these functions are separate from the county’s role as an alcohol merchant and do not depend on a sales monopoly to be effective. In fact, there is no evidence that the county’s monopoly itself contributes one way or the other to regulatory efficacy. In Washington State, which gave up its alcohol sales monopoly in 2012, both DUI arrests and drunk driving collisions actually FELL a year later.

Myth 3. Without DLC, high paying union jobs will be lost.

This claim is frequently made by MCGEO (Municipal and County Government Employees Organization), the union which represents more than 300 DLC employees along with many other rank-and-file workers in county government. The union has a responsibility to protect its members and generally does an excellent job of it, so its position is understandable. But if DLC’s operations are eventually eclipsed by the private sector, there is no guarantee that union employment will suffer a net loss. That is because many private wholesalers are organized by the International Brotherhood of Teamsters, another union noted for its aggressive defense of its members. MCGEO may prefer that wholesale alcohol employees pay dues to its treasury rather than the coffers of the Teamsters, but that is not a public policy concern that warrants large-scale extractions from county residents.

Myth 4. DLC is getting better.

George Griffin, the long-time Director of DLC, is a happy warrior and tireless defender of his agency. In 2005, Griffin was elected President of the National Alcohol Beverage Control Association (NABCA), a group of public alcohol organizations. He told NABCA of his efforts to continually improve DLC’s operations, including its new Enterprise Resource Planning program to increase efficiency and its installation of security cameras in warehouses. Griffin said, “POS (point of sale), inventory control, accounting, the warehouse, licensee ordering, buyers: they’ll all be tied together… from the retail stores, which will have running inventories, to our drivers, who will be equipped with handhelds.”

Years later, subsequent investigations revealed DLC to be anything but a model of efficiency. This past February, the county’s Inspector General found that DLC employees used “informal, handwritten notes” to track inventory, resulting in “significant decreases in the recorded quantities of warehouse inventories in FY2013 and FY2014.” NBC4 discovered DLC employees drinking and driving on the job and skimming cases of beer to sell on the black market. Restaurant owners have gone on the record with searing complaints about DLC’s service, with one even calling the agency an “evil empire.” Even Gino Renne, leader of the union that represents DLC’s employees and one of its biggest defenders, concedes, “This department needs to be more nimble.”

Myth 5. The County Council has called for “historic reform” at DLC.

On July 28, the County Council passed a resolution calling for a procedural change concerning some of DLC’s sales. The resolution is not binding but may be the basis for a future state-level bill, which is required to affect DLC. County Council Member Hans Riemer called the resolution “historic” in a mass email. But is it really?

The resolution addresses “special orders,” or products that are requested by DLC customers that are not part of its regular stock. These products are often specialty wines or craft beers that have not yet developed wide distribution in the county. Restauranteurs have complained for many years that DLC special orders are subject to long delays, big markups and substantial shortages, particularly when compared to the service offered by private wholesalers. The council’s resolution would allow customers to bypass DLC and deal directly with the private sector when requesting these items.

That sounds great except when considering the actual details of the resolution itself. Among other things, the resolution authorizes the county to establish a fee to “replace DLC estimated revenue lost by allowing the sale of special order beer and wines by private wholesalers.” That’s right, DLC would earn money on alcohol it does not even deliver. Multiple distributors testified at the council’s hearing on this resolution that the size of the fee, along with the additional cost of direct delivery to customers, might deter them from participating in this program. In other words, there would be no effective change.

DLC’s fee for doing nothing is reminiscent of Pepco’s “bill stabilization adjustment,” under which the utility was allowed to charge customers for power it did not deliver during outages. Many people condemned Pepco’s ability to charge for a service it did not provide. But Pepco is not part of county government. Perhaps that explains why what is unacceptable for Pepco is apparently acceptable for DLC.

The biggest myth of all is that DLC can be reformed from within by a series of small tweaks like this one. The idea resembles former Soviet Union leader Mikhail Gorbachev’s concept of “perestroika,” under which his communist government was expected to reform itself. The Soviet Union ultimately collapsed. But with its powerful protectors, DLC goes ever on.

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MCGEO Paves the Way for Alcohol Reform

[UPDATE at the end of this post.]

During his campaign for the Democratic nomination in Montgomery County District 5, Evan Glass pushed hard for liberalization of Montgomery’s antiquated monopoly on the sale of alcohol in the County. Despite his narrow defeat, the next four years presents the best opportunity for reform in ages.

MCGEO, the union that represents the employees at County owned liquor stores, bet disastrously on the wrong candidates in the recent Democratic primary. The attempt by MCGEO under the leadership of Gino Renne to flex its muscle and become the leading force among unions and possibly in County politics backfired and earned the union far more enemies than friends.

Montgomery County Council
Let’s look first at County Council races. In District 1, MCGEO endorsed Duchy Trachtenberg’s bid to return to the Council in a challenge to incumbent Roger Berliner. Duchy even hired MCGEO’s former executive director as her campaign manager. Trachtenberg lost with 21% of the vote. MCGEO didn’t just lose; it looked puny and ineffectual.

The big race in District 3 went no better for MCGEO, Gaithersburg Mayor Sid Katz defeated their choice of Ryan Spiegel, who won less than one-quarter of the vote. In Districts 2 and 4, MCGEO did not endorse either incumbent in the primary even though they were unopposed. No relationships built there.

Tom Hucker, who was expected to win by more, limped home to the District 5 nomination in his battle against newcomer Evan Glass. While MCGEO should have a friend in Hucker, his narrow victory hardly impresses and its not clear yet how much weight this new member of the Council will carry with his colleagues.

In the at-large races, MCGEO supported incumbent Marc Elrich so a bright spot for them there. However, they also supported Beth Daly, the most serious challenger to the other incumbents, who all won reelection. No real reason for Nancy Floreen, George Leventhal, or Hans Riemer to prioritize MCGEO’s interests. And Hans has already expressed public interest in alcohol reform.

General Assembly
MCGEO played it safer in the General Assembly but surely has teed off the three incumbents whose opponents it supported in District 18. It gave $1000 to Sen. Rich Madaleno’s opponent. Madaleno won despite being heavily outspent by his self-funding opponent who dumped over $300K in the attempt. Unfortunately for MCGEO, he is already one of the more influential insiders on the Budget and Taxation Committee.

While MCGEO supported Jeff Waldstreicher, it also gave $1000 to Natali Fani-Gonzalez, which certainly cannot especially please incumbents Al Carr and Ana Sol Gutierrez. The two incumbents romped home easily with Fani-Gonzalez placing sixth out of seven candidates.

The Results
MCGEO spent a lot of money and political capital in an effort to look strong but made its weakness apparent. Its ill-conceived campaign to plant friends on the Council and instill respect of its power has left it vulnerable. Montgomery officials can move ahead with alcohol reform. They know they have nothing to fear.

UPDATE: MCGEO made another terrible investment in the District 17 Senate race. They donated $6000 to Del. Lou Simmons, another heavy self-funder. Despite having a clear financial advantage, Lou lost the nomination to former Del. Cheryl Kagan by 9 points.

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