Tag Archives: alcohol

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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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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Barkley Blasts Annapolis

By Adam Pagnucco.

Delegate Charles Barkley (D-39) has just given the most astounding interview by a member of General Assembly leadership ever seen by your author.  In it, he broke the most important rule of Annapolis decorum there is: never throw your superiors under the bus.

Barkley is the Chair of the House Economic Matters Committee’s Alcoholic Beverages Subcommittee.   In theory, that makes him the proximate point person on alcohol bills in the House.  Some think of the alcohol industry as one industry, but in fact it is several, with the manufacturers, distributors, retailers, restaurants and several individual companies hiring their own lobbyists and making tons of political contributions.  That makes for complicated politics which, among many other things, has produced the much-criticized bill punishing craft breweries.  That bill has already caused one potential brewery owner to bail on the state.

The anti-brewery bill passed the House on a 139-0 vote.  One source tells us, “When a bad bill passes on a vote like that, someone f____d up.”  In an incredible interview with Maryland beer blog Naptown Pint, Barkley placed the blame on his superiors, specifically Economic Matters Committee Chair Dereck Davis and Speaker of the House Mike Busch.  The whole interview is a massive scoop and a must-read, but the key passages are this:

“We didn’t know what was in the bill until the day it came in front of our committee for the vote,” Barkley answered. But was that due to the rush of the process, or was it an intentional screen being put up around the bill’s contents?

“I don’t think they were trying to give out too many details,” he commented…

“I honestly thought we were moving in the right direction with Nick Manis [MCA], Steve Wise [MSLBA legal counsel] and [Jack] Milani [MSLBA, Monaghan’s Pub in Baltimore]. We thought we were making progress, and we had the guys talking to us.”

Barkley then paused for a moment.

“All of a sudden, they quit talking to us,” he continued. “And then the [Economic Matters Committee] Chairman [Dereck E. Davis] said, ‘This is what we’re doing.’”…

I asked him his thoughts on some of the statements by House members who voted in favor of HB 1283 that they now know it was a bad bill or that they were misled on the contents ahead of the committee vote that pushed HB 1283 over to the Senate.

“I would say absolutely they were misled. [The House] thought we worked out a compromise and this was it. We hadn’t,” he stated.

“Up until this point, I ran the subcommittee and I kept my chairman [Davis] informed. But this one left my hands. I’ve never had this kind of intervention before, until this year. I thought [Manis, Wise and Milani] were meeting with us. But I think we were getting too close to stuff they didn’t want. So I think they met with the Speaker and got things changed.”

Here is a sub-committee chair describing a major bill as a backroom, secret deal involving lobbyists, a powerful committee chair and the Speaker in cahoots to deceive the full House membership.  Your author has never seen a state legislator entrusted with leadership responsibility go on the record in this way before.  It is an almost certain firing offense.

Barkley has always been something of a maverick.  Once a Vice-President of the county teachers union, he has not always been their best friend in Annapolis.  In 2009, he was famously kicked off the Appropriations Committee and lost a subcommittee chair for defying leadership on the millionaire tax.  In 2012, Barkley was one of a handful of MoCo Delegates to vote against the immensely damaging teacher pension shift, a top priority of Governor Martin O’Malley and the presiding officers.  After losing the first vote, he introduced a floor amendment to the budget which would have cut the shift in half, which also failed.  Considering this record, it’s surprising that Barkley acquired the alcohol subcommittee chair at all.

Barkley’s candor is likely aided by his apparent decision to leave Annapolis and run for County Council.  We don’t know what the future holds, but we will say this: given Barkley’s iconoclastic ways, he would make an interesting County Council Member.

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Is Maryland Trying to Punish Craft Breweries?

By Adam Pagnucco.

Craft breweries have been growing rapidly in Maryland and elsewhere, forever changing the beer business.  Maryland scored a huge win a couple months ago when Diageo announced their intention to open a $50 million Guinness brewery in Baltimore County, creating a tourist attraction and dozens of jobs.  Best of all, unlike many employers, Diageo is not asking for one thin dime of public subsidy to come to the state.  But instead of welcoming the new facility with open arms, the House of Delegates reacted by making it harder for Diageo to do business here, as well as many other breweries in Maryland.

The debacle began when Diageo asked for a change in state law to allow them to sell 5,000 barrels of beer at a restaurant and tap room on the brewery site.  (Maryland’s current limit of 500 barrels is by far the lowest in the nation; the second-lowest state, North Carolina, has a limit of 25,000 barrels.)  Other brewers sought a limit of 4,000 barrels in on-site sales for their own operations and five different bills followed.  HB 1283 was the one that passed the House of Delegates and did three main things.

  1. It increased the on-site sales limit to 2,000 barrels. Breweries could apply to the Comptroller for permission to sell another 1,000 barrels on-site, but they would have to go through a distributor to do so.  That means the brewery would have to brew its own beer, then turn it over to a distributor, then receive it back from that distributor and of course pay the distributor a fee for its service.  Guess who ultimately pays that fee?  That’s right, you the customer!
  1. It established closing times for tap rooms of 9 PM during the week and 10 PM on weekends, down from local closing times ranging from midnight to 2 AM.
  1. It limited tap room sales to beer brewed on-site only. This repeals a long-standing practice in which brewery tap rooms supplement their own products with contract beer brewed for them by other breweries.  Such contract beer sales are major sources of revenue for some craft brewers and make tap rooms more attractive to customers.

Brewers characterized the combination of changes as “one step forward and two steps back” and predicted layoffs and business losses.  Why would the House pass such a bill?

One of the biggest opponents of liberalizing rules on craft breweries is the Maryland State Licensed Beverage Association, which represents restaurants and small alcohol retailers.  The group is particularly influential in Annapolis as its PAC has contributed over $180,000 to state politicians since 2005.  The association sees craft brewers as competition for its members.  From a zero-sum perspective, every pint purchased in a brewery tap room is a pint not purchased in a restaurant or package store.  But that view doesn’t recognize the synergies between these types of establishments as well as their differences.  Diageo’s brewery has the potential to be a major tourist facility, bolstering the entire local economy.  And if a consumer purchases a new product at the Diageo site and likes it, he or she will be motivated to buy that same product at restaurants and stores.  That means more business for everyone.

Some brewers would prefer that HB 1283 simply die in the Senate because of the problems it would cause, but it’s not so simple.  If the bill dies, the state’s current on-site sales limit of 500 barrels would stay in place.  That could cause Diageo to cancel its project, costing Baltimore County a $50 million tourist attraction that other states would kill to get.  Think of the impact that would have on the industry’s perception of Maryland.  If we lose Diageo, what other major brewer would ever relocate here?

Maryland has a number of anti-competitive laws on alcohol, including the much-loathed prohibitions on sales in most grocery stores and Montgomery County’s dysfunctional liquor monopoly.  The last thing we need is even more of these laws, especially if it causes us to lose a major employer and gives us a national black eye.  HB 1283 must be fixed.  Cheers to the State Senate if they can get it done.

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Department of Liquor Control Improvement Action Plan

Advocates for the existing Montgomery County’s liquor monopoly have acknowledged the needs for improvements in the Department of Liquor Control’s (DLC) operation and customer service. I thought it might be useful to the debate over the monopoly to post the DLC’s Improvement Action Plan and current status.

Click on the little arrow in the bottom right corner if it is too hard to read in your browser and it should pop up in a new tab. My thanks to  Montgomery County for providing it to me. You can find more evaluation of the DLC on CountyStat.

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MoCo Doesn’t Need Its Liquor Money

Today, I am pleased to present a guest post by Adam Pagnucco:

Even though MoCo consumers are fleeing the county’s archaic liquor monopoly, county officials are going all out to save it. Their arguments boil down to essentially one point: we need the money, and terrible things will happen unless we get it. The County Executive’s spokesman has said that a reduction in liquor monopoly money “means a reduction of county services or an increase in taxes.” And Council Member Hans Riemer has said that a loss of liquor money would mean “jeopardizing our ability to hire teachers or police officers.”

Are they right? Let’s look at the data.

First, let’s consider the nature of the county’s budget. It is not a static, zero-sum thing. Rather, it is a dynamic and growing thing that increases almost every year. The county deliberately sets property tax rates to increase collections at the rate of inflation (its charter limit) regularly. Income and energy tax collections rise with private-sector growth. State aid, mostly going towards public schools, has been rising. All of these factors have contributed to a steadily growing county budget.

The chart below shows a comparison of total county revenues, net income from the county’s Department of Liquor Control (DLC), and the rate of inflation in the Washington-Baltimore metro area from Fiscal Year 2004 through Fiscal Year 2016.

MoCo Revenue vs Inflation

A few things stand out. First, total revenues grew in ten of these twelve years, with small declines occurring in 2010 and 2015. (Data for the latter year is still an estimate). Second, total revenue has been growing at an average rate (4.2% a year) that is almost double the rate of local price inflation (2.4%). Third, net income from the liquor monopoly is a tiny fraction of the county’s budget and has been largely stagnant. In 2004, liquor money was 0.74% of the county’s budget; in 2016, it is projected to be 0.47%. Part of this is because the county has begun issuing bonds against liquor profits and thus must pay debt service. But another part is that the monopoly is poorly managed. Over this period, the county saw an average annual revenue gain of $25 million from liquor and $140 million from other sources.

That means county revenues would still go up even without liquor monopoly money. There would be no need for cuts.

Comptroller Peter Franchot has proposed allowing the private sector to compete with the county’s Department of Liquor Control (DLC). What would happen to county revenues if that were to occur? That depends on how retailers, restaurants and consumers react. Let’s consider what would happen if DLC were well-managed, price competitive and truly focused on customers. Under this scenario, it might lose just 25% of its net income. Here’s how county revenues would have performed since 2004 if that were the case.

DLC loses 25 percent

In the real world, the county’s total revenues grew by an average 4.2% a year. If DLC had lost 25% of its net income, the county’s total revenues would have grown by an average 4.1%. There would be almost no difference to the county’s bottom line.

Now let’s suppose that DLC loses 50% of its net income. Here’s how that scenario would have played out.

DLC loses 50 percent

The county’s average annual total revenue growth changes from 4.2% to 3.9%. Again, not much difference.

Finally, let’s look at what would have happened had DLC net income disappeared entirely.

DLC loses 100 percent

The county’s annual total revenue growth changes from 4.2% to 3.7%. The latter number is still 55% greater than the average rate of price inflation in the Washington-Baltimore area (2.4%). Furthermore, let’s keep in mind that this scenario would only occur if DLC were so awful that all of its customers fled. If that’s the case, why should DLC be protected by a monopoly at all? And the data above completely omits any extra revenue the county would earn from a revitalized private sector free of the monopoly that it calls “an Evil Empire.” Extra money from property taxes and income taxes could close some of this gap.

This discussion is not exclusively hypothetical. In July, the County Council passed a mid-year savings plan that trimmed $54 million from the budget it had passed only two months before. That amount is more than twice as much as the county earns from its liquor monopoly. Public education and public safety were not jeopardized. That’s because the overall budget provided for a $209 million increase from the prior year’s estimated revenue. County government continues to grow and no apocalypse has occurred.

Finally, consider this. There are more than three thousand counties in the United States. Very few of them have MoCo’s resources. All of them except us have figured out how to pay for their priorities and balance their budgets without needing a liquor monopoly. Are MoCo’s elected officials the only county leaders in the entire United States who can’t figure out how to live without one? I think not; I have seen them deal with much more serious budget problems effectively.

The county government doesn’t need its liquor money. So let’s End the Monopoly.

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MCGEO’s Ridiculous Claim that the Department of Liquor Control Saves Consumers Money

Yesterday, I published a reply by MCGEO’s Gino Renne to Adam Pagnucco’s guest blog on Montgomery’s Liquor Control Regime. In his reply, Renne attacks Pagnucco’s claim that the Department of Liquor Control (DLC) raises prices:

In his first false claim, Mr. Pagnucco claims that DLC’s operations increase costs for the consumer. Across all categories except special order beer, costs are 2-10 percent cheaper than neighboring jurisdictions.

This claim struck me as incredible, so I decided to do a sampling of wine prices at a Montgomery County Liquor Store and Total Wine in McLean, Virginia. I focused on comparatively affordable wines and picked out some first at the DLC store and others from Total Wine, and did not know the price of the wine at the other store when I selected it (i.e. no cherry picking).

The results are presented in the following table:

wine

Among the 26 wines, DLC doesn’t carry seven–I checked with the cashier who searched the computer. Only one wine was cheaper at the DLC store and another at the same price, and these two bottles were on sale.

Looking only at the 12 wines currently offered at a discount at Montgomery DLC stores revealed that even their sales tend to be lousy deals. The discounted prices on these wines were an average of 21.9% higher than at Total Wine. When this same set of wines is not on sale, the difference rises to 44.0%.

Examining the larger basket of 19 wines available at both stores shows that regular prices in DLC stores average 36.4% higher that at Total Wine across the river. Put another way, it would cost you an extra $89.04 (plus tax) to buy them in Maryland.

If Gino Renne begins his argument for maintaining the status quo with an obvious, easily disproved falsehood, why should anyone believe anything else he or MCGEO has to say on the subject?

Here is the real capper: Total Wine has its headquarters in Montgomery County but it cannot open one of its (nicer than DLC) stores and offer the same prices here. If you want to know why, look no further than MCGEO and the County Council.

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