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)
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.”
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?
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.
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.
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.
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.
The Montgomery County Police Department has reported that two men, one of whom worked for the county’s Department of Liquor Control (DLC), were arrested for a series of liquor thefts from trucks parked at the county’s warehouse. The Washington Post and Bethesda Magazine also reported the story. Note that this was not only an inside job but that DLC’s security procedures were so inadequate that the suspects were able to commit eight different thefts before being caught! But neither the Post nor Bethesda Magazine fully examined the history of criminal, unethical and suspicious activity at DLC.
Next year, elections will be held for County Executive, County Council and the state legislature. Which candidates will stand up against DLC and advocate for ending its monopoly status once and for all?
Council Member Marc Elrich held his kickoff event for the County Executive race in Bethesda this past Sunday. One of his guests was Gino Renne, President of the Municipal and County Government Employees Organization (MCGEO), the largest of MoCo’s non-education county employee unions. The picture below says it all.
Gino’s thumbs-up is not an official endorsement. The union has to go through its process, including candidate interviews and questionnaires. But the symbolism of the picture above is hard to miss. Elrich could very well be labor’s pick for Executive.
Today, I am pleased to present a guest blog by Montgomery County Executive Ike Leggett:
REALLY Setting the Record Straight…
Adam Pagnucco’s blog entry, Setting the Record Straight, does anything but set the record straight. Let’s be clear – I did not “throw in the towel” on privatizing the County’s Department of Liquor (DLC). The record clearly shows that I introduced State legislation that would have privatized our DLC while also protecting and maintaining the significant revenue stream of over $30 million a year it contributes to the County budget. Some on our County Council and in the State Delegation felt that, given the progress we’ve seen in DLC since we brought in a new management team with considerable liquor industry experience, and a number of substantive changes we had made to the organization already, we should give them additional time to make even greater improvements.
Philosophically, I am not opposed to privatization, but I also stand by my statement that not one of the critics of the County’s Department of Liquor Control (DLC) put forth a viable privatization proposal that would hold the County budget harmless by replacing the DLC’s profits. The County DLC is a taxpayer asset that produces a net profit of over $30 million a year and to privatize without replacing the revenue would be a disservice to our taxpayers.
After months of soliciting proposals, not one person or organization offered a viable plan to privatize DLC while maintaining the approximately $30 million in profits, including groups that assured us they would. While Mr. Pagnucco claims that his plan would have done so, his route to privatization, simply put, was based on faulty assumptions.
Mr. Pagnucco’s proposal was not ignored. It was carefully reviewed by us in the County and it was also reviewed by a consultant hired to review privatization options It was judged not viable because the underpinnings of the proposal were either unworkable, not legal or just plain wrong. Here’s why:
First, Mr. Pagnucco made a basic math mistake. He estimated that the County receives $20 million in “profit” in FY17, therefore starting with the faulty premise that to make the County whole, only $20 million in DLC profits each year need to be replaced. Unfortunately, he ignores that in FY17, the Department of Liquor Control earmarked $20.7 million for transfer to the General Fund and another $10.9 million to pay debt service on Liquor Bonds – bonds that have paid for road, and school construction in our County.
Therefore, the revenue to be replaced equals $31.6 million, not $20 million.
Mr. Pagnucco’s proposal then makes the argument that there will be a huge economic spinoff from privatizing by increased sales. He relies on a report done by the Comptroller’s Bureau of Revenue Estimates, which was itself built on an amazing number of alternative facts. But, for the sake of argument, say it was a sound analysis. Even Mr. Pagnucco admits that the tax revenue estimates presented in the report actually proves the county’s point that opening the alcohol market really only benefits the State coffers. He himself noted the county would receive less than $1 million of the revenue, while the rest of the estimated $35 million in economic spinoff benefit would go to the state’s general fund.
So he suggested that we pass a State law to compel the State to share its new revenue with us. The consultant, and everyone familiar with how Annapolis works, rightly pointed out that first, it requires the state to be a willing partner, and second and more importantly, there exists a legitimate concern about revenue sharing with the State. What the State giveth, the State taketh away. Just in the 1990s alone, the following County revenue sources were reduced or eliminated by the State:
Liquor tax revenue sharing: eliminated; loss of $4.4 million to counties
Beer tax revenue sharing: eliminated; loss of $4.2 million to counties
Tobacco tax revenue sharing: eliminated; loss of $12.7 million to counties
Property tax grant: eliminated; loss of $82.5 million to counties
Teacher social security: eliminated; loss of $145 million
Financial institution franchise tax sharing: eliminated; loss of $17 million to counties
Transportation taxes revenue sharing (not highway user): eliminated; loss of $19.6 million to counties
Abandoned property revenues: eliminated, loss of $5 million to counties
Corporate filing fee revenues: eliminated; loss of $1.6 million to counties
Security interest filing fee revenues: eliminated; loss of $1 million to counties
Mr. Pagnucco claims that the County can replace the bond money by raising our cable franchise fee and siphoning off dollars from the Cable Fund. With this statement he negates his own argument that his proposal would be “cost neutral” since it would in fact require raising fees.
But what he more importantly failed to realize is that Cable fund money cannot legally be used for purposes other than cable-related needs: technology and communication purposes. We cannot take Cable Funds to build roads and schools. Plus, utilizing this revenue would just create a budget hole elsewhere.
Another faulty assumption in Mr. Pagnucco’s proposal is using Worchester County as an example of how privatization in Montgomery County would work smoothly. He claims that after privatizing its liquor business, Worchester experienced reduced revenues but that the loss was negligible and that such a loss would equate to a mere $5 million per year for Montgomery. However, in reality, the unhappy ending to the Worchester story of privatization is that Worchester County is now going out of the liquor business forever and will generate exactly zero revenue for its budget in the future.
The final faulty assumption in Mr. Pagnucco’s proposal is his assumption that the county could just open up more liquor stores, which he notes would create additional profits. See paragraph above: Worchester’s unhappy ending is testament that it just won’t happen.
Finally, Mr. Pagnucco says he was not proposing getting rid of the DLC – he just wanted to provide competition (i.e.; “end the monopoly”) by allowing our licensees to decide from whom to purchase products. But that’s not how it works. In the liquor business it is the suppliers/manufacturers who decide which ONE distributor/wholesaler will sell their products. The so-called monopoly doesn’t end, it simply transfers from the County to the private sector. Why turn over this asset that belongs to our county residents to the private sector for nothing?
We should be looking forward, not back. The DLC is, as they say, under new management. It has a new director, and is on course to continue making positive changes to improve operations and customer service.
Meet the New Liquor Monopoly. It’s the same as the Old Liquor Monopoly, except with less accountability.
OK, now that the applause is dying down, let’s look at the details. The New Liquor Monopoly proposed by County Executive Ike Leggett would be a quasi-governmental authority rather than a county department. It would have the same warehouse, the same equipment, the same trucks, the same ordering and billing systems, the same employees, the same front-line and middle management, the same union and – of course! – the same state-sanctioned monopoly status. This is “change” that only a monopoly would love!
But wait. There is one significant difference. Under the current system, the Executive Director of the Department of Liquor Control (DLC) is a department director who serves at the pleasure of the County Executive. Should the Executive become displeased with his or her performance, that person could be dismissed. The County Council has a role (at least hypothetically) in holding DLC accountable through its power to approve DLC’s operating and capital budgets as well as any debt secured by liquor profits.
Those sources of accountability disappear in the New Monopoly. The proposed authority would be governed by a Board, which would be nominated by the Executive and approved by the County Council, and that Board would hire a CEO. The CEO would not report to the Executive. The council would no longer have approval authority over the New Monopoly’s operating or capital budgets. The New Monopoly would also have unfettered authority to issue debt. Here’s a question, folks – what do you think will happen to liquor prices if the New Monopoly screws up and takes on too much debt? Pish posh – it’s not like the existing Monopoly has ever screwed up, yeah?
We know you can barely contain your excitement. Here is the County Executive’s statement so you can absorb all the dirty details!
At first glance, the New Monopoly is little different from the Old Monopoly. From top to bottom, it is the same entity in terms of capital, labor and processes. But this new beast could be much more dangerous than the old one. It is neither accountable to its customers nor to elected officials. In fact, it is accountable to no one at all.
We, the residents and business owners of this county, have not been heard. Our demands for freedom have been subjugated to the crushing burden of alcohol totalitarianism. There is only one thing left to do.
Vote for candidates who will End the Monopoly in the next election.
The Montgomery County Government has issued a solicitation seeking bids on a propaganda video defending the county’s liquor monopoly. The solicitation comes after the County Executive’s task force on the issue concluded its meetings with (so far) no apparent resolution.
The informal solicitation, captured in a screenshot from the county’s website below, invites companies in the county’s Local Small Business Reserve Program to bid on an opportunity to create a video about the Department of Liquor Control (DLC). The solicitation describes the project scope as, “The creation of an impactful, high quality, television ready, 2-3-minute video. To include videographer, audio services, design and editing of a short film or commercial on the benefits of a control jurisdiction, and dispelling myths. The short will be directed at educating the general public. We hope to have the project completed by December 30, 2016. A high quality public service announcement in a format that can be shared and posted on a website for public access.”
This is not the first time the county has used public resources to spread political propaganda supporting the liquor monopoly. Last January, the county distributed flyers defending DLC at county liquor stores while the county’s state legislators were debating its fate. The flyer distribution ended shortly after it was exposed by Fox 5.
The cost of the video will not be known until a bid is accepted, although the solicitation’s fine print states that it cannot exceed $25,000. The cost of distribution could be much more, especially if the county runs the video as an ad on private television channels.
All of this comes after the county’s state legislators, who have purview over DLC since it is established in state law, asked the County Executive last year to consider various models of liberalizing the liquor monopoly. The Executive agreed and convened a task force to study various options, but the task force’s three meetings ended without a visible result.
Del. Bill Frick Proposes to Allow Voters to Decide
The movement to end the Montgomery County liquor monopoly is gaining momentum. Six legislators plan to introduce legislation to allow voters to decide the question. Comptroller Franchot penned an opinion piece last week arguing for its end. But I suspect that it’s the political potency of the issue with voters that will give it continued forward momentum.
The following is by Adam Pagnucco:
As of this writing, over 900 people have signed the petition asking Montgomery County’s State Senators and Delegates to end the county’s archaic liquor monopoly. Here are a few comments from petition signers that truly say it all.
First of all, I appreciate Roger Berliner’s and the other County leaders’ embrace of this cause. Montgomery County, Maryland’s liquor laws are an embarrassing and harmful anachronism. County sales of alcohol do not serve any public purpose but they do perpetuate an expensive and useless bureaucracy. The County should not be a seller of alcohol but rather should serve as a responsible regulator of private restaurants and stores selling alcohol.
Retaining the current system discourages the entry of businesses into the County and results in a conflict of interest for the County as both a regulator and a vendor selling to and competing with private businesses. Getting the County out of the liquor business would allow private enterprise to offer consumers more choices and more reasonable prices. At the same time, it would allow the County to focus on its regulatory role, while gaining additional tax revenue from businesses to lower individual taxes.
I have lived in this County for more than sixty years. This useless charade cannot be ended too soon. Kenneth Markison, Chevy Chase, MD
I own 2 restaurants in Montgomery County, both well known for the breadth of their beer, wine and liquor lists. The difficulty in creating and maintaining these lists because of the county controlled system is extraordinary. It adds hours of unnecessary labor to my payroll costs, diminishes the quality of my beverage programs through the inconsistency of stock, unavailability of products and errors in delivery, and drives up the cost of the products we sell – which must either be absorbed by us (therefore diminishing our profits) or passed on to the consumer resulting in higher menu prices. This system causes all but the most intrepid restaurant owners to dumb down their offerings because it’s far far easier and ensures Montgomery County will never compete with DC in terms of the quality and creativity of its restaurants. Jackie Greenbaum, Washington, DC
I’m signing because this is 2015, not 1925. Debra Van Alstyne, Potomac, MD
Ridiculous that this is still in place. Way past time to do away with it. Deborah Grossman, Takoma Park, MD
I’m signing because I’m sick of being forced to drive out of MoCo to get the wines I want. It causes MoCo restaurants time, money, and frustration. It discourages new restaurants from considering moving to MoCo. The current system is cumbersome, useless, embarrassing, archaic, and typically paternalistic. I don’t need this County to make my buying decisions for me, thank you. Lezlie Crosswhite, North Potomac, MD
I’m tired of having to go to DC or VA to have a wide choice of wines plus the prices are so much better. Sandra Satterfield, Rockville, MD
I am an economist, retired from the FTC after over 30 years. I worked exclusively on anti-trust cases. Monopolies hurt consumers. Russ Parker, Bethesda, MD
According to the Maryland Declaration of Rights “monopolies are odious”. If monopolies are so odious then why does Montgomery County have a monopoly on the sale of alcoholic beverages in Montgomery County? Justin McInerny, Chevy Chase, MD
… because the monopoly is outdated, stifling, and ridiculous. And annoying. Diana Conway, Potomac, MD
It has been proven to be a flawed system that restricts the store owner’s ability to maximize sales and be self-reliant on their success. The internal inventory controls have been called into question as of late as well. Time to open it up to the free market! John Hodges, Rockville, MD
I am tired of County stores with poor quality and customer service. I have to shop with a cart that has a pole on it so I can be tracked through the store, then I have to stand behind a piece of blue tape on the floor to be helped by someone who doesn’t want to be there. The selection is poor and I find myself shopping elsewhere. It’s time to get rid of soviet era liquor stores. Richard Neimand, Silver Spring, MD
We’re tired of driving to Total Wine in Laurel and Calvert-Woodley in D.C. to find good selections of beer and wine at reasonable prices. We want to spend our money here, but not at the premium we have to pay because of this ridiculous set up. Also, we want to see more restaurants locate here and they need access to good selections of fine wines, craft liquors, etc. Mike Diegel, Silver Spring, MD
This system no longer (if it ever did) makes sense. Michael Webb, Germantown, MD
It is time for the free market to work its magic and for the county to cure its addiction to alcohol (revenues). A remarkably inefficient, and at times corrupt, system should not be tolerated by consumers and businesses directly affected by its protection. Let voters decide what happens. Allen Perper, Silver Spring, MD
I spend money out of county in an effort to avoid the ridiculous monopoly in Montgomery County. It is insulting to my intelligence. Stephen Sugg, Rockville, MD
Business is for the private sector, governing is for the government.| Yovav Sever, Rockville, MD
I buy much of my alcohol outside MoCo. I want a wider selection and to not have to drive! Laurie Wilner, Potomac, MD
The county should NOT be selling alcohol at all! I always thought that was stupid. The county has anti-drink programs and yet sells the stuff…let’s teach our kids hypocrisy, shall we? Pat Burton, Gaithersburg, MD
I’m signing because I do purchase all of my beer and wine in Washington, D.C. Michael Reust, Takoma Park, MD
I live in MoCo and have to go to Frederick County (or Virginia) to get a couple of things that the county won’t allow to be sold. The current system is a total joke. Victoria Cross, Gaithersburg, MD
I’m signing because I resent the county’s imposing a monopoly on its citizens. We’re grownups. Let us decide who to buy our alcohol from, and what to buy. I love Mo Co except this liquor business is an embarrassment. David Austin, Bethesda, MD
I don’t believe the county should have a monopoly on the liquor we buy or the choices restaurants have in what they provide customers. Currently, and for MANY years, I’ve purchased all my liquor in DC. Too bad for Maryland and time to smarten up. Anne Claysmith, Bethesda, MD
I hate having to drive to neighboring counties to find liquor stores with a decent variety to choose from. Mark Eakin, Silver Spring, MD
I worked at a bar in Silver Spring for 4 years, and during that time we were frequently unable to keep regular beers, liquors, and supplies we relied on in stock due to the County’s apathy towards customer interests Jennifer Burrell, Laurel, MD
The county should not be allowed to continue its monopoly on alcohol sales to our businesses. I fully support allowing private sellers to compete with DLC in Montgomery County and putting this issue to a referendum so that it is clear how many county citizens desire a private competition approach. Michael Fetchko, Bethesda, MD