Montgomery Co., MD: Local Business Groups Ask That DLC Working Group Consider Privatizing Alcohol Distribution

Proposal requests private businesses handle wholesaling and distribution of alcohol in Montgomery County

Bethesda Magazine

By Andrew Metcalf

September 1, 2016

A county working group discussing alternative models for the county’s Department of Liquor Control has met twice since it was formed in late July, but has yet to formally discuss the possibility of privatizing the department’s unique monopoly over the wholesaling and distribution of alcohol in the county.

This omission hasn’t been overlooked by the county’s four chambers of commerce, which together with the working group’s two local business representatives, sent a letter to County Executive Ike Leggett Tuesday, urging him to ask the working group to consider the merits of removing the county from the alcohol distribution business. Leggett appointed the working group members in June.

The letter asks the working group to consider changes that would shift the wholesaling and distribution of beer, wine and liquor in the county to private businesses while maintaining the county’s responsibility for licensing, regulations and educational aspects of liquor control. The proposal also calls for the county to open the retail sale of liquor to private businesses—the county is currently the only retailer of liquor at its 25 stores. The DLC controls the wholesale business and distribution of alcohol in the county as well as the retail sale of all liquor.

“The wholesale and distribution operations currently run by DLC should be moved to the private sector,” the letter says. “The DLC may opt to maintain retail stores but will be required to compete full and open with other private operations within the county.”

The letter was signed by the presidents of the Montgomery County, Bethesda, Silver Spring and Gaithersburg chambers of commerce as well as the two licensees appointed to the working group—Pinky Rodgers, owner of Pinky & Pepe’s Grape Escape wine store in Gaithersburg, and Brian Vasile, owner of Brickside Food and Drink in Bethesda.

Patrick Lacefield, a spokesman for Leggett, said the county executive is open to all options that have the potential to improve the department—as long as its approximately $30 million in annual profits can be maintained.

“My understanding is that the chambers would be sending us specific plans, studies, etc., and I don’t think we’ve seen those yet,” Lacefield said.

Bonnie Kirkland, the chairman of the working group and a county assistant chief administrative officer, said Wednesday that a consulting firm hired by the county is already considering an option to privatize the county’s wholesaling and distribution business, as well as other partial privatization proposals sent to the working group in emails.

“We’ve known and we’ve been talking about privatization all along, it’s not really a necessity to have a separate and formal presentation about it,” Kirkland said.

Kirkland said she would send the business groups’ letter to members of the working group.

The working group was formed by Leggett after county legislators in the General Assembly declined to take action on two proposals during the 2016 session that had the potential to alter the department, which has been criticized for poor customer service, inaccurate deliveries and limited product selection.

So far the working group has formally discussed proposals to allow the department to license privately owned beer and wine stores in the county to sell liquor, as well as an option to create a public-private partnership that would allow an experienced business to take over the management of the department while maintaining the existing monopoly structure.

County officials have been reluctant to make significant changes to the DLC’s business model because the profits it generates are used to pay off bonds and supplement other government programs. UFCW Local 1994 MCGEO, the union that represents about 350 DLC employees, has also been fighting any changes that could impact its members.

The business coalition recommends in its letter that the county maintain its liquor stores, but sell its distribution business. It also recommends the county liquidate its warehouse, vehicles and other equipment used to distribute alcohol in order to recoup some of the money the county would lose by exiting the business.

The working group, which first met in mid-July, has been mired in side issues since its inception. The two licensee representatives—Vasile and Rodgers—described their issues with delivery problems during the first meeting, echoing complaints that have been aired over the past two years by other restaurant and beer and wine store owners. Then Bethesda Beat learned that Del. Ben Kramer, a Wheaton Democrat, who proposed the public-private partnership model at the second meeting, has an ongoing business relationship with the DLC that will net his real estate business more than $2.7 million in lease payments over the next decade—a relationship some working group members said should have been disclosed.

Several members of the 11-person working group, which includes county government officials, private alcohol distributors, licensees and a union representative, have also asked that the DLC’s customers—restaurants and privately owned beer and wine shops in the county—be surveyed to evaluate whether changes made since a management overhaul at the department have been effective. The members have said the survey results could be used to help them make a decision on what model the working group should recommend.

Kirkland said the county is planning to survey the licensees, but haven’t yet decided on when to do it and what methodology to use.

Any significant changes to the department requiring a revision of state law would likely need to be decided soon because the filing deadline is Nov. 3 for local bills to be considered in the 2017 General Assembly. Many of the department’s monopoly protections are state law.

Kirkland said the consulting firm Public Financial Management (PFM) is evaluating the proposals made to the working group based on their revenue, legal, labor and bond implications. She also said the agenda for the next meeting will focus on the firm’s preliminary analysis of the different proposals for altering the department. The analysis, as well as any recommendations from the working group, would then be used by Leggett to make a decision on what, if any, changes should be made to the DLC, according to Kirkland.

Lacefield said Wednesday there’s no mandate to put forth proposals before the November deadline.

“First of all, we have to figure out what we want, then we figure out what you need to get there,” Lacefield said. “There may be some things that don’t require General Assembly approval.”