Del. Bill Frick, the state representative from Bethesda pushing to end Montgomery County’s alcohol distribution monopoly, introduced a second bill in the General Assembly this month aimed at addressing revenue issues the county would face if its Department of Liquor Control (DLC) were dismantled.
The bill would enable the county to sell its existing liquor stores, sell wholesale beer distribution rights in the county and change the way alcohol sales tax is disbursed to give the county a greater share of new sales tax revenue generated by the changes.
“The purpose of this bill is to further the conversation about how we address the revenue issues facing the county,” Frick said Monday.
The debate over whether the county should remain in the alcohol business has been raging for more than a year. For most of that time advocates for reform have been deadlocked with county officials who say giving up the more than $30 million in profit generated by the department would harm the county’s budget.
However, County Executive Ike Leggett said earlier this month that while he wouldn’t support changes to the monopoly structure this year, he would be open to proposals that could end the monopoly next year, as long as the county can find a way to make up for the lost income.
The DLC controls the wholesale distribution of alcohol in the county as well as the retail sale of liquor. The department has been embattled by complaints about poor customer service from restaurants and privately owned beer and wine stores. Last month, the department’s director, George Griffin, resigned following a delivery mishap that left restaurants and stores scrambling for stock before New Year’s Eve.
Frick, who is also sponsoring legislation that would allow voters to decide if the monopoly should remain, said the new bill provides the county with an opportunity for significant one-time revenues from the sale of its liquor stores as well as ongoing revenue from the sales tax plan.
He said the county could make money by selling its 25 liquor stores as well as its rights to distribute beer products. Unlike beer distributors, wine and spirit wholesalers don’t have the ability to sell franchise rights in the state, Frick said.
The county’s Office of Legislative Oversight (OLO) estimated the DLC has about $104 million in total assets, which include its warehouse building and inventory, and $67 million in liabilities including $44 million in revenue bonds—meaning a sale of its assets could net the county one-time revenues of about $37 million. The OLO report, which was released in Feb. 2015, also noted the department’s reserve fund has a current balance of about $37 million—which could be transferred to the county’s general fund if the department were shut down, bringing total one-time revenues to around $74 million, according to the report.
However, OLO didn’t fully examine the option of completely eliminating the department, so it didn’t look into selling stores and beer franchise rights, which could generate additional revenue.
Frick said the key to his proposal, however, is the sales tax disbursement piece, which would give the county access to a new, ongoing revenue stream. The idea is based on anecdotal evidence that many county residents travel to liquor stores in Washington, D.C., or Virginia in search of better prices and alcohol selection, meaning those states are receiving a significant amount of sales tax revenue that could be recaptured by the county if local liquor stores were better able to compete.
Frick’s bill calls for capping the amount of sales tax revenue the state comptroller’s office can collect on alcohol sales and allowing each county to collect the additional sales tax revenue. The bill would set the ceiling based on the amount of tax revenue from alcohol sales each county collected in fiscal 2017 and begin the new disbursement process in fiscal 2018, which begins July 1, 2017. It’s not immediately clear how much the county could receive through the change.
Frick said generating support for this change could be difficult.
“The provisions about sharing the state sales tax revenue have significant implications elsewhere around the state,” Frick said. “That is probably the provision that gives Montgomery County the greatest comfort for being able to transition out of the DLC. That’s a stable, significant revenue source. If we could get buy-in from others around the state, that would be dramatic. The way I’ve drafted it, the revenue growth would be shared with all the counties, not just ours. As sales tax grows over time, every one of the counties would see a benefit.”
However, Frick noted state officials who depend on expanding the state’s general fund through tax revenue to finance projects and departments may not be in favor of sharing sales tax revenue with local governments.
A committee hearing on the bill as well as the referendum legislation introduced by Frick is scheduled for Feb. 22.
