Four Ideas Being Considered to Replace the County’s Alcohol Profits

Four Ideas Being Considered to Replace the County’s Alcohol Profits

Possible ways to lessen the impact on the county's budget include distribution fee and excise tax

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The key figure in the debate over whether to open Montgomery County’s alcohol market is $32.2 million.

That’s the average amount of net profit the county’s Department of Liquor Control (DLC) generated between fiscal years 2012 – 2014, according to a county report that examined the DLC. And it’s a revenue stream that county officials—including eight of nine County Council members and County Executive Ike Leggett—hope to maintain.

Without it, the officials say, the county will either have to slash services or raise taxes. The profits are also the political football that state representatives are grappling with while debating two proposals aimed at deregulating some or all of the DLC’s operations.

One proposal—supported by Leggett and the eight council members—would only allow competition for special orders from restaurants and retails stores. These are the craft beers and fine wines the DLC doesn’t typically stock in its warehouse, but are popular items for restaurants and beer and wine shops. This proposal is designed to be revenue neutral. The estimated $5 million in profit the department generates from special order products would be recouped through a surcharge, according to the bill.

The other proposal—sponsored by Del. Bill Frick (D-District 16)—would set a referendum to allow voters to decide whether the county’s alcohol market should be deregulated. County officials have said allowing competition would wipe out the department’s profit, although it’s unknown what the bill’s exact financial effect would be if it became law. A third proposal to deregulate the county’s alcohol market from Comptroller Peter Franchot has been announced, but a draft bill has not been publicly released.

Leggett has said he would be supportive of ending the monopoly in the county, but only if a proposal was put forth that would keep the annual profit. The DLC controls the wholesale distribution of all alcohol in the county as well as the retail sale of all liquor.

So is there any way to recoup those funds for the county while also deregulating the alcohol market? Here are some of the ideas that are being considered:

  • Continue operating the countyowned retail stores and distributing alcohol: Frick’s proposal would not require the county to exit the alcohol business, meaning it could continue to distribute alcohol to licensees and operate its 25 retail stores. However, it would be exposed to new competition in that existing privately-owned beer and wine stores and restaurants could purchase from private distributors. Worcester County, which saw its monopoly on liquor distribution end in 2014, had revenues drop by 35 percent on the wholesale side six months after the monopoly ended, according to The Dispatch in Ocean City. However, its seven county-owned retail stores managed to maintain their revenues, the paper reported. Continuing to operate the retail stores would also enable the department to hold onto about half of its employees, as long as sales don’t slump too drastically. Currently the department employs about 200 workers in its retail stores, 100 in delivery operations and about 50 in the warehouse operations, according to an Office of Legislative Oversight (OLO) report.

 

  • Enact a variable or flat fee for wholesale distribution: This idea was mentioned in the OLO review of the DLC earlier this year. In the report, researchers found a fee charged to distributors could generate as much as $7 million to $29 million per year in revenue. Julie Verratti, a co-owner of Denizens Brewing Co. in Silver Spring, said at a public hearing with state representatives in Rockville Monday that she pays a $5 fee every time the brewery delivers beer into Washington, D.C. She said in 2015 alone, Denizens paid almost $2,000 to the District to deliver beer. “Just imagine what they’re receiving annually from every importer,” Verratti said.

 

  • Repatriate new sales tax revenue: Because it’s widely believed many county residents currently buy alcohol outside of the county, another idea being debated is trying to get the state to share new sales tax revenue with the county. A local delegate who agreed to talk on background about this idea because he hasn’t finalized a proposal, said such a proposal might encounter significant resistance from teachers or other groups that depend on state funds because it could affect how the state collects revenue. However, the idea is that if more county residents bought alcohol locally it would increase the sales tax receipts the county generates, thus increasing state sales tax revenue. Those additional new revenues could then be split between the county and the state. The OLO report found that county residents consume on average 5.6 gallons less alcohol per person annually compared to neighboring counties based on the amount of alcohol delivered to stores and restaurants. While some may say local residents simply drink less, the report’s authors wrote that the discrepancy could be reflective of county residents buying alcohol in other jurisdictions.

 

  • Impose an excise tax – Del. Kirill Reznik (D-District 39) mentioned the possibility of creating an excise tax at the Monday public hearing when discussing ways to raise funds. While Reznik didn’t go into detail, he said “we can structure some kind of a revenue source that could accommodate the county’s needs as well as not put any stress on the state as well.” Excise taxes are paid when purchases are made on a specific good and are often included in the price of the product such as cigarettes or gasoline.

 

Possibly complicating the fee or tax proposals is the fact that state law doesn’t currently allow counties to collect taxes on alcohol and the alcohol industry is likely to strongly oppose any of the county’s proposals to do so because of the statewide implications.

At this point, these ideas haven't been put into Frick's legislation, but they could be considered as supporters of the bill jockey for votes and attempt to make it more palatable to state representatives who may see the idea of completely ending the county's alcohol monopoly as too drastic or too politically controversial of a step.

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