Workgroup Puts Forth Wealth of Proposals To Change County’s Liquor Department, But Contention Remains

Consultant hired by county called full privatization “Armageddon”


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Emotions flared at the end of what could be the county’s Department of Liquor Control working group’s final meeting Thursday afternoon when a local labor leader got into an argument with a Chamber of Commerce president.

Jane Redicker, president of the Greater Silver Spring Chamber of Commerce, walked out of the room after she was continuously interrupted by Gino Renne, president of UFCW Local 1994 MCGEO, the local labor union that represents about 350 DLC employees.

Renne is a part of the 11-member working group appointed by County Executive Ike Leggett in June to study alternative models to the embattled DLC, while Redicker has attended all three of the working group’s meetings, where the members and others have pitched and discussed different proposals to alter the DLC.

Earlier in the meeting, Renne had said that DLC workers are frustrated with “external pressures” that are not providing them with enough time to improve the department’s operations. He said that without the DLC, many of the 350 union workers who distribute alcohol in the county and staff the county’s 25 retail liquor stores would be left on the streets with employment prospects that largely include low-paying jobs without benefits.

He urged the group and the county to consider the workers’ plight and accused others in the county, including Redicker, of taking an “all or nothing” approach toward privatization of the department.

When Redicker attempted to respond, Renne interrupted her multiple times, despite the group’s chairwoman, Bonnie Kirkland, an assistant chief administrative officer for the county, attempting to intervene. Redicker then walked out of the room just before the conclusion of the three-hour meeting in Rockville.

The dispute could be seen as a microcosm of the competing factions in the debate over the DLC, the department that controls almost all the wholesale distribution of alcohol in the county and has a monopoly over the retail sale of liquor.

The debate over how to restructure the department, or if to do anything at all, has now dragged on for over two years. It began when licensees in the county—restaurants and privately owned beer and wine stores—complained about systematic problems with inaccurate deliveries, a lack of selection, poor customer service and unpredictable pricing.

Since then, the department’s director has resigned and there’s been a change in top-level management, with experts from the private sector hired to improve warehouse and retail store operations.

But still the factions are dug in. Business representatives, including the chambers of commerce in the county, have been pushing for privatization. The union has fought to make sure its employees would keep their jobs if any changes are made. And Leggett, who will ultimately make a decision about what to do and has supported the idea of privatization, has also requested that any change must maintain the approximately $30 million in annual profits the department generates. Those profits are used to pay off $105 million in outstanding revenue bonds as well as to transfer about $22 million to the county’s general fund each year.

It’s those bonds that county finance officials say present the biggest roadblock to make any changes.

Most of Thursday’s meeting focused on a consultant’s analysis of the financial impact of a slew of proposals ranging from full privatization to privatizing the management of the department.

The consultant, Public Financial Management, worked the past three weeks to prepare the report, which provided extensive analysis, but did not include any recommendations about which proposal the county should pursue.

Before introducing the privatization proposal, one of the report’s authors, John Cape, described it as “Armageddon.” He said privatizing had the potential to eliminate 427 jobs at the department and take up to two years to “unwind” the department’s different operations and transfer their responsibilities to the private sector.

The report, which the county says cost up to $52,990, estimated that privatizing the department would cost the county about $12 million on an annual basis—mostly to cover the annual $10 million cost of paying off the revenue bonds.

Throughout their presentation, Cape and another of the report’s authors, Randall Bauer, repeatedly warned of new expenses the county would have to take on if the revenue stream of the department was reduced. They said the county would have to consult bond counsel if there’s any “material change” significant enough to worry investors that the county’s ability to pay back the bonds was reduced. If the county’s ability to pay was questioned, that could result in a downgrade on the current Double AA rating of the bonds, meaning the county would have to pay more for them.

Jennifer Hughes, the county’s budget office director, warned that if the DLC revenue bonds were downgraded, that could impact the ratings of other county bonds as well.

At least one audience member, Justin McInerney, owner of Capital Beer and Wine in Bethesda, seemed to become exasperated with the discussion over the bonds and said the $10 million in annual payments is a small percentage of the county’s overall $5.3 billion annual operating budget. He urged the county to consider a proposal that could shift the bonds to a different revenue source so timely change could be made to the DLC.

But county officials pressed the importance of maintaining the liquor revenue by saying shifting or refunding the bonds could negatively impact planned school construction projects that make up the bulk of the county’s five-year capital budget.

PFM examined the following proposals to alter the structure of the department in its report:

  • Privatize wholesale distribution to restaurants;
  • Privatize wholesale distribution of just beer and wine;
  • Privatize wholesale distribution of beer to beer and wine stores and restaurants;
  • Privatize special order beer and wine products—items the DLC doesn’t stock in bulk—to beer and wine stores and restaurants;
  • Bring in a private company to manage the department under a contract with the company;
  • Establish a public-private partnership to run the DLC;
  • Create a separate public corporation to run the department, such as a liquor authority;
  • Fully privatize the department; and
  • Set up a “bailment system” for the warehouse to charge alcohol producers to store their product in the warehouse.

PFM DLC analysis by AJ Metcalf on Scribd

Kirkland said the PFM analysis as well as a “matrix” ranking of the different options would be provided to Leggett so that he can make a decision on what changes should be made to the department.

She noted that Leggett faces a mid-October deadline for submitting proposed changes to state law because that’s when the vetting begins for local bills that would be considered by lawmakers in the 2017 General Assembly, which begins in January. She also said that there’s the option of not pursuing any state legislation in the upcoming session.

The county is also planning to issue a new survey to DLC customers—the restaurants and privately owned beer and wine shops in the county. However, Kirkland said she did not know when the survey will be sent out or what questions  will be included.

It wasn’t clear if the workgroup will meet again. Kirkland left open the possibility of convening a fourth meeting, but also said the members could communicate their opinions on the options to the county through other channels.

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