Even with a Monopoly, MoCo’s Liquor Retail Stores Lose Money
No Montgomery County government activity is harder to justify or to even explain, than its unique liquor monopoly. Maryland state law prohibits the county’s liquor sellers, retail stores and restaurants, from selling any alcohol not purchased from the county’s government-operated monopoly. Additionally, distilled spirits or hard liquor can only be sold at county-owned and operated retails stores. The monopoly, renamed earlier this year as the Alcohol Beverage Service, is one of county government’s most flagrant examples of its hostile business climate. [i]
The Montgomery County Republican Party called for an end of the arrangement in December 2015. Then Chairman Michael Higgs put it succinctly: “It is time for Montgomery County voters to decide whether to free our restaurants and catering industry from having to purchase liquor only from a government bureaucracy. Let’s join the rest of the country and allow private distributors.”
The monopoly’s apologists, however, defend the agency because it has generated about $20 to 30 million in net profit each year for the county. Reform plans have faced the issue of replacing these liquor profits as a county revenue source. Then County Executive Ike Leggett told a legislative public hearing that privatizing liquor sales would cause local taxes to go up. “This is irresponsible. This will not help our county, it will set us back,” Leggett said at the time. [ii]
It turns out that Montgomery County’s liquor profitability was only partly true. According to a more detailed financial analysis finally conducted for the County Council, all the net profit is entirely due to the warehouse operation. The County’s retail operation, its twenty-five stores with a monopoly on selling hard liquor, in fact loses money. The loss is about $5 million a year.[iii]
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Overall, six of the 25 Alcohol Beverage Service retail stores showed a profit and 19 showed a loss in the fiscal year ending this past June. The performance of individual stores was varied. The best produced a $299,000 profit. The worst generated a $470,000 loss. According to the agency, the retail stores were in the red in fiscal 2018 and will be again in 2020.
Previously, this operating loss was obscured by an accounting sleight of hand that booked profits to the retail operation that really belong to the wholesale division. Unlike private beer and wine retailers in the county, the county’s own retail stores were not charged a wholesale markup when purchasing product from the warehouse. This allowed them to book their inventory cost at the price the warehouse paid to the manufacturer. Consequently, the stores were made to seen artificially profitable.
To their credit, five of the County Council’s nine members have now demanded that County Executive Marc Elrich provide a detailed analysis of why the stores are unprofitable and how he plans to address the issue. [iv]
On the other side of the liquor monopoly issue stands one of the county’s most powerful public employee unions. UFCW (United Food and Commercial Workers) Local 1994 MCGEO, represents about 8,000 county government employees, including about 350 liquor employees. The union has repeatedly opposed opening the liquor monopoly to competition.
Maryland Comptroller Peter Franchot, the state’s top enforcer of alcohol laws and a liquor monopoly critic, previously commissioned an opinion poll demonstrating massive public opposition to the liquor monopoly. Sixty-nine percent favored getting rid of it. Among likely voters, 74% supported repeal.
An overwhelming majority of public opinion, as well as a majority of the County Council up against the public employee unions? It will be interesting to see who County Executive Marc Elrich sides with.