Changes brewing at liquor dispensaries
The often debated topic of private enterprise vs. county-run liquor stores is now at the forefront in three out of the four counties left in Maryland that still have dispensary systems.
In Worcester County, the monopoly on liquor sales appears to be nearing an end with a bill that will allow privately owned stores and phase out the decades-old dispensary system.
The bill, sponsored by State Sen. Jim Mathias, D-38, has passed in the Senate and is making its way through the House of Delegates.
Now, some in Wicomico and Montgomery counties are also taking a look at privatizing liquor sales. If they are successful in abolishing the dispensary systems, Somerset County would be the last in the state still in the liquor business.
John Cannon, president of the Wicomico County Council, hasn’t been involved with local discussions yet, but said he thinks the dispensaries are an antiquated system and a conflict with free enterprise.
“Personally, I just think the government doesn’t belong in the liquor business,” he said.
So far, there have been discussions between local restaurant owners, Wicomico County Executive Bob Culver and Mathias.
Mathias said he has had two conversations with Culver and will likely have a third. The county will need to determine a number of issues including the amount of debt, the number of jobs, the amount of inventory and revenues before it could proceed with dismantling the dispensaries, he said.
“Questions need to be answered by local elected officials with a public hearing,” Mathias said.
How it works
Liquor dispensary systems, once common on the Eastern Shore, have been replaced over the years with privatized stores. The last to do so was Dorchester County in 1999.
Each county system is operated by a Liquor Control Board with members appointed by the governor. The boards control the stores and wholesale operations, and hire their own employees.
The board buys alcohol from wholesalers and then resells it to restaurants and bars at a markup that, by law, cannot exceed 15 percent, said Justin Collis, general manager of the Wicomico County dispensaries. The markup at the retail stores averages about 25 percent, he said.
While the boards are autonomous, they must turn over financial reports and profits to their county governments. A portion of the profits are shared with municipalities in each county.
In Wicomico County, annual profits last year were about $520,000 and the stores are on track to make about the same amount this year, said Bob Holloway, chairman of the county’s Liquor Control Board.
The board, whose members also include Don Ewalt and Pete Richardson, operates three stores and a wholesale operation, and has about 25 employees, he said. So far, he has not been privy to discussions about ending the system.
“I’m aware that a meeting took place, but I’ve not heard anything about it,” he said.
Paul Benton, who until last week served as chairman of the Somerset County Liquor Control Board, said he was unaware of any such talk there.
“I guess it’ll be up to the County Commissioners,” he said.
Benton, whose term has just ended, was replaced by Cindy Knopp. Other board members are Ken Ballard and Walter Jones.
Somerset reported net profits of $142,007 for the year ending April 30, 2015. Of that amount, $112,943 went to the county, while Princess Anne and Crisfield each received $14,532.
In Worcester County, the county lost its monopoly on liquor sales in 2014 with a bill that allowed restaurants and bars to opt out of the county system and buy liquor from private distributors.
The change was made after the former Liquor Control Board got in trouble in 2010 after the state Comptroller’s Office found evidence of price discrimination, below cost sales, illegal purchasing and illegally providing some retailers with items of value.
Comptroller Peter Franchot said he generally believes government should get out of the alcohol sales business. Privatizing liquor sales and allowing market forces to take hold will lower costs, improve customer service and expand product selection, the comptroller said in an emailed statement to The Daily Times.
"Worcester County’s outdated distribution system, in particular, has been fraught with issues ranging from chronic mismanagement to price discrimination to illegal purchasing and other regulatory violations, as evidenced in our office’s investigation of the Liquor Control Board in 2010,” Franchot said. “The Lower Shore’s economy is built on the backs of small business. Whenever possible, government needs to get out of the way to help businesses succeed and give consumers more choices and better prices."
A bill currently in the General Assembly would allow the Worcester County Board of License Commissioners to award licenses to private individuals who want to open package stores in the county, but it also would prohibit them within a 1-mile radius of a county dispensary until the county can dispose of its stores,
Mathias said he is in favor of the county’s efforts to phase out the dispensaries.
“Anything that will give us total free market I support,” he said.
Pros and Cons
Loss of revenue to the counties seems to be the biggest argument against closing the dispensaries in Somerset and Wicomico where officials struggle to balance annual budgets while keeping property taxes down.
“I don’t think anyone’s figured out how to make up the difference,” Cannon said.
At a recent Wicomico County Council meeting, Dave Suiter who spoke on behalf of eight American Legion and VFW posts in the county that operate bars, said all of the veterans groups opposed doing away with the dispensary system.
“They’re totally against closing the dispensaries,” he said.
Forcing the groups to buy directly from wholesalers would be an inconvenience since they would no longer be able to buy small amounts on an as-needed basis. Instead, they would have to place orders that would be delivered from Baltimore once a week.
Suiter said the distributor requires minimum orders of $150, or three full cases of the same product. To split a case costs an extra $1.40 per bottle.
“That adds up pretty quick,” he said.
But about 20 restaurant and bar owners in Wicomico County are backing efforts to privatize liquor sales. Wes Hanna, owner of Brew River in downtown Salisbury, said he and other restaurateurs, including the owners of Market Street Inn, the Fountains and Evolution Craft Brewing, have had meetings with Culver to explore options.
Hanna, who also purchases liquor through a Delaware distributor for Harpoon Hanna’s in Fenwick Island, said it costs about 15 percent less than buying alcohol through Wicomico County for Brew River.
Restaurant owners who attended the meeting seemed to be unanimous in finding ways to end the dispensary system, Hanna said.
“It would be something we’d push for,” he said.
Attempts at change
In Wicomico County, it isn’t the first time there has been talk of doing away with the dispensaries. A review committee appointed by the County Council in 2008 recommended numerous changes, but the council ended up voting against a referendum on the issue.
Committee members included Wayne Strausburg, Mike Vizard, A. Kaye Kenney, Robert Holloway, Marion Barkley and then-County Councilwoman Stevie Prettyman.
While the committee said the county would not be able to replace most of the lost revenue from the dispensaries, it said some of it could be replaced by a license fee restructuring.
The committee recommended the county introduce legislation to allow or a binding referendum, saying the system is “an autonomous monopoly … not in the best interests of the public.”
“Should citizens vote to end the system, it should be replaced by a very limited number of retail outlets,” the committee said in its report dated July 31, 2008.
However, County Council members voted 6-1 the following month against a referendum, saying the issue needed more discussion.
Montgomery County officials have also eyed ending the dispensary system there.
Del. Bill Frick, D-16, introduced a bill that would enable the county in the Washington suburbs to sell its existing liquor stores, sell wholesale beer distribution rights and change the way alcohol sales tax is disbursed, according to a February article in Bethesda Magazine.
However, the bill was withdrawn on March 14 after receiving an unfavorable report by the House Economic Matters Committee, according to online General Assembly records.
In Wicomico County, Collis said changes aren't likely to happen anytime soon.
“It goes in cycles,” he said. “We’ve seen this come up before.”
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