Worcester County officials displeased at new liquor rules

Worcester County liquor officials say they hope to find new ways to compete in an open market even as Maryland Comptroller Peter V.R. Franchot says he hopes the county-controlled sale of distilled spirits goes the way of the dinosaur.

New laws that went into effect July 1 open the door for private distributors to sell hard liquor directly to more than 200 bars and restaurants in the seaside county that is home to Ocean City.

Robert L. “Bobby” Cowger Jr., director of the county’s Department of Liquor Control, said his agency is working hard to compete with wholesale distributors.

“We’ve really gone in and tried to build relationships,” Cowger said.

The county has also spent money to update and improve its five retail stores that sell hard liquor directly to individuals.

But one area where the county agency is having trouble competing is price. State laws governing retail pricing in counties where the government acts as the liquor distributor make it difficult for public agencies to go up against private companies.

The system in Worcester dates back to the time immediately after Prohibition when states and counties were allowed to determine if they would sell alcohol and who would control it. In most jurisdictions in Maryland, private wholesalers provide the link between the manufacturer and stores, bars and restaurants in what is known as the state’s three-tier system. But in the four counties where the government controls the sales, state law requires a mark-up of at least 10 percent.

“We’ve been able to maintain our markups but reduce prices by getting discounts,” Cowger said. “We realized over the years that our prices to bars was high.”

In some cases, Cowger said, county prices are only 3 percent more than what distributors offer to bars and restaurants.

Cowger said he believes they could better compete if Franchot, who runs the state agency that regulates alcohol sales in Maryland, would take his foot off the county’s proverbial throat.

“Franchot has a vendetta against Worcester County,” Cowger said.

Cowger said his agency has tried to make arrangements to purchase distilled spirits direct from distributors but is frequently blocked by distributors who have exclusive deals. Cowger claims Franchot refuses to enforce state laws that would require those sales and has blocked his attempts to purchase liquor from other government-controlled distributors in Virginia, Alabama and Montgomery County, Maryland.

In all, about 130 of the 205 licensees in the county gave notice that they would like the option to purchase liquor from distributors, though they can still buy from the county. Cowger said his agency expects sales this year to be off by 25-30 percent compared to last year. He said sales for the first three weeks of July, when the new law kicked in, are running true to those expectations.

The changes have reduced the amount of revenue generated by the agency. Last year, the county generated $10.3 million in revenue from its sales of liquor. This year, the county expects to generate about $8 million and the amount the department will contribute to the county coffers is expected to be less than $170,000 — a decrease of 66 percent compared to fiscal 2014, according to county budget documents.

Cowger said the expected declines forced his agency to not hire the usual 20 part-time summer employees it historically has employed and to eliminate two leased trucks.

“Why would Franchot want to eliminate an 81-year old business that puts $1.6 million in salaries into the economy in a county that needs jobs,” Cowger said.

Franchot, for his part, said his agency “enforces the law fairly and evenly and will continue to do so,” but he doesn’t dispute that he would like to see Worcester, Montgomery, Somerset and Wicomico counties out of the liquor distribution business.

“I do have a problem with a government monopoly in the liquor business,” Franchot said, adding that Worcester is a particularly problematic example.

In 2010, the county agency, then known as the Liquor Control Board, was investigated by the Office of the Comptroller. That investigation found that the agency was illegally purchasing liquor, selling it at below state-mandated prices, selling the same product on the same day to multiple customers at different prices and illegally providing tangible goods, such as juicing machines and coolers, to some customers. The investigation resulted in changes to state law that reconstituted the county agency and opened the doors to private distributors.

Franchot, who has called for similar reforms in Montgomery County, said he believes the changes spell the eventual end of government-controlled liquor sale in that Eastern Shore County.

“It’s an outdated business model,” Franchot said. “I believe it will wither away in the face of the efficiencies of the private sector.”