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Montgomery County Greenlights New Policy To Encourage More Craft Distilleries

I am pleased to announce that the County, at my request, has adopted a new policy that makes it easier to open craft distilleries in our urban nodes.

Please see the press release below:


Montgomery County Greenlights New Policy To Encourage More Craft Distilleries

September 6, 2016


ROCKVILLE, MD — County Executive Isiah Leggett and Councilmember Hans Riemer today announced a new County policy to encourage the location of emerging and growing craft distilleries.

The policy, based on the recently adopted Zoning Rewrite, allows the annual production of up to 50,000 gallons of distilled liquor in certain commercial/residential mixed-use zones. For companies that grow or are at greater levels of production, of between 50,000 and 100,000 gallons of distilled liquor will be allowed in light industrial zones. More than 100,000 gallons of distilled liquor are allowed in heavy manufacturing zones.

“Applying the new artisan zone to distilleries makes clear to artisans, craftspeople and small businesses that Montgomery County welcomes and supports their spirit of innovation and entrepreneurship and has the places for them to locate, create, market and grow,” said County Executive Leggett. “County residents spend hundreds of millions of dollars per year on beer, wine and spirits and this will help encourage ‘home-grown’ products.”

“Since joining the Council, I have worked to strengthen our ability to offer an urban lifestyle,” said Councilmember Riemer. “We need to create communities where younger workers and families as well as empty nesters want to be. When the creative, high-value workforce wants to live in a community, the companies and jobs follow. Breweries have been adding new life to many communities in Montgomery County, and we hope to build on that by clearing hurdles for distilleries.”

Leggett and Riemer worked together to create the Night Time Economy Task Force in 2013, which recommended a policy of self-distribution for breweries, as proposed by the Department of Liquor Control. The subsequent state legislative change resulted in a significant number of breweries launching in the County over the past few years, leading one successful entrepreneur in the brewery sector to call Montgomery County “the best place in the DMV” to start a brewery. New breweries in the County include Denizens, Seven Locks, Waredaca, and Brookville Beer Farm, joining Gordon Biersch, Growlers, and Rock Bottom.

Distilleries, like breweries and wineries, are manufacturing businesses and retailers. They are part of the innovation economy culture that is taking root in Montgomery County. Communities with locally produced beverages benefit from both a vibrant social scene for residents and export-based jobs, as breweries and distilleries sell their spirits to consumers around the country and globally. Breweries are sprouting because of new laws allowing them to sell directly to restaurants without going through a distributor, as well as supportive financing from the State and County. State law
regarding self-distribution has also been applied to distillers, clearing a separate hurdle to innovation and entrepreneurship.

At the request of Councilmember Riemer, the new policy was crafted by the County’s Department of Permitting Services, in close cooperation with Montgomery County Park & Planning.

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Montgomery County Moving at the Speed of Ideas

Yesterday, the County announced an exciting partnership between Bytegrid and USA Fiber that will bring additional ultra-high speed internet connectivity to the County. With support from my Council colleagues and the County Executive, I have been working hard to make digital infrastructure a higher priority for Montgomery County. This partnership shows what can happen when you get the right people around the table. I congratulate County Executive Ike Leggett for this new fiber network partnership, which will make our data networks more competitive and strengthen our economic position in the region. I look forward to keeping the momentum going on our broadband strategy.

Read the press release below:


Montgomery County Moving at the Speed of Ideas

June 16, 2016


ROCKVILLE, MD — Montgomery County Executive Isiah Leggett was joined by County Councilmember Hans Riemer to announce the partnership between USA Fiber and White Oak data center Bytegrid, which represents a new milestone in the creation of the Ashburn Fiber Express. The Ashburn Fiber Express is a key component of Leggett’s ultraMontgomery Broadband Economic Program. ultraMontgomery will create faster, more reliable, fiber connections for Montgomery County and Maryland data centers, businesses, and research institutions to reach major data centers in Virginia.

USA Fiber’s low-latency, direct fiber route, built underneath the Potomac River, will connect Bytegrid, a preeminent data center within the County, to a 7-mile ring of more than 30 data centers in Ashburn, Va. Ashburn is the data center hub for all Internet traffic and “cloud services” on the East Coast. More than 90% of all East Coast Internet routes use one of the 10,000 Internet connection points in Ashburn.

“Internet connectivity and network infrastructure enable our economy to move at the speed of our ideas,” said Leggett. “Using the improved fiber connectivity provided by USA Fiber’s Ashburn Express, Bytegrid can offer the opportunity for federal agencies, research institutions, and large businesses in Montgomery County to have the convenience of installing and accessing equipment locally; the security of using a federal information security standard-compliant facility; and the ease of connectivity to other data centers.”

A shorter, direct fiber route to Ashburn could lower broadband networking costs, reduce latency by 25%, improve network reliability, enhance speed and network security, and add critical path diversity to Ashburn for all entities in the Montgomery County-Baltimore-Northeast U.S. corridor. Local businesses and fiber providers, accessing USA Fiber’s Ashburn Express, will have another option to provide a diverse route for their communications, ensuring continuous access to the Internet.

“With support from my Council colleagues and the County Executive, I have been working hard to make digital infrastructure a higher priority for Montgomery County,” said, Councilmember Hans Riemer. “This great initiative shows what can happen when you get the right people around the table. I congratulate the County Executive for this new fiber network partnership, which will make our data networks more competitive and strengthen our economic position in the region. I look forward to keeping the momentum going on our broadband strategy.”

With this new Bytegrid-USA Fiber partnership, and the opening of the USA Fiber Ashburn Express in September, this public-private partnership requires minimal investment of public funds; it will provide state-of-art ultra high-speed service; and it will make gigabit Internet connectivity better in Montgomery County than in Fairfax.

Economic Benefits of a Direct Montgomery County-Ashburn Fiber Route Include:

  • Bolstering knowledge-based economy.
  • Stimulating job growth in “Advanced Industries.”
  • Enhancing the competitiveness of private and public sector employers.
  • Bridging the gap in Internet traffic flow between key data centers in Ashburn, Va. and business centers in Maryland.
  • Promoting Montgomery County and the State of Maryland as a hub for technology innovation.

The ultraMontgomery program, a key component of Leggett’s 6-Point Economic Plan, is designed to grow and attract the knowledge-based businesses that rely on ultra-high speed broadband networks. When the County’s East County Fiber Highway opens in 2017, businesses near the County’s FiberNet infrastructure and the Maryland Inter-County Broadband Network can use the County’s fiber as an “on-ramp” to USA Fiber’s Ashburn Express and to Bytegrid and other data centers within the County.

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Progress Report on Broadband / High Speed Digital Networks

As the County Council’s Lead for Digital Government, I have articulated a vision for a digital Montgomery County, proposing policies that will enable our community to lean forward on technology and innovation.

With the rise of cloud computing, there is great urgency for establishing next-generation data networks that will enable researchers, entrepreneurs and government to operate at the cutting edge. I believe our continued economic progress depends on it, and that is why I have proposed a comprehensive strategy, detailed in two white papers, “Moving Montgomery Forward with Gigabit Networks” and a “Montgomery County Digital Infrastructure Strategic Plan.”

I am now pleased to report that we are making real progress. Working collaboratively with my colleagues on the County Council, particularly at the Government Operations (GO) Committee, where I serve with Chair Nancy Navarro and Councilmember Sidney Katz, and technologists in the executive branch, this vision is becoming a reality.

Years ago, Montgomery County made a wise decision to build a fiber optic data network, called FIberNet. Today, more than 567 sites — schools, libraries, rec centers, and government buildings — operate on that network. This is a remarkable achievement that puts Montgomery County in a leadership class of local governments.

Many years of constrained budgets, however, caused investment in fibernet maintenance to slide — a problem that must be remedied. With the new fibernet budget requested by the GO Committee and included in the FY17 budget, the county is turning that around. The $4 million annual fibernet budget, funded by fees on cable providers, along with a Network Operations Center, will ensure not only that the county government will get the benefit of a first class network but also so that the network can offer a market-competitive service for the private sector that can be used to generate revenue in the future.

Now we are ready to move more aggressively.

Building data networks for economic progress

The County’s economic strengths in the life, earth, bio and cybersecurity sectors are significant, and the presence of federal agencies, such as the FDA, NIST, NIH, NOAA, and others helps ensure that we have one of the most specialized and highly-educated workforces in the world. As the data-oriented (including real time video) work in these industries moves to the cloud, the county will need to be at the cutting edge in network capacity, so that the industries can operate seamlessly in the cloud — or the county will risk losing the advantage it has from hosting these organizations as they may shift investment to other locations.

In response to my first white paper on the nexus of broadband and economic development and the ongoing pressure of the Government Operations committee to move forward on this issue, the County Executive officially launched “ultraMontgomery” in 2014, and has recommended substantial funding for the program in this year’s budget. Key markers include:

The County is also actively exploring policy and regulatory changes that facilitate greater access to commercial high-speed networks, including new building codes and certifications for fiber-ready buildings, the creation of a Broadband Smart Map, and “Dig Once” policies.

Promoting access for residents

Broadband networks are core infrastructure, just like water pipes, roads, and schools. Government must take ownership over planning for the future of this infrastructure in order to benefit the residents.

Thanks to funding approved by the Council and with the reach provided by FiberNet, the County is adding 15 new locations with public WiFi and upgrading 17 more, for a total of 65. See the full list of current County WiFi locations here (page 6). At my request, the County has also agreed to make public WiFi available outside in the new Wheaton Town Square as part of the Wheaton Redevelopment Project.

To expand opportunities for people who ride buses, as well as make buses more attractive for those who otherwise can drive, RideOn will soon pilot public WiFi on a number of buses, as I argued for here. The pilot project will also test smart applications in the bus and shelter environment aimed at improving the riding experience and ultimately increasing ridership. These deployments are but a small sample of what is to come in the next few years.

With over 200 schools linked by FiberNet, MCPS is ready to expand the role of technology in education. With strong support from the Education and Government Operations Committee, chromebooks are already integrated into the curriculum for 3rd, 5th, and 6th graders as well has high school social studies classes. The plan is expand the rollout to the 7th grade, half of the 8th grade, and one high school content area this year. Students learn the new collaborative models for research, writing, and presentation projects through Google Apps for Education.

The “homework gap” is a term used to describe how some kids do not have the web access they need at home to complete their homework. The Council’s Education and Government Operations Committees recently held a hearing on how the County is addressing the homework gap and what can be done to improve our efforts. As a result of that discussion, MCPS is conducting further study about device gaps and broadband gaps. Agencies are working together to promote the $10 per month Comcast internet program for low income families, and the county has joined other jurisdictions, including through a resolution I introduced which passed at the National Association of Counties, as well as a letter from Next Century Cities, which I pressed the County to join, to support a new FCC requirement for telecom companies to subsidize broadband, not just land line, access (pdf).

It is clear that no one solution exists for combatting the “homework gap,” but as devices such as chromebooks become an integral part of the MCPS learning environment, we are focused on the problem.

Access in rural communities is a national concern, and more than one third of our county is set aside for farming. This area, nearly 100,000 acres, is called the Agricultural Reserve. Because we are committed to the success of the Ag Reserve, we must provide broadband service to the more than 2,000 properties there that do not have it today. That is why the County participated in a demonstration of 1gb Wireless technology that could be leveraged in the Ag Reserve, and the County, with encouragement from council member Roger Berliner, also negotiated reduced charges for Ag Reserve residents who want to link up to the Comcast network there — a model that may be extendable to other providers as well.

A Roadmap and Reorganization

These ideas and more are coming together in a Broadband Roadmap, now underway, which will lay out the county’s comprehensive vision of leveraging ultra high-speed broadband networks for economic development and community benefit. This roadmap, which I requested of the executive branch, will ultimately bear the stamp of not only the Leggett Administration, but the County Council, Montgomery County Public Schools, Montgomery College, technologist residents, and other network stakeholders.

At my request, the County Executive has also agreed to consider reorganizing broadband responsibilities in our Department of Technology Services, to better align our staffing structure with our goals and make more effective investments in the program. While I initially proposed to create a Broadband Authority to take independent ownership of the function, as other jurisdictions are also considering, I agree that we should proceed carefully here and we may be able to achieve our goals with reorganization rather than creating an external entity. Time will tell.

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DLC vs. Private Sector: A Wholesale Price Comparison

Throughout discussions on the Department of Liquor Control (DLC), there have been many assertions about DLC’s prices. Some claim they are too high, others claim they are lower than private competitors, but so far all of these claims have been anecdotal. Fortunately, this is an empirical question that can be tested. To provide all of us with an objective answer to this question, I asked my staff to undertake such a study. Through much painstaking work, Tommy Heyboer on my staff has completed a wholesale price study comparing the prices DLC charges Montgomery County licensees with the prices of the same products charged by private wholesalers elsewhere in Maryland. We compared DLC prices to private sector prices for 771 randomly selected products, enough to state the average price differences with 95% confidence.

The study finds that DLC’s wholesale prices on stock products are essentially equal with private sector prices elsewhere in Maryland, while DLC wholesale prices on special order products are about 10% more expensive than those products would be elsewhere in Maryland.

The Council’s Office of Legislative Oversight and staff from the County Executive’s office, CountyStat, and DLC have reviewed the study and provided extensive feedback. I want to thank them for their numerous comments, which greatly strengthened the narrative and conclusions.


DLC vs. Private Sector: A Wholesale Price Comparison1

Summary
Based on a careful analysis of Department of Liquor Control (DLC) and private sector pricing data, DLC’s wholesale stock prices are roughly equivalent to private sector prices in Maryland while DLC’s wholesale special order prices are about 10% more expensive than private sector prices. This empirical analysis a) confirms anecdotal evidence from restauranteurs and retailers and b) follows logically from the fact that DLC is layering an additional markup to special orders when purchasing them from other distributors while DLC buys most stock items directly from manufacturers. The Council’s Office of Legislative Oversight (OLO), CountyStat, and DLC reviewed this analysis and provided comments that were incorporated into the study.

Results
The following tables summarize the results.2 3

Wholesale Special Order Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Post Markup Reduction
Price Difference
Special Order Beer 47 21.53% 12.15%
Special Order Keg 18 39.02% 39.02%
Special Order Liquor 36 -1.99% -1.99%
Special Order Wine 315 8.73% 8.73%
Total / Avg 416 10.56% 9.50%
Note: The individual product categories (special order beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.
Wholesale Stock Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Stock Beer 89 -5.11%
Stock Keg 28 -7.41%
Stock Liquor 76 -0.69%
Stock Wine 162 4.51%
Total / Avg 355 0.04%
Note: The individual product categories (stock beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.

The data indicate that:

  • Stock prices are essentially equal between the DLC and the private sector
  • DLC special order prices are about 10% more expensive than the private sector
  • DLC stock and special order liquor prices are less than the private sector

Research Design and Methodology
DLC provided the wholesale prices for every product in its inventory. Private sector wholesale pricing data came from the Maryland Beverage Journal4 and directly from several distributors5. DLC’s inventory was separated into stock and special orders and then each list was randomized6 separately. To achieve a 95% confidence level with a 5% confidence interval, each sample had, at least, an N of 3557. Further, the samples’ split of wine, beer, and liquor closely aligns with the actual proportions of DLC’s inventory; if beer products comprised X% of the inventory, they comprised X% of the sample. This study uses frontline private sector prices from May 2015 and compares them to the DLC prices. To determine the overall price differences, this study used price differences in percentage terms of each item (where a positive percent indicates DLC being more expensive by that percent and a negative percent vice versa) and then averaged the differences for each sample.

It is important to note that DLC did decrease the markup on special order beer8 over the summer after the study was underway. To determine whether the markup reduction had a significant effect on the price difference, the study shows both the sample with May 2015 special order beer prices and the same sample with the markup-reduced prices on special order beer. The markup reduction on special order beer reduced the price difference from 21.53% to 12.15% on those products. However, it only reduced the overall special order price difference by 1%. Therefore, the markup reduction did not produce a significant effect on the overall analysis. The table above shows both results.

Since the table above shows that special order beer is between 12% or 21% more expensive and special order kegs are nearly 40% more expensive, one could argue those product types are driving the bulk of the overall price difference. While it is true that they are part of the sample, they do not “punch above their weight,” so to speak. First, special order beer and kegs comprise about 15% of the sample, which, not coincidentally, is the same percentage of special order beer and kegs in the entire inventory. Special order wine, however, comprises over 75% of the sample.

Previous Price Comparisons
While both OLO and CountyStat have performed separate price comparisons, these analyses lack the inferential power provided by a statistically significant sample. Rather, they focused on the most popular DLC products. Those analyses say some interesting things about price differences on these specific products. However, they cannot say whether the trends identified apply to moderately popular and less-popular products or more importantly, to stock and special order products more broadly. In other words, the real question, “are DLC prices more expensive?” was still largely unanswered.
Executive Branch staff asked whether the analysis should use weighted averages based on the volume of a product sold by DLC. This analysis does not follow this methodology, because it is designed to answer a very specific question: “are DLC wholesale prices higher or lower than the Maryland private sector?” A random sample of the entire DLC inventory captures the price differences over the full breadth of products.

CountyStat’s and OLO’s price analyses focused on the impact on licensees of the prices of the most popular, most high-volume items, which answers a slightly different question. It is best to view this analysis as supplementing the results of OLO and CountyStat.

If licensees are price-sensitive when making purchasing decisions (and they presumably are), relatively higher prices on special order products will likely depress sales of these products compared to lower-priced items. DLC’s sales numbers cannot reflect the absence of sales, so using weighted averages based on sales volume could skew the results. Testimony from licensees to the Ad Hoc Committee on Liquor Control supports the assertion that licensees take price into consideration when deciding which products to order.

Second and more importantly, this analysis calculates overall price difference by averaging the price differences of each individual product, not by simply averaging the average of each product category. Therefore, if one calculates the weighted average of each product category in the sample, they would find that it too equals 10.5%. That said, the price difference in each product category is not statistically significant, given the insufficient amount of N for each product category. Those numbers simply provide additional context.

It is important to note once again, that the price studies done by the Office of Legislative Oversight and CountyStat shed some insight on the question of, “What effect do price differences of the most popular items have on licensees?”. In discussions before the Ad Hoc Committee, representatives from the DLC and CountyStat sought to focus attention on price comparisons of popular items, such as the top 50 products sold in stock or special order. One key challenge for this methodology is that it does not allow us to draw strong conclusions because the sample sizes are small.

The goal was to go beyond this limited view of the pricing and draw stronger inferences on DLC pricing overall. As discussed above, this why a statistically significant sample is more appropriate.


Endnotes
1 Prepared by Tommy Heyboer, Deputy Chief of Staff to Councilmember Hans Riemer. Special thanks to the County Executive’s staff and the Council Office of Legislative Oversight for insightful comments and suggestions.
2 The average price differences of each product category (beer, kegs, liquor, and wine) are shown for context, but given the relatively small N for each individual product category, they do not constitute statistically significant results on their own.
3 Weighted averages must be used for the individual product category price differences to add up to the total average.
4 As of May 2015
5 Distributors include Bond Distributing, Legends Ltd., and the Country Vintner
6 Once separated into stock and special order lists, a random number (using the RAND() function) was assigned to each product and then the lists were ordered from small to large. The items included in each sample are, at least, the first 355 items with DLC and private sector prices.
7 An N of 355 for the sample is based on an inventory of ~4,700 stock products and ~27,000 special order products
8 The DLC reduced their special order beer markup by 28.5%. It went from 35% to 25%. See the August 2015 DLC Newslink here.