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Testifying before Congress on Earned Sick and Safe Leave

Yesterday I was privileged to testify to Congress about Montgomery County’s Earned Sick and Safe Leave Law, which guarantees that most Montgomery County workers can earn at least seven sick days each year. The U.S. House Subcommittee on Health, Employment, Labor, and Pensions held a hearing on paid leave and I testified in opposition to a terrible proposal that would allow companies to opt out of our local law in favor of a much weaker federal standard. Please see the video below for more:

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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.

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Putting progressive values in action with new county budget

I am pleased to share highlights from the county’s new budget for Fiscal Year 2016 (video), which will begin July 1st.

This year was a “same services” budget, with lower revenues due to a regional economic slowdown. The Council’s total budget of $5.07 billion increases spending by a modest 1.7% over last year’s budget.

There were, however, many bright spots. Some of the best news:

Education: The Council was able to supplement the Executive’s recommended education funding by adding $2 million for technology investments in MCPS and $7.9 million to reduce tuition increases at Montgomery College. Overall, MCPS received $31.9 million over last year’s budget, to support higher enrollment. Unfortunately, Governor Hogan has withheld $17 million in budgeted state education funding for MCPS, so MCPS still faces difficult choices this year.

Clean elections: The Council added $1 million as a down payment on the small donor matching system we established in law last year. Candidates for Council and Executive who refuse large contributions will be eligible for small donor matches for the first time in the 2018 election; we are projected to need $8 million in public matching funds for that election.

I am especially pleased and humbled that the final budget included funds for a number of my initiatives:

Child Care: The Council added funds to implement the recently passed Bill 13-15, including provisions I authoredcreate a new Child Care and Early Education Officer and to develop a Child Care Strategic Plan. We also added over $500,000 for additional child care subsidies for low income families.

Transportation: The Council added funding I championed to improve pedestrian and bike infrastructure (BiPPA’s), add five new RideOn buses to expand service, and improve sidewalk snow removal.

Fighting poverty: The budget increases our Earned Income Tax Credit, as required by Bill 8-13, which I introduced to restore the EITC after it was cut during the Great Recession. Montgomery County is the only County in the nation to offer an EITC match, which has been widely recognized as one of the most effective anti-poverty tools.

Other initiatives I championed, within a responsible budget framework:

I hope these initiatives give you a clearer sense of my work to meet our ever changing community needs.

On the question of taxes, county taxes as a share of personal income are virtually unchanged from last year. In order to keep property tax collections under the charter limit, property tax rates will be slightly reduced. As a result, for the two-thirds of property owners who do not have a revision in their assessed value this year, property tax bills will decline slightly. The average tax burden in real terms will be lower this year than in 6 of the last 9 years, and it is considerably lower than it was in 2007, 2008 or 2009.

Finally, as you may have heard, the U.S. Supreme Court has ruled against the county on an issue relating to our income tax collections. The issue, which affects those who earn income outside of Maryland, will reduce county revenue by more than $50 million next year. Significant budget challenges are ahead of us.

As always, I welcome hearing from you.

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Boosting economic growth in Montgomery County

I wanted to share an article about economic growth in Montgomery County that ran recently in the Examiner. It includes this quote by me:

Riemer warned his fellow lawmakers that the county’s tax base may be eroding. With that huge regional imbalance in job growth … we’re traveling further to job centers, so our residents who have choices will move closer to jobs elsewhere. The ones who have choices have higher incomes.

I am concerned about our rate of job growth in the county for many reasons. For example, we need to expand our commercial tax base in order to fund our government services and keep our general tax burden from rising.

The council recently passed legislation that Roger Berliner and I proposed, which would require the county to draft an Economic Development Strategic Plan that contains measurable goals on job creation, target industries and geographic areas, workforce education and training, growth in tax base and other factors. This plan must be approved by the County Council. All business incentives proposed by the Executive must be consistent with this plan. The County Council passed our bill unanimously.

My hope for this legislation is that it will result in a better strategic plan for economic development with stronger support for that plan from county leadership. A key goal is to provide a vehicle for the county’s leadership in the private and public sector to come together around a shared vision for how we move forward.

For Montgomery County to improve its competitive position, I believe we must do a better job engaging the private sector in our economic development work.

These kinds of planning exercises can work to build consensus about the problem and a solution agenda. The International Economic Development Council provides many examples of how local governments have improved their outcomes through smart planning.

I will continue keeping you updated about my work on these important issues and I welcome any feedback that you may have.

Regards,

Hans Riemer
Councilmember, At-Large