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Old Fashioned? Some Say It's Time to Update the Liquor Department


Published February 3, 2016 at 10:00 a.m.
Updated February 16, 2016 at 4:33 p.m.

Matt Aubut unloading a pallet of vodka at the Department of Liquor Control warehouse - JEB WALLACE-BRODEUR
  • Jeb Wallace-brodeur
  • Matt Aubut unloading a pallet of vodka at the Department of Liquor Control warehouse

Vermont is a "control state" when it comes to liquor, meaning an arm of state government decides who sells which spirits — and even sets the prices. At Vergennes Wine, owner Paul Kerin is forced to rely on state-owned equipment that uses an antiquated dial-up modem for both credit card transactions and reporting sales data.

"Fifty percent of the time we have to redial to get the credit card approved," Kerin said. "That can be a hassle when we get busy."

Much about the Department of Liquor Control seems stuck in another era. That led the legislature to appoint a modernization study committee last year, and its members are itching to take action.

Some lawmakers see the quasi-independent structure of the department as unresponsive to current circumstances; it's virtually unchanged since 1935 — two years after Prohibition ended. They note that an appointed board hires the liquor commissioner, in contrast to the way the governor chooses leaders in other areas, such as labor, health and economic development.

"We need to build a framework where we can support and hold the liquor department accountable," said Sen. Dustin Degree (R-Franklin), a member of the modernization panel. "Liquor control is not a necessary department. It is an enterprise of state government," he continued. "Half of its mission is to make money for state government. If we are going to do it, we should do it right."

As for what's wrong, Degree cited the dial-up modems, along with cash registers so old that the department turns to eBay for parts. The department hand-processes 12,000 permits and licenses — for distributors, manufacturers, caterers, galleries that hold tastings — every year. Vermont liquor retailers still can't place orders online.

Another pending worry: The 30,000-square-foot warehouse, home to thousands of cases of liquor and fortified wines awaiting delivery to licensed liquor stores, is running out of space. It's wedged between the Winooski River and the road from Interstate 89 into Montpelier, with no room for expansion. The crowded lot has long made maneuvering difficult for delivery truck drivers.

Booze already makes money for the state — more than $20 million a year. But Sen. Philip Baruth (D-Chittenden) asked a question that just won't go away: "Could we increase the revenues without losing control of public safety by perhaps some private-public partnership?"

Lawmakers on the modernization committee are ready to find out. Even before their report was printed, they had drafted legislation. Nearly identical House and Senate bills call for changing the way the commissioner is selected, making the position a gubernatorial appointment. House and Senate committees have begun taking testimony on that change.

Meanwhile, the five-member Liquor Control Board hired a new commissioner to replace Michael Hogan, whose retirement coincided with a Burlington Free Press exposé about the unorthodox pay arrangement he allowed the department's chief of liquor enforcement. Over a 14-year period, Hogan let William Goggins claim two to three hours of overtime a day, which amounted to an additional $162,000 for the lead inspector.

Commissioner Patrick Delaney - JEB WALLACE-BRODEUR
  • Jeb Wallace-Brodeur
  • Commissioner Patrick Delaney

The new commissioner, Patrick Delaney, started work on Monday. He ran a liquor and wine brokerage firm in Utah for more than 20 years before selling to the largest wine and liquor distributor in the country, in 2013. Delaney remained with Southern Wine & Spirits until the Vermont job came up.

In a casual brown V-neck sweater and slacks, Delaney took a few minutes on his first day to explain why he moved across the country to head a department with "a lot of things that need to be evaluated." The 60-year-old described the opportunity as "kind of a last chapter" in his career.

Delaney plans to look at the whole operation to determine what can be changed immediately and what needs to be worked on over the long term. "By reinventing the wheel," he said, "there is opportunity to do a better job."

That Gov. Peter Shumlin signed off on his hiring ostensibly protects Delaney's state job for at least a year. But what the legislature decides to do with the liquor department could impact his future. Delaney is teaming up with longtime staffers to address a number of legislative committees this week. Eventually, Delaney said, he hopes "to help them understand the value of investing in the services here."

Not surprisingly, the Liquor Control Board is opposed to any plan that would curtail its authority to hire the liquor control department's commissioner. The current arrangement is designed to keep politics out of the liquor business, according to board chair Stephanie O'Brien. The governor picks the members of the board, she said, and "every two years, the governor appoints his or her chair."

Members of the board worry that a gubernatorial appointee might lack critical business expertise, O'Brien said. And the election cycle could lead to excessive turnover. "It is too disruptive to change the CEO every two years," she said of the state's liquor enterprise. Hogan served 16 years through the terms of three governors — two Democrats and one Republican.

Which arrangement would maximize the liquor department's competitive edge?

Degree said technological shortcomings would have been identified and addressed sooner if the liquor commissioner was part of the gubernatorial administration.

In the cramped Senate Economic Development Committee room, interim commissioner Jim Giffin recently briefed members on what steps have already been taken. The retired chief financial officer for the Agency of Human Services had run the liquor department since June.

"We had no way to communicate electronically to our agents," Giffin said, referring to the business owners who sell alcohol in Vermont. Legislators shook their heads in disbelief. He said staff has since created an email list, and agents are now receiving monthly electronic updates. Giffin and the board convened a meeting with agents for the first time in a decade. And the board is creating an agent advisory committee.

"They have included us in some decision making, which is great," said Kerin, in Vergennes.

The department had planned to replace the state-owned cash registers and modems in Vermont's 80 liquor stores last fall, but Giffin said that reboot is going to take longer.

Former interim commissioner Jim Giffin - JEB WALLACE-BRODEUR
  • Jeb Wallace-brodeur
  • Former interim commissioner Jim Giffin

Replacement can't come fast enough for Rep. Ron Hubert (R-Milton), owner of Middle Road Market and a liquor agent for two decades. Every time his internet provider upgrades services, he has to call a repairman to adjust his dial-up equipment so it continues operating.

The board hired consultant David Jackson to evaluate the department's liquor distribution system. Giffin noted that Jackson helped the department identify 2,000 cases of liquor that it could remove from the crowded warehouse. Some of the liquor was destroyed because it was no longer being sold or sold under that label or had gone bad. Liquor containing milk products has a shelf life.

The department also secured a grant from the National Alcohol Beverage Control Association for a study of the warehouse. Chet Willey Associates recommended layout changes to increase its efficiency and extend its useful life. The firm also identified security needs such as more and newer cameras.

The Chet Willey study advised that a replacement warehouse be at least 60,000 square feet — double the size of the Montpelier facility — to allow for future expansion.

Shumlin included $75,000 "for preliminary planning, site search or alternative options for the Liquor Control administrative buildings and warehouse" in an adjustment to the two-year $10 million capital budget.

But is a new warehouse necessary?

"I have to wonder why we are in the business," Baruth said. "In what other area do we field an entire private industry? I see a real possibility for us moving to a model like Maine," he suggested. Maine has a 10-year contract with Pine State Spirits to provide a warehouse and distribute liquor to licensed agents.

Degree agreed that a public-private partnership should be considered: "There are lots of organizations that, I think, would be willing to bid."

In 2014 state Auditor Doug Hoffer looked at the potential benefits of privatizing some or all of the wholesale and retail operations for liquor that the state now controls. "On its own, the estimated fiscal impact from privatization does not appear sufficient justification to change the state's current system," his report said. But he also suggested that it could be time for legislators to consider whether the private sector should take over. And he noted the inherent conflict between selling and marketing a product that the department is also charged with regulating.

Speaking for this story, Hoffer said, "I hope they will consider all the options."

Steve Howard, executive director of the Vermont State Employees' Association, said the union would "vigorously oppose" privatization: "We have seen examples across the country where privatization has been a failure. We think the public system is working well."

Kerin, in Vergennes, suggested a small step. The agents, and not the state, should own the liquor on their shelves, he said. "Then the state could do away with all the technology," he said, pointing to dial-up equipment on his counter that reports his sales to the department.

He could price items as he saw fit, he said.

"I know where I could lower prices," he said, adding that it could result in more sales for him and additional dollars for the state. "There is nothing wrong with trying new things."

The original print version of this article was headlined "Old Fashioned? Some Say It's Time to Update the Liquor Department"

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