ABC system reform would put local autonomy, revenues at stake

Also see:
• Issue paper: ABC system and local boards (PDF)

By Todd McGee
Communications Director

Over the past several months, a small handful of local Alcoholic Beverage Control (ABC) boards have come under scrutiny for perceived ethical issues, including lavish dinners paid by distillers and excessive salaries and benefits for ABC executives. This has led many critics to demand reforms for the system.

With the state expected to face a multi-billion dollar budget deficit for 2010-11 – and beyond – some are looking at the ABC system to see what changes can be made to allow the state to reap more revenues. Among the possibilities is greater control by the state ABC Commission or privatizing the system, which some think could bring greater revenues to the state – particularly a one-time windfall as the state sold off its assets.

Either way you look at it, the ABC system is under the microscope.

"We are very quietly looking at companies that might be able to come in and evaluate the system," Governor Beverly Perdue told members of her Local Government Advisory Commission on Jan. 20. "I am having somebody look at the system. I understand that this is a state driven by local control. I also understand the state owns the product and the license for the product."

While recent events have put the ABC system on the front pages of newspapers across the state, the system has actually been the subject of a review for the past few years. In 2008, the General Assembly asked its Program Evaluation Division (PED) to study the current ABC system. The PED released its evaluation in December 2008.

Its study concluded that the state ABC Commission lacked the ability to effectively and efficiently manage the ABC system and made numerous recommendations for improvements, many of which would grant more control and authority to the state ABC Commission.

On Jan. 12, 2009, Governor Perdue signed an executive order establishing the N.C. Budget Reform and Accountability Commission (BRAC). The mission of BRAC is to review "the services and programs provided by State government" and make sure that "the operations of State government are streamlined and improved to achieve cost savings without sacrificing core missions and services." The ABC system is one of the issues being studied by BRAC.

In addition to these efforts, Sen. Marc Basnight (Dare County) is organizing a special legislative committee to review the ABC system and make recommendations for reform. He asked the NCACC and the N.C. League of Municipalities to recommend members for the committee, which was to meet in February.

North Carolina's ABC system is unique in that it is the only system in the nation in which ABC boards are appointed locally to oversee the stores in each jurisdiction. If voters in a city or county approve in a referendum the sale of liquor, then an ABC board is established by the local governing body to oversee the operations of the ABC store. (Some jurisdictions with ABC boards do not have an ABC store but pass an ABC referendum to allow restaurants and other establishments to sell mixed drinks. State law requires that an ABC referendum be approved before a mixed drink referendum is passed.)

While the locals determine if their community will allow the sale of liquor, the state ABC Commission determines which products will be sold, sets the prices and houses the inventory in a state warehouse. The local ABC boards order their products through the warehouse and then pay the distillery directly upon delivery. There are 161 local ABC boards that operate 411 stores in North Carolina. In 2008-09, cities and counties received more than $46 million in revenues from local ABC boards.

Several bills were introduced in 2009 that would have implemented many of the proposals contained in the PED report. H768/S839 (Modernization of the ABC System) and H1367 (Modernization of the State's ABC System) were not heard during the session.

The bills give the state ABC Commission the power to establish performance standards for local ABC boards and the authority to close stores that are not profitable. The bills would also require the local boards to comply with directives issued by the state ABC Commission, and would force separate ABC boards within a county to merge by July 1, 2011, with the result of no more than one ABC board per county. The NCACC and the NCLM oppose the bills because of the usurpation of local control.

Governor Perdue told members of her Local Government Advisory Commission that she was bothered by the ethical issues plaguing the ABC system and that she wanted to address those concerns. She said she would have "slam-dunk" legislation ready for the 2010 short session and that she is willing to consider any alternative, including privatizing the system.

"The overall question of what to do with shedding enterprises that the state needs to shed – I don't believe any of us, regardless of the political rhetoric around this issue, have the right answers," Governor Perdue said. "You don't just shed stuff. We need revenue in this state."

NCACC Director of Government Relations Kevin Leonard told the NCACC Board of Directors on Feb. 3 that the NCACC will oppose any attempt to either privatize the system or to give more control over the system to the state. He said the Association is working with the NCLM on proposed legislation that would impose more stringent ethics requirements on local ABC board members and would require the state ABC Commission to collect and distribute salary data to all ABC boards and the local appointing authorities so that they can make better informed decisions about salaries and benefits for board members.

"I believe legislation with these types of actions will help address some of the current concerns," Leonard said. "But I also believe that we will continue to hear – maybe not as loud this session, but likely in future sessions – calls for privatization. It is something we need to keep our eye on."

If the system were privatized, it is estimated that local governments would lose $60 million in reoccurring revenues.