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ABC reform

North Carolina's Alcoholic Beverage Control (ABC) system is a relic of the Prohibition era as well as a Gordian knot of political compromises through the decades. A succession of scandals in 2009 and 2010 — exorbitant salaries, nepotism, and lavish parties for ABC board members and staff hosted by liquor representatives — prompted Gov. Beverly Perdue to raise the issue of privatization.

Key Facts

• The ABC Commission determines what brands of alcohol may be sold in North Carolina, sets uniform markup on retail prices for each of them, owns the central liquor warehouse, and oversees the local ABC boards.
• The local boards operate ABC stores, order liquor from distillers, receive shipments from the state warehouse, and sell to the general public as well as mixed-beverage licensees, such as restaurants and bars.
• Each local board is appointed by the county or municipal governing authority. (Because of local option, there are several municipalities allowing liquor sales found within counties that disallow liquor sales; in those cases, there are several local ABC boards within a single county.)
• At present there are 415 ABC stores in North Carolina operated by 163 local ABC boards.
• In 2009-10 the ABC system distributed an estimated $262 million in revenue to state and local budgets. Total revenues were about $770 million; the other $500 million went for operating expenses, the cost of goods sold, and the ABC commission and warehouse.
• The two main concerns with ABC reform are preventing social ills and maintaining state revenue.
• As for the social concerns, studies have shown that alcohol consumption is not affected by who sells the alcohol — the state or private licensees. Deregulation in West Virginia and Iowa resulted in less per-capita alcohol consumption (see graphs). Deregulation should therefore not cause increases in such things as drunk driving and domestic abuse.
• North Carolina already allows liquor-by-the-drink in restaurants, bars, taverns, and other privately run enterprises. The state also allows beer and wine to be sold in grocery stores, convenience marts, specialty shops, restaurants, taverns, bars, and other privately owned establishments — and to be sold at competitive prices that vary from outlet to outlet, town to town.
• Another social concern should be public corruption. State control imposed in lieu of market forces invites the very sorts of scandals that brought privatization to the discussion.
• As for maintaining the $262 million in revenue to state and local budgets from liquor sales, that is no real concern at all. State leaders could use a menu of sales and excise taxes and fees as part of deregulation.
• When Albeta, Canada, converted from control to a license system, officials set up revenue-neutral excise taxes and in subsequent years have had to reduce those taxes to stay revenue neutral.
• In a deregulated system, private vendors would be responsible for the other $508 million in overhead. They would also pay income and sales taxes and create jobs, further expanding the state's tax base.
• The state and localities could reap a one-time windfall from sales of the state warehouse and local ABC stores.

Recommendations

1. Deregulate liquor sales in North Carolina.
2. Sell the state warehouse and local ABC stores.
3. Set a flexible formula of sales and excise taxes to keep deregulated liquor sales revenue-neutral.