In 2009-10, a succession of scandals in North Carolina’s Alcoholic Beverage Control (ABC) system — including exorbitant salaries, nepotism, and lavish parties for ABC board members and staff hosted by liquor representatives — prompted then-Gov. Beverly Perdue to raise the issue of privatization. The effort was mostly political theater, but it revealed the issues with trying to reform this remnant of the Prohibition Era.
Any talk of ABC reform involves two separate concerns: 1) preventing social ills related to alcohol consumption, and 2) maintaining state revenue from it. In practice, if one concern is addressed, it gets criticized based upon the other concern, and vice-versa. Therefore, any attempt at reform should address both up front.
- Currently there are 422 ABC stores in North Carolina operated by 167 local ABC boards.
- The ABC Commission determines what brands of spirituous liquors may be sold in North Carolina, publishes set retail prices for each of them, administers oversight of the state-owned liquor warehouse, and oversees the local ABC boards.
- The local boards operate ABC stores, buy from the state warehouse, and sell to the general public as well as mixed-beverage licensees, such as restaurants and bars.
- The receipt, storage, and distribution of liquor to and from the state warehouse (and a second, leased warehouse facility) is the responsibility of a privately owned warehouse contractor, currently LB&B Associates.
- 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. Local ABC boards are independent, separate entities with their own policies and procedures.
- In fiscal year 2012, 93 percent of ABC boards turned profits. Over half had profits greater than 5 percent of sales.
- In fiscal year 2013 the ABC system distributed an estimated $316 million in revenue to state and local budgets. Total revenues were about $828 million; the other $512 million went for operating expenses, the cost of goods sold, and the ABC commission and warehouse.
- Regarding the concern over social ills of alcohol consumption, studies have shown that the rate of consumption is not dependent upon who sells the alcohol — the state or private licensees. Deregulation in West Virginia and Iowa resulted in less per-capita alcohol consumption.
- Furthermore, North Carolina already allows beer and wine to be sold in grocery stores, convenience marts, specialty shops, restaurants, taverns, bars, and other privately owned establishments — who charge competitive prices varying from outlet to outlet, town to town.
- North Carolina also allows liquor-by-the-drink in restaurants, bars, taverns, and other privately run enterprises.
- As for maintaining the $316 million in revenue to state and local budgets from liquor sales, that could be accomplished through a menu of sales and excise taxes and fees as part of reform.
- When the province of Alberta, Canada, converted from control to a license system, officials set up revenue-neutral excise taxes. In subsequent years those taxes needed to be reduced, not increased, in order to keep the system revenue neutral.
- Another social concern should be public corruption, which state control imposed in lieu of market forces may invite, as seen in 2009-10.
- In a privatized system, private vendors would be responsible for the other $512 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.
- Privatize liquor sales in North Carolina.
- Sell the state warehouses and local ABC stores.
- Set a flexible formula of sales and excise taxes to keep privatized liquor sales revenue-neutral.