Plus Ca Change, Plus C'est Pareit: Another Governor, Another ABC Scandal

Updated June 30, 2010

The latest round involves the payment of exorbitant salaries and perks by local boards, and Perdue – reportedly a former board member herself – is demonstrating Casablanca-style shock reminiscent of Hunt's in 1995. In a December 2009 interview with Freedom Newspapers Barry Smith, Perdue stated that “what happened with the salaries is simply wrong and especially unfair because each county seems to be able to do their own pay system with no reason or rationale behind it.”  She told Smith that she’s looking into alternatives for a possible restructuring of the Commission.

A System Dating Back to 1937
Shortly after Prohibition ended, North Carolina state leaders turned their attention to regulating alcohol consumption in the state, establishing the ABC system by edict of the North Carolina General Assembly in 1937.  The system really hasn’t changed much over the years. The ABC Board still consists of only three members – all appointed by the Governor. The legislation provides for a “control plan” under which no local county or municipality would be required to sell alcohol unless first approved by the voters.

Today North Carolina is a "local option" state with 49 county and 107 municipal ABC boards that sell spirituous liquor at retail. In addition, other alcohol beverage sales may be legal at both on-and off-premise businesses depending on whether the majority of voters approved the alcohol issue.

While the distribution of beer and wine flows through private channels, liquor is strictly government run. The following graphic shows how a bottle of booze gets from an out of state distiller to the state warehouse in Raleigh, and then to the government stores in the counties.

For the fiscal year ending June 30, 2009, the 161 local liquor boards with 411 stores sold $720 million worth of booze, earning a $72 million profit – with that profit going to local governments. And the profit is steep.  After taxes, overhead and markups, a $5.79, 12-bottle case of vodka may be sold to the public for $61.92.

Not all stores are successful, however.  With a 16-percent return on sales, Wake County runs the most profitable system in the state, but 45 systems make less than a five-percent profit and nine systems actually lose money.  Still, the system generates plenty of revenue to go around. According to a 2007 probe by the Charlotte Observer, $320,000 per year is allocated for per diem payments to over five hundred local board members.

North Carolina is the only state that sells liquor exclusively through state-owned stores, with oversight by local ABC Boards which are independent political subdivisions of the state operating as separate entities.  They are free to establish their own policies and procedures.

Each local ABC Board consists of a chairman and two to six (depending on the Board size) board members appointed by their city, town or county governing authority. It's a system that screams of political cronyism.

The Latest Scandals
In 2007, news about a $140,000 bash for ABC poobahs raised eyebrows. It was only a preview of coming attractions. Consider the following:

• The Mecklenburg County ABC warehouse manager recently accepted a fishing tournament sponsorship worth $3200 from Jim Beam Bourbon.
• Mecklenburg County officials were forced to repay $9000 to another liquor dealer after a Christmas party at a fancy Charlotte steakhouse.
• The head of New Hanover’s board and his son were found to have raked in four-hundred grand a year in compensation as employees of the local ABC Board. When the story broke, director Billy Williams retired – but he’ll still collect 100k a year from his government (taxpayer-financed) pension.
• After firing two longtime ABC store employees in Black Mountain for failing to maintain inventory - or even proper records for the store, a review of the facility's computer hard drive records revealed that the two were spending their time viewing pornography on the internet.

Legislative Recommendations
In the spring of 2010, a legislative study committee dug into the issues surrounding North Carolina's alcoholic beverage control system and came up with some strong initial recommendations, but shortly before the start of the short session in May, the committee watered down its proposal, even declining to require local boards to adhere to state ethics guidelines. 

The committee did not recommend privatization of North Carolina's alcoholic beverage distribution.

When the 2010 session of the North Carolina General Assembly convened and members were  presented with the recommendations of the study committee, lawmakers picked and chose among them.  Several bills were introduced to tighten up ABC laws, with HB1717 gaining traction.  In response to some of the scandals around the state, the bill proposed several small improvements to current law, including the following provisions:

• Caps on salaries for local board members & employees, though local governments will have the authority to override those caps;
• A "no nepotism" policy, prohibiting any ABC employee from supervising a member of his family;
• A requirement that local boards adopt ethics standards;
• A requirement that local boards operate under balanced budgets, which are to be made available to the public prior to adoption; and
• An avenue for local board members to be discharged for unethical behavior

On June 22, the North Carolina House passed the bill on a vote of 110-1.  The bill then moved to the Senate, where it passed the Judiciary 2 Committee and was re-referred to the Senate Finance Committee.

Sell It or Change?
Former Charlotte Mayor Pat McCrory believes that the state ought to get out of the liquor business by transferring the sale of liquor to the private sector, and Perdue’s office acknowledges that the state could generate as much as $700 million by selling the ABC system. Local governments would still receive revenues through liquor licenses and property taxes, and stores that are losing money would likely go out of business, as failing private retailers generally do.

Privatizing the ABC system seems eminently reasonable, and the General Assembly could certainly enact the necessary legislation to make it happen. But voters remain split on the issue, according to a January 2010 poll by the Civitas Institute.  And local boards and governments are likely to resist, unwilling to give up the rock candy mountain of liquor sales and attendant cronyism that comes along with the state-run system.

ABC "Modernization" Considered
Privatization wasn't likely to happen in 2010 anyhow -- not with President Pro Tempore Marc Basnight firmly entrenched at the helm of the Senate.  Leaders have been extraordinarily resistant to allowing the private sector to manage the state's alcoholic beverage distribution, despite the prospect of significant savings to taxpayers and the movement of 48 other states toward privatization.

Republican House Rep. Edgar Starnes supported the bill, but complained that it's not enough.  "It's a baby step in the right direction, but it [doesn't] make the big changes we need in this state," he said.