News: CJ Exclusives

Recent turmoil at ABC suggests reforms are overdue, McGrady says

House ABC Committee co-chairman says lax oversight by state ABC Commission and local boards may force legislature to take charge

Rep. Chuck McGrady, R-Henderson, is a sponsor of a bill proposing amendment to restrict use of eminent domain.
Rep. Chuck McGrady, R-Henderson, is a sponsor of a bill proposing amendment to restrict use of eminent domain.

The N.C. Alcoholic Beverage Commission appears to operate with little, if any, oversight, aside from a board chairman and two — now one — commissioners, who are appointed by the governor.

It’s time to reform the state’s antiquated state-run system, Rep. Chuck McGrady, R-Henderson, told Carolina Journal. He intimated it may be time for lawmakers to take an expanded — if not primary — role in overseeing ABC.

McGrady, a longtime proponent of loosening the state’s rules governing alcohol, co-chairs the House Alcoholic Beverage Control and Appropriations committees and was a strong supporter of Senate Bill 155, the so-called Brunch Bill.

North Carolina has made some progress since the ABC system was implemented in 1938, yet any headway toward modernization has been slow and grudging. The issue is inherently polarizing. Putting zealous progressives and prohibitionists aside, the issue of alcohol is the cleaver that rips through the heart of the state’s Republican lawmakers.

But who is watching whom?

The commission, an ABC spokeswoman said, “is the chief regulatory agency for the state related to alcohol matters.

“Alcohol laws are the purview of the General Assembly … .”

ABC finished the sentence by referring CJ to Chapter 18B of the N.C. General Statutes — Regulation of Alcoholic Beverages. ABC has been quick to respond to questions from CJ, although its answers have been less than forthcoming.

The ABC board is under the umbrella of the Department of Public Safety, primarily because the state aims to “control” every aspect related to the production, sale, and distribution of spirituous liquor in North Carolina.

In reality, though, most of that control is left to the 168 local boards that oversee ABC stores throughout North Carolina. ABC boards, the ABC website says, are local political subdivisions of the state and operate as separate entities establishing their own policies and procedures. Local boards are required to submit an annual independent audit of their operations.

According to N.C. statutes, city ABC board members are appointed by a respective city’s governing body, unless a different method of appointment is provided in a local act. County ABC board members are appointed by a county’s board of commissioners.

“The appointing authority shall appoint members of a local board on the basis of the appointees’ interest in public affairs, good judgment, knowledge, ability, and good moral character,” the statute says.

In January 2010, for example, the New Hanover County ABC board got in trouble over an administrator’s exorbitant salary, about $214,000 annually, WRAL reported. Mecklenburg County ABC employees were criticized after liquor company representatives treated them to a $12,000 holiday party, WRAL reported.

It’s that elemental lack of central control that led to a blistering audit, released Aug. 9 by the Office of State Auditor Beth Wood.

The audit found poor contract administration cost North Carolina taxpayers at least $11.3 million over 13 years. Unused warehouse space potentially cost the state $2.1 million over seven years, and a lack of monitoring left the state underpaid by at least $297,537 over two years.

Maryland-based LB&B, which, its website says, specializes in facilities management, logistics, and training operations, since 2004 has contracted with the state to provide warehouse and distribution services.

The ABC erred in its responsibility to follow state policies and state practices, Wood says in a news release. The ABC, the audit concludes, failed to administer the warehouse contract in the best interest of the state.

Poor monitoring, Wood told CJ in reference to the audit. Poor oversight.

“Since ABC has its own board,” McGrady told CJ, “it is understandable that DPS gives no oversight to the ABC commission. The board is supposed to review the work done by its employees and executive. Each local ABC board is appointed, and theoretically overseen, by the local government that creates it. However, there is no statewide oversight entity that makes sure the boards act appropriately.

“In the light of the audit, my view is that the legislature will need to provide oversight, since it doesn’t appear that the ABC board did its job in overseeing the work of its staff.”

“The House ABC committee is not an oversight committee,” McGrady added. “Either the Joint Legislative Committee on General Government or the Joint Legislative Committee on Justice and Public Safety would have oversight responsibilities, the latter committee only because the ABC Commission is administratively under the Department of Public Safety. However, I’m unaware of any legislative oversight committee providing oversight in recent years.”

The casualties are mounting.

ABC administrator Bob Hamilton left the agency late last month, a couple of weeks before the state released the audit. The reasons for Hamilton’s abrupt departure remain unclear, and the ABC, citing state personnel laws, refuses to comment.

Wednesday, Michael Herring, one of three members on the state ABC commission, resigned from the commission, according to a letter obtained by Triangle Business Journal.

In the poorly worded letter, Herring called findings by the Office of State Auditor Beth Wood “fictitious” and calls out the administration of Gov. Roy Cooper for failing to defend the state ABC, saying it’s “an injustice to all that served on the commission over the past decade.”

Republican Gov. Pat McCrory appointed Herring, so the animus toward Cooper, a Democrat, is at least understandable. But ABC commission chair A.D. “Zander” Guy, in a letter attached to the audit report, accepted the findings. Guy said he takes the audit seriously and will implement changes accordingly. He also said plans are under way to place the warehouse contract up for bid in 2020 and become effective when the current contract expires in 2021.

The contractor, LB&B, said it was “disappointed” by the report, which, it said, failed to recognize the correct statutory authority as mandated to the ABC by the General Assembly “and improperly attributed excessive costs and underpayments to the contract.”

McGrady stands by Wood’s report, but not that of LB&B.

“My understanding is that ABC accepted the auditor’s findings, which says to me that the auditor’s claims were accurate and that ABC made mistakes,” McGrady said. “Recognizing that LB&B Associates has a financial interest in their multimillion-dollar government contract, I’m not ready to simply accept their rebuttal. I hope to ask the auditor about their claims.”

The issue of oversight will linger, and the problems will continue to fester, until changes, legislative or otherwise, at least start to address the idea of fixing a broken system.

“The world has changed since the bulk of our laws relating to alcoholic beverages were enacted. The laws are antiquated and don’t reflect the changes in the alcoholic beverage industry and in our society. While there are some that want alcoholic beverage regulation to stay the way it is, I think modernization of our alcoholic beverage law is needed, and I think the ABC commission is in need of regulatory reform.”   

How soon is the legislature like to act, and what changes might be on the way?

McGrady told CJ he doesn’t know of a succinct legislative plan, but he has proposed a licensure model allowing the private sector to sell and distribute liquor. The ABC commission and the new executive, he said, should work address the issues raised by the audit before the 2019 legislative session.

“I think the audit findings along with the updated Program Evaluation Division report issued in May and another PED report expected later this year will give me and other legislators the information needed to craft legislation to modernize our ABC system,” McGrady said.  

“I don’t expect action by the legislature before the long session. Of course, the governor could change the members on the ABC commission, and the commission will be naming a new executive.”