News: CJ News Service

Reforming or modernizing N.C. ABC system would require major adjustments, but changes are possible, reports says

Editor’s note: This story was updated 2:15 p.m. on Monday, Feb. 11

Changing how North Carolina regulates liquor sales would require major adjustments, the state’s Program Evaluation Division says in its latest report.

But big changes are possible, should lawmakers decide to make them.

Rep. Chuck McGrady, R-Henderson, has taken the lead on legislative efforts to fix the state’s antiquated N.C. Alcoholic Beverage Control Commission.

“I intend to file bills to modernize the ABC system and believe that can be accomplished this legislative session,” McGrady says in an email. “I will be discussing the options the PED report offers with my colleagues to see what model has support. I want to file a bill that will receive sufficient, bipartisan support.

“A modern licensure model, like most states, would solve the problem. I expect to introduce several bills to address the issues touched on in the PED report.

PED staff presented the report to lawmakers Monday afternoon.

North Carolina — one of 17 “control” states — could conceivably end government control of retail liquor sales or government control of wholesale and retail liquor sales, says the PED report. Titled “Changing how North Carolina Controls Liquor Sales has Operational, Regulatory, and Financial Ramifications,” the PED released its study Monday, Feb. 11.

The PED identified three options for reform, assuming the end of local ABC boards and the related government control.

“In lieu of a complete overhaul, the state could choose to further modernize the current system to increase efficiency and profitability,” the report says.

Thirty-three states operate under the licensure model.

Licensure states regulate the distribution of alcoholic beverages by licensing suppliers, wholesalers, and retail businesses selling alcoholic beverages and by collecting taxes on these beverages, the report says. But those states don’t control distribution. North Carolina is unique in that the state assigns many of the governing functions regarding liquor to 170 local boards.

Licensure states do not directly control the distribution of liquor. They do regulate various aspects of the liquor industry.

“The state’s 170 local ABC boards operate 433 stores across North Carolina,” the report says. “The majority of boards operate only one ABC store, but 40 percent of boards operate multiple stores within their jurisdictions. Boards employ 2,870 full-time and part-time employees. During fiscal 2016–17, ABC stores sold 79 million bottles of liquor.”

“The PED report,” McGrady says, “outlines possible options along a spectrum of government control. I prefer the licensure model because it is the most widely used across the nation and gets the government out of the liquor business, while still maintaining sufficient control for public safety concerns.”

Reforming or even modernizing the system would be heavy lift, considering the politically entrenched 80-year old state alcohol control system.

“Ending government control of retail liquor sales would require decisions related to dissolving local alcohol beverage control boards and closing ABC stores, determining regulatory requirements for private retail businesses to sell liquor, and developing an implementation schedule,” the report says. “Ending government control of wholesale liquor sales would further require establishing requirements for a private liquor warehouse and distribution system.”

The General Assembly, the report says, could appoint a joint legislative commission to determine how state and local government roles would change.

“If it wishes to modernize the current system,” says the report, “the General Assembly should direct local ABC boards located in counties with multiple boards to form merged ABC boards; eliminate the purchase-transportation permit for liquor; monitor the selection of a new ABC warehouse contract; and provide local ABC boards with more flexibility to charge delivery fees, serve special order customers, open ABC stores on Sundays, and offer in-store tastings of liquor products.”

The money localities get from state alcohol sales could well be a sticking point, as towns and counties have come to depend on the consistent revenue. Eighty-one percent of sales are from purchases by the general public at ABC stores, and 19 percent of sales are from purchases by retail businesses for resale as mixed beverages. Since fiscal 2006–07, total revenue from liquor sales has increased 63 percent. Of that, more than $74 million, or 7 percent, went to local governments.

“Counties receive money from excise taxes on other types of alcohol, and in a licensure model they would receive excise taxes on liquor to replace lost revenues,” McGrady says. “Local governments could also be allowed to levy sales taxes on liquor; currently the state retains those revenues.”

The PED’s three options for lawmakers are agency store, private retail, and licensure models.

Under the licensure model, the report says, it’s assumed North Carolina relinquishes direct control of both the wholesale and retail market for liquor and licenses private wholesalers and retail business to sell liquor.

“Agency store and private retail options eliminate government-run ABC stores, but the ABC Commission would still control the wholesale liquor operations including liquor selection. The ABC Commission still controls retail liquor prices under the agency store option, but would only control the wholesale price under the private retail model. Under the licensure model, the ABC Commission would no longer have direct involvement with selling liquor and would regulate the liquor industry by licensing private wholesalers and retailers to sell liquor in North Carolina,” the report says.

“In-store tastings and Sunday sales are recommendations of the PED report and are common sense ways we can modernize our current system,” McGrady says.

The PED report released Monday is a followup to a PED report released in 2008.