Broken Blue Laws: Push to privatize NC liquor sales

WILMINGTON, NC (WECT) - It’s something people have talked about in North Carolina for years, but the effort to potentially privatize liquor sales here may be gaining some traction. North Carolina is currently one of 17 states in the country that are considered “control states,” where the state sells liquor through its own stores.

A report from the State Auditor in August did not help supporters of the status quo. Beth Wood blasted the Alcoholic Beverage Control Commission for losing $13 million of taxpayer’s money over several years, due to poor management and lack of oversight.

That report came on the heels of a May 2018 report by the General Assembly’s Program Evaluation Division that found even after performance standards were implemented in 2011 to improve the operation and profitability of local ABC boards, only 15% of them had profit margins higher than private liquor stores in Florida and South Carolina.

“I don’t understand why government has to have a monopoly on alcohol the way it does through the ABC system,” State Senator Michael Lee told WECT when asked for his opinion on privatizing liquor sales. “Does it really benefit the public? We’ve seen a variety of instances over the last 20 years of mismanagement at best and corruption at worst when it comes to the ABC system.”

Look no further than New Hanover County for a case in point. In 2011, Billy Williams, the former head of New Hanover County Alcoholic Beverage Control, was convicted on felony fraud charges connected to his ABC job. Specifically, Williams used $43,000 of public money that was allegedly for concrete work at the Porter’s Neck ABC store to help cover the cost of a two-story garage at his home in Wilmington.

At the time, Williams made $232,000 a year running the county ABC system, making him the highest paid ABC administrator in the state. Even after his felony conviction, Williams got to keep his state pension, a whopping $195,000 a year. Billy’s son, Bradley, retired from his job as Assistant Administrator of the New Hanover County ABC system in 2011, where he made over $160,000 a year. Upon retirement in his late 30’s, he qualified for a state pension of $55,000 a year.

With the Williams issue behind them, both Senator Lee and New Hanover County Commission Chair Woody White say the NHC ABC Board is now in excellent hands, one of the most profitable boards in the state. Still, both continue to question the wisdom of the current state controlled operating structure for liquor sales.

Steady revenue stream for many cities and counties

While some NC ABC Boards lose money, New Hanover County’s ABC Board has a 14% profit margin. New Hanover County ABC stores sold $31 million worth of liquor during the 2016-17 fiscal year, and the board made another $12.6 million in taxes off of mixed beverage sales at restaurants and bars. $5.2 million of the profits from those sales were distributed to the county, local municipalities, and law enforcement.

Not all counties have their own ABC boards. Some towns run their own boards, with mixed results:

• Brunswick County had $2.6 million in retail sales, 8% profit margin, $46,921 in local distributions
• Belville: $3.6 million in retail sales, a 6.58% profit margin, $218,773 back to local entities
• Boiling Spring Lakes: $747,000 in retail sales, 4.4% profit margin, $34,667 local distribution
• Brunswick: $527,000 in retail sales, 6.6% profit margin, $25,327 local distribution
• Calabash: $1.3 million in retail sales, 7.85% profit margin, $113,305 distribution
• Elizabethtown $1.3 million in sales, 9.5% profit margin, $130,373 distribution 
• Lake Waccamaw, $410,000 in retail sales, .13% profit, no distribution 
• Oak Island, $2.3 million in retail sales, 8.8% profit, $237,000 distribution
• Ocean Isle Beach, $1.8 million in retail sales, 9% profit, $198,000 distribution
• Pender County, $6 million in retail sales, 8% profit, $504,000 distribution
• Shallotte, $1.7 million in retail sales, 9% profit, $126,000 distribution
• Southport, $2.5 million in retail sales, 10% profit, $307,000 distribution
• Sunset Beach, $1.5 million in retail sales, 7% profit, $55,000 distribution
• Tabor City, $784,000 in retail sales, 8% profit, $52,000 distribution
• Whiteville, $1.2 million in retail sales, 6% profit, $74,000 distribution

While some boards are more profitable than others, overall there’s a lot of money on the line. The risk of potentially losing a steady revenue stream is one reason why county and city leaders from across North Carolina have lobbied against past efforts by state lawmakers to privatize liquor sales.

But in other states, which license private stores to sell liquor, the states still make money. Alcohol is still taxed, and liquor stores pay for the privilege to sell booze.

Those states don’t have to pay salary and benefits to thousands of ABC employees like we do in North Carolina. They don’t have to use public money pay for the upkeep of liquor stores, and they get property taxes from the private liquor store owners.

While North Carolina sells just over $1 Billion a year worth of liquor, about half of that money goes straight back to the liquor industry, covering the cost of goods sold. Expenses related to running North Carolina’s ABC system eat up $188 Million, and the remaining $406 million is distributed to the state, counties, cities, and law enforcement.

“Just personally, as one local official, I believe the best model is always to privatize if you can,” New Hanover County Commission Chair Woody White said. “Something like liquor sales as a monopoly - it’s going to be run more efficiently and it’s going to have less opportunity for corruption and problems if it’s in the private sector.... I don’t fear a potential loss [by privatizing sales]. I think we would gain revenue.”

White says he frequently hears from constituents who wonder why they can’t buy liquor at Costco or Wal-Mart like you can in many other states. Others are put off by the limited hours of operation. NC ABC stores are closed on Sundays and many holidays, including New Year’s Day, Fourth of July, and Labor Day.

Like White, Wilmington Mayor Bill Saffo also said he’d also be willing to consider supporting the privatized model if the revenue models showed it could generate the same kind of local income the current state-controlled system does. However, every politician we spoke to said they’d like to see a more thorough financial analysis before fully endorsing privatized liquor sales.

“While the concept of privatization obviously has appeal to those of us who believe in the power of free enterprise and free markets, this would mark a seismic shift for our state,” Brunswick County Commission Chair Frank Williams. “Any time a change of this magnitude is contemplated, it must be studied thoughtfully in order to avoid adverse unintended consequences...”

ABC interests push back

When the audit was released showing the ABC Commission lost millions of public dollars thanks to contract mismanagement and poor oversight, State Auditor Beth Wood summarized her findings to a reporter as some of the worst examples of waste she’d seen in her nine years in office.

But the pushback from entrenched interests was swift. Jon Carr, a lobbyist for the NC Association of ABC Boards, sent a letter to state lawmakers asking them to “oppose any effort to privatize the current ABC system.” Carr claimed the current system keeps property taxes low. He also said NC has one of the lowest rates of alcohol consumption per capita in the country, and that changing the system would increase consumption and jeopardize the public health.

Carr also noted something that public officials may view as a positive, but taxpayers may see as a negative. He said a 2008 study comparing North Carolina to 12 other states that license private retailers to sell alcohol found North Carolina received more money per gallon sold than any other state: $25.36 a gallon in NC, compared to $11.65 on average in licensing states.

So taxpayers are paying considerably more to buy a bottle of liquor here than they would for the same bottle of liquor in South Carolina. A 2015 WECT investigation found that a 1.75 liter bottle of Kettle One vodka, for example, cost $44.95 at the ABC stores in Wilmington. The exact same bottle of vodka could be purchased across the state line in Myrtle Beach for $31.99. Wilmington residents we interviewed for the story said they felt “gouged” by the mark-up and liquor tax structure in North Carolina.

North Carolina’s state-controlled system does make more money, but it comes at the expense of citizens patronizing its stores, and ordering mixed drinks in bars and restaurants. Moreover, tens of millions of the dollars North Carolina makes on marked up booze goes to operate its own ABC system, maintain buildings, and pay salaries and pensions to liquor salesmen.

“It’s hard for me to understand why state employees or public employees are selling liquor. I understand how it transpired [after prohibition], but in today’s world it’s hard for me to understand this huge bureaucracy created to develop this monopoly and provide some oversight on this monopoly,” Senator Lee said about the current system. “ABC boards and commissions, one of their goals is to sell as much liquor as they can, to drive as much revenue as possible, so it can be provided to the municipalities in the county. Balancing that mission with the mission of public safety in control of consumption just seems a little antithetical to me.”

There is a push to change the system. State Representative Chuck McGrady, a Hendersonville Republican, who co-chairs the House ABC Committee, would like to see North Carolina move to a free market system where the state licenses private retailers, rather than the current system with 170 different ABC Boards running state-controlled liquor sales.

“Some of them work perfectly fine, some of them don’t,” Representative McGrady told WECT. “It’s just not a very efficient system.”

McGrady is waiting on a report that should be finished by the end of the year, that will detail the financial impacts of moving to a licensure system, including data on what has and hasn’t worked well in other states. If that report comes back with the data he expects, Rep. McGrady plans to introduce a reform bill in 2019, and hopes for bipartisan support.

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