Program Evaluation Division report to be basis for ABC change debate (Wilmington Star News)

State leaders plan to use a year-old evaluation report as the starting point for discussions on reforming the N.C. Alcoholic Beverage Control system.

The December 2008 report from the legislature’s Program Evaluation Division recommends a number of reforms for the alcohol system – which the report called “outdated” – and suggests the state explore other options for handling liquor, including privatization.

But officials say that would be a complex undertaking that shouldn’t be rushed. So while some ABC reform will likely happen after legislators head back to Raleigh in May, privatization probably won’t.

“I would be surprised if we could have an intelligent, instructive debate on it in 45 days,” said Rep. Pryor Gibson, a Democrat who has worked extensively on the state liquor laws, and despite recent problems, believes the ABC system works well for the state.

“Privatization is a big word,” he added.

Two groups – Gov. Beverly Perdue’s Budget Reform and Accountability Commission and a soon-to-be-formed legislative study committee – are looking into reforming the current system, with an eye to correcting some of the pay and ethics scandals that erupted in Wilmington and Charlotte in recent months.

Norris Tolson, co-chairman of the governor’s budget committee, said the 2008 report will likely be a centerpiece of the committee’s recommendations, which are expected in March.

That report said the ABC system needs to be modernized, specifically by better defining the missions of local boards (are profits or “controlling” sales more important?) and giving the state commission authority to set performance standards and work with local boards to increase profits.

Tolson said the governor’s committee is studying privatization, but it “has no legs under it at this point.”

Schorr Johnson, a spokesman for Senate leader Marc Basnight, said the 2008 report will also be the “starting point” for legislative efforts to reform the ABC system.

Johnson said Basnight has been working closely with House Speaker Joe Hackney to put together a study committee, and that appointments will likely be announced in a few weeks.

“Reforming the ABC system is a priority for Sen. Basnight in the short session,” he said. “He wants to look at having more oversight at the very least.”

But is privatization even politically feasible?

North Carolinians are divided whether they want privately-owned liquor stores on their street corners, according to a recent poll by the Civitas Institute.

The poll surveyed 600 likely voters, and 47 percent said keep the ABC system and 44 percent said liquor sales should be privatized, according to the results. Of those surveyed, 9 percent said they were not sure. The margin of error was 4 percent.

While many residents in Wilmington – where people are outraged by high salaries and bonuses for local ABC leaders – may clamor for privatization, there are many parts of the state that support the “control” aspect of the system, believing it helps prevent underage drinking, drunk driving and other social ills caused by alcohol.

“You cannot paint all of North Carolina with the same ABC brush,” Gibson said. “There’s not going to be any way at all to get a one-size-fits-all solution to this.”

Others support control for religious reasons.

Rev. Mark Creech, director of the Christian Action League of North Carolina, said he will fight to protect the ABC system from privatization.

North Carolina ranks 45th out of 50 states in per capita alcohol consumption, but ranks 7th in revenue generated by liquor sales, according to the ABC system’s annual report for 2008. That’s worth saving, Creech said.

“I don’t think we could have a better system than what we’ve got that strikes that balance between providing revenue for the state and also protecting the public health,” he said.

He doesn’t think privatization will be seriously considered in 2010, but it could become a major issue in the future.

Some say the largest barrier to change is plain and simple politics.

“The major obstacle to privatization is local political pull,” said John Hood, president of the John Locke Foundation, which supports privatization.

State government gives the more than 160 local ABC boards wide latitude to operate as they see fit. In many ways, local governments have much more sway over their liquor stores because they appoint the local boards.

In addition, local governments get a cut of ABC profits, which helps elected leaders at budget time when they are forced to consider unpopular tax increases.

While local governments in other states get alcohol money too, and Hood and other privatization supporters say North Carolina could devise a system to keep money flowing to local governments, any changes that create the perception that locals could lose money would make it difficult, if not impossible, for local politicians to stomach.

“Many local governments believe they get more revenue because of the control system,” Hood said. “I think its more perception than reality.”

What’s clear is that both supporters and opponents of the control system will be paying close attention. While proponents don’t believe there’s enough support to tear it down, privatization supporters say refusal to take up the issue would be a missed opportunity.

“Fundamentally, North Carolina government should not be in the liquor business,” said Hood. “What you get right now is poor service, high prices and political corruption.”

Staff writer Shannan Bowen contributed to this report.

Chris Mazzolini: 343-2223

On Twitter.com: @StarNewsOnline

By Chris Mazzolini
Chris.Mazzolini@StarNewsOnline.com

Published: Saturday, February 6, 2010 at 3:30 a.m.

Privatization of state’s ABC system is risky business (Wilmington Star News)

Could a one-time windfall of up to $700 million be attractive enough to win state leaders over to privatizing North Carolina’s liquor industry?

That money could fund government projects, such as transportation needs, or supplement other aspects of the state’s budget. It would require, however, a move considered financially and socially risky by some and perhaps the most momentous change the governor’s budget reform committee could recommend.

That group, officially dubbed the Budget Reform and Accountability Commission, is researching an assortment of options for revising the state’s government controlled alcohol industry, and privatization would potentially yield the most revenue in a one-time windfall compared to other options, according to research presented to the governor in October.

Further research about all options, including reformed control policies, quasi-control and privatization, is expected to be presented to the governor at next month’s commission meeting. And, if commission members have researched other states’ methods and studies by several groups, both slanted and not, they’re likely to present ideas about privatization that rest on both ends of the spectrum.

Following the money

The most significant change in moving from a controlled model to a private one is the amount of revenue a state would bring in, said Dr. William Kerr of the Alcohol Research Group, a nonprofit organization of the Institute of Public Health charged with researching alcohol-related issues.

Kerr completed a study last year called “The Effects of Privatization of Alcohol Control Systems” at the request of the National Alcohol Beverage Control Association, which supports alcohol control systems by providing research and addressing alcohol sale and consumption policies. He said the report was unbiased and was based on research on revenues, alcohol consumption and other factors.

Kerr said a state monopoly system, such as North Carolina’s, would yield more revenue per gallon of alcohol sold compared to a licensed model. “In the absence of a dramatic tax increase, which seems politically improbable, states would lose millions of dollars in revenues,” his report said. “For example, if Pennsylvania’s revenues fell to the license-state average revenue per gallon of $15.47 instead of the current $53.40 per gallon, the state would lose over $200 million per year at a similar level of spirit sales.”

But Leonard Gilroy, director of government reform for Reason Foundation, a public policy think tank in support of privatization, said a state could actually gain more in revenue if analyzing all pieces of the system. He said many states that have moved to privatizing parts of alcohol systems enacted a revenue-neutral plan to ensure the state would maintain the same amount of revenue generated by alcohol sales as it did when fully controlled.

“The reality is that you have to look at the entire operation,” Gilroy said. He added that taxes and new revenue from either selling or auctioning licenses for retailers to sell alcohol would continue to yield revenue for the state. States also would benefit by selling the state-run industry assets, such as property, state distribution warehouses and state-issued vehicles or other items used in the alcohol industry.

North Carolina’s Office of State Budget and Management reported in October the state would maintain similar prices and consumption rates of alcohol by moving to a revenue-neutral system in which retail licenses are auctioned. According to that report, the state could receive a first-year windfall of $150 million to $500 million and wouldn’t sustain any annual local losses or increases.

Social concerns

But would moving to a private model increase alcohol-related problems?

According to Kerr’s research, alcohol is more available in states where private retailers have licenses to sell spirituous liquors.

Call that a good thing for those who want more access and longer hours to buy liquor, but the Alcohol Research Group’s report said increased availability would also increase drunken driving and underage consumption.

Kerr said retailers controlled by the state typically are professionally trained to detect and prevent purchases by those underage.

He added that a state-run oversight board, such as North Carolina’s Alcohol Beverage Control Commission, would help reduce marketing aimed at youth.

“If a product appears marketed to kids, they might be quicker to spot something like that and not allow it to be sold,” Kerr said.

Gilroy, on the other hand, suggests that statistics based on per capita population counts do not reflect a correlation between increased alcohol-related problems and privatization.

“There’s no difference between control states and privatized states,” he said.

Mixed philosophies

A state doesn’t necessarily have to choose between being fully privatized or controlled. Several states, including some considered “control” states, operate with mixed methods.

All 50 states regulate the sale and distribution of alcoholic beverages to some extent by either controlling the distribution and sale of liquor, licensing suppliers or imposing taxes.

West Virginia, for example, is considered one of the nation’s 18 control states. The other 32, with Maryland having two counties considered controlled, allow retailers to have private licenses.

West Virginia privatized the retail sector of its alcohol industry in 1991, but the state maintains control over the distribution of liquor through a state-run warehouse, similar to North Carolina’s state distribution warehouse in Raleigh. West Virginia’s alcohol control administration also sets the markups for spirituous liquor, but allows flexibility for retailers to set their own prices in addition to the markup, said Gig Robinson, spokesman for the West Virginia Alcohol Beverage Control Administration.

Other states with hybrid models include Vermont, Alabama and Idaho, which have both private stores and state agency stores, said Steve Schmidt, vice president of public policy and communications for the National Alcohol Beverage Control Association.

Schmidt said some states contract some stores to private retailers who then operate them according to state standards.

Exclusive to N.C.

North Carolina controls the wholesale and retail of spirituous liquor, like several other states, but it’s the only state where local governments appoint a board to operate retail stores. There are 107 ABC boards that control more than 160 state stores.

For more than a century, North Carolina has had control in one form or another over its alcohol industry. In 1908, it was the first southern state to enact prohibition of alcohol, and even after prohibition was repealed in 1933, state leaders enacted a local option to maintain government control over the sales and distribution process of spirituous liquors.

That created the state’s Alcohol Beverage Control, and since then things haven’t changed much more than a tweak here and there in the law.

Gov. Beverly Perdue has taken the first steps in modifying that system in what appears to be a response to revelations of high salaries paid to administrators in New Hanover County and lavish dinners paid for by liquor representatives and accepted by ABC employees across the state.

Chrissy Pearson, the governor’s press secretary, said analyzing the state’s ABC system actually was on the governor’s mind “for quite some time, even before the scandals that have come out in the news.”

She said the governor has requested an evaluation of the current ABC system, and the budget reform committee is expected to make a presentation of its research to the governor at its March 10 meeting.

That report, if prepared by the meeting, will include the options of privatization, whether or not the committee will actually recommend that, said Norris Tolson, co-chairman of the commission.

Pearson said the governor wants to examine all ramifications of each option before taking any stance.

She said although some have called loudly for privatization, the governor can’t make that call until all research is presented.

“At this point she is looking at all the options, but she is looking at them carefully,” Pearson said. “She is not quick to judge.”

Shannan Bowen: 343-2016

On Twitter.com: @shanbow
By Shannan Bowen
Shannan.Bowen@StarNewsOnline.com

Published: Saturday, February 6, 2010 at 3:30 a.m.