Q&A: The ABC's of Liquor
Privatizing the sale of liquor now handled by the state ABC system would be unlikely to create an increase in revenue, according to Jon Williams, chairman of the N.C. ABC Commission.
That was one of several aspects of the liquor control system that Williams discussed in an interview with The Pilot during a recent visit to Moore County.
He also described Moore’s ABC operation as a model system that has presented no problems of the type that have created negative news coverage elsewhere.
Williams spoke with Senior Writer Florence Gilkeson, Editor Steve Bouser and Publisher David Woronoff. Here is an edited transcript of their recorded conversation.
Q: What brings you to town, sir?
A: I’m starting to visit communities around the state because with all the debate about the liquor system in North Carolina and the ABC system, I realize that North Carolina hadn’t had a big public discussion about our alcohol laws probably since liquor-by-the-drink was passed in 1978 and communities started wrestling with that.
Alcohol is a big part of the hospitality industry. Most counties in North Carolina, 99 out of 100, are no longer dry. Things have changed a lot in 70-some years since the repeal of Prohibition.
Q: Should the state stay in the liquor business, or should it just be privatized?
A: The governor took a very methodical approach to that. She had us engage a private firm that works with mergers and acquisitions to look at what this business would be worth from a commercial perspective and whether there was an opportunity for the state to exit that business and help close the state budget gap in the process.
And the findings that came back were that the opportunities for the state to increase its revenue would come from making liquor much more available through existing retail outlets like grocery stores and convenience stores and that if you just replaced our current stores with more stand-alone stores, there really wouldn’t be a revenue opportunity.
The way the state runs the liquor business generates a tremendous amount of revenue in our local communities, and that is put to use in a number of ways: education, human services. One reason that that’s true is because the state handles all the distribution — we actually distribute liquor to all the local ABC stores for less than 1 percent of the final bottle cost. So you can’t find a privatized distribution system for alcohol that can run on less than 1 percent of the final bottle price. And that difference is collected in taxes.
So essentially, if you were to try to privatize the distribution of alcohol, of liquor, you would have to either substantially increase the bottle price because you wanted to try to keep collecting the taxes or start with an enormous tax cut, which is revenue you have to make up somewhere else by raising someone else’s taxes in order to create the financial room for a private distributor to operate.
On the retail level, the answer was if you want to make money from additional licensing, you’re going to have to put it out in a whole lot more channels before the public and existing retailers.
Q: How did Pinehurst and Southern Pines come to have ABC stores?
A: Well, North Carolina did not vote to repeal national Prohibition. The Congress set up a mechanism that every state would have to have a constitutional convention. And when North Carolina went to vote for its delegates to the convention a majority of the delegates were dry and pledged to vote dry at the convention. So North Carolina has still not repealed the 18th amendment to the U.S. Constitution. And that’s the stalemate that was in place for a couple of years.
Meanwhile, Virginia legalized liquor sales, South Carolina legalized liquor sales, and in the closing hours of the 1935 General Assem-bly, a bill popped out called the Pasquatank Act that authorized 19 counties to hold a local referendum to create ABC boards to sell liquor legally in North Carolina.
Those 19 counties had all voted to have wet delegates sent to the state convention, so they had a pretty good idea what their vote would be on the referendum. In the end, 18 of the 19 did vote to create ABC boards. I don’t know what the poll was in Moore County.
Moore County was not in the original 19 that could have a referendum. But the legislation allowed the Wilson County ABC board to open liquor stores in Pinehurst and Southern Pines if Wilson County went wet. And that is exactly what happened. And so this was the westernmost part of Wilson County for a number of years.
Q: In light of the recent scandals with boards in three counties, what do you know about Moore County’s board?
A: The information from Moore County is just terrific. Moore County is a well-run board that makes almost 12.5 percent profit on its sales. The system generates over $600,000 a year in local revenues for the county.
The real problem we saw had to do with the handful of counties that makes the most money in the state. Out of the five top-grossing counties, one former general manager is under indictment awaiting trial. One general manager resigned along with his board chair because of relationships with liquor suppliers. And a third was fired by her ABC board in Greensboro because their own investigators concluded that she was engaged in a pattern of petty corruption.
The problems really are the classic problems of money and the exercise of governmental authority that was out of sight and therefore not having the kind of scrutiny that public offices ought to have.
So the governor of the General Assembly acted to reform the system, make them much more accountable to elected officials locally, make them much more transparent in terms of salaries and budgets and things like that. We certainly haven’t seen the kind of entanglements between the liquor industry and mid-size and small ABC boards that seem to be the location of these problems.
Q: Is the sale of alcohol, of hard liquor, per capita going up or going down as a trend?
A: It’s going up. I think we’re expecting about a 2.5 percent sales increase this year. In the recession we have not had a down year; it’s sort of flattened out a little bit. After several years of strong growth in the 5-6 percent range, it dropped down to about 1 percent.
We now have ABC stores authorized in 99 out of 100 counties. When almost any small town now has an ABC referendum, it passes. Attitudes of the public have changed a lot. Seventy-five years ago, when this system started, the political debate was wet versus dry, and now the debate seems to have moved to whether the regulation should be tight or loose, which is just a whole different debate than where North Carolina has been historically.
Q: Is bootlegging and moonshining still a challenge for you all?
A: There is still bootlegging and moonshining in North Carolina. It can be a very ugly business, because any illegal business can’t take their disputes down to the courthouse. From the standpoint of the public’s consumption of alcohol, it’s not a problem because legal alcohol is readily available in 99 out of 100 counties.
I think it’s kind of a niche product. It’s got this illicit appeal that I know somebody who knows somebody who can get you some. But in terms of people’s ordinary drinking habits, I don’t perceive that moonshine has a big place in North Carolina anymore. But it still goes on. Old habits die hard.
Q: What is the one county?
A: It is Graham County, home of Fontana Lake, on the Tennessee border.
Q: Will you tell us again about the North Carolina shelf?
A: In terms of total dollar sales, North Carolina is the 12th-largest liquor market in the country from a statewide perspective. Craft distilling, small distilleries are growing nationally, kind of like the microbrewing industry grew in the ’90s. And it’s beginning in North Carolina right now.
We have four companies that have products that are approved to be sold in ABC stores, and last year the General Assembly passed a statute that every ABC store has to have a North Carolina shelf, so your readers should be able to go to the local ABC store and find a North Carolina shelf and see what products are produced in North Carolina.
Q: Is there a law before the legislature now that would allow distilleries to offer tastings and sell the product on location, as with wineries and breweries?
A: Last year, actually, the legislature passed a law allowing tastings at the distillery but did not allow sales.
The legislature is considering a law that would allow the distillery to sell the liquor as part of a tour. So that if you went to see it you could buy a sample, which is what wineries and breweries are allowed to do today.
Q: I have to ask: Would you ever anticipate a day when you would have a state-run system of stores selling marijuana?
A: I wondered when that question was going to come up, and you’re the first person who has asked me that.
There’s a conference next month in Las Vegas of the National State Liquor Administrators. It’s their annual conference. I don’t have any plans to attend it right now. They’re dealing with a number of regulatory issues. But there will be a panel discussion with that exact question: Will marijuana ever be sold in liquor stores?
And the panel will include some folks from California’s liquor regulatory board — because, of course, that’s one of the states that has medicinal marijuana laws on the book.
More like this story