North Carolina: ‘Complicated’ switch to private liquor stores in NC will likely have to wait

Source: https://www.newsobserver.com/

BY COLIN CAMPBELL

JANUARY 27, 2020

A proposal to privatize the state’s liquor sales system likely won’t get a vote this year, but it could get further study, according to the bill’s leading sponsor.

House Bill 971 got its first committee hearing last summer; it would close government-run ABC stores and allow privately owned stores to take over liquor sales, while continuing to be regulated by the state’s ABC Commission.

The bill didn’t make it out of committee in the 2019 long session, but the state’s primary retail and hospitality industry groups have had a campaign called “#FreeTheSpirits” to gin up support for the sweeping change.

Rep. Chuck McGrady, a Henderson County Republican and the bill’s sponsor, said the legislation still needs more tweaks and won’t resurface during this year’s short session.

“I just don’t see that we can get it moved,” he told the NC Insider. “There’s a lot of other things in front of it. I’m going to spend the time getting it right and likely hand it off to others to carry on.”

McGrady isn’t seeking re-election and will retire at the end of the year, as will Sen. Rick Gunn, R-Alamance, who’s often led alcohol deregulation measures through the Senate.

LOCAL TAX REVENUE

While privately owned liquor sales still face strong opposition from conservative religious groups and leaders of the current ABC system, McGrady says the primary hurdle will be local governments. They benefit from ABC stores’ revenues and are unlikely to support any proposal that reduces that revenue stream.

McGrady said he’s working to fine-tune the tax and revenue formulas in the privatization bill to ensure that local governments don’t lose money.

“It’s very difficult because you’ve tied all sorts of things to the sale of alcohol revenue,” he said. “I’ve had fiscal staff and bill drafting (staff) tell me that of all the legislation we’ve worked with, this is some of the most complicated.”

The N.C. League of Municipalities addressed the issue last year in its policy goals, saying it’s open to changes as long as the proposal “maintains a local referendum about the decision to sell, preserves local control over the location and density of outlets, and preserves the local revenue stream.”

The version of HB 971 reviewed in committee last year would increase state and local liquor tax revenues by changing how the product is taxed. The current 30% tax would be replaced with a flat rate of $28 per gallon of liquor, meaning that a cheaper product would face the same tax as a top-shelf brand.

The legislature’s Fiscal Research Division estimates that the bill would result in an additional $166 million in state revenue and more than $50 million more to local governments each year. But that doesn’t mean every town would see more money, McGrady said, and so far there’s no data available to show how each local government would fare under the new formulas.

“Ironically the ones that end up losing money, at least in the first effort, are the ones that are the most efficient,” he said. Other issues that need addressing are how to handle revenue sharing with dry communities that don’t allow liquor stores, as well as what should happen to existing ABC store properties owned by local ABC boards.

FEWEST LIQUOR STORES

McGrady wants to see those issues studied and addressed in an interim committee this year. He’d then look for another lawmaker to shepherd the bill through the 2021 session. “Hopefully I will have done a lot of the work so I can hand off the work product,” he said.

Any version of a privatization proposal that emerges will likely still face opposition.

“The proponents of liberalizing the alcohol laws want everyone to think it is about money, but the supporters of the current system know it is about local determination, control and health,” said Miles Davis, president of the N.C. Association of ABC Boards. “Tweaking the revenue and taxation in the bill still takes the determination of alcohol sales away from local communities.”

The state ABC Commission would oversee issuing permits for new liquor stores under the bill, instead of the local ABC boards that currently decide where to add stores.

Privatization proponents disagree with the ABC boards’ claim that the current system works well. The N.C. Retail Merchants Association and N.C. Restaurant and Lodging Association plan to continue their push for action on HB 971.

Andy Ellen, president of the retailers’ group, notes that North Carolina has the lowest number of retail liquor outlets per capita in the country. “If you’re driving across town to make that purchase, it makes it more difficult on people,” he said.

Data from a recent study by the legislature’s Program Evaluation Division shows that the number of new ABC stores hasn’t kept pace with the increase in sales. Between 2008 and 2018, North Carolina added 28 new ABC stores, an increase of about 7%.

But liquor sales revenue during that period increased by about $430 million, or 63%. That can sometimes mean long lines at the cash register and difficulty finding locally produced or unique types of liquor. Those have become more popular as drinkers seek out tastes that go beyond the standard Jack Daniels or Jose Cuervo varieties.

Some ABC stores have held lotteries to determine who gets to buy products in limited supply.

“The current system is not set up to do that,” Ellen said, adding that the liquor lottery “hearkens back to the old days of rationing in the Soviet Union. South Carolina has the same product without having to worry about ‘did my name get picked in the lottery?'”

But Davis argues that privatization wouldn’t solve the problem. “The distribution of rare and hard-to-get products is determined by the manufacturer and distributor,” he said. “Those products would be scarce no matter what system we had, the only difference is in the liberalized system they would be much more expensive.”

The version of HB 971 debated last summer would start the transition toward private stores in 2021, but that date will likely get pushed back in future editions of the proposal. Looking to this year’s short session, McGrady said other – less sweeping – alcohol law changes could surface.

One topic is distribution, including how alcohol fits into the growing world of doorstep grocery delivery services. “Whatever we do in North Carolina should get to whatever the norm is,” he said.