Should NC get out of the liquor business?

North Carolina’s Republican legislative leadership never met a tax they didn’t want to cut. Since taking control of state government in 2011, they have cut corporate tax rates from 6.9 percent to the current 2.0 percent. Personal income tax rates have declined from 7.75 percent (for incomes over $50,000) to today’s rate of 3.99 percent. But there is one tax that lawmakers have studiously avoided touching – taxes on alcohol.

The Tax Foundation reports that North Carolina has the 5^th highest tax on alcohol of any state - $18.23 per gallon. Only Virginia ($23.47) has a higher tax in the Southeast. Other Bible Belt states are significantly lower. South Carolina’s are $5.42, Tennessee charges $4.46, Georgia, $3.79, and Florida, $6.50.

You and I are paying too much for alcohol, but our lawmakers consistently refuse to address reducing the taxes. Why?

There are 710 million reasons. According to ABC Commission chair Hank Bauer, alcohol taxes deliver $540 million to the state and $170 million to local county boards each year.

North Carolina is one of only 17 that has total state control of alcohol. The governance structure is cumbersome and confusing, beginning with a statewide ABC Commission headed by a chair and 3 members. It is easier to get the formula for Coca Cola than to find out how much Bauer and the members earn. The ABC Commission is responsible for purchasing, warehousing and distributing alcohol; the warehousing and distribution are subcontracted out to a private firm. Bauer says the ABC Commission needs $220 million to build a new warehouse to improve handling the liquor. “If we were private business we’d be out of business,” because each product is touched five times in the current process.

Next down the org chart are the autonomous and independent local ABC Boards. We’ve seen varying reports as to the number but approximately 49 are county-run boards and 119 are municipally operated, each with 3-5 members appointed by county commissioners. The board members are paid a minimum of $50 per meeting and as much as $500. The Chair of the local ABC Board is generally paid according to how many stores the local board manages. Average yearly pay of a local board Chair is $70,00, but 23 earn a reported $100,000 yearly and the Mecklenburg Board chair earns a reported $217,000. Local boards hire employees and operate stores in their communities.

The cost of a bottle of alcohol is established by the State ABC Board and is generally set at 85 percent of the cost of goods.  Our state is considered one of the most expense states to purchase whiskey, both by the bottle or mixed drinks.

For many years there have been increasing cries to privatize alcohol sales by eliminating all the infrastructure and allowing more stores to sell alcohol, hopefully lowering prices. The latest of these efforts came earlier this month in a bill in our General Assembly. Once digging into the subject, the complexity of the task becomes evident.

Here are just some of the immediate problems. First, are we going to attempt to replace some or all of the $710 million in revenues to the state or local boards? If so, how? If not, how will we compensate for the loss of revenues? Next, with our decentralized system of control, what is to be done with all the actual ABC stores either owned or leased by the local ABC boards? Locally owned properties can obviously be sold, but what about long-term leases? And what becomes of the employees? They are neither state nor local government employees, however many qualify for insurance benefits and participation in the local government retirement system. How will we deal with them?

What kind of new warehouse or distribution system will be devised? Who determines what outlets will be granted licenses to sell alcohol and who oversees the process? And what about enforcement?

Other states have dabbled into privatization, but Washington State is the last state to fully privatize the sale of alcohol, following a public referendum in 2011. The state had to sell off the liquor stores it owned. Little is known about what happened to employees. To replace the lost revenues, the state imposed new taxes and fees. Washington State now has the highest taxes per gallon of alcohol in the U.S. - $36.98. About the biggest benefit realized was that Washingtonians could buy their high-priced alcohol more conveniently, in stores like Costco, Food Lion and other outlets. As expected, alcohol sales increased significantly. Is that good or bad? Many Washingtonians are now asking whether privatization was really worth it?

While the notion of privatizing alcohol may scratch the itch of Libertarian types, a deeper dive reveals it isn’t as easy as it might appear and may not even be a good idea. Privatization deserves a lot of serious study before attempting.

Tom Campbell is a Hall of Fame North Carolina broadcaster and columnist who has covered North Carolina public policy issues since 1965.  Contact him at tomcamp@carolinabroadcasting.com