NC House committee reveals problematic and inefficient condition of state-run liquor monopoly

By John Trump

Raleigh, NC – A bill up for discussion in a House committee this week went surprisingly far to reveal the convoluted mess the state-run alcohol monopoly has become.

Lawmakers call House Bill 669 Distribute Alcohol Without Discrimination, although that title is vague and misleading. The bill offers a taste of the spoiling mash. Made from a set of draconian ideas dumped in a barrel more than 80 years ago.

Reps. Tim Moffitt, R-Henderson; John Szoka, R-Cumberland; Jake Johnson, R-Henderson; and Ben Moss., R-Richmond, are primary sponsors.

The bill, officially, is an act to prohibit discrimination and advantage in the distribution of spiritous liquor to local Alcoholic Beverage Control boards, of which there are 171. Some places, such as Wake and Mecklenburg counties, have one board apiece. Brunswick County has nine. Rockingham County, with just more than 90,000 people, has three.

It’s a big problem, wrought with favoritism and a potential incubator for corruption and graft. ABC board members, in fact, have the option of joining the state’s retirement system for local government employees, which, while better than most states, is nevertheless overburdened. House Bill 278, which representatives approved 117-0 Wednesday, would end the local ABC board members’ ability to participate. The bill now heads to the Senate. Other bills moving from the committee passed the House on Thursday, including H.B. 781, Bring Business Back to Downtown, would allow municipalities to install “social districts,” and H.B. 722, increasing the size of growlers — containers for beer and cider — to increase from two liters to four.

H.B. 669 isn’t yet ready for serious debate, and a meeting of the House Alcoholic Beverage Committee on Wednesday, May 5, proved it. Talk of the bill dominated the busy meeting, during which lawmakers moved several bills to the Rules Committee, typically one step from a floor vote. It’s a nascent bill, but a funding element could make it immune to the coming crossover deadline.

H.B. 669, at its base, seeks to level the proverbial playing field as that relates to where products — specifically hard-to-find and rare bottles — are going in the state, whether they get there, and, ultimately, who’s buying them. 

But it’s much more tangled and complex.

Are products placed on store shelves, or do store managers keep a list of people asking for certain products, then give them priority to buy them? Or, are stores stashing so-called “unicorns” for preferred customers without giving others a chance to buy them? The problems are inherent in a system with so many independent boards composed of politically appointed members.

One ABC committee member says the discussion showed the bizarre nature of the state-run system, running counter to routine practices for successful private businesses. In fact, the committee Wednesday approved another measure, House Bill 768, directing the Legislative Research Commission to study ABC rules in other states, as well as the federal government. It’s headed to the Rules Committee.

Rep. Shelly Willingham, D-Edgecombe, sits on the ABC committee. He’s also chairman of the Edgecombe County ABC Board.

His comments about the ABC’s problems were insightful. Revealing, too, in that rather than laying blame on the N.C. Alcoholic Beverage Control Commission, he dropped it at the concrete feet of the state’s two alcohol warehouses, from where all products are distributed throughout the state. 

The ABC Commission in March voted unanimously to recommend the state award a 10-year contract for warehouse services to LB&B Associates, the current vendor and target of an audit in 2018 that has over previous years cost the state about $13.5 million. The agreement, the ABC says, includes a requirement of nearly error-free and on-time deliveries as well as increased delivery frequency to the state’s 171 local ABC boards. 

“The new contract will involve a comprehensive computerized warehouse management and operations platform that will include backorder capability and increased visibility into real-time warehouse inventory that the local boards have indicated are service priorities,” the ABC said in a statement.

The warehouse system, Willingham says, has proven inefficient. The new contract, with its provisions and requirements, as well an enhanced computer system, he says, could help fix some of the issues.

But …

“A lot of boards that order products … never get their products,” he said. “Other boards, they get it every time.

“It’s a good discussion, and we have to come up with some way where warehouse management is responsive and responsible,” Willingham said.

The ABC lists all products approved by the alcohol commission and shipped throughout the state. Where they go, exactly, can be anyone’s guess.

Rep. Brian Turner, D-Buncombe, spoke of lists with names and phone numbers. People to be called upon arrival of that rare — for North Carolina, anyway — bourbon or Scotch.

“When products come in, people are being called,” Turner said. “Stuff comes in and never hits the shelf, because it’s going, basically, to a reserve list.”

Part of discussion, Moffitt responded.

“There’s so much we can do to make this an easier-access system. Why make it harder?” asked Rep. Graig Meyer, D-Orange.

Rep. Chuck McGrady, R-Henderson, served his fifth and final term in the General Assembly and has retired to western North Carolina. McGrady, through the years, was the unofficial House leader in efforts to reform the archaic ABC system. Moffitt, appointed to McGrady’s seat before voters chose him in November, has grabbed the baton. House Bill 971, which McGrady sponsored, had languished in the legislature, yet he still got a hearing in summer 2019, for a proposed committee substitute in the House’s ABC Committee. 

The Modern Licensure Model for Alcohol Control, originally filed in April 2019, would have cleared a path for private liquor stores in North Carolina. S.B. 971 aimed to eliminate the state-run alcohol warehouses in Raleigh and phase out the local ABC boards and stores. McGrady was also an architect of Senate Bill 290, which brought laws for craft distillers closer to those governing the state’s thriving craft beer and wine industries. Gov. Roy Cooper signed the game-changing measure at Graybeard Distillery in Durham on July 29, 2019.

McGrady at the time said he wanted to reform government management of the wholesale and retail sale of distilled spirits while also increasing revenue to the state and to local governments. He had support from both sides, as well as detractors — also from both sides. That paradigm remains strong.

The argument, at its core, is about one thing — money generated by liquor. The ABC Commission and its boards run more than 430 stores. The state, according to the 2020 annual report, sold $1,367,857,493  worth of spirituous liquor and fortified wine in ABC stores in the fiscal year ending June 30, 2020, with total revenue distributions amounting to $529,307,824 to the state’s General Fund and the cities and counties where alcohol sales are allowed. 

Myriad ways exist to replace that so-called “lost” money, and McGrady said two years ago, he was committed to ensuring the flow of revenue from alcohol sales remained steady and would get even stronger, albeit with elements of control, transparency, and accountability not now present.

John Trump, CJ managing editor, is author of “Still & Barrel: Craft Spirits in the Old North State.”