The News & Observer recently published an article predicting a proposed ABC reform bill will not pick up much traction. JLF’s Jon Sanders published a research brief examining the largest obstacle for any ABC reform legislation: local governments.
Ever since 1937, North Carolina has been a “control state” for liquor. As explained in my May 2019 policy report on North Carolina’s ABC System, we’re one of only 17 control states in the country. North Carolina has one government-approved list of liquor products, one government-set price per product, and two warehouses (one owned by the state, the other under lease).
Because local governments are in charge of liquor sales, they receive all the proceeds from those sales. Some boards make more money than others. Sanders explains:
[T]he distributions vary greatly, depending upon the efficiency of the local ABC board. The more wasteful the board, the less money is left over for the city or county. Efficient boards result in more local distribution.
That creates a significant hurdle for anyone who wants to get the government out of the liquor business because they will be tasked with replacing that variable lost revenue. Sanders writes:
Replacing the boards and installing an equitable tax revenue distribution system based on local sales would effectively boost localities that lose inefficient ABC boards while penalizing those that had efficient boards.
That means, if the law were changed to an excise tax on each sale, some localities would make more than they do now, but some would make less. Sanders explains:
For example, under a 5 percent growth scenario, Brunswick County would realize an eightfold increase in local ABC revenue distribution, but Pasquotank County would see it fall by 40 percent.
That makes the solution complicated. Sanders writes:
To smooth over this huge variance, my report suggested a local excise tax set lower than 12 percent (because not all localities need that much to be held harmless) with an option for local governments to add their own excise tax to bridge whatever local gap remained.