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The ABCs of how local alcohol board operates

By Elizabeth Cook
Salisbury PostThe Rowan-Kannapolis ABC Board operates within one of only 19 states that control alcohol sales.
But who controls the local ABC board, and how does it operate?
That issue has come up as members of the Rowan County Board of Commissioners have raised questions about the local system’s profits and operations.
The Rowan-Kannapolis ABC Board consists of Chairman Marny Hendrick and members Gus Andrews and Ken Argo. It employs Terry Osborne as general manager of the local ABC system.
Based on interviews, state law, records from the local ABC Board and information from the state ABC Commission, here’s a Q&A about the local operation.
Q: How much are annual ABC sales in Rowan-Kannapolis?
A: Including mixed beverages, local ABC revenues have risen from $6 million in 1999 to $8.5 million in 2008.
Q: How much money does the local ABC Board distribute to local government?
A: In fiscal 2008, the board distributed $25,000 cash among Rowan County, Salisbury, Kannapolis and other municipalities, according to a report.
Funds the ABC operation contributed toward local law enforcement in 2008 were $106,736.
The cash distribution and law enforcement contribution totaled $131,736, or 41.53 percent of the board’s net income of $317,221 for 2008.
The county also received $31,289 from alcohol taxes for rehabilitation, bringing the total local benefit from the Rowan-Kannapolis ABC Board to $164,035.
Q: We hear about the days when the ABC Board distributed hundreds of thousands of dollars to Rowan County, but that has not been the case lately. What happened?
A: Much has changed since the people of Rowan County voted to approve a “local option, local control” ABC Board in 1949, says Hendrick.
In 60 years of the local board’s existence, Hendrick says, state and federal taxes on alcohol sales have increased significantly.
Between 1980 and today, here are the net changes in federal and state taxes and fees on liquor:
– Bailment, the fee charged to run the state ABC warehouse in Raleigh, has increased from 67 cents to $1.10 cents per case.
– The bailment surcharge, which goes into the state ABC Commission budget, has gone from 66 cents to 85 cents per case.
– The mixed beverage tax rose from $10 to $20 per 4 liters.
– The federal excise tax from $10 to $13.50 per 100 proof gallon.
– The state excise tax has gone from 22.5 percent to 25 percent.
– Consumers pay the same state sales tax on liquor that they do on other non-food purchases, now 7 percent.
At the same time, the local ABC Board mark-up on liquor increased from 30.36 percent to 39 percent.
Once taxes and mark-up are added, a bottle of liquor that costs the state about $4.07 to purchase ($48.88 per 12-bottle case) is sold to an individual for $12.36.
Taxes on liquor sold for mixed beverages are higher (and additional $20 per 4 liters). The bottle an individual can buy for $12.36 would cost a bar or restaurant $15.30.
Q: What’s the 10-year history of profit distributions to local government from the ABC Board?
A: Board member Ken Argo, a CPA, studied the board’s past 10 annual reports and compiled a chart. It shows that profit distribution has ranged from a high of $159,622 in 1999 to zero in 2006.
Since then, it has been $15,000 in 2007 and $25,000 in 2008.
Through three quarters of the 2009 fiscal year, the board has distributed $70,000.
Q: Why did the distribution of profits hit zero in 2006?
A: “That was in the middle of our merger,” says Chairman Hendrick.
As the Rowan and Kannapolis systems came together and the board was adding three stores, it was “being real careful with working capital and cash flow,” he said.
It was also at that point that the board decided to conduct a complete efficiency review of its operations, says board member Gus Andrews. The board studied other ABC systems in the state and brought in former Food Lion CEO Ralph Ketner as a $1-a-year consultant.
That led to two years of overhaul and efficiency study to make the new, regional system as profitable as possible, Andrews says.
The system went through computer upgrades, started accepting credit cards, reduced its fleet of seven cars and trucks to three, closed an unprofitable store, consolidated debt and began paying it off.
The local board revamped its personnel policy, eliminating bonuses, setting a salary scale and doing away with accrued vacation.
Q: What impact has that had?
A: Since 1999, gross sales increased $2.5 million, or nearly 30 percent, but operating expenses were growing, too ó from 18.84 percent of gross sales in 1999 to 23.56 percent in 2005.
Since the board started revamping its system, operating expenses have fallen to 21.44 percent of gross sales, Argo says.
Q: Is the Rowan-Kannapolis ABC Board a county agency or a state agency?
A: Laurie Lee, the State ABC Board auditor, says it is neither. It is by definition “an independent local political subdivision of the State.” (GS 18B-101(8))
She continues:
“The governing body (county commissioners or city/town council) shall: appoint members to the board, designate one member as chairman, remove a member for cause and determine compensation for members. Once they appoint a board, it is up to the board to set policy and determine how the local system will be run.”
The N.C. ABC Commission does not have the authority to dictate how an ABC board is run day-to-day, Lee says. “The commission functions as an oversight agency ó ensuring that ABC boards are complying with the N.C. ABC laws and rules.”
Q: What powers does the local ABC Board have?
A: In addition to buying and selling alcohol, state law says the local board has the power to adopt rules for its ABC system, subject to the approval of the state ABC Commission; hire and fire employees; designate a manager and determine that person’s responsibilities; borrow money; buy and lease real and personal property; invest surplus funds.
The local board can dispose of property in the same manner as state law allows a city council ó that is, private negotiation and sale for property valued at less than $30,000 and, for more valuable property, advertising for sealed bids; negotiated offer, advertisement and upset bid; public auction or exchange. The proceeds go to the local ABC Board’s budget.

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