News Column

ABC Sales Could Add Up for Mom and Pop Liquor Shops

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It's a debate nearly as old as the end of Prohibition in Alabama.

But a conversation on whether the state should be in the retail liquor business is one worth having again, a north Alabama lawmaker says.

In fact, he thinks it's worth about $45 million a year.

That's what state Sen. Arthur Orr, R-Decatur, says could be saved by eliminating the state's 172 Alcoholic Beverage Control Board-run stores and allowing independent business to handle all liquor sales.

"What we are looking at is a bill to remove the state from the retail sales business and bid out licenses for the private sector," Orr said. He chairs the Senate committee that oversees the state's General Fund.

Orr said the huge savings would come from eliminating rent on those 172 buildings, wages for about 600 employees and other overhead. He calculated that would account for $45.5 million that could go toward the General Fund, which supports non-education agencies.

But Democrats say if it were that simple, they would have done it years ago.

"It comes up every four or five years when you have a new administration," said state Sen. Roger Bedford, D-Russellville.

The Senate Minority Leader said he studied the costs and revenues of ABC stores and believes closing them actually would cost the state.

State Rep. Johnny Mack Morrow, D-Red Bay, said privatization was discussed 22 years ago when he joined the Legislature.

"And it was old news then," he said.

Morrow, a retired business and economics instructor at Northwest-Shoals Community College, said private business cannot operate the stores -- or generate revenue for the state -- better than ABC.

"We're getting the revenue," Morrow said. "And unless someone tells me different, with some numbers, I'd be opposed to any changes.

"It comes down to one thing: show me the money. Just to get rid of all these employees and say we are going to be better off is not necessarily the case."

Other Republicans say it's a plan worth talking about.

Rep. Lynn Greer, R-Rogersville, said the best argument against privatization is the number of employees who would lose their jobs, but he said he would favor the switch.

"There is a tremendous amount of money that comes into the state, and I think there would be even more if it were privatized," Greer said. "A majority of the states can't be wrong."

One of Eight States

Alabama is one of eight states still in the retail liquor business, Orr said. Until last year, there were 18.

Washington state was the first since Prohibition to fully extricate itself from retail and wholesale liquor, said Leonard Gilroy, director of government reform at the Reason Foundation, a nonprofit that promotes free markets.

Gilroy said states that operate wholesale or retail alcohol distribution are called "control" states, but he said the title is a misnomer.

"Whether or not you own and operate your own retail, all states control alcohol," he said, because they set laws and can punish private businesses that break them.

"At the end of day, regulation is a component in all 50 states," he said.

Orr said his bill would not change ABC's enforcement or alcohol warehousing functions. It would create a state commission to determine how many retail liquor licenses would be granted per municipality, "to address the liquor store on every corner concern."

Orr said the commission would consider the ABC employees who could be put out of work. An official at ABC said a starting store clerk earns about $10 an hour plus benefits.

They could receive severance pay or a preference if they wanted to become a private licensee, Orr said.

He said he foresees an open, transparent bidding process, and the licenses wouldn't be issued in perpetuity.

"You're not getting a license forever," he said.

Gov. Robert Bentley is considering ABC store privatization, but hasn't made a choice, spokeswoman Jennifer Ardis said.

Flowing Revenue

Based on the Alabama Alcoholic Control Board's most recent annual report, its ABC stores put a 30-percent mark-up on each bottle of liquor, 5 percent of which goes to the state General Fund and the rest going to board expenses.

In addition, a 56-percent state tax is charged.

In budget year 2011, alcohol sales generated about $200 million for the General Fund, the Education Trust Fund and the state human resources and mental health departments, said William Thigpen, assistant administrator to the control board.

Thigpen said that number would be significantly lower if private industry ran all liquor sales.

"There is no way that privatization can give them that consistent of a revenue stream," Thigpen said. "This is a very unusually efficiently run business."

It's also growing. Six or seven ABC stores have opened within the past 18 months, he said.

Orr argues that tax revenue the state receives should not change just because private business is making the sales. His bill will not include a tax increase or changes to the existing tax structure.

About 525 private-owned package stores already handle about 25 percent of liquor sold in the state, according to the board's annual report. They buy the liquor from the state and their sales contribute to that $200 million a year, Thigpen said.

That $200 million includes money generated through beer and wine sales, which are not available in ABC stores.

While prices at ABC stores are fixed -- a bottle of Jim Beam costs the same whether bought in Florence or Decatur -- the board does not have control over private store mark-ups.

Most of the alcoholic drinks Alabamians are buying -- beer and wine -- are sold in grocery stores. Beer accounts for more than 50 percent of alcohol sales nationally, Gilroy said. Throw in wine, and those two are the "vast majority."

"So what are you really controlling?" he said. "A tiny piece of that market ... Moving forward with any type of privatization is not a loss of control. What are you losing? A big bureaucracy."

Beyond the cost savings that Orr said privatization would bring, he said there's another question.

"Should the state be in the liquor distribution business in the 21st century? I think the answer is no," he said.

Gilroy said it is difficult "to make the case that government can run a business better than private industry. If that were the case, why doesn't the government run all the grocery stores?"

Thigpen balks at the analogy.

"Groceries and alcohol are two different things," he said. "Alcohol is a drug, a very strong drug, and it needs to be regulated.

"I'm not going to tell anyone how much toilet tissue they can buy."

By the Numbers

There are 172 ABC liquor stores in the state. Expenses related to operating the state-run stores:

2009 $45,304,595

2010 $47,311,430

2011 $46,578,162

Source: Alabama Alcoholic Beverage Control Board, 2011 report

Distributed by MCT Information Services

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