Minutes Joint Study Committee on Alcoholic Beverage Control

Wednesday, March 24, 2010 2:00 p.m.

Legislative Office Building, Room 643

The Joint Study Committee on Alcoholic Beverage Control met on Wednesday, March 24, 2010, at 2:00 p.m. in Room 643 of the Legislative Office Building. Senate Members present were: Senator Don Vaughan, Co-Chair; Senators Albertson, Bingham, Blue, Clodfelter, Goss, Hartsell; House Members present were: Representative Ray Warren, Co-Chair; Representatives Bell, Crawford, Gibson, Hill, Lucas, Starnes, Steen. Public Members in attendance were: Chief Tim Adams, Mr. Edward Cook, Mr. Howard Hunter, III, Commissioner Eddie Maynor, Mr. Paul Powell, Jr., Mr. Fields Scarborough, Mr. Ronald Bogle, Ms. Karen Eckberg Gottovi, Mr. John Hurley, Mr. Edward Holmes, Mr. Walter Harris, and Dr. Peggy Richmond. Staff and Committee Assistants in attendance were: Research Division Attorneys, Brenda Carter and Susan Sitze; Bill Drafting Attorney, Mikael Gross; Research Assistant Kelly Quick; and Committee Assistants, Dora King-Morgan and Theresa Lopez.

Co-chair Senator Don Vaughan called the meeting to order and welcomed everyone to the second meeting of the Joint Study on Alcoholic Beverage Control Committee. Senator Vaughan then introduced Co-Chair Representative Ray Warren and their respective Committee Assistants, Dora Morgan and Theresa Lopez. Senator Vaughan duly noted a quorum, and introduced Committee Members.

Senator Vaughan proceeded with the review and approval of the Minutes of the March 9th, 2010 meeting of the Joint Study Committee on Alcoholic Beverage Control. Senator Vaughan instructed the Committee to review the Minutes in their notebooks and asked for any corrections or additions to the Minutes. Hearing none, he accepted a motion from Representative Lucas to adopt the minutes, seconded by Senator Clodfelter. The motion carried without dissent, and the March 9, 2010 Minutes were unanimously approved.

Senator Vaughan directed the Committee's attention to the "Contract for Appraisal Services Related to the North Carolina Alcoholic Beverage Control System" (Attachment 1) in their notebooks. The Contract was made available in response to questions raised at the March 9th meeting by Representative Gibson, herein restated: Representative Gibson [would it be possible for the Chairs to request the specific of the study (proposed study

that the Governor has requested) to see exactly what they are looking for?] Senator Vaughan recognized Representative Gibson for any further questions related to subject matter.

Representative Gibson thanked the Chair and Staff, with special recognition to Chairman Warren and the ABC Commission for having done a good job over the years. Representative Gibson noted that the Contract appears to be about dollar valuation of the system, and not necessarily how the system is working. He urged the Committee to evaluate how the system is working, "because I think our system works pretty well and I don't want to break something that might just need the wheels greased". Senator Vaughan thanked Representative Gibson and asked the Committee for any further comments about the Contract. Hearing none, he introduced the first speaker, North Carolina Alcoholic Beverage Control Commission Chairman Jonathan S. Williams.

Presentation by Jon Williams

Chairman Jon Williams indicated that Governor Perdue appointed him as Chair of the ABC Commission in October, 2009. The Commission's mission is public health, public safety and fair commercial regulation of the alcohol industry. Chairman Williams provided the Committee with handouts titled: Joint Study Committee on Alcoholic Beverage Control: Issues in the ABC System (Attachment 2) and Sample Coverage of ABC Issues 2006-present(Attachment 3-package).

Chairman Williams discussed the origins and the purpose of the ABC system, noting that the General Assembly is where the idea for the ABC system came together and has been developed through the decades and suggesting that we bear in mind our first principles as we talk about possible reforms and the directions those reforms ought to take.

Chairman Williams acknowledged that the ABC system has had some problems, including efficiency questions about the current setup and reported scandals. He indicated his intention to talk about those things and whether there are some systemic problems that need to be addressed. Chairman Williams also promised to talk about the liquor market in North Carolina and to present a range of options for consideration by the Committee. He noted that typically the ABC Commission does not sit in a policy-making role working closely with the General Assembly on a question of how to structure what potentially is a local government function. He noted that the ABC Commission has a regulatory function, while the local governments carry out the retail functions.

Purpose of System: Then and Now. Then (1933-1971) n When Prohibition was repealed, the General Assembly acted quickly to legalize beer

and wine in North Carolina. The problem during Prohibition was liquor -- the number of stills (1,000s) in our communities, the number of alcoholics, and social problems. Our State was not quick to embrace the idea of repeal of prohibition for liquor, and we didn't act for two years while the rest of the country acted and legalized it. Some

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states adopted a control model where the government would own the distribution and sales; other states used a heavy regulatory framework to control those distributions and sales. North Carolina did not embrace the control model until 1935.

n The General Assembly authorized the creation of ABC Boards in 1935 in 60 locations for stores in 18 eastern counties. It was an intricate system, community-based. Sheriffs paid cash bounties for destroying stills. The boards, at that time, were called the County Boards of Alcoholic Control because the sense at that time was that manufacturers of alcohol products were in the business of creating alcoholics who needed to have their habit fed and there was money to be made and they didn't care about the consequences. County Boards of Alcoholic Control were created to coordinate the communities' response to this alcohol problem. At that time, Boards were appointed jointly by the Board of Education, County Board of Health, and County Commissioners.

n There were no sales to minors, no sales DWI offenders (DMV), and the State Commissioner Of Motor Vehicles was charged with supplying current information to every Board of Alcoholic Control to tell them who was not eligible in their community to buy liquor in that ABC store. The Clerk of Court was also involved. Judges who sentenced someone who had been involved in an alcohol related incident would put as part of their sentence they were not allowed to go to an ABC store and buy alcohol, so the Clerk of Court would transmit that list to ABC Board. Recent patients of inebriate wards and known habitual drunkards were also prohibited from buying alcohol. This was part of the community-wide response to get a handle on the illegal alcohol trade and convert it to a legal control sale environment. A 1958 report issued by the ABC Commission talks about the success of this system reports that "[E]very dollar of profit taken for government...was a dollar taken from the bootlegger, the rum-runner and the moonshiner and that was the measure of success."

Now (1971- Recent) n Williams explained that in 1971, there was a sense at the General Assembly that the

alcohol problem had been largely dealt with, the State had a good functioning system, liquor was widely available across the State in a very controlled environment and there was a desire to harmonize a lot of local wrinkles, i.e. there were a lot of different rules in place, some local boards could sell wine in their stores others did not. The General Assembly wanted to have a uniform system, so it rewrote Ch.18 of the General Statutes and replaced it in its entirety with Ch. 18A. That began a decade long effort to get mixed beverages into North Carolina. Chairman Williams acknowledged Professor Crowell, who helped staff the committee that replace Ch. 18 with Ch. 18A and went through that process. Williams noted that most people remember quite well the depth of the battle and the feelings over mixed beverages; however there was a desire to allow mixed beverages and eventually after a whole lot of litigation, trips back and forth to the Supreme Court, another local option was added where local communities could vote in mixed beverages.

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n Today —The ABC Commission as the regulatory office; oversees more that 25,000 permits; from everybody involved in the alcohol -- from the wineries to the guys who drive the beer delivery truck to distillers and bars and restaurants. Commission estimates are that this is about a $5 billion industry in North Carolina. There are more than 17,000 places in North Carolina where our citizens can buy alcohol and 5,000 of those are mixed beverage permittees, which means that private citizens are selling liquor to their fellow citizens in those 5,000 permitted locations.

n In 2008, the Program Evaluation Division of the General Assembly (PED) completed its study of the ABC system that focused in on the local government aspect of alcohol sales and called for modernization of the local ABC laws with a focus on increasing local board profitability. In one part of its report, PED said that the General Assembly should/could consider some alternate models for selling liquor.

n In 2009, Governor Perdue's Budget Reform Advisory Commission (BRAC) started looking at a host of different issues affecting the budget and among that list was a question as to whether some State services or government services, including the ABC system, could be privatized. They continue to look at that question, and the ABC Commission tries to be a resource for the BRAC.

n Williams indicated that the news media has been uncovering some serious misconduct at the local level about high salaries and bonuses being paid that really defy the public's expectation of what was fair -- including travel, and vendor sponsored dinners at $400 per person. Chairman Williams provided a sampling of news stories going back to 2006. He noted problems in High Point, which led to resignation of its board, having to do with some misappropriation of ABC property and keeping separate books and separate sales and separate accounts for spending. In Winston Salem, there were some issues with the board's law enforcement director that led to prosecution. In Pembroke, there was an embezzlement situation. All these situations have basically helped prompt the formation of this study committee.

n Governor Perdue has communicated to the General Assembly and its leadership her intention to seek greater State control oversight and restrictions on local ABC boards, along with considering partial privatization -- a control system that has more private investment in it.

n Williams said it is important for the Committee to understand how the market is today so that it can wrestle with the question of whether the current system is the right and most coherent system for the State to have for the conditions that it faces. Stating that North Carolina is the 13 th largest liquor market in the country, Williams noted that this is not a question of small boards and a few sales of $200,000; we are big players on the national scene. The State sells 10 million gallons of liquor each year, totaling $700 million in retail sales.

n Williams indicated that not all of the 163 local ABC Boards are created equal. Twenty-five Boards out of 163 sell 70% of the liquor in this State, and I in 7 sell 70%;

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half a billion worth of sales. The 25 top-selling boards have about $20 million average sales per year; where for the rest, it's about $1.5 million. There's a big difference in profitability and the PED highlighted those differences. It is not only the high income, high population density communities in this State where there is big money to be made, but also where the local people in that jurisdiction have authorized mixed beverage sales. Williams noted that those mixed beverage sales boards, on average, are 3.5 times more profitable than those communities which have chosen to not have mixed beverage sales. He told the Committee that it is important to bear that in mind as it talks about reform to talk about a statewide response that helps us control alcohol problems as intended from the outset.

n The PED study highlighted that the State has a problem with board proliferation. There were 158 local boards during the PED study in 2008, and at the end of 2009 there were 163. Since November of 2009, 4 new boards have been authorized for 2010 and at least one more vote is scheduled for May, 2010. Those boards seem to be cannibalizing each other's business to a large extent today, because we already have ABC stores in 98 of our 100 counties and the last two counties make up far less than 1% of the State's population.

n The General Assembly has set up the ABC system so that every local board is an independent unit of local government. Each board is an independent subdivision of the State, separate from the ABC Commission and separate from the county or the cities that are involved in appointing the boards. Williams indicated that at one time there were independent boards that had the community intimately involved in every aspect of what the were doing -- with three different local boards involved in appointing the members, with several other elected and appointed officials involved in providing information designed to help local boards confront an alcohol problem in their midst that was perceived as very threatening to the community and needed to be dealt with, with a concerted effort by the community. At this point there seems to be a real disconnect, in many cases between authority and accountability to the public; there also is the question of concern with public health and public safety.

n Williams indicated that he been talking just prior to the Committee meeting, with representatives from Mooresville and they were describing what good open communications they have between their local ABC Board, the town police department, and city council members, but there's nothing in our current structure that requires that or encourages that. Williams noted that when a local ABC board becomes detached and unanswerable to the rest of the community, things can go on for an extended period of time and get so out of hand that when they blow up, they blow up in a very big way that is very embarrassing to not only the ABC Commission and to the local members of the community who are responsible, but also to the General Assembly and all public officials.

n Williams noted that across the State there are 556 appointed local ABC board members who are charged with the duty of overseeing ABC operations, and he doesn't perceive a lack of resources on their part. Local board members are paid salaries, the

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vast majority of them, totaling about $650,000 a year altogether and they are provided travel allowances to go to conferences and try to keep up with their duties, totaling $350,000. Local board members have traveled to Phoenix, Marco Island, Florida, and annual conferences at Myrtle Beach or Grove Park; so there's actually a lot of time spent and money spent to try to deal with this governance question. Williams indicated there is still somehow a great disconnect -- there is a real profitability problem, already, before we even talk about privatization; because of gifts, high salaries, trips, bonuses; a profit motive that is already firmly at work in a lot of local ABC boards.

n Williams noted that the ABC Commission recently hosted an orientation for new members of local boards. Explaining that the ABC Commission and local boards have been assigned different roles historically, Williams noted that the Commission is the state regulator of the entire industry and local boards; it has not played an active role in training of local board members. The Commission's orientation event got about 50 board members and general managers in; they toured the warehouse and had a great discussion that included operation issues, ethic issues, and other matters. Williams reported that one thing that came out of the meeting, and that he's heard elsewhere, is that there's a sense on a part of a lot of board members that the local ABC operation is just another community non-profit like the Arts Council or United Way, and the board is only answerable to its own internal standards. Williams indicated that local boards are in fact units of government and the boards and their employees need to see themselves as units of government and not as private businesses who have been given a license to run a monopoly in the communities' midst.

n Williams indicated that whether the mission of local boards, as retailers of liquor, is to be in control of alcohol sales, or to provide high quality customer service, or to maximize or at least optimize revenue, there are currently no operating standards for the 163 local boards. The boards have an association that does a good job of bringing them together to compare notes, but there are still no standards set. There are no standards for board member training or manager training. The Commission has set some reporting requirements and they compile financial information and provide policy guidelines to the administrative code on some things like travel, personnel policies, but they don't set operating standards that establish a point at which corrective action is required. The ABC Commission's only authority is to remove local boards or local employees who transgress the law. Williams noted that the Commission does not appoint local board members, and they are not directly answerable to the Commission.

n Options for consideration. Williams noted that his comments are not the Governor's recommendations to the Study Committee on what to do, nor are they the Commission's recommendations; but from the Commission's standpoint, these are things that would be workable options that the Committee may consider as it looks at whether the ABC system should have more local control, or whether the State should have more authority in interacting with the local boards. Williams noted that the Committee needs to go one direction or another, to protect against the kinds of problems that have been occurring for several years.

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(1). Consolidate county-wide or establish regional boards. Williams explained that there are about 60 county boards today. Where the county had voted against liquor sales at the outset, municipalities were allowed to hold a vote for liquor sales and set up their own boards, and that has created a hodge-podge patchwork system. Small communities looking for revenue are wanting to have local referenda -- and they almost always succeed now. As an example, Williams cited Valdese, which 8 years ago voted against liquor sales in their community by about 55-45, this time it was 1000 votes to 1500 votes; so a big swing. He indicated that the community is ready to go and that's what the Commission is seeing now in these local referendums in almost every part of the State. He stated that there has been a real shift in public expectation -- if the community is broadly accepting of liquor sales in their midst, county-wide boards can be effective. According to Williams there are big questions to be answered about the formula for distribution of the revenue if the county is dry and certain municipalities have voted wet; but he noted that with a consolidated board there would be more scrutiny, more resources, a lower total operating expense (economies of scale) and it would be much easier to keep tabs on a maximum of 100 boards rather than 163 and growing every year.

(2). Consolidate into county governments. Williams suggested that if the State really wants to push local control into local hands, local governments should be allowed to make alcohol control a department of the county government. That would eliminate some of the issues of the local ABC board being a standalone entity that generates its own revenue with no external budgeting or oversight. If an ABC board is brought into a local government unit, or a municipal government unit, then there would be an external county manager, an external HR director, external finance director who oversees operations and makes sure they comply with the expectations that the public has of public officials.

(3). Consolidated IT System. Williams suggested that one step that would be a good efficiency improvement would be a consolidated IT system that would cover not only financial data, but also inventory data. He indicated that the Commission always has problems managing inventory, and the system could be integrated much better. The financial data the Commission gets now is one annual report. From a financial oversight standpoint, the Commission can't really track, at a fine grain, what is going on -- if there's fights and personnel costs or other costs -- the way a normal organization tracks whether there might be fraud or other wrong-doing going on financially at the local level.

(4). Agency Stores. Williams noted that the PED report recommended, and the ABC Commission has supported for a number of years, the authorization of agency stores in communities where profitability is low. He indicated that profitability is not the be all and end all of the ABC system and that access to controlled liquor sales, the reason the Commission was set up originally, is important. Williams warned that there is a chance of illegal markets developing

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where there are large areas that have no service. He mentioned that Washington State has a model where the state simply pays a commission for each bottle sold. Under that model, a consumer would purchase a bottle, and the retailer would get a fixed commission on that bottle; the rest of the price of the bottle would be remitted to the State and there would be a formula to rebate funds back to the local government. Agency stores would help deal with some of the rural, low income areas where there's low turnover and low profitability.

(5). Law Enforcement Spending. Williams indicated that the Commission has been made aware of lot of dissatisfaction locally with law enforcement spending. He noted that originally, ABC officers were authorized in order to keep down the illegal liquor trade and help build up controlled sales as a replacement for that. The Commission currently receives reports that law enforcement officers paid for by the local boards are unloading trucks, providing store security, basically not performing much in the way of traditional law enforcement work, not going out into the community and enforcing the laws in all these permitted establishments that may be violating laws to the determent of the public health and public safety of the community. Williams commented that the amount of funding it takes to equip and train a law enforcement officer is a high price to pay for the officers to help to unload a truck and indicated that was not the intended purpose for setting aside the 5% for law enforcement spending. Williams suggested that the Study Committee could redirect that spending to the State's ALE Division or use some formula to just redirect that money back to the cities and counties for law enforcement spending with a clear expectation that enforcement officers are not store employees, but they are to do real law enforcement work related to alcohol law enforcement in the community.

n Again, Williams noted that his goal was to give the Committee a range of options and make Committee members aware of some issues the ABC Commission has seen in the State's ABC system.

n (6). Accountability. On the question of accountability, Williams suggested that the State needs to better engage the appointing authorities. This may be accomplished by consolidating the operations into local governments; or if the legislature wants to move more into State level oversight, there could be greater authority for the Commission to enforce standards. A salary scale based on population served is one possibility, or the Commission could generate salary information at its office. The Commission could monitor profitability and identify problems. Even product selection is an area of mischief because the Commission has seen sales reps who try to push their products. The Commission could monitor product selection for customer convenience and also make sure that no one in the system is buying access to shelf space improperly.

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n (7). Permits issued by the Commission for General Managers to serve as general managers of the local ABC board. Williams indicated that one of the problems of exercising oversight over local boards is that the Commission doesn't hire the people: they don't work for the Commission and it basically can't tell them what to do. The Commission can't tell them what to learn, what standards that they have to comply with and, yet, the Commission has very high expectations of every other retailer of alcohol products in the State. They only operate because they have a permit from the State, so having the threat of either a temporary suspension of that permit or revocation of that permit would give the Commission some actual authority in interacting with local management. It would also give the Commission a way to resolve issues that would fed directly into the Office of Administrative Hearings and well traveled paths of administrative law to evaluate conduct and whether it really rose to the level that would require action. The situation that exists now were the Commission has authority to remove for cause, is a really blunt instrument with very little guidance on how that process should work.

n Williams suggested that a very simple fix to be considered would be adding local ABC boards to HB 1452 for ethics training for local government officials. He indicated that the provision would have to be tweaked some with the Commission perhaps working with the School Of Government and the Association of ABC Boards. He also noted that the ethics in the alcohol industry are not the same as they are for local government officials who have a broader range of responsibility and less direct industry interaction.

n Finally, Williams noted again that an integrated IT system would allow the ABC Commission much greater transparency and an opportunity to identify deficiencies in the system.

Chairman Williams thanked the Chairs and referred the members to the Alcoholic Beverage Control Commission website at www.ncabc.com .

Questions, Answers: Judge Ronald Bogle: Can you provide us with a range of what other control states are doing and if you know of some that are particularly effective or worth considering, can that be provided?

Chairman Williams: I would be happy to do what I can in that regard. I think you said it best that when you see one, you've seen one. Because we are the only one in the country that has local governments controlling the retail sales. Comparable setup is in the State of Maryland where they actually authorize counties to set themselves up as control counties. Two counties with very large population, Montgomery County has 1 million people, where they actually run their own warehouse as well as running their own stores.

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Representative Dewey Hill: How about your operating costs for the stores? Do you have any guidelines and costs of operations?

Chairman Williams: Our local stores in total spent $113 million on their operational expenses in fiscal year 2009 on $700 million in sales. Those operational costs have been growing faster than our sales, so we are getting less efficient year by year.

Representative Dewey Hill(follow-up):Give me a percentage of sales?

Chairman Williams: As a percentage of sales, I think the average is about 7%; for the mixed beverage boards, it's probably closer to 10% and for the non-mixed beverage boards, it is closer to 4% or 5%.

Senator Dan Clodfelter: For many, many years, the Local Government Commission has had absolute statutory authority to take control of the finances of any local government in North Carolina at any time they think there are irregularities going on. It is a pretty broad authority and we have been very comfortable with that. It's been used sparingly but it's been used when necessary and it's part of why we have not really had any serious financial problems in local governments in the State. I would be interested whether you and the Commission think we might want to consider extending the same powers over the local boards to the ABC Commission, if we preserve the system of local boards? Just take a look at the statutes in the Budget Fiscal Control Act on local government, controlled by the Local Government Commission and see if that might be a good model. I would be interested in your views.

Senator Vaughan thanked Chairman Williams and asked the Committee if there were any further questions. Hearing none, Senator Vaughan introduced the next presenter, Jon Carr, lobbyist for the North Carolina Association of ABC Boards.

Presenter Jon Carr, Lobbyist for the North Carolina Association of ABC Boards provided the Committee with a script text of his comments and remarks. For purposes of these Minutes, Mr. Carr's entire presentation was delivered verbatim from the script. See Attachment 4.

Questions, Answers:

Senator Dan Clodfelter: I would ask your Association to do the same thing that I asked Jon Williams to do and that is take a look at the statutory powers that we have given the Local Government Commission to oversee the operations and finances of cities and counties where ABC boards operate and to consider whether or not the ABC Commission shouldn"t have at least as much authority over the operations and finances of the ABC boards themselves. I would be interested in your position as well.

Mr. Jon Carr: Appreciate the suggestion and will be glad to look into that. Thank you.

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Senator Dan Clodfelter(follow-up): Mr. Chairman, if it is good enough for cities and counties and I guess my question is why isn't it good enough for ABC boards?

Representative Edgar Starnes: When it comes to profitability, I'm not so concerned about stores that have a low profit, but how many stores or systems do we have in North Carolina who lost money last year?

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March 24, 2010 Public Comments Joint Study Committee on Alcoholic Beverage Control

Mayor William Knight, City of Greensboro Mayor Knight presented his statements on behalf of the Greensboro City Council and constituents. Mayor Knight presented information in support of the current control system, and provided reasons why geographical mergers are unworkable. He also spoke in support of the application of the highest ethical standards and transparency throughout the ABC control system. Full text attached; Attachment 5.

Mayor Rebecca Smothers, City of High Point Mayor Smothers presented information and opinions concerning the public policy implications associated with various proposals to alter the current system of local ABC store administration. Full text attached; Attachment 6.

Councilman John Howren, Jr., City Council Liaison to Gastonia ABC Board Councilman Howren presented on behalf of the City of Gastonia and what he described as the large majority of ABC Boards in NC that are assets to the communities in which they serve with sound and ethical business practice. He spoke in support the values of the existing system, indicating that while he has an appreciative understanding of the need(s) of certain changes being considered; there are concerns of non-equitable changes damaging to successful and historically well run Boards and their communities. Full text attached; Attachments 7, 8,9.

Mr. Joel Keith, Board Member Wake County ABC, Wake Forest Mr. Keith presented support of the modernization of the State's current ABC system. He encouraged the Commission to fix any specific problems with local ABC boards, indicating that while he agrees with modernization, it should be done in measured steps so we don't hurt the ones that made the system what it is. Full text attached; Attachment 10.

Mr. Vic Nussbaum, Executive Director Guilford CARES Mr. Nussbaum represented 45 organizations and individuals, including Alcohol and Drug Services, The Arc of High Point, and Triad Smart Recovery. An advocate for the youth of N.C., Nussbaum stated that underage drinking is a serious problem for the health and well being of our children. He stated that studies indicate that up to 15% of all revenue spent on beer, wine and distilled spirits comes from illegal sales to and consumption by underage youth. He also said that 'outlet density' is a significant factor in alcohol consumption and the current distilled spirit distribution system adequately services the public. Full text attached, Attachment 11.

Reverend Mark Creech, Executive Director, Christian Action League The Christian Action League agrees with some of the recommendations of the PED Study that it believes would make our current ABC system more efficient. The League

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believes the loss in profits of the system from stores without enough clientele to support them and too many boards and stores producing unnecessary competition could be effectively addressed by raising the voter threshold for an ABC store election from 500 to 5000. Creech encouraged the Committee to consider control over profit. and efficiency over revenue. Full text attached, Attachment 12.

Ms. Ava Troxler, Coalition for Drug Abuse Prevention Ms. Troxler presented concerns related to privatization, including outlet density and increased access. She made the point that while increasing revenue is important, revenue with increased costs for the consequences of licensing (both in dollars and in human terms) is beneficial for no one. She stated that keeping the State's control over alcohol sales provides ways to limit the sales of alcohol, thereby reducing unsafe and unhealthy consumption. Full text attached; Attachment 13.

Ms. Anne Hardison, Ali Farrington, McKayla Edgren, Kalen Perry, Regional Youth Team, SAPHE Substance Abuse Prevention Helps Everyone, Coastal Coalition for Substance Abuse Prevention The Coastal Coalition for SA Prevention is a five-county coalition representing Carteret, Craven, Jones, Pamlico and Onslow Counties. The coalition collaborates with stakeholders to reduce substance abuse among youth and adults by promoting the factors that minimize the risk of substance abuse and by addressing the factors in the community that increase the risk of substance abuse. The Coastal Coalition for Substance Abuse Prevention and the SAPHE Regional Team recommends that, before considering privatizing alcohol sales in the State of North Carolina. this committee consider the high costs already of alcohol abuse in North Carolina. The group contends that a narrow focus of reducing budget deficits can in fact increase the already staggering costs that we incur as citizens in North Carolina regarding alcohol abuse. Full text attached; Attachment 14.

Mr. Paul White, President Universal Chevrolet Co., Wendell Mr. White currently serves on the Wake County Alcohol Beverage Control Board. He indicated that North Carolina is a leading state in providing profits for its citizens while having a lower volume of consumption than most states. According to Mr. White, the problems with our boards, considering the size of the total organization, are small when compared to other institutions and the benefits provided. He asked that the Committee be careful about taking short term profits for the State, without considering the long term effects of this action on the State's yearly income. Full text attached; Attachment 15.

Chief Michael Yaniero, Chief of Police, City of Jacksonville Chief Yaniero represented the North Carolina Metro Coalition of Chiefs of Police (26 police chiefs). The Coalition recommends that the Committee explore the ability of local law enforcement officers statewide to enforce the ABC statutes. He stated that if the system is privatized. the change should focus on public safety and quality of life not economics. He also stated that with any change, the ABC Commission should significantly improve local control of alcohol related establishments. Full text is attached; Attachment 16.

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Ms. Aidil Collins, Damar Hodge, Shevanique Winston, Katie Lantigua, Youth Empowered Solutions, Raleigh Each presenter made brief comments about the ABC system as follows: Damar Hodge-indicated that privatization is a bad idea, and wouldn't help our state. Hodge asked the Committee to maintain the control of ABC stores. Kati Lantiqua —Supported having a control state when it comes to liquor, indicating that the money that NC makes and that ABC stores give back to the community helps give communities education on substance abuse. Lantiqua encouraged the Committee to keep NC a control state. Shevanique Winston- Indicated that privatizing ABC stores in North Carolina would only lead to a more economically impaired state and a more intoxicated future for the teens as well as all of the other citizens in our community. Full text attached; Attachments 17, 18,19.

Mr. Andy Ellen, General Counsel, NC Retail Merchants Association Mr. Ellen is General Counsel for the NC Retail Merchant Association. Mr. Ellen stated the following main points: 1) The Association strongly believes that North Carolina should proceed with thoughtful discussions as to how to privatize North Carolina's ABC system. 2) Any privatized system should be developed in a manner to hold local governments harmless with regard to revenues utilized to provide core essential services connected to the sale of spirits such as ALE and substance abuse services; 3) Any privatized system needs to strike a balance so that responsible parties can engage in the sale of spirits to provide reasonable access to citizens of age while not overwhelming communities with outlets selling spirits. Full text is attached; Attachment 20.

Commissioner/Councilwoman Teresa Lewis, Mount Airy City Council Commissioner Lewis presented remarks on behalf of the Mount Airy ABC Board. She urged the members of the Committee to oppose any State mandate to merge ABC Boards or to permit private retail establishments. She asked that mismanaged stores be dealt with individually and that well managed and efficient stores, such as the Mount Airy ABC store, not be penalized. Full text is attached; Attachment 21, 22,23.

Mr. Tom Harris, Owner, Front St. Brewery, Wilmington Mr. Harris is owner of a non-ABC permitted company in Winston-Salem and owner of an ABC permitted business in Wilmington. Mr. Harris cited disconnect issues between local ABC Boards and the need in the community for the enforcement of the statute concerning the sale of alcoholic beverages to intoxicated persons. He provided recommendations concerning the ABC Enforcement Officers and the apparent disconnect between the local ABC Boards and ABC related problems and needs in the community. Full text is attached; Attachment 24.

Commissioner Joe Bryan, NC Association of ABC Boards Commissioner Bryan, representing Wake County and the NC Association of ABC Boards, spoke in favor of the current system and in opposition to privatization. Bryan indicated that the Association is prepared to support legislative recommendations that

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would accomplish the following: 1) increase reporting requirements to appointing authorities; 2) mandate that all local boards submit annual salary data to the state ABC Commission and that the State ABC Commission be required to annually distribute that data (including benefits and bonus information) to all local ABC Boards and local authorities; 3) require each local ABC board to adopt an ethics policy consistent with its own appointing authority. Full text attached; Attachment 25.

Councilman Alfred Brown, Jr., Concord City Council Council Brown presented a Resolution of the City of Concord's Council, indicating the Council's support for maintaining the current ABC system. He requested that local control be left intact. He also urged that any decisions be made in an actionary mode rather than a reactionary mode. Resolution attached, Attachment 26.

Mr. Scott Mauzy, The Healing Place of Wake County Mr. Mauzy representing The Healing Place, non-profit agency that operates a men's and women's shelter and recovery program for homeless individuals with alcohol and other drug addictions. Mr. Mauzy indicated that the Wake County ABC Board has a solid understanding of local needs and local programs; and provides comprehensive evaluation and local program review, The Healing Place is one of several Board-supported organizations having an impact in the community, and there has been a long standing partnership between the agency and the Wake ABC board. The Wake County ABC Board contributes a substantial amount of money to local governments and local organizations such as The Healing Place. Full text is attached, Attachment 27.

Mr. Craig Pleasants, General Manager Wake County ABC Board Mr. Pleasants represented the Wake County ABC Board and the 112 full-time and part-time employees that operate 24 ABC stores, a warehouse, a law enforcement division and an office. The Wake County ABC Board believes the current control system reflects the values of North Carolina citizens in balancing alcohol consumption, revenues and social responsibility. Full text is attached; Attachment 28.

Councilman Kevin O'Grady, City of Wilmington Councilman O'Grady represented the City of Wilmington. O'Grady spoke concerning the effects of alcohol outlet density on municipalities and avenues of reform and improved cooperation between ABC boards and municipalities. The city wants a balance between authority and responsibility which means finding ways to give more authority to the cities and municipalities that deal with ABC-related problems. He encouraged the Committee to find ways to provide necessary financial support, and to give cities more authority to deal with the problems. No attachment.

Ms. Lawless Bean, Assistant to the City Manager, City of Wilmington Ms. Bean is the Assistant to the City Manager for Legislative Affairs at the City of Wilmington. She proposed two additional suggestions to improve the effectiveness and efficiency of the ABC system and its practices. The City is specifically seeking the authority from the General Assembly to charge additional fees to establishments that serve alcohol to offset the additional costs incurred to provide law enforcement support and the enforcement of laws around such establishments. The second area in which the

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City is proposing enhanced local input is in the issuance of ABC permits and modifications. The City of Wilmington asked that the Committee consider increased local input into both public safety provisions and the ABC permitting process. Full text is attached; Attachment 29.

Commissioner Miles Atkins and Commissioner Rhett Dusenbury, Town of Mooresville The speakers presented information concerning the impact of privatization on the local level, indicating that the Town of Mooresville, the Mooresville Police Department, Iredell-Statesville Schools and Mooresville Graded Schools stand to lose approximately $630,000 a year if privatization, state takeover or merger of all or part of the current system is implemented. Mr. Dusenbury encouraged the Committee to take into account funding from all levels -- local, State and national. He also encouraged the Committee to look into ethics training and modernization of practices. Full text is attached; Attachment 30.

Mr. Dylan Jones, Community Advocate, Durham Mr. Jones spoke against privatization of ABC stores, stating that if the State switches to a private system, there would be more retail outlets and those outlets would be selling products with a much higher alcoholic content. Jones described himself as a neighborhood advocate and someone who cares about this issue and cares about the public health and safety of his community. He urged the Committee to strongly consider the research and keep the State's ABC system as it is. Attachments 31, 32.

Mr. Karl Knapp, Director of Research, NC League of Municipalities Mr. Knapp's organization represents 542 North Carolina cities and towns. Mr. Knapp acknowledged that there are certain matters related to ABC Board salary and ethics that should be clarified and strengthened, but cautioned that major reform to the way in which North Carolina sells liquor deserves very thoughtful study. He noted that reform of the State's ABC system is a complicated issue with many pieces, each of which needs to be considered very carefully, as the long-term consequences could be quite destructive. Full text is attached; Attachment 33.

Mr. Phil Mooring, Chairman, North Carolina Substance Abuse Prevention Providers Association Mr. Mooring represents thirty-three member organizations that have a presence in most of the state's one hundred counties. He urged that any change to the North Carolina's alcohol control system not include privatization because research indicates that with privatization there will be an increase in retail stores selling spirits; those stores would likely remain open later at night because of economic vested interest; there would likely be more underage sales; there would be higher consumption, resulting in more alcohol related deaths or accidents; there would be a decline in revenues to the state. Mooring concluded with the statement that there is a chance that once the state moves from being a

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control state to being a license state; it would never revert to a control state. Full text is attached; Attachment 34.

End of Public Comments

Questions/Requests for Information

Representative John Hurley: I'm interested in Wilmington's law enforcement not able to help the ALE agents with their problems. Can someone look into this issue and find a root cause for this separation; perhaps, that should be addressed by this study commission?

Mr. Paul Powell, question for Jon Carr: Would it be possible for the local ABC Board Association to give us an idea of the performance standards that they are comfortable with for merger and/or oversight by ABC or local government?

Mr. Jon Carr: I would have to look at notes, but reference to standards is in the PED report and that is the position that was taken with reference to those standards.

Mr. Paul Powell,(follow-up): but they don't have any specifics they can give us?

Mr. Jon Carr: I don't have those with me today. The important thing from our perspective is that the standards be promulgated through the rulemaking process which allows the opportunity for public comment. We have concerns about the development of particular standards outside that process.

Ms. Karen Gottovi: requested a copy of Mr. Harris' presentation.

Senator Vaughan recognized Representative Warren for final comments. Representative Warren thanked all the members who were able to stay for the duration of the meeting, and also thanked the audience for their attendance and participation. Warren noted that Committee members had heard a lot of interesting information, and promised that it would be given careful consideration.

Senator Vaughan made additional closing remarks. Additional information is available on the Committee's website, which is located on the General Assembly website, under the caption "Committees."

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This meeting adjourned at 5:00 pm. The Committee will meet again on Thursday, April 8, 2010.

The Visitor Registration Sheets are attached and made a part of these minutes.

)b) Senator Don Vaughan Dora King-Morgan Presiding Co-Chair

Commission Assistant

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March 24, 2010 Alcoholic Beverage Committee Meeting

ATTACHMENTS

Agenda — March 24, 2010

Visitors' Log — March 24, 2010

Attachment 1: Contract for Appraisal Services Related to the North Carolina Alcoholic Beverage Control System

Attachment 2: Presentation — Chairman Jon Williams

Attachment 3: Sample Coverage of ABC Issues 2006 — Present

Attachment 4: Presentation — Jon Carr, North Carolina Association of ABC Boards

Attachment(s) 5-34: Public Comments

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