John Hood: Liquor business should be private

RALEIGH — North Carolina governments shouldn’t be in the liquor business. Two recent stories illustrate this story well.

One was written by my Carolina Journal colleague John Trump. The North Carolina Alcohol Beverage Control Commission has just awarded LB&B Associates a 10-year contract to warehouse the state’s liquor supply. In a sense, that was progress. At least the company was forced to bid for the contract, which it had previously enjoyed since 2004 with no competition and little oversight.

That was the finding of a scathing 2018 review by State Auditor Beth Wood. It found that from 2004 to 2017, the state spent a total of $77.7 million on the warehouse contract. Auditors determined that approximately $13.6 million of that represented either overcharges or unnecessary expenses, including the purchase of warehouse space that was little used.

Why, then, would the ABC Commission award a new 10-year contract to the same vendor? Because, the commission’s rep told Carolina Journal, “none of the state auditor’s findings related to the warehouse or delivery service performance of the vendor.” It was the commission and its employees, not the company, that were responsible. “We believe the newly negotiated contract with this vendor is appropriate and in the interests of the state and the ABC system.”

It’s true — the ABC system had done a miserable job of managing its contract with LB&B Associates in the past (although the latter clearly took advantage of the situation and even misled the state about its fuel costs, according to the audit). Admitting error is good. Correctly diagnosing its cause and doing something about it would be better.

North Carolina is one of only 17 states where the production, storage, sale, and distribution of liquor is controlled by government. And we’re the only place that uses local fiefs, suffused with political influence and patronage, to do the deed.

I have little confidence that the system will manage its operations much more efficiently in the future than it has in the past. It’s a monopoly. That’s how a monopoly works — or, more to the point, fails to work in the public interest.

Because North Carolina government is both a monopoly provider of some liquor-related services and a monopoly regulator of others, consumers get stuck at multiple points. Consider the other story I saw this week, about regulatory abuse.

Writing in The Assembly, a new digital magazine publishing long-form journalism on North Carolina issues, reporter Jeffrey Billman told the tale of Durham’s Mystic Farm & Distillery. During a regular inspection, an Alcohol Law Enforcement agent had spotted 17 bottles of whiskey in Mystic’s kitchen.

What? Whiskey in a distillery? Get me the Batman!

According to the ALE, though, those whiskey bottles were illegal. Agents went back a week later and confiscated them. Then Mystic got hit with a $1,000 fine. Refuse, ALE warned, and the distillery would have its permits suspended for 10 days.

You see, those 17 bottles didn’t contain whiskey produced by Mystic. They were other brands, used by Mystic for taste tasting or to get packaging ideas. State law allows distillers to sell only the liquor they produce. And ALE insists that distillers must clearly separate its commercial and retail operations.

Mystic wasn’t selling the other brands, of course. But the kitchen was on the retail “side” of the business. And ALE wouldn’t even concede that Mystic was legally using the bottles as part of its production process.

To its credit, Mystic refused to pay the fine. It went to court and won an injunction. Eventually the ABC Commission gave in. But it still didn’t return the confiscated bottles of whiskey until the Assembly reporter started asking questions about it.

I happen to be a teetotaler. When North Carolina’s ABC system overcharges consumers and injures distillers, I am not directly affected. But I resent my government abusing its power in this way. You should, too. The answer is not to hire smarter, wiser, or fairer bureaucrats to enforce state laws. The answer is to change those laws.