CONTROL STATES EXECUTIVE FORUM

As we have for the past seven years, StateWays contacted top control state officials in the 19 jurisdictions and asked them to provide an overview of recent initiatives in their respective states. As we have seen in the past, each state has its own particular set of concerns and accomplishments. Some states, for example, have instituted varying forms of Sunday sales this past year. And most jurisdictions have been beefing up their beverage alcohol education and enforcement efforts. In addition, our control state leaders also address areas such as profit increases, organizational plans and legislative changes as well as ambitious modernization programs at the wholesale and retail levels. Overall, we hope that the following comments provide a meaningful snapshot of the activity taking place throughout the control states. As always, we’d like to thank the various commissioners, chairpeople and administrators who took time out from their busy schedules to respond.

— Richard Brandes
ALABAMA

This past year heralded a turning point for the Alabama ABC Board. When I arrived two years ago, thousands of cases of liquor were being moved by hand in an outdated warehouse. We have recently expanded and refurbished our central office and warehouse facility thus allowing all of our divisions to be under one roof. Our warehouse was brought up to date with a state-of-the-art conveyor system and scanning system. We are no longer moving thousands of cases of liquor manually. Although we encountered some minor glitches and at times some of our shelves were a bit bare, total liquor sales in the state are increasing and the majority of our ABC stores are experiencing the desired profits.

EMORY FOLMAR
Administrator
Alabama Alcoholic Beverage
Control Board

Our Central Office has fielded many inquires in regards to the Supreme Court’s decision on direct shipment. I believe that the Court’s decision may focus on the unequal treatment of instate vis-a-vis out-of-state wineries and therefore may not be directed at states like Alabama. We will take a “wait and see” position for the present. I can see merit in both positions and it is my opinion that there will be more litigation on this subject.

In 1937, when the Alabama Alcoholic Beverage Control Board was established, the control of alcoholic beverages was the focus. In 1997, the Legislature passed an Act which required the ABC Board to issue permits which allow the distribution of tobacco products, and to conduct annual random compliance tests to assure compliance with applicable state and federal guidelines regarding the distribution of tobacco or tobacco products to minors. During this past Legislative session, an Act was passed that requires the ABC Board to chair the Alabama Methamphetamine Abuse Task Force. This Task Force was created to develop education and training programs that will curb the abuse of methamphetamine precursors used to make methamphetamine, and to curb the use of methamphetamine in the State of Alabama. With those extra duties being placed on our Enforcement Division, the agency has added 18 new agents who recently graduated from the Academy and are eagerly beginning their careers with the ABC Board.
IDAHO

Following the whirlwind two years as NABCA President-Elect and President, I had hoped that things would slow down this past year. So much for wishful thinking…

DYKE NALLY
Superintendent
Idaho State
Liquor Dispensary
The Control State business in Idaho has never been better. The Liquor Dispensary continues to reach record levels in sales, cases shipped and customer service.

Preliminary reports for Fiscal Year 2005 show that sales increased to $95.2 million, a gain of 10.8%. Bottle sales increased to 7.6 million units, an increase of 6.9%. According to the NABCA Case Sales Report equivalent, 9-liter case sales gained to 636,000, an increase of 7.2%.

We’re putting the finishing touches on the ACCPAC Windows-based accounting system. This conversion was more complex than originally planned due to the inclusion of all of the warehouse operations. Parallel processing for most operations and accounting functions has stopped and at this point, the finishing touches and final modifications are being applied to the new system.

Sunday sales continue to increase as more and more Idaho counties approve Sunday package liquor sales from either the state liquor stores or ISLD’s contractor-operated outlets. Twenty-four of Idaho’s 44 counties now permit Sunday package liquor sales.

ISLD recently opened two new state liquor stores, both in rapidly growing southwest Idaho. Sales in southwest Idaho increased 12.6%, while sales in north Idaho increased 11%. In addition to the two new state liquor stores, two new contractor-operated outlets were opened, both in southeast Idaho. Idaho’s growth will require additional state stores in north Idaho, southwest and southeast Idaho.

As the nation began pulling out of the recession two years ago, Idaho was a magnet for job seekers and entrepreneurs, and they converged on the state’s urban centers. Much of our sales growth can be attributed to increases in the number of legal drinking age Idahoans.

Estimates released by the U.S. Census Bureau show the net migration of people into Idaho from other states and nations total 15,436 from mid-2003 to mid-2004. Idaho’s total population increased 1.9% during the 12 months through June 2004 to hit nearly 1.4 million. It was the fourth highest growth rate among the states, matching Idaho’s growth for the previous year. Only Nevada, Arizona and Florida posted higher growth rates during either period.

For the next fiscal year, ISLD is embarking on a warehouse process improvement study to find ways to improve service and to accommodate the ever-growing number of products being sought by Idaho consumers. We’re confident that the study will enable Idaho to keep pace with demands and continue to provide new products access to the Idaho market.

Our support of the Idaho wine producers continues to yield positive results. We offer a small variety of wines from most Idaho wineries, and sales have increased steadily. A small selection is currently offered primarily to expose consumers to Idaho produced wines to both support the industry and provide statewide exposure.

The Liquor Dispensary has been more active in the area of Alcohol Education, taking a leadership role in bringing the education and heath care communities together to extend the message of responsible alcohol use and underage drinking prevention. The Idaho State Broadcasters Association recognized KIVI, Channel 6 Television, with its “Best Public Service Campaign Award” to Ken Ritchie, General Sales Manager, and the Journal Broadcast Group for its “Don’t Do It” campaign for the Dispensary. The message, “Don’t Do It… Don’t Drink and Drive” was a 30-second announcement delivered by well-known local citizens and by the KIVI news and sports anchor teams. The spots ran for Memorial Day, 4th of July and will run for Labor Day, Thanksgiving and Christmas holidays.

ISLD management staff has begun to have regular meetings with the Idaho supplier representatives and brokers, in an effort to strengthen our partnership with them. As with many control states, Idaho is experiencing the trend to larger and larger brokerage organizations with the recent entry of Young’s Market Company of Idaho.

I look forward to the challenges and opportunities that a growing Idaho presents to the Dispensary. I’m confident that with the cooperation of the Governor’s Office and the Idaho Legislature the Dispensary will be able to meet the demands of growth and service.
IOWA

For the past two years, I have described in StateWays the Iowa Alcoholic Beverages Division’s initiatives as one of Iowa’s six Charter Agencies. The Charter Agency Program, as previously noted, has allowed the participating state agencies to eliminate bureaucratic “red tape” and operate in a more businesslike fashion. With that newfound freedom, each agency has made great strides in enhancing customer service, reducing operating expenses and increasing state revenues.

LYNN M. WALDING
Administrator
Iowa Alcoholic Beverages Division
Department of Commerce

For its level of success, Iowa’s Charter Agency Program was recently lauded with the 2005 Innovations in American Government Award — often referred to as government’s equivalent of an “Oscar.” I am pleased to report that the Division’s initiatives as a Charter Agency were instrumental in achieving the success and the prestigious award from Harvard University’s John F. Kennedy School of Government.

Recent Successes

In its first year as a Charter Agency, Fiscal Year 2004 (FY04), the Division committed to transferring an additional $1.25 million to the state’s general fund over the prior fiscal year (FY03). With the freedom to operate without the normal bureaucratic constraints, the Division was able to far surpass that commitment with a $9 million increase in general fund transfers (a 20% annual increase in revenue). The success continued again in 2005 with another $10 million transferred over the FY03 total.

The Division’s FY04 initiatives achieved success on the revenue side of the ledger. The Division’s efforts included emphasis on inventory management, the product portfolio (promoting premium brands) and improved tracking for the Temporary Price Reduction (TPR) program.

The Division also experimented with a variable markup rate (VMR) on the wholesale price of vodka, replacing the standard 50% markup. The VMR ranges from 40% to 60% in two point intervals — 40% for the superpremium vodkas and 60% for the value brands. The VMR yields a price compression that encourages consumers to trade up to top-shelf spirits. While consumers can enjoy a better brand of vodka for just a few dollars more, the “trade-up” behavior allows the Division to collect more tax dollars without a corresponding increase in consumption.

The Division also used its Charter Agency status to take initiatives toward reducing expenses. To refer to Benjamin Franklin’s famous adage “a penny saved is a penny earned,” every dollar the Division was able to extract from its operating expenses meant additional state revenues.

As I reported last year, the Division resumed control of its warehouse and transportation operations that, in turn, meant the check previously made out to its private contractor could, instead, be made out to the State of Iowa. To further reduce warehouse and transportation costs, the Division revised and reorganized its system of trucking routes, which annually reduces the Division’s total travel distance by 114,000 miles with a corresponding reduction in fuel, maintenance and repair costs. The total savings from this effort, in the first year of operation was over $780,000, a 29% reduction in the overall warehouse expense.

Meanwhile, the Division was able to revert almost $200,000 in appropriated funds (approximately 12% of the Division’s annual appropriation) as a result of several other cost savings initiatives. A chief savings was realized by deferring the replacement of several vacant mid-level positions. While the Charter Agency agreement waives the state’s normal full-time employee (FTE) requirements, allowing participating agencies to hire employees at will, charter agencies are permitted to retain unfilled positions without the fear of a permanent loss. As such, positions in accounting, information technology and maintenance remain open, and the Division continues to save on salaries in the interim.

Future Initiatives

Moving forward, the Division is poised to incorporate technology into its daily workflow with the use of several new electronic applications in year three of the program. Later this month, a new electronic licensing system will be launched with a pilot group of licensees. The effort will eliminate excessive paper, postage and printing costs, while simultaneously reducing the time it takes to issue an applicant a license. Similar applications are being developed for the Division’s order entry system for liquor purchases, sales and inventory management tracking, as well as beer and wine tax collection systems. With the use of technology, much of the work currently done manually or over the phone will soon evolve to electronic processes.

With its freedom from bureaucratic “red tape,” the Division will continue to find ways to enhance service, cut operating costs and increase revenues. As Iowa’s Charter Agency Program gains national exposure for its remarkable results of increased customer service and taxpayer savings, we may see more states experiment with results-oriented government. In Iowa, I am proud to say the contributions of the Iowa Alcoholic Beverages Division were an integral part of the program’s success. With future initiatives yielding continued results, perhaps the Division can help Iowa deliver another “Oscar”-winning performance in 2006.
MICHIGAN

One of our accomplishments of the past year, of which I am most proud, is our alcohol education initiative in the area of combating underage drinking. With the help of the Century Council and other industry partners, the Michigan Liquor Control Commission was able to bring Brandon Silveria to Michigan for one week. I traveled with Brandon as he brought his message of “make the right choice” to 10 high schools and thousands of students across the state of Michigan. Brandon himself is a victim of underage drinking and driving. He shares his experience with high school students in a personal, powerful way. I hope to continue this educational work this year.

NIDA SAMONA
Chairwoman
Michigan Liquor Control Commission

Two new laws were passed during the year to help the Michigan hospitality industry. Last November a law was passed which takes the ceiling off the state-set price for liquor for off-premises licensees. The state-set price is now the minimum shelf price of the items. So off-premises licensees may charge whatever price they want at or above the minimum state-set price. The second law allows restaurant customers to take a partially consumed bottle of wine home, provided it is re-corked. It is believed that this legislation will provide a measure of public safety, as people will not feel compelled to finish a bottle of wine before they leave the table. Both of these laws were designed to strengthen the hospitality industry in Michigan.

Michigan continues to develop ecommerce offerings for our customers. This year licensees were able to renew their liquor licenses on line. We had a great response to this alternative, with a total of 19% of all licensees using this method, of which 6% were retail license holders. We hope to increase participation in the coming year.

Thanks to Governor Granholm’s support, we will be adding five new liquor enforcement officers this year to our staff. These partially replace officers who left to take advantage of an early out retirement program several years ago. The addition of these five officers will help us speed up the investigative aspect of the licensing process and intensify our efforts to conduct controlled-buy operations. We will also be able to increase investigation efforts towards illegal smuggling and other enforcement activities.

Also, here are some thoughts on the Heald decision, the Supreme Court case regarding interstate shipping of wine involving both Michigan and New York. The decision, made public on May 16, 2005, declares that no state can discriminate between in-state and out-of-state wineries. The Court upheld the three-tier distribution system and affirmed that states do have the right to exercise authority over the alcohol beverage traffic with the state. It will be up to the Michigan legislature to directly address this issue with legislation. The Commission will provide information and analysis as needed to our lawmakers. At stake is how to treat all wineries equally, while still maintaining public protection with this unique product, alcohol.
MISSISSIPPI

It’s hard to believe we are approaching the second anniversary of our transition from a 20-year-old conveyer system in our Liquor Distribution Center just north of Jackson to a modern automated material handling system. Although we experienced a few bumps initially, we have fine-tuned our hardware, software and staff into a well-functioning operation. We are now able to provide next-day delivery statewide from our one warehouse for all orders placed by 11:00 a.m. each day. This is one way we are striving to promote better customer service.

ALICE GORMAN
Deputy Commissioner
Mississippi State Tax Commission
Mississippi Alcoholic Beverage
Control Division

We have reactivated our Industry Advisory Council consisting of representatives from the Mississippi Hospitality/Beverage Association (package stores), the Mississippi Restaurant Association, and the Mississippi Alcohol Beverage Brokers and Representatives Association. By meeting together regularly to discuss issues that affect one group or the entire industry, we work together proactively. Our staff participates in the annual meetings of industry council members, providing insight, training and updates to their members. Our ABC staff and the Tax Commission members are also working more closely with local government leaders to promote permitted businesses in responsible ways.

Direct shipping of wines and spirits has been a topic of interest in Mississippi this year. Although Mississippi ABC lists over 2,200 wine SKUs and offers special order capabilities, we still have a vocal group who wants more wine selection. After discussion with legislative leaders, we helped draft legislation that provided for direct shipment of wines to any of our permitted establishments (package stores or on-premises) from wineries or distributors not represented by brokers in Mississippi for products not currently listed and stocked at the LDC. We used the Wyoming model for much of the legislation framework. The bill was introduced (Senate Bill No. 2740), and after much discussion, both publicly and behind the scenes, it died on a legislative deadline date. Apparently, the desire to maintain the current status of our control state outweighed the desire for more wine selection! We do continue, however, to carry a broad and ever-changing selection of wine. We are also reviewing our listing and de-listing process for wines and spirits in order to better serve our customers without unfairly burdening our brokers.

With respect to the direct shipping decision, Mississippi currently has only one native winery. We reached agreement with the owner that all native wine would be distributed through Mississippi ABC, and he would stop shipping directly. ABC was already carrying the native wine, and local direct shipments were minimal. Our law preventing direct shipping into Mississippi is still in force. We hope the Mississippi Legislature will address this issue in 2006.
MONTANA

The Montana Department of Revenue looks back on a successful year. Liquor revenues reached an all-time high. State lawmakers passed some notable pieces of alcohol-related legislation. A ruling was handed down in the legal challenge to the state’s residency requirements. Liquor distribution processes continued to be improved. Key partnerships formed to encourage responsible alcohol use were continued.

SHAUNA HELFERT
Administrator
Montana Department of Revenue

Liquor sales reached an all-time high in fiscal year 2005, where dollar sales totaled $75,827,000. This represents an increase of 7% over fiscal year 2004 with a case volume increase of 4%. Liquor dollar sales continue to benefit mostly from increases in product prices from the suppliers, customers trading up to premium products and a slight increase in consumption.

The increase in sales, coupled with a decrease in operating costs, resulted in an increase in liquor revenues for Montana’s general fund and local governments of $22,266,351. This result is attributable to the hard work of department employees, liquor agents and licensees, and vendor representatives.

The 2005 Montana Legislature, which convened from January to April, passed several alcohol-related laws, including a provision for keg registration and a new micro-distillery license.

Keg Registration. This new law is aimed at restricting youth access to alcohol by providing for registration of sales of kegs of beer. All kegs sold to the public must contain a tag that identifies the retailer or seller of the keg. In addition to adhering a tag to the sold keg, the retailer must register the keg and record the purchaser’s name, date-of-birth, signature and driver’s license number; the date of purchase; name of clerk who made the sale, and the keg identification number.

Micro-distillery License. A new liquor license has been created specifically for micro-distilleries. To qualify for the license, a micro-distillery must be located in Montana and produce 25,000 gallons or less of liquor annually on the premises. The license provides for a reduced license tax rate for a micro-distillery that sells less than 50,000 proof gallons of liquor nationwide in a calendar year. In addition, a micro-distillery may provide, with or without charge, not more than 2 ounces of liquor that it produces to consumers for consumption on the premises between 10 a.m. and 8 p.m. The distillery may sell liquor that it produces at retail directly to the consumer for off-premise consumption, up to 1 liter a day per individual.

This spring, the legal challenge to the state’s residency requirements to own an all beverage or beer retail license within Montana was finally resolved. On May 12, 2005, Montana First Judicial District Court ruled that Montana’s residency requirement for ownership of an all beverage or beer retail license is unconstitutional. The State of Montana is not appealing the decision.

The department is successfully implementing a new computerized tax system, known as the Integrated Revenue Information System (IRIS). IRIS will bring all tax types administered by the department into one integrated system.

The new system will include a component for liquor warehouse management and liquor taxes. The liquor component, which is scheduled to be completed by December 31, 2005, will improve the overall efficiency of the department’s liquor-related functions.

Encouraging responsible alcohol use continues to be a top concern for the department’s liquor operations. In addition to its alcohol administration responsibilities, the department has partnered with Montana universities to promote responsible use of alcohol on campuses. The department also partnered with Healthy Mother’s, Healthy Babies to promote educational efforts to communities throughout the year.
MONTGOMERY COUNTY, MD

This past year proved to be extremely busy for the Montgomery County Department of Liquor Control, as we continued to experience substantial increases in sales revenue while also continuing to significantly expand our community-based outreach programs. The pressures of devoting increasing levels of time and resources to both the “hard” and “soft” sides of our control system business operation presents the major challenge for the coming year.

GEORGE F. GRIFFIN
Director
Department of Liquor Control
Montgomery County, MD

For the fiscal year ending June 30, 2005, the Department recorded sales of approximately $177.8 million, representing a 5.74% increase over the previous year. This total growth resulted from a 3.97% increase at the wholesale level ($101 million) and a robust sales increase of 8.17% in our County-operated retail stores ($76.8 million). These figures represent the sixth consecutive year of healthy sales growth, particularly in the retail sector. Sustaining this level of growth into the future will require increasing the number of our retail outlets, and building increasingly flexible and expanding warehousing and distribution capabilities.

While managing this operational growth, we are also greatly expanding our educational and regulatory efforts. This past year we borrowed an educational program designed to help combat underage drinking from our colleagues in Ohio, and modified it to more appropriately complement our ongoing local community efforts. The “Parents Who Host Lose the Most: Don’t Be a Party to Underage Drinking” program was launched late last autumn. The two-year public-education campaign focuses on efforts to persuade parents and other adults not to provide alcohol to persons below the legal drinking age. The first phase of the program targeted the large number of retail consumers we attract from late October through New Year’s. The second phase, initiated in January 2005, included taking DLC-coordinated programs into area high schools and making presentations to Parent/Student/Teacher Associations and various civic groups. We have recently translated all “Parents Who Host” materials into Spanish and are conducting outreach efforts to the Spanish-speaking community as well as offering specialized service training for Hispanic/Latino licensed establishments and their staffs.

In addition, we are offering specialized “one-on-one” risk assessment consultations for businesses that wish to adopt responsible service practices. DLC also continues to create and provide targeted, specialized trainings such as our “Prom and Graduation” responsible behavior trainings for hotel and limousine service staffs. We hope to expand our “Business Alliances” in the coming year to assist licensed businesses located in identified “at-risk” business districts.

In order to garner the resources and public support necessary to successfully manage these expanding challenges, we must continue to educate the residents of our community about the benefits of the control system. Additionally, to promote better understanding of this system, we will increase our advocacy among elected and appointed officials, stakeholders and other decision-makers.
NORTH CAROLINA

In late 2004 and early 2005, the NCABC Commission hired five additional Education Specialists to help provide responsible alcohol seller/server programs (RASP) to over 19,500 ABC permitted establishments in North Carolina. In addition, these trainers have been busy conducting alcohol awareness classes for children, parents and employees of the 154 local ABC Boards.

DOUGLAS A. FOX
Chairman
North Carolina Alcoholic Beverage
Control Commission

This year has been extremely busy for the Education and Training Division. The first Spanish RASP class was taught to a group of Hispanic business owners in the western part of the state. The Division has partnered with local ABC Boards to host RASP workshops at boards in both eastern and western North Carolina. These workshops were attended by over 250 mixed beverage permitted establishments and all were a great success. Education Specialists have conducted A.B. Cardinal and the ABC’s of Alcohol programs for school children, as well as programs at Boy Scout and family day National Guard events.

The Division received a mini-grant from the National Alcoholic Beverage Control Association (NABCA) and has developed a program specifically for parents addressing underage drinking and role modeling issues. The program, titled, “Teach Your Children (Parents) Well,” will be ready by late summer.

The Division is working with colleges in eastern and western North Carolina in obtaining grant funding for projects dealing with high-risk drinking issues on campus.

The ABC Commission is also reviewing its rules as they pertain to spirit advertising and on-premise activities by distiller representatives. I believe that beverage alcohol content is relative and that spirit regulations should be uniform with beer and wine regulations regarding these two activities. In addition, at the recent North Carolina Association of ABC Boards conference, we stressed the importance of continued modernization, better product selection and better customer service at the retail ABC stores in order to counter those who think that government cannot provide a consumer-friendly, enjoyable shopping experience.

The most recent 2005 sales results from the local ABC Boards in North Carolina have been exceptional, with total spirit sales (including sales to on-premise accounts) increasing 6.7% over the previous year ending June 30.
OHIO

The Division is responsibl

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