The News & Observer
April 5, 1997
Ripple effect of ABC debacle shakes Durham's equilibrium
Author: James Eli Shiffer; STAFF WRITER
DURHAM -- In North Carolina, only those who imbibe pay for the state's system that oversees all alcohol sales. So money problems at the neighborhood ABC board normally should raise little concern for the teetotaling taxpayer.
But the mismanagement at the Durham County Alcoholic Beverage Control board runs so deep - the system is nearly bankrupt - that it has serious implications for the entire county. And the problems have served as a cautionary tale for liquor control boards throughout the state.
The financial woes of the county liquor store monopoly affect how much cash local government has to spend, whether police make sure convenience stores don't sell beer to minors and possibly even how much interest banks charge on the county's loan for a new high school.
Despite record sales, for example, the Durham ABC board has said its troubles will cost the county $540,000 in lost revenue this year and may create a shortfall next year as well.
The breakdown in tracking the system's liquor supply also could jeopardize the county's coveted triple-A credit rating, meaning higher costs to taxpayers the next time the county wants to take out a loan.
And the management of the county's $12 million liquor business - left in the hands of a board of citizen volunteers paid $100 to $125 a month - has raised questions about the the state's laissez-faire system of overseeing local alcohol sales.
"It served as a wake-up call to everyone in the system," said Joe Wall, executive director of the N.C. Alcoholic Beverage Control Association.
In Durham, county commissioners are struggling to get the situation under control. On Monday, they will decide whether to allow the current ABC board to continue trying to rescue the operation. Whatever they do, county taxpayers can expect their leaders to play a larger role in the business of selling liquor in Durham.
"In a sense, our finances are tied in with theirs," Commissioner Ellen Reckhow said. "We need to take this very, very seriously."
Since January, when state ABC officials learned that the Durham system's pre-holiday liquor-buying binge essentially bankrupted the system, investigators and auditors have swarmed into the system's office on Chapel Hill Boulevard and its 12 liquor stores.
A state Alcohol Law Enforcement agent is grilling employees about allegations that they accepted NASCAR tickets and free dinners from vendors who urged them to order more liquor. A Durham County sheriff's detective wants to find out who made $1,500 in calls to phone sex lines from ABC headquarters. An ABC attorney is considering turning over evidence of a former employee's unauthorized $7,000 raise to the authorities.
Two auditors hired by the ABC board are looking into management and finances, while a state auditor has interviewed ABC staff members about the system's scrambled books.
Such intense scrutiny, a first for a large ABC board, is compensating for a lack of attention given to the 60-year-old organization over the past several years, county and state officials said.
Durham County officials said they can absorb this year's $540,000 shortfall in ABC revenues without affecting programs or tax rates, but the deficit has raised questions about whether the county and city have ever reaped the full benefits of government liquor sales.
State regulations mandate that local governments should keep any ABC earnings left after taxes, expenses and required payments for law enforcement, alcohol treatment and education.
Sales boom no boon to county: But while the system's records show that sales grew 40 percent in the past 16 years, none of that increase ever made it into the county coffers. Instead, the extra money has been swallowed up by salaries, contractors and landlords.
In September 1980, a year in which the system grossed $8.6 million, the Durham County ABC board voted to set a fixed annual payment of $80,000 to the city and $720,000 to the county. The payment has not gone up since.
"When I was auditor, I questioned why the city and county did not ask for more," said Alan Rigsbee, who worked for 12 years as the board's internal auditor and two as general manager. But the ABC board never reported to the city or county about its growing resources. Nor, apparently, did the city and county ever question their $800,000 payments.
After a record $12.1 million in sales last year, the profit was lower than in 1982, thanks in part to a payroll of $1.3 million that included $93,000 in overtime.
By comparison, the ABC board in New Hanover County did similar sales last year with 27 full-time workers who earned $924,000, with no overtime. The New Hanover board paid $1.285 million to its city and county governments.
But Durham ABC board members have long complained that even the $800,000 in county and city distributions is too much. When the ABC board faced a budget crunch in 1993, it didn't lay off store employees. Instead, the board fired two of the five ABC police officers and told the rest to ease off on policing underage drinking, because the board no longer could afford that level of enforcement.
"We had some real lean years," said Norman "Skip" Carden III, who served as Durham ABC board chairman from 1987 to 1995. "I took a lot of heat because I let go the two officers. I was trying to cut expenses and increase profit."
Missing records mourned: For all the ABC records that show fiscal shortfalls, the records that don't exist could cause the most damage, county officials said. In reviewing the 1995-96 books of the ABC board, accountant Fred Roberson said missing inventory records meant that nobody had a complete grasp of that year's finances.
Because the ABC board is considered part of county government, its finances compose part of the county books. Patricia Gravinese, Durham County's finance director, said this year's lack of accurate ABC numbers meant the county had to render a "qualified" opinion on its audit.
Unless someone reconstructs the missing ABC records, the county may have to qualify its opinion on next year's audit as well. Gravinese said two shaky audits in a row could prompt questions from the bond rating agencies, which now award the county a top-notch triple-A credit rating.
Durham's credit worthiness has saved millions for taxpayers on bonds with lower interest rates. County leaders are loath to part with their triple-A distinction, which as of October was held by only two other counties in the state.
"We've got to show to rating agencies that we take this seriously, and we're going to do something about it," Gravinese said.
"If I am an informed investor, and I see Durham County has not done anything about a serious situation, I say, 'Is there anything else out there that Durham County has control over that it's not doing anything about?' " Ronald Aycock, executive director of the N.C. Association of County Commissioners, said the top rating also brings a county other benefits.
"When industries look at an area, the fact that there is a triple-A government is a strong positive," Aycock said. "It's a smudge on a very, very good record if the effect is that triple-A will be withdrawn."
Durham's tribulations show the possible pitfalls of the state's system of overseeing its liquor sales.
The state's 158 liquor control boards operate in a bureaucratic nether world between local and state governments. Neither pays much attention to the boards' internal affairs as long as they keep the local stores stocked with liquor and make their required tax and distribution payments.
In Durham, the county commissioners appoint a three-member board whose members earn $1,200 to $1,500 each year to oversee the ABC system. Both remaining ABC board members, Betty Mushak and Ed Pope, volunteered for the positions because they were concerned about underage drinking.
But they found themselves at the helm of an $11 million business approving leases for new stores, working out personnel problems and buying computer equipment. Meeting for a few hours every month, the board had little grasp of the finances other than the monthly sales reports that showed booming business.
"We were operating under the assumption that financially, we were all right," said Pope, a retired businessman.
In January, the board learned the true status of its organization from the state officials who took it over: overdrawn bank accounts, $1.2 million in overdue bills and a computer system so dysfunctional that the board's financial officer had taken to keeping the check register on handwritten notebook pages.
In over their heads: When commissioners demanded an explanation from the ABC board, Mushak acknowledged that she and her colleagues did not know what they were getting into when they volunteered to oversee alcohol control in Durham County.
"In conclusion, no board for this or any other agency in the county should take on such serious responsibilities without sound guidance," she said.
"That can happen when there are no clear, written guidelines for your citizen volunteers, appointees or elected officials about the day-to-day operational expectations for the agency they are supposed to guide."
The troubles in the Durham ABC board have caught the attention of state officials and government experts. But no one says they represent fundamental flaws in North Carolina's liquor sales monopoly.
"It's an isolated situation," said Mike Herring, the state ABC administrator. "I don't think we'll see it happening anywhere else. Now that this Durham situation has come to light, it just puts all the local boards on guard."
Herring said the problems are no argument for privatizing liquor sales.
"When you throw it into the free market, you have advertisements in the window that are going to be drawing in people, and probably minors," he said. "That's not what we want in North Carolina."
Local officials said tipplers and teetotalers alike in Durham County can expect to see some changes in their ABC stores. The board's plan to repair the organization includes improving office procedures, hiring part-time employees and possibly shutting down unprofitable stores.
"The reason this one is so unsettling is that Durham is a large board in a relatively prosperous area of the state," said Wall, the director of the state ABC association. "I'm sure that they will get the matter straightened out.
To those familar with NC politics--did Jim Hunt and Mike Easley have any political relationship?
(BTW-isn't Hunt dead? He was Gov when we left Eden)
The DCABC board was recently in the news in connection with an allegation of nepotism. Someone linked the article on one of these threads in the last week or so.
Might have been one of abb's finds.
I want to make sure no one missed this in my post 220:
A Durham County sheriff's detective wants to find out who made $1,500 in calls to phone sex lines from ABC headquarters.