The ABCs of ABC Boards

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Michael Crowell

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A $12,000 dinner for Mecklenburg ABC employees paid for by a liquor broker.  A $280,000 salary for an ABC administrator in New Hanover County ― finally disclosed after the ABC board first refused to release public information about salaries.  A dispute over the location of an ABC store in Currituck County.  Each of these issues has generated considerable local controversy ― and statewide interest ― in recent weeks, and each has prompted the affected boards of county commissioners to think about their role in the oversight of local alcoholic beverage control systems.  This blog reviews the basics of the relationship between county commissioners and city councils and their local ABC boards.

Almost all the law on this subject is in one statute, G.S. 18B-700, which tries to set uniform rules on appointments, terms, vacancies, etc., for all ABC boards in the state.  Those rules can be modified by a local act of the General Assembly for a particular county or city, however, and G.S. 18B-700 itself says such acts passed before enactment of Chapter 18B in 1981 remain in effect.  So, before doing anything else, check whether there is a local act which sets a different size ABC board, different terms, different method of appointment, or different whatever.

The statewide statute says that a local ABC board has three members appointed by the board of county commissioners (if the ABC system was established by a county vote) or city council (if established by a city election).  Board members serve three-year, staggered terms.  They are to be appointed on the basis of their “interest in public affairs, good judgment, knowledge, ability, and good moral character.”  The appointing authority designates one member to serve as chair.

The appointing authority ― the city or county governing body ― may remove a local ABC board member for cause at any time.  The statute says nothing about the procedure for removal, but it ought to include the basics of due process:  notice of the reason for removal, a chance to respond, and a decisionmaker whose mind is not already made up.  Good advice to commissioners and council members is not to stake themselves out in the local newspaper before hearing from the ABC board member whose job is on the line.

Local ABC board members “may be compensated as determined by the appointing authority,” which seems to mean that the commissioners or city council can set the salary at any level they want, or decide that board members won’t be paid at all, and may change the pay at any time.

The ABC board hires and fires its employees, including the manager of the ABC system, and sets all their salaries.  The commissioners and city council have no role in those decisions, but a rule of the state ABC Commission, 4 N.C. Admin. Code 2R.1009, says the local ABC board is supposed to adopt a personnel policy.  ABC system employees are not county or city employees, meaning the local government is not liable for the misdeeds of an ABC system employee.  See Brewer v. Catawba County, 29 N.C. App. 417 (1976).

While a local appointing authority may remove only the members of the local ABC board, the state ABC Commission can remove both ABC board members and employees (G.S. 18B-203(a)(8)).  Again, though, it has to be for cause.  The ABC Commission’s rules address certain conflicts of interest, including a prohibition on local board members and employees from having financial interests in liquor businesses (see 4 N.C. Admin. Code 2R.1008), but don’t say much about the conduct of board members and employees.  There is a rule setting a hearing procedure for removal by the state commission, and it says that cause for rejecting local board members and employees includes “violation of the terms or spirit of the ABC laws”  (4 N.C. Admin. Code 2R.1006).

There are several tools available to a board of county commissioners or city council short of removing local ABC board members, if the commissioners or council are unhappy with the way the ABC system is being run.  First, as already mentioned, the commissioners or council can change the pay of the ABC board members.  Second, they can change which ABC board member they designate as chair.  And, third, the commissioners or council can adopt a policy describing the standard of conduct expected of ABC board members.  Because the appointing authority can remove board members for cause, it would seem useful to say upfront what kind of behavior will be considered cause.

Another method employed by commissioners and city councils to exert control over ABC boards is to appoint themselves or their own employees to the ABC board.  When ABC board terms expired in Currituck recently, the board of commissioners appointed two of its own members to the ABC board.  That does not violate the dual office-holding law, G.S. 128-1.1, which allows a person to hold one elected and one appointed office simultaneously.  In New Hanover, the resignation of the ABC board gave the commissioners the chance to appoint the county manager, attorney and finance director to the board.  One expects that those new appointees likely will not serve full terms, but their selection and service for a while gives the appointing authority more direct influence over operation of the ABC system.

The recent controversies about local ABC operations have brought attention to the December 2008 report by the legislature’s Program Evaluation Division on the state ABC system.  The report recommended greater authority of the state ABC Commission over local boards.  The report can be found here.

As happens from time to time, there also has been talk of having the state get out of the business of selling liquor, leaving it to private enterprise.  That seems unlikely to happen soon in light of the current economic situation and the $250 million in revenue the ABC system pays to state and local government each year.  About $65 million of that goes to counties and cities.

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11 Responses to The ABCs of ABC Boards

  1. Walter Futch says:

    It seems that after reading the Administrative Code there is no prohibition against local boards accepting gifts or other things from the spirits industry. The prohibition against accepting anything of value just applies to the ABC Commission only.

    • Michael Crowell says:

      Caution: This response may be more than you want to know.

      The statute that governs giving and receiving things of value is G.S. 18B-1116(a)(3). It says a “manufacturer, bottler, or wholesaler of any alcoholic beverages” may not “[l]end or give to any alcoholic beverage retailer . . . any money, service . . . or any other thing of value.” On its face, then, the statute applies only to alcoholic beverage retailers which I have understood to mean the holders of retail on-premise or off-premise permits. Likewise, if you look at the rules adopted by the ABC Commission to implement the statute, especially 4 N.C. Admin. Code 2T.0707, .0711, .0712 and .0713, they speak to the relationship between industry members (such as wholesalers, liquor brokers and brewery reps) and “retail permittees.”

      The ABC Commission, however, takes the position that the statute and rules apply to local ABC board members as well as retail permit holders. In its view, an ABC store is a retailer and the prohibitions apply to all retailers. The commission expressed this opinion as far back as 1996 when it sent a memo to local ABC boards about relationships between liquor brokers and ABC board members and employees. The memo says the ABC Commission considers local ABC boards to be retailers subject to G.S. 18B-1116(a)(3).

      When the Mecklenburg situation arose late last year the ABC Commission also got a letter from the Attorney General’s Office supporting its view that local ABC boards are retailers within the meaning of the statute. (The mechanics of this blog make it difficult to attach those documents to this response, but I’ll be glad to e-mail them to you or anyone else who is interested.)

      At its meeting earlier this month the ABC Commission withdrew both the 1996 memorandum and a later one, thinking they created some ambiguity about when local ABC board members and employees could accept meals and other benefits from liquor brokers. In their place the commission sent a new directive to the local boards that receipt of any food and meals from liquor brokers could be considered a violation of the law. The new directive reiterates the position that G.S. 18B-1116(a)(3) and the related rules apply to ABC board members and employees as well as retail permit holders.

      For a number of reasons I still think it is difficult to conclude that the statute and rules apply to local ABC board members and employees. In particular a lot of the rules make no sense if they are read to apply to ABC stores and employees. But I will withhold further discussion of that issue unless someone wants to get into it. Suffice it to say for now that one should pause and study the issue carefully before trying to remove or prosecute a local ABC board member or employee for violating G.S. 18B-1116(a)(3), and that everyone would benefit from having a statute and rules that more directly addressed ABC board members and employees.

  2. Chris Myott says:

    Question:
    Is the local ABC Board appointed by a City Council open to public record as to the names, salaries, gratuities, etc.

    In light of the finding of questionable practices by some ABC Boards recently, can any citizen expect timely answers to the above three things, if requested of the City Manager and/or City Council?

    • Michael Crowell says:

      A local ABC board is a public body subject to the state open meetings and public records law. Basic information about each employee’s current salary, last increase, etc., is a public record. The request for the information should go to the ABC board rather than to the city council, because the ABC board is the employer. When the New Hanover County ABC Board initially refused to make salary information public last year the state ABC Commission began collecting and publicizing data for all local ABC boards. The Wilmington Star News has run a series of articles on local ABC salaries.

  3. Mary Slagle says:

    You wrote re the Currituck commissioners appointing themselves:
    “That does not violate the dual office-holding law, G.S. 128-1.1, which allows a person to hold one elected and one appointed office simultaneously.”
    All commissioners already serve as (self) appointed on the Tourism Advisory Board. Would the appointment to a second board constitute a violation?

  4. Mary Slagle says:

    I apologize, it is the Tourism Development Authority that the commissioners sit on and I need to research how that is structured to see if they are self appointed or serving by some other law.

  5. Mary Slagle says:

    Apologies again, I’m on a roll of sorts. I should have researched this before I responded (note to self) but I was so happy to find this site! In the 128-1.1 law : “to hold concurrently one other appointive office, place of trust or profit, in either State or local government.” Reading the NC statue that creates the Tourism Development Auth, the commissioners are named by position to hold office in the authority … is this not a an additional place of ‘trust or profit’?
    Sorry, again, for the repeated msg’s. You can consolidate them in the moderation. Thank you for a great resource.

    • Michael Crowell says:

      The questions do not identify the Tourism Development Authority sufficiently to know whether it is a state or local board, how its members are selected, or what authority it possesses. Without that information it is not possible to say whether service on the authority constitutes a public office. Please see Fleming Bell’s recent posting on this blog as to the meaning of “public office.” In any event, please note that GS 128-1.2 says that when a board of county commissioners appoints one of its own members to another board or commission the individual is considered to be serving on the other board as part of the individual’s duties as a member of the board of county commissioners and is not considered to be serving in a separate office.

      • Mary Slagle says:

        The TDA was required under 2004 state session law (see House Bill 1721) as a requirement in adopting the new tourism tax structure. The TDA was created via resolution of the local commissioners. The state wording: ‘which shall be a public authority’ under the Local Government Budget and Fiscal Control Act. The members (listed in the state law) are the commissoners named by elected position and a non-voting tourism representative. I have read the referenced article. I do not find clarity in this situation. The members are not paid (by state law) for this position, but it is a position where they control a distinct pot of monies, one of our largest sources. I can see where one could interpret the job as part of the duties of the commissioners or as a seperate public authority. I will add to my confusion the fact that the current Economic Development Board is interested in forming an Economic Development Authority and the statement on this move is that it would “be independent from the county.” Are public authorities independent from County governments?

        • Michael Crowell says:

          Session Law 2004-95 creates the Currituck County Tourism Development Authority and provides that the five county commissioners shall be the voting members of the authority. To me, that sounds like the situation addressed in G.S. 128-1.2 which says that a commissioner who is appointed by the board of commissioners to serve on another board is still considered to hold only one office. That is, if the commissioner is selected to the second office by virtue of being a commissioner, the second position is not considered a second office for purposes of dual-office holding; rather, it is considered part of the commissioner’s service as a commissioner. Here, Session Law 2004-95 makes service on the tourism development authority one of the duties of a county commissioner, so it does not appear to be dual office holding.

          Having said that, I defer to the judgment of my colleague Fleming Bell on all dual office holding issues. Fleming has written a recent blog post on the meaning of “public office” and says he intends to write again later about dual office holding. I welcome him to add any thoughts on this issue.

  6. Ash Smith says:

    Michael, thanks for this post. When you published it in January 2010, you noted that G.S. 18B-700’s uniform rules on appointments, terms, vacancies, etc., for ABC Boards could be modified by local act (“G.S. 18B-700 itself says such acts passed before enactment of Chapter 18B in 1981 remain in effect.”). For anyone still bothering to read this far down in the comments, I wanted to point out that the General Assembly repealed that language in July 2010, and the statute now provides that “[n]othwithstanding the provisions of any local act, this section applies to all local boards.” G.S. 18B-700(l); see also, 2010-122, ss. 9-16.

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