The County Line - Convention Issue 2001

Bill Ends ABC Revenue Diversion Tactics

It sounds like a classic financial flimflam and I guess in many ways that's exactly what we should call it.

But in this case, many of the Alabama counties that have been getting hoodwinked for more than a decade should actually begin to receive more -- not less -- money next year.

The story begins way back in about 1998 with the desire of several prominent political leaders to get the state of Alabama "out of the liquor business" by closing down the Alcoholic Beverage Control Board. As most of you know, the state operates dozens of stores that sell liquor and wine, competing with the private package stores that offer the same products usually during more convenient hours and at more convenient locations.

The debate about the wisdom of operating such stores has raged just below the surface for a very long time.

But this Association has always strongly resisted efforts to "privatize" the selling of alcohol. The motivation is a selfish one because those "wet" counties that allow the sell of alcohol are SUPPOSED to receive a cut of the stores' "profits" that can be used to shore up the county general fund budget. At least that's how it worked until late in the 1980s.

It was about that time that the then-chairman of the House of Representative's budget-writing committee began his crusade to eliminate the stores and let the old supply-and-demand system take over for alcohol sales. When his effort to pass such legislation did not work, the project moved underground.

Current Alabama law provides for the distribution of the net profits of the stores in a complicated formula that divides the money among the state of Alabama's general fund, the Alabama Department of Human Resources and the so-called "wet" cities and counties. Generally speaking, the general fund of the state WAS to get about 70 percent of the net profits with the cities, counties and Department of Human Resources splitting the rest.

But things changed in the budget of 1989.

Someone in the Legislature got the idea that instead of settling for 70 percent of the net income, the state could hike its revenue from the stores and also move Alabama one step closer to privatization of alcohol sales by including some unexpected language in the general fund budget bill. So the process began with a state budget document that "diverted" the ABC revenue into the state general fund BEFORE the profit calculation could take place.

This diversion meant ABC revenue was socked into the general fund and the profits of the stores were substantially reduced. Now the diversion was modest at first, but over the years it has grown to such a level that during the most recent budget year the state general fund received about 90 percent of the proceeds from ABC store sales. In raw numbers, more than $11 million was diverted to the general fund, with just more than $1 million remaining in the hands of counties, cities and the human resources department.

The current legislative leadership -- especially the chairman of the Ways and Means General Fund Committee, who just happens to be a former county commissioner -- has been a bit uncomfortable with the diversion project. Not uncomfortable enough to stop it mind you, but uncomfortable enough to begin to look for a way to make the process a little more above board.

During the regular session of 2001, a bill was introduced that simply diverted the first $10.4 million to the state general fund. The bill then would have allowed the remaining profit (if there was any profit left) to be divided according to the formula that had existed in the law for the last decade but that had been rendered useless. The Association opposed this bill, and it did not become law.

Now, when the year's third special session began in August, the bill was introduced again -- with a new twist: the state's cut had been increased to $11.4 million thereby leaving the local governments with little hope of EVER receiving any revenue!

The Association again voiced its opposition and Rep. John Knight, chairman of the budget committee in the House, sat down at the table to work out a compromise.

This compromise bill will actually result in the formula -- albeit a revised formula -- being allowed to distribute the actual profits of the ABC stores rather than allowing those profits to be diverted.

The compromise was then passed by the House and Senate and signed into law by Gov. Don Siegelman.

The net outcome of the legislation is that beginning with the Oct. 1, 2002 budget, the state will receive about 80 percent of the profits of the stores and the counties, cities and human resources will get the remaining 20 percent. But more importantly, the law now contains the following language, which ensures that the diversion flimflam cannot surface again in the future:

"Beginning with the State General Fund Budget act for fiscal year 2002-03, no transfers shall be made from the operating funds of the ABC Board to the State General Fund or other state agencies."

Will this legislation result in each county receiving enough new ABC profits to renovate the courthouse, build a new jail or give county employees a much-needed raise? Hardly.

The increase for counties statewide should only be about $500,000 per year. But perhaps the more important element in this fray was the ending of this diversion program once and for all.

The money was just icing on the cake.