The recent crisis at the Mississippi Department of Revenue’s Alcohol Beverage Control division being unable to keep up with unprecedented demand for liquor and wine has given more urgency to lawmakers to find a solution.
Officials from the state Department of Revenue outlined some of the options on December 1 to Legislature’s Alcoholic Beverage Control Task Force and provided possible costs of each contingency.
The easiest short-term solution would be to upgrade and later expand the state’s existing 220,000 square foot warehouse in Gluckstadt.
Another solution that would be relatively painless would be for the ABC to transfer distribution and shipping operations to a concessionaire, who’d receive a cut of the profits and bonuses for productivity. New Hampshire and Ohio are control states that have outsourced their liquor distribution to outside vendors.
Having the Legislature spin off the distribution of spirits and wine to a state-chartered corporation like the Mississippi Lottery Corporation is also a possibility. Virginia created a similar entity (known as an authority) in 2018.
Lastly, the state could divest distribution of wine to private wholesalers or end the state’s monopoly on distribution by privatizing both spirits and wine.
Mississippi is one of 17 states nationwide that are known as control states, which means the government has a monopoly on wholesale distribution of at least one of the three categories of alcoholic beverages (beer, wine and spirits) and even retail, like Alabama.
No matter what course the Legislature pursues, a new warehouse is needed in today’s environment of ever-increasing demand. In 2002, according to records from the Mississippi Department of Revenue, the state took in $59.7 million in taxes and profit from the distribution of liquor and wine.
As of last fiscal year, which ended June 30, the state took in more than $129 million, an increase of 118 percent.
Mississippi Revenue Commissioner Chris Graham told the committee that the backlog of cases was reduced from 160,000 cases to 97,000 cases through added work hours at the warehouse and lower demand in October. That represents about five or six days of cases to be shipped to retailers.
He also said the state is on pace to ship 4.1 million cases of wine and spirits from the warehouse in 2020 after shipping 3.5 million in 2019.
Outsourcing the state’s liquor and spirits distribution to an outside vendor or state-chartered corporation will likely lead to the construction of a new warehouse or warehouses.
Committee co-chair and state Sen. Josh Harkins, R-Flowood, said when he visited a privately-owned liquor warehouse in New Orleans, the thing that struck him first was the height of the ceilings, 36 feet versus 28 feet at the Gluckstadt ABC warehouse which was built in 1983.
“It’s cheaper to build up rather than out,” said Harkins, who is a commercial real estate broker and owner of Lane Harkins Commercial Real Estate.
Modern warehouses, like the ones used by Amazon and Walmart, use the 36-foot clear height because they can increase cubic capacity by 10 to 25 percent over a warehouse with 32-foot ceilings. These allow higher racks with more storage capacity on the same footprint as a shorter building.
As for an upgrade for the Gluckstadt warehouse, Associate DOR commissioner Meg Bartlett said the cost for taxpayers will be $14 million for the first phase with a recurring annual cost of $2 million. This first phase would add climate control to the warehouse (limited now only to the 25,000 square foot wine room added in 2003) and new package management equipment.
A second phase would cost between $20 million and $30 million for a 100,000 square foot addition to the existing warehouse.
A new warehouse would cost between $150 to $250 per square foot and a 320,000 square foot facility would cost the state between $48 million and $80 million to construct.
She also said that any improvements to the existing warehouse would likely slow down deliveries during construction.
State Sen. J. Walter Michel, R-Madison, asked the DOR officials for their opinion on whether buying a warehouse for sale across the road from the Gluckstadt ABC facility would help alleviate some of the storage problems.
Bartlett said the solution would not be an ideal one but if lawmakers decided that was the best course of action, they’d find a way to make it work.
Outsourcing management to a concessionaire via a request for procurement would cost between $3 to $5 per case, costing taxpayers between $12 million and $20 million annually. This would come out of the $89 million in income the state receives from alcohol distribution that goes to the general fund. Another $9 million annually goes to the state Department of Mental Health.
The benefit to having a concessionaire would be a savings of $4.8 million annually due to a reduction in staff. The ABC’s budget is $6 million which covers enforcement of state liquor laws and management of the warehouse.
Reducing the state’s distribution to only spirits would cost taxpayers $12 million initially and $2 million annually but result in a $1.5 million savings. Privatizing the distribution of wine would cost the state $32 million annually in revenue.
For the fiscal year that ended June 30, the DOR transferred $88.62 million in ABC collections to the general fund. That represents an increase of 9 percent compared with fiscal 2019, when $81.3 million was transferred to the general fund.
For the upcoming fiscal year (2022), the DOR is requesting $535,000 to fund operations at the warehouse.
The Legislature voted to spend $4 million in 2019 in warehouse improvements, but the bonds were never authorized. In 2013 and 2014, $1 million was appropriated for repairs and renovation at the warehouse. The last expansion was 2003, when a climate-controlled wine room was added.
Bartlett said that the agency had implemented several measures to keep larger retailers from gaming the system and crowding out smaller outlets from receiving popular products, such as removing the edit function from the online order portal and limiting the number of cases available to each retailer for the first 24 hours after the ABC receives the product.
Another measure taken to keep retailers from gaming the system was to randomly select retailers and ship their entire order all at once, which would require them to pay upon delivery. Bartlett said this led to some orders being cancelled and other outlets to stop placing orders.
