HomeMy WebLinkAboutAgenda - 06-16-2009 - Info Item 4~n -{vr m~-~-i ors ~+-err)
MEMORANDUM
TO: Orange County Board of Commissioners
FROM: Donna Baker, Clerk to the Board
DATE: June 9, 2009
RE: ABC Board -Framework/System Operations
At the May 5, 2009 Board of Commissioners meeting, the Board requested information
from the Orange County ABC Board concerning the various functions/trends of ABC
boards around the country, across the state of North Carolina, and for the County's ABC
Board. The ABC Board has provided the attached information concerning ABC
frameworks/systems in other states, information about the North Carolina ABC System,
and information related to the Orange County ABC Board's operations.
If there are any comments or questions, I can forward those to ABC Board staff.
~.
Orange County Alcoholic Beverage Control Board Agenda Item
Report to the Board of Orange County Commissioners
Subject: Information on other States' ABC Framework/Systems
Meeting Date: June 16, 2009
1. Introduction
a. Overview: The purpose of this report is to provide the Board of Orange
County Commissioners with information on other states' alcoholic
beverage control framework/systems.
b. History -Alcoholic Beverage Control: The 18th amendment which
abolished "intoxicating liquors" was repealed by the 21St amendment on
December 3, 1933. This amendment ended prohibition but it did not
provide a framework for states to determine how alcohol was to be
controlled. Apparently, each state developed its own set of regulations.
North Carolina established astate-wide system in 1937. The Orange
County ABC Board was established in 1959.
2. Control and License Jurisdictions:
a. Control Jurisdictions:
i. These jurisdictions are directly engaged in the sale of distilled
spirits and, in some cases, wine and malt beverages. All exercise
control over whole distribution. Many exercise control of retail
package sales through government-operated stores or contracted
agency outlets, while the remaining jurisdictions sell at wholesale
to private beverage retailers. Control States license and regulate all
members of the beverage alcohol industry which do business in
their state, .including manufacturers, importers, wholesalers, and
on/off premises retailersl.
ii. North Carolina is considered a "Control" State.
iii. A list of Control Jurisdictions is included in Attachment "A':
b. License Jurisdictions:
i. Unlike Control Jurisdictions, License Jurisdictions do not
participate directly in the sale of alcohol beverages. Wholesale and
retail sales of distilled spirits and wine are conducted by private
businesses. License Jurisdictions license and regulate all members
of the beverage alcohol industry which do business in their states,
including manufacturers, importers, wholesalers, and on/off
premises retailersl.
ii. This system is also referred to as "privatized".
iii. A list of License Jurisdictions is included in Attachment "A':
' Description of Control Jurisdiction -Source: National Alcohol Beverage Control Association, Survey
Book: 2008, page ii.
2 Description of License Jurisdiction -Source: National Alcohol Beverage Control Association, Survey
Book: 2008, page ii.
Page 1 of 3 pages
Orange County Alcoholic Beverage Control Board Agenda Item
Report to the Board of Orange County Commissioners
Subject: Information on other States' ABC Framework/Systems
Meeting Date: June 16, 2009
take ownership4 of the product at some point in the transaction cycle and
therefore become the exclusive sellers in a particular sector of the business.
Please see Attachment "B" for a summary of the framework of control
jurisdictions with agency stores. This attachment was extracted from the National
Alcohol Beverage Control Association's 2008 Survey Book, page 242.
5. Advantages and Disadvantages of Control Systems (the reasons listed below
are not intended to be all inclusive or exhaustive):
a. Advantages:
i. Revenue Generated: The Control Systems generate 102% MORE
per gallon revenue than license states According to the study by
the Centre for Addition and Mental Health titled Retail Alcohol
Monopolies: Preserving the Public Interest, "monopolies generate
more state revenue than license states".
ii. Social Costs Reduced:
1. The Control States consume 15.8% LESS distilled spirits
than license states.
a. Control States: 1.6 gallons per capita (spirits).
b. License States: 1.9 gallons per capita (spirits).
2. According to the report by Thomas Bador et al, Alcohol:
No Ordinary Commodity, "monopoly systems limit alcohol
consumption and alcohol related problems".
iii. Lives Saved: The Control Systems experience 9.3% LESS under 21
impaired drivin~ deaths than license states. According to a recent
study by PIRE titled, Impact of Retail Alcohol Monopolies on
Underage Drinking, "lower consumption rates in the control states
were associated with a 9.3% reduction in the impaired driving
death rate of drivers under 21 in control states versus non-control
states".
b. Disadvantages:
i. License states usually have more retail outlets.
Attachments:
"A" -Lists of Control Jurisdictions and License Jurisdictions.
"B" -Control States with Agency Stores.
a This sentence is attributable to the Pacific Institute for Research & Evaluation pamphlet entitled "'The
Effects of Privatization of Alcohol Control Systems", publication date unknown. It should be noted that the
NC ABC Commission takes possession of the products upon delivery to the warehouse, but it does not
take ownership of the products. The individual ABC Boards pay each distiller directly within 30 days of
delivery.
s Advantages of Control States -Source: Prepared by the National Alcohol Beverage Control Association,
The ABC's of Alcohol Beverage Control, undated (received by the OC ABC Board 5/28/2009).
6 PIRE is the Pacific Institute for Research & Evaluation, date of the "recent study" is unknown.
Page 3 of 3 pages
Orange County ABC Board
Report to the County Commissioners
Lists of Control and License Jurisdictions
Attachment to Report -Meeting Date 6/16/2009
Control Jurisdictions
Alabama Ohio
Idaho Oregon
Iowa Pennsylvania
Maine Utah
Montgomery County, MD Vermont
Michigan Virginia
Mississippi Washington
Montana West Virginia
New Hampshire Worcester County, MD
North Carolina Wyoming
License Jurisdictions
Alaska Maryland "*"
Arizona Massachusetts
Arkansas Minnesota
California Missouri
Colorado Nebraska
Connecticut Nevada
Delaware New Jersey
District of Columbia New Mexico
Florida New York
Georgia North Dakota
Hawaii Oklahoma
Illinois Rhode Island
Indiana South Dakota
Kansas South Carolina
Kentucky Tennessee
Louisiana Texas
Wisconsin
* With the exception of the two "Control" Maryland counties.
Attachment "A" -Lists of Control Jurisdictions and License Jurisdictions
Page 1 of 1 pages
Agency Stores - CS
~ ~ ~ .USE ; ~.
AG~tVsKIES' ,,OWN$:;.-;
INVENTORY R~TAIt, PRICING
- BASIS OF AGENCY REVENUES ' :
. f
~~ Alabama No N/A N/A
~~~ 12% on the first $325,000 in sales, 8% on next $75,000 4% over
Idaho Yes State Set by state. $325,000 based on sales, 8°l0 on next $75,000, 4% over $400,000
based on sales in the prior FY
Iowa No N/A N/A Iowa wholesales to privately owned retail outlets.
Maine Yes Agent Set by state. Agencies purchase at 9% to 12% discounts.
Montgomery Co., Independent contractors who provide labor only operate three
MD Yes County Set by county. county stores. Commissions paid bimonthly on net sales; rate varies
from 5.99% to 13.5% of net sales.
Michigan No N/A Spirits set by Wholesale only state.
state.
Mississippi No N/A N/A Wholesale only state.
All retail liquor stores (95) are operated as agencies. Agents
purchase liquor from the state liquor warehouse at a discounted
price based on their commission rate, plus a weighted average
discount rate, plus a sales volume rate. The commission rate for
stores in communities with a population greater than 3000 receive a
10% commission. Commission rates for stores in communities with
Minimum set by a population greater than 3,000 is based on the rate of the
Montana Yes Agent
state. successful bidder through an "Invitation for Bid" process. The
weighted average discount rate every agent receives in addition to
their comission rate varies between stores. The weighted average
discount rate is based on the stores historical ratio of full-case lot
sales to licensees. Agents are required to give an 8% discount of .
full case lot sales to licensees. Stores with a sales volume greater
than $500,000 receive .875°!° and stores with a sales volume less
than $500,000 receive 1.5%.
New Hampshire Yes Agent Agent purchases at 8% discount.
North Carolina No N/A N/A N/A
Ohio Yes State Receive commission twice monthly; retail equals 6% of sales,
wholesale 4%.
Receive commission on monthly sales as follows: Non-Exclusive
Agents: base compensation of 14.25% of first $10,000 of monthly
sales plus regular sales commission of 7.75% of monthly consumer
Oregon Yes State Set by state. sales and 6.05°l0 of monthly dispenser sales. Exclusive Agents:
base compensation ranging from 14.25 /o of frst $10,000 of monthly
sales (class 1) to $2,700 (class VI) plus regular sales commission of
7.99°l0 of monthly consumer sales and 6.24% of monthly dispenser
sales.
Pennsylvania No N/A N/A N/A
Receive no commission; receive even monthly payments based on
Utah Yes State/Agent Set by state. average monthly sales of previous year.
Commission paid twice monthly. Commission based on flsce{ year
gross sales: Incentive Commission System--6.7% starting base : ,;;;
Vermont Yes State Set by state. commission along with additional incentive percentage values and
objectives to meet that can account for an additional 1.5°!o in
commission for a total possible commission of 8.2% of gross sales:..
Virginia No N/A N/A
Base rate (calculated using the average net sales for prior FY) plus
commission percentage based on monthly net sales: 22.07% on
Yhashington Yes State Set by state. ° o
first $10,500; 8.21 /° on sales from $10,501 to $21,000; and 6.45/0
1
on all sales over $21,000.
West Virginia No N/A N/A Wholesale only state.
Wyoming No N/A NiA Wholesale only state.
~~ 242
y (3 NABCA Survey Book: 2008
Orange County Alcoholic Beverage Control Board Agenda Item oy
Report to the County Commissioners
Subject: The North Carolina ABC System is Unique.
Meeting Date: June 16, 2009
1. Introduction:
a. Overview: The purpose of this report is to provide the Board of Orange
County Commissions with information regarding the unique method that
North Carolina employs regarding the control and sale of spirituous
beverages.
b. History: North Carolina established astate-wide ABC system in 1937; the
history of ABC in NC is best depicted by Attachment "A "1. The Orange
County ABC Board was established in 1959.
c. Authority: NC GS 18B Article 2 governs "State Administration" which
includes creation of the NC ABC Commission and its powers and duties.
Additional information can be found on the NC ABC Commission
website; the address is: www.ncabc.com.
2. Description of the System:
a. "North Carolina ....has a different system for regulating the sale of liquor.
All 50 states regulate the sale and distribution of alcoholic beverages by
either directly controlling the distribution and sale of liquor or licensing
suppliers, wholesalers, and retail businesses that distribute and sell liquor.
North Carolina is considered a control state, but it is the only control
state where local governments appoint a board to operate retail stores
[bold type added for emphasis] a".
b. Local Control: This is also referred to as "Local Option" because the
citizens, and their elected/appointed officials, have greater control over
local ABC activities. Although the citizens of Orange County voted for a
county-wide ABC system in 1959, not all systems are county-wide and
there are still some dry counties3. Please see Attachment "B':
c. Distributions: Local ABC Boards must distribute net profits for Alcohol
Law Enforcement, Alcohol Education and the General Fund per below:
i. Alcohol Law Enforcement: Local ABC Boards can hire local
ABC officers or they may contract with law enforcement agencies
within their territorial jurisdiction4. Local ABC Boards must
expend at least 5% of Net Income (after certain adjustments) for
Alcohol Law Enforcements.
ii. Alcohol Rehabilitation and Education: Local ABC Boards must
spend (or pay to the county commissioners to spend) at least 7% of
Net Income (after certain adjustments) for alcohol education6.
' NC ABC History - NC General Assembly Program Evaluation Report (# 2008-12-01, page 3, Exhibit 1).
z NC General Assembly Program Evaluation Division Report (No. 2008-12-01, Summary)
s NC General Assembly Program Evaluation Division Report (No. 2008-12-01, Exhibit 3);
a Local ABC Officers -Source: NC GS 18B-501, paragaph (a) and (f).
s Alcohol Law Enforcement Distributions -Source: NC GS 18B-805(c) (2).
6 Alcohol Education Distributions -Source: NC GS 18B-805(c) (3).
Page 1 of 3
Orange County Alcoholic Beverage Control Board Agenda Item
Report to the County Commissioners
Subject: The North Carolina ABC System is Unique.
Meeting Date: June 16, 2009
ii. Remove a Board member for causelo
iii. Compensate ABC Board membersll. (The ABC Board expends the
funding to compensate the Board members.)
b. Construction/remodeling contracts and related (such as architects,
electricians, painters, plumbers, etc.) are bid-out on a local basis. As a
result, local jobs are created (for example, an architect is hired locally as
opposed from another state).
c. There is better control over the books and records of the local ABC
Boards. Privately owned entities are not required by law to have
independent audits, or any type attestation or review by third parties for
that matter; revenues, expenses and related are often reported to the IRS
based on the honor system.
d. Net profits are distributed or spent locally; apparently, the net profits of
many other state systems go to the state government for re-allocation.
6. Disadvantages of Current NC System (this list is not intended to be all
inclusive or exhaustive):
a. If net profits earned in counties/municipalities were collected by the State,
they could re-distributed on a "needs" basis as opposed to the
"county/municipality earned" basis.
b. If net profit earned in counties/municipalities were collected by the State,
they could be applied "as needed" rather than "as intended" to fill short-
term or long-term budgetary needs.
c. If agency stores are used, it may be possible to increase selling prices of
spirituous beverages in certain areas of the State to off-set the high prices
involved with purchasing/leasing real estate.
7. Summary: The Control State system (local option) - it works for the citizens in
the same manner the citizens want it to work.
Attachments:
"A" -History of Alcohol Beverage Control in North Carolina.
"B" -North Carolina Local ABC Boards.
"C" -North Carolina Alcohol Beverage Control Distribution System.
10 Source: NC GS 18B-700(fl.
"Source: NC GS 18B-700(g).
Page 3 of 3
Alcohol Beverage Control
History of Alcohol Beverage Control in North Carolina
The earliest liquor
legislation in North
Carolina established
local option. Local
option allows voters in
counties, cities, or towns
to decide whether to
sell liquor in their
communities. While the
rules of local option
have been modified
over the years, it is still
the process by which
voters determine what
alcoholic beverages
are sold in Their
communities.
Chapter 18 of the 1937 Ad is repealed and replaced
with Chapter i 8A, which directs the ABC Commission to
control distribution and pricing of liquor.
Legislation authorizes cities and counties to vote on
the sale of mixed beverages.
Chapter 18A is repealed and replaced with Chapter
18B, which authorizes ABC store elections for
municipalities and clarifies mixed beverage election
law.
C
N
T
R
control period marks
beginning of the state
iopoly on liquor sales
ugh local-governmem
rated boards.
/~ Source: Program Evaluation Division based on North Carolina Session Laws and other historical documents.
/' ~~ u~ // Page 3 of 36
LI
0
i
C
A'
L
Report No. 2008-12-01
Statewide local option legislation allowed people to
vote to prohibit liquor sales in townships.
North Carolina votes to prohibit sale of alcoholic
beverages in statewide referendum.
The Watts Ad limits the manufacture and sale of
liquor to incorporated cities and towns, resulting in
rural prohibition.
The 18~ Amendment of the United States Constitution
along with the Volstead Act establish national prohibition.
Turlington Act conforms North Carolina prohibition law
to federal Volstead Act.
The 21 ~ Amendment of the United States Constitution
repeals prohibition.
R
0
H
B
T
N
This 30-year period
marked a time when the
manufacturing or sale of
liquor in North Carolina
was a violation of state
law and later federal
law.
The Pasquotank Act and New Hanover Act authorizes
liquor sales in 17 counties. The North Carolina General
Assembly authorizes a study commission to examine the
C] r=' '`~"~ The Alcohol Beverage Control Act of 1937 establishes
P ~' ~ a state monopoly system of control for liquor based on
t the recommendations of the study commission.
~ F x~
Tj~ ,_
,..
I I 4 r~.
O ~, ~ ~ .~'
N ' f ~.
S
VV
~ North Carolina Local ABC Boards
Apr ~~ IJo rfi,ampton Gate>
Ashe Allegheny Surry • ~ w C` rurntucli
• • Stokes R`ockingham',Cc +cll Van~~`NanPn ~>;r
Person
Wat ego Wilkes • ~„ ,_- Granville Hal fax Hertford - o
•• Yadkin Forsyth Guilford Alamanee "' PP~{u mans <
to IlAver • • .~ fort
Y ~. Orange SFr a~klin ~. CF o~.an
Caldwell • Durh,an; ' • , Nash
adiso amee • (Alexander Davie Edgecombe .Tyrrell
~ ."'°- f Iredell! • • • '. - ~ ~ - Martin - V~~ashington
• • .Davidson Wale
• • Burke ~ Randolph • ! , " Wilson Dare
Haywood • • McDowell C01aFJC1' Fo .~,n ~ Chatham.
Swain • • Bunwmbe • - Pin
Lincoln
• • Rutherford • .'-°-' ~ ~^"°"°"'°' • j-I Johnston G e nP '
a a • Henderson ~ ~~ ---- ' Cabarrus M'ontgomeffy _ Lac .- ~ ~, -Beaufort Hyde
Jackson N Polk •• ~•Gasr~n - • • •: • ~ ~Wayne_
okee• • • ev:and•• • ~ Star Mo r Hamerr •-
• Mdeon ~ ansylvani •M~cklenbor~ y • Lenoir
C - Cra~~-n' Pamlico -
~ ' ~ °r~ Sampson
• • .Richmond° Hole LumLerland_ • • • Jones
Union Anson ~ • Duplin
S~otla,d, ~ • --- Caiteret -
' • Robeson •" Onslo+
•
• Bladen
• Ponder
• _ • , r
Columbus •• Ne:w-Hanover
.. _ Brunwul.
+ Merged ABC Boards
• Municipal ABC Boards
Counties with a County ABC Board
Dry Counties
Source: Program Evaluation Division and Information Sysfems Division based on information from fhe North Carolina ABC Commission.
Alcohol Beverage Control
Report No. 2008-12-01
North Carolina Alcohol Beverage Control Distribution System
1. The ABC Commission
supervises the ABC system in
North Carolina by determining
which liquor is sold in North
Carolina and by establishing 2. The ABC Commission contracts
prices. ABC Commission out ABC warehouse operations.
~, ~ N ~
a - ~ .~
Liquor Manufacturer
3. Liquor manufacturer delivers
/ liquor to ABC warehouse.
1 Payment must be made within 30
.,. .
1
;~
i ABC Warehouse
days of delivery to the local boards. 4. ABC warehouse delivers orders
placed by local ABC boards.
ABC Store
f ~ f
[ ~
~_>.._~_ _.1'_iTl
5. Local ABC boards sell liquor to
the general public and mixed
beverage licensees.
Source: Program Evaluation Division based on ABC
information
ge Customers
Z
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/'l'rGi"~ Page 5 of 36
- _ •~
Orange County Alcoholic Beverage Control Board Agenda Item 3
Report to the Board of Orange County Commissioners
Subject: Orange County ABC Board's Operations
Meeting Date: June 16, 2009
1. Introduction:
a. Overview: The purpose of this report is to provide the Board of Orange
County Commissioners with information on the Orange County ABC
Board's Operations.
b. History: The ABC Board was established under NC GS 18; and
implemented by a county-wide election in 1959. A composite Board
appointed three individuals to serve on the ABC Board. The sale of mixed
beverages in social establishments and restaurants was authorized by a
county-wide vote in 1978. In 1979 the NC General Assembly provided an
act to expand the ABC Board from three to five members; it also provided
that the members be appointed by the BOCC.
2. Operations:
a. Facilities: The Board operates eight retail stores; five are .owned by the
Board and three are leased. Included in the same buildings as the retail
stores are two distribution centers for liquor-by-the-drink permit holders.
The Board also owns the main office/distribution center.
b. Employees: The Board has 31 full-time and 11 part-time employees.
Benefits for full-time employees are similar to the County Government's.
3. Revenues, Cost-of-Sales. Taxes Collected and Operating Expenses: Details are
available but the past, present and future can best be depicted with graphs. Please
refer to Attachments:
a. "A" -Sales &Non-Operating Revenues.
b. "B" -Cost of Sales, Taxes Collected & Operating Expenses.
4. Net Income Distributions:
a. A majority of Net income is distributed for local Alcohol Law
Enforcement, Alcohol Education and to the Orange County General Fund.
The ABC Board also retains a minor portion for increases in working
capital and for capital expenditures based on a trial formula.
b. Please see Attachment "C"- Profit Distributions for a graph of ABC
Board distributions.
5. Activities:
a. Accomplishments within the last 18 months:
i. Completed renovation of the Village Plaza ABC Store.
ii. Purchased a portion of the Granville Centre building (John Earl
Street in Hillsborough); renovated, and opened for business
September 2008.
iii. Streamlined liquor-by-drink service for permit holders in
Hillsborough area.
iv. Placed ID scanners in certain ABC stores.
b. Current Endeavors:
Page 1 of 2 pages
a
F
a
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d
7
C
Orange County ABC Board
Sales &Non-Operating Revenues
$15,000,000
$13
000
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,
,
$11,000,000 - ---~ - - ~ - -
- - - - -
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$3,000,000 a ~ '
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e k
$1,000,000 .. ,.
~ Actual 99/00 Actual 00/01 Actual 01/02 ' Actual 02103 Actual 03/04 Actual 04105 Actual 05/06 Actual 06/07 Actual 07/08 Current 08/09 Projected 09/10
®Sales & Non Oper Rev $8,150,484 i $8,843,780 $9,119,183 $9,289,261 $9,848,397 !i $10,436,908 $11,137,944 ~ $12,402,102 $13,149,181 $13,659,435 $14,017,380
Fiscal Year
r_ _
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~-- -
Orange County ABC Board
Cost-of-Sales, Taxes Collected & Operating Expenses
$s,ooo,ooo
$~,ooo,ooo
$6,000,000
$5,000,000 - ---_--- -----w=-__-r:.:r;~;,;,,::..~-~~~. _ _~... _ ~-~. - -- --~--:--.-.-~ -__ ~ ..
,!
$4,000,000
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$2,000,000 - _.:---_ :_._ :_~.~_ __: '.
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-~.~ ~ .~. ~ ,~. _:. --_ -~-~ ~ ~-_ -- '
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bC ~'L.f ..t,.~rf h i~r~! rC.'G :~i~ 1 .ti`y4ia~G-'I
$_ ., .,: ~:.. ?:: u;.rt~ . ~; _.-.. ,, c-:, :' ,..-. _... . ,'.,. _., :._..": .q ,. ,ri~r r i..., f :. ~. k.. ~::.. ~ ,.>` ~;r<. i'. i , V. .,,:.~, y ~v: r
Actual 99/00 it Actual 00/01 Actual 01/02 -
Actual 02/03 ~ Actual 03/04 ~ Actual 04/05 Actual 05/06 Actual 06/07 Actual 07/08 Current 08/09 Projected 09/101
Cost-of-Sales ~ $4,245,464 $4,585,279 $4,751,572 $4,913,377 $5,191,512 i $5,488,143 f $5,847,874 $6,476,418 i $6,900,145 $7,211,462 $7,399,491 ~,
Taxes Collected $1,875,399 $2,040,218 '~, $2,049,216 $1,997,811 $2,127,674 $2,254,398 $2,401,941 $2,649,179 i $2,799,258 $2,890,878 ~, $2,984,929 ~
Oper Expenses $1,298,781 ~I $1,450,508 $1,608,153 $1,664,462 ~ __$1,798,462 $1,832,119 $1,926,217 $ 2 $2,521,894 $2,577,844.,_., $~ 2,675,901
Fiscal Year
Orange County ABC Board
Profit Distributions
$soo,ooo -
$~oo,ooo -
$600,000
$500,000
~,
`-° $400,000 - _ _
O
J
_
$300,000 _ f~:.; `:
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$200,000 ,` ~,
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$ l
A ctual j Actual Actual Actua Actual
I Actual Actual Actual Actual Current Prot ected
9 9/00 00/01 ! 01/02 02/03 ~, 03/04 04/05 05/06 06/07 07/08 08!09 ~ 09 /10. j
!0 OC General Fund $402,791 $400,000 ' $400,000 $400,000 i $400,000 $400,000 ' $400,00 $ 840 $416,344 $459,519 $410,000
^Education $57,216 $63,300 $65,542 $67,400 $72,156 $83,608 $90,255 $95,612 'I $101,742 $11~ $120 000
i^LawEnforcement $63,300 'I $63,300 $86,252 $68,400 $70,452 $95,521 $77,993 $93,418 $130,708 $129,123 ~ $122,00)
Fiscal Year