General Overview
I. History
The Michigan Liquor Control Commission (hereafter: "Commission") was created upon the repeal of Prohibition by the legislature acting in special session in December of 1933. The act creating it empowered the Commission to control all alcoholic beverage traffic within this state. Today, the Commission is a Type I agency housed within the Department of Licensing and Regulatory Affairs (LARA) (formerly Department of Energy, Labor & Economic Growth (DELEG).
II. Commissioners
The Commission consists of five members appointed by the Governor. No more than three of these members may be of the same political party. Two of these Commissioners are designated as hearing commissioners who preside over violation matters. The three remaining "administrative" Commissioners act as an appeal board for decisions rendered by the hearing commissioners and are also responsible for all matters pertaining to licensing, purchasing, merchandising and enforcement. The full five-member board promulgates rules and establishes bureau policy, such as the issuance of declaratory rulings. The Governor designates one of the five members as the Chairperson.
III. Attorney General
In addition, the Attorney General assigns the Alcohol & Gambling Enforcement Division legal staff. These Assistant Attorneys General review all violations for issuance of complaints, present all hearing cases to the Commission, and serve as the Commission's legal counsel.
IV. Mission
The mission of the Liquor Control Commission is to make alcoholic beverages available for consumption while protecting the consumer and the general public through regulation of those involved in the sale and distribution of these alcohol beverage products.
V. Staff
This broad objective, carried out by a staff of approximately 150, can be broken down into four major areas of responsibility. Briefly these are: licensing, enforcement, collection of taxes, and the purchasing and wholesaling of all distilled spirit products sold in Michigan.
VI. Licensing
The first of these functions, namely licensing, involves the annual processing of more than 9,300 applications for licenses and transfers, and 17,000+ renewals of existing licenses (+ about 7,300 Manufacturers & Wholesalers licenses). This includes licensing activity on all levels of the three-tier distribution system - retailers, wholesalers and manufacturers. There are presently approximately 17,260 retail businesses holding nearly 27,000 licenses in this state selling alcoholic beverages for on or off premises consumption. In addition, the Commission annually issues about 7,000 Special, or one-day, licenses to non-profit organizations for special civic and charitable events (including political fund-raisers). The revenue collected from the issuance and renewal of these licenses, plus those licenses issued to non-retailers such as manufacturers, wholesalers, outstate sellers and salespersons, is $14.8 million annually. The Commission, however, perceives its licensing function as much more than a revenue source. It strongly believes that adherence to rigid standards for licensure to sell beverage alcohol products in this state is the first line of defense in protecting the public from illegal and injurious business practices and conduct. Acting in concert with local units of government, the Commission will continue to thoroughly investigate the background of those who seek to be licensed, but also promises to process these applications as expeditiously as possible.
The application process for the Liquor Control Commission is complex and requires recommendations from the Commission's Enforcement Division, the local law enforcement agency having jurisdiction over the proposed location and in the case of on-premises licenses, the local governmental unit having jurisdiction.
MCL 436.1525(3) provides in pertinent part: "Beginning July 23, 2004, and except in the case of any resort or resort economic development license issued under section 531(2), (3), (4), and (5) and a license issued under section 521, the commission shall issue an initial or renewal license not later than 90 days after the applicant files a completed application. . . . The 90-day period is tolled under any of the following circumstances: (a) Notice sent by the commission of a deficiency in the application until the date all of the requested information is received by the commission. (b) The time period during which actions required by a party other than the applicant or the commission are completed that include, but are not limited to, completion of construction or renovation of the licensed premises; mandated inspections by the commission or by any state, local, or federal agency; approval by the legislative body of a local unit of government; criminal history or criminal record checks; financial or court record checks; or other actions mandated by this act or rule or as otherwise mandated by law or local ordinance."MCL 436.1525(4) provides in pertinent part: "If the commission fails to issue or deny a license within the time required by this section, the commission shall return the license fee and shall reduce the license fee for the applicant's next renewal application, if any, by 15%. . . ."
Based upon the intricacies of the Liquor Control Commission's application processes, a "90-Day Clocking System" has been established by the Commission's Licensing Division that tracks each application from the date the initial request is received to the date the license is issued.
In reviewing the returned license fees for the 2010 calendar year, 8,939 applications were received that were subject to the 90-Day Clock. Of those 8,939 applications, 3 applications were not processed within 90-Days. $22,199 was returned for license fees based upon those 3 applications. 18,107 Renewal applications were received and completed timely. Based upon the 2009 applications that were not processed within 90 days, the licensee receives a 15% discount on their renewal fee for the 2010 licensing year resulting in a total renewal discount of $4,379.
Many factors contribute to the un-timeliness of licensing application processing, i.e., shortage of Licensing staff for application processing, shortage of Enforcement staff to conduct the preliminary investigations required by the Liquor Control Code and Administrative Rules and the complexity of processing and investigating applications that involve multiple layers of applicant entities such as Corporations, Limited Liability Companies, General Partners, Trust Partners, ESOP's (Employee Stock Ownership Plans), etc.
Since 2006 when data was collected on the fees returned by the Liquor Control Commission pursuant to the 90-Day clock, the monetary amount and percentage of applications not completed timely has dramatically deceased. In 2006, $79,466.95 was returned compared to returned fees in 2010 of $26,578, returned fees have decreased $52,888.95 since 2006.
VII. Enforcement
This brings me to the second area of Commission responsibility - enforcement. The provisions of the Liquor Control Code and the administrative rules of the Commission are to be enforced by the Commission itself, the state police, sheriffs, and local law enforcement agencies. Once licensed, business owners must be diligent in avoiding a myriad of diverse potential violations - from sales to intoxicated persons to illegally transferring interest in the licensed business, from gambling and drug violations to unapproved sales promotions. The sale of alcohol beverages to minors remains the primary focal point of enforcement efforts at the state and local levels. Of the more than 2,700 violation reports submitted yearly to the Commission from all enforcement agencies, about half involve minors in some manner. Decoy or "sting" operations are the preferred method employed by both the Commission and other agencies in dealing with this pervasive problem.
VIII. Enforcement (Decoy)
The sad fact is that, based on the Commission's own experience with these operations, over 15% (FY 2009-10) of licensees will sell to the underage decoy in these controlled buy situations. Although still disturbing is the fact that 57% of the sales to the decoys were made after the server or clerk viewed the identification (vertical driver license for persons under the age of 21) of the underage decoy, which is down from last year, but still disturbing. The Enforcement Division had a decrease in compliance checks due to state budget deficits. Compliance checks were down to 1,512 in 2010 versus 1,702 completed in 2009.
IX. Enforcement Fines
Considering all types of violations for which licensees were adjudged responsible in the last year, fines and costs were imposed for a total of $981,241. There were 47 suspensions imposed for a total of 162 suspension days and 124 licenses were revoked or revoked unless transferred to a party acceptable to the Commission. It should also be noted that 55% of the retail license fees collected by the Commission, or over $6.38 million, is returned to local units of government for the purpose of enforcing the Liquor Control Code and rules of the Commission;
X. Financial Management
The third area of Commission responsibility is the collection of the specific and excise taxes on all types of alcoholic liquor. These taxes produced 178.18 million dollars in state revenue for fiscal year ending September 30, 2010. The beer tax, at $6.30 per (31 gallon) barrel, brought in $40.5 million and the taxes on wine and mixed spirit drink another $10.85 million. There are three 4% taxes applied on spirits and an additional 1.85% tax on the purchase of spirits from the Commission by package liquor stores only. Of the three 4% taxes, $37.55 million was credited to the School Aid Fund, $37.6 million went to Tourism and Convention Facility Fund, and $37.55 million was transferred to the General Fund. The 1.85% tax brought is $14.1 million and was also credited to the General Fund.
XI. Administrative Services
This Division coordinates MLCC efforts with the Department of Technology, Management and Budget and the Department of Energy, Labor and Economic Growth to develop and implement Michigan Business One Stop for liquor license applicants and existing licensees. The Division directs, administers and monitors server training programs required by all on-premises licensees and certain off-premises licensees, pursuant to the Liquor Control Code, Administrative Rules and Commission Orders. The Division provides certification and oversight of the Authorized Distribution Agent spirit delivery system and online spirit ordering system providing an efficient and effective spirit distribution system to Michigan licensees and ultimately its citizens. The Division develops internal educational resources and creates and maintains internal training programs for MLCC staff regarding the Liquor Control Code and Administrative Rules. The Division also addresses Special Projects as they arise on behalf of the Commission.
XII. Purchasing & Wholesaling
The final major area of Commission responsibility - the purchasing and wholesaling of spirits - has significantly changed in past years. As you may recall, the Commission privatized its warehousing and ordering operations in January of 1997. Since that time, retail on and off premises licensees of the Commission who sell spirits order these products (there are over 5,600 products available for sale) from Authorized Distribution Agents (ADAs) designated by the Commission. These ADAs, who have contracts with the various suppliers of spirits, are responsible for transmitting these orders to the Commission, receiving and warehousing the merchandise shipped into the state and delivering product to retailers. Today, all on-premises and off-premises licensees receive free delivery of spirits to their establishments - a service that was not a feature of the distribution system prior to privatization.
Despite these changes, the Commission has retained its role as the wholesaler of spirits - purchasing these products from suppliers and selling them to retailers. This wholesaling operation involved the sale of over 6.88 million cases of spirits in the fiscal year ending 2010 for gross sales of $940.2 million. All spirit products are marked up 65% on the price paid by the Commission. All licensees receive a 17% discount off this marked-up price. The net income to the Commission from the sale of spirits in fiscal year ending 2010 was 139.77 million. Added to income from all other sources - taxes on beer, wine, spirits and mixed drinks, licensing fees and fines - total revenue to the state from the Commission is $333.96 million.
XIII. Future
As to what to expect from the Commission in the immediate future, you will certainly see a continued concerted emphasis on speeding up the licensing process. Also, legislation now requires licenses to be issued within 90 days of submitting a completed application. We continually work to improve our service to our customers, which include applicants (for liquor licenses) and licensees, attorneys/legal community, consumers/public, federal agencies, industry representatives, legislators, local and state officials and agencies - by frequently reviewing rules for possible modification or rescission with the express purpose of making the processes of the agency less cumbersome and more efficacious in providing those who do business with the Commission with more intelligible and direct paths to fulfilling their legitimate needs; and one example related to this goal is the fact that licensees have been able to renew their licenses via the Internet since 2005. We will continue to review the regulatory environment of the agency, including our internal operating procedures, to further enlarge the inroads already made. We continue to expand access to information and Commission records to all who have a stake or an interest in the Commission's business through development of an improved and enhanced website. We are determined to resolve E-Commerce and other technological issues to the advantage of those we serve. It is our firm belief that the future of the Commission is in expanding its role as a partner with business, not only its regulator. With the combined efforts and cooperation among the Commission, the Department, the Legislature and the Executive Office, this goal can be reached.
XIV. Accomplishments
Each year, the Licensing Division is actively involved in a joint project with the Michigan Department of Treasury in an attempt to collect unpaid tax monies owed to the State of Michigan. Upon request by the Michigan Department of Treasury, annual renewal of liquor licenses for retail businesses are withheld until payment, or an acceptable payment arrangement, is made for payment of state tax arrearages. The successful implementation and cooperation of the MLCC with this project assists with the collection of nearly $6 million.
In April of 2009, the Licensing Division introduced a new website feature. This feature allows for external customers to check the status of new applications, outdoor permits, special licenses, add-ons, etc. through an online application tracking database. This feature is another tool being utilized by the Licensing Division in their streamlining efforts; allows for greater customer flexibility; and will eliminate a majority of the over 2,500 telephone status calls answered monthly by the Commission Licensing staff. Access to this feature can be found at www.michigan.gov/lcc.
The Enforcement Division continues to work harder and do more with fewer employees. Over the years the number of Investigators has decreased from 98 Investigators and 14 Supervisors to 39 Investigators and 10 Supervisors. The work volume has increased while workforce has decreased. Years ago, on average an Investigator would do 8 preliminary investigations and 3 Complaint Investigations verses today at 16 Preliminary Investigations and 9 Complaint Investigations.
The Enforcement Division has also implemented Fast Track Investigations, created a universal template for all investigation reports, and created standardized notice of deficiency to notify the licensee of the licensing process.
The MLCC Financial Management Division has implemented several improvements to the MLCC's Liquor Price Reduction Process. These improvements have made the Price Reduction Process more efficient by saving the staff processing time, and thus shortening the response time to the liquor licensees. The process is now much more automated: the Price Reduction notification forms are connected to the Liquor Code Master to easily obtain most of the information necessary to complete them, and the banned liquor code order database is now integrated with the forms and the Code Master to quickly populate the database and transmit it to the Authorized Distribution Agents.
The Financial Management Division has also changed to an all electronic method of distribution for the Commission's Monthly Financial Statements. These reports are only available through our web site. The Annual Financial Report is also available through our web site. We still print Annual Financial Reports, but only about half as many copies as in previous years.
* Statistical information updated: August 24, 2011 (Andrea Miller, Sharon Martin, Steve Robinson & Tom Hagan)
