The Economic Impact of Ending Sunday Blue Laws in Shelby County, Alabama

Prepared by B. Brian Motii, PhD Associate Professor of Economics M.E. Stephens College of Business University of Montevallo

February 2016

Abstract

Economic impact analysis provides a measure of the economic importance of lifting the Sunday sales ban to Shelby County’s economy. It estimates total sales, earnings, and employment that result from lifting the ban. Economic impacts are comprised of direct, indirect, and induced effect of such action. On March 1, 2016 voters in Shelby County, Alabama will decide if they want sales of alcoholic beverages after 12 Noon on Sundays. Repealing the ban on Sunday sales will have significant economic consequences for Shelby County. Repealing the Sunday alcohol sales ban results, directly and indirectly, in $10,919,376 worth of output; $2,181,975 in earnings; and 171 jobs. Rescinding the ban results in a total of $982,744 worth of tax revenues for the state, Shelby County, and Shelby cities. While the state of Alabama will collect close to half a million dollars ($436,775) of taxes, both the county and the cities within the county will collect more than half a million dollars of taxes ($545,969). Referring to economic theory and opinion surveys, one can conclude that lifting the ban on sales increase local supply which translate into increase in capacity utilization, increase in profits, business expansion, and new business entry into Shelby’s economy. However, the extent to which existing businesses expand and new businesses enter Shelby County as a result of repealing the Sunday Blue Laws is beyond the scope of this report. More research needs to be conducted to estimate the number and size of new establishments, new employment, and tax revenues that can ensue in Shelby County.

I. INTRODUCTION

The purpose of this report is to estimate the economic impact of repealing an existing ban on Sunday sales of alcoholic beverages in Shelby County known as Sunday “Blue Laws.” Shelby County is located in the heart of the state of Alabama just south of Jefferson County and is surrounded by St. Clair, Talladega, Coosa, Chilton, Bibb, and Tuscaloosa counties. Shelby County has a residential population of 207,501 with 103,247 employees. Shelby County’s retail sector plays an important role in the economy of the area. Based on the North American Industry Classification System (NAICS), 20 percent of all establishments in Shelby County are retail, food, and accommodations, while employment in the retail sector accounts for 25% of Shelby County employment. (See Table 1.)

Table 1 Shelby County Retail Sector Size by NAICS Establishments Employees Percenti Percent Shelby County 9,093 103,247 100 100 Retail and Service 1,822 25,577 20 25 Source: ESRI Business Summary, Shelby County, AL. 2015

Local elections have been taking place in many states and across the nation, voting more often than not to allow or expand sales of alcoholic beverages rather than limit or prohibit them entirely. The motivation behind this trend is economics: “Most proponents of allowing alcohol sales view the move as a way to make their community more attractive to new and old businesses while helping to create what economists call a positive “balance of payments,” meaning more dollars are spent in the community than outside it.” (Stambaugh, 2013.) “Alabama lawmakers are considering a bill that proposes a constitutional amendment allowing voters to approve Sunday alcohol sales after 12 Noon in Shelby County at the next election.”ii Voters will decide if they want sales of alcoholic beverages after 12 Noon on Sundays. Although some businesses had already been able to obtain a club liquor license that would allow Sunday alcohol sales, that option is no longer available in Alabama. The background and history of Blue Laws, according to National Alcohol Beverage Control Association (NABCA 2015), is older than American culture. The first blue law was enacted in the

i Measured relative to Shelby County ii http://www.al.com/news/birmingham/index.ssf/2015/03/lawmakers_may_allow_voters_to.html

3 colony of Virginia in 1617, followed by Connecticut and others. Reasons behind justification of blue laws have mostly been religioniii, health, safety, and crime. (NABCA 2015), (Stehr 2007.) Excessive consumption of alcohol has been shown to have an adverse effect on public health and safety in local communities. Yet the studies on the impact of Blue Laws are mixed. Some studies confirm that alcohol consumption increased as a result of repealing a Blue Law. Yet other studies showed that there is not a dramatic increase in alcohol sales and consumption. For example, Baris Yoruk (Yoruk 2015) found that “Among the states that legalized Sunday sales of alcoholic beverages, Delaware, Pennsylvania, and New Mexico experienced significant increases in overall alcohol consumption (with P<0.05). However, the effect of the legalization of Sunday alcohol sales in Massachusetts and Rhode Island on per capita alcohol consumption was insignificant (P=0.964 and P=0.367).” Negative external effects (negative externalities) of excessive alcohol consumption can be curtailed and corrected by imposing excise taxes on alcohol consumption, instead of banning sales. According to Mark Stehr “Economic theory suggests that the market failure due to the presence of negative externalities may be corrected by the application of an excise tax…” (Stehr 2007.) Since the 19th century, activists have led the charge to repeal these laws (NABCA 2015.) Although Blue Laws continue to exist today, many states, counties, cities, and municipalities have repealed and continue to repeal bans on Sunday alcohol sales. Residents of Shelby County, Alabama will vote on March 1, 2016 on the issue of repealing the ban on Sunday alcohol sales. The existing ban prohibits the sale of alcoholic beverages after 12 Noon on Sundays.1

II. DATA, METHODOLOGY & ANALYSIS A. Sales Estimates Determining sales of alcoholic beverages on Sunday after 12 Noon is limited, due to lack of daily or hourly sales data. Hence, one has to rely on research, analysis, estimation, extrapolation, and existing forecasts.

Annual spending on alcoholic beverages in Shelby County is estimated at $55,996,872. The annual sales estimate is derived from the ESRIiv sales forecast for Retail Goods & Services Expenditures for Shelby County, Alabama. The ESRI estimates are based on 2011 and 2012 Consumer Expenditure Surveys (CES), Bureau of Labor Statistics, and 2014 census information from Bureau of the Census. These estimates are then extrapolated to obtain 2015 expenditure forecasts (See Exhibit 1.)

iii Since states cannot use religious reasons, other reasons have been identified to justify Blue Laws iv Environmental System Research Institute (ESRI) is a Geographical Information System (GIS) mapping institution, which incorporates business analysis into geographical locations.

4 Increased total spending on alcoholic beverages would reach $60,689,410 after repealing the ban on alcohol sales on Sundays. The evidence suggests that lifting the ban would lead to increased sales and consumption of alcohol. According to a Heartland Policy document research and commentary (Nothdurft 2011), “the average state experienced 4.1 percent and 5.2 percent per capita increases for the sale of beer and spirits, respectively, after the repeal of Sunday sales bans.” For the state of Georgia, rescinding the Sunday sales ban would generate $3 to $5 million in additional tax revenue per year. With the “legalization of Sunday alcohol sales and alcohol consumption in the United States,” Yoruk found that three out of five states that repealed their laws restricting the Sunday sale of alcoholic beverages during 1990-2007 experienced significant increases in per capita alcohol consumption (Yoruk 2013.) Shelby County, Alabama could experience similar patterns. According to Stehr (2007), Alabama sales will increase by 8.38%. He conducted an extensive research on the effect of Sunday sales bans and excise taxes on drinking and cross border shopping for alcoholic beverages for all 50 states in the United States. Accordingly, the sales of alcoholic beverages in the state of Alabama will increase due to increase in sales from ‘Own State Consumption’, and ‘Change in Sales Due to Border Crossings2.’ That would increase alcoholic beverages sales in Shelby County by $4,692,538, resulting in annual total sales of $60,689,410 for Shelby County. Sunday sales of alcoholic beverages can be estimated, using the above figures. The mean estimate of weekly alcoholic beverages sales is calculated to be $1,167,104. Following the Heartland Institute’s policy analysis of increase in sales and revenue due to allowing distilled spirits on Sundays in Georgia; we can assume Sunday grocery sales are 21% more than other days of the week. Accordingly, “Shoppers tend to spend more on Sunday than any other day of the week. While the typical grocery basket contains only $23.27 of goods Monday-Saturday, the Sunday basket has $28.23 – 21% more than other days of the week.” (Heartland Institute 2015). Applying this to Alabama, and based on 52 Sundays a year, the weighted average of Sunday’s Alcoholic Beverage Sales result in a total Sunday sales of $10,185,047.

Sunday sales after 12 Noon can also be estimated using American Time Use Survey (ATUS). The current Shelby County law does not allow sales of alcohol on Sunday. The new legislation would result in sales of alcoholic beverages beginning at Noon on Sunday. The portion of Sunday sales occurring after noon can be determined based on statistics. A comprehensive survey on grocery shopping during different days of a week was reported by (Goodman 2008.) Accordingly, “The American Time Use Survey (ATUS) asked a nationally representative sample of U.S. adults how they spent their time — minute by minute — over a 24-hour period.” The report concluded that 72% of all groceries sold occurred after 12 Noon on Sundays. Adjusting the total Sunday sales with the above percentage results in an annual estimate of $7,317,152 spending on alcoholic beverages after 12 Noon on Sundays. This figure represents the increase in sales (increase in final demand) of alcoholic beverages in Shelby County if the Sunday sales ban is lifted. This is the amount that will be used to determine the economic impacts of additional spending on alcoholic beverages after 12 Noon on Sundays.

5 The relationship between Sunday alcohol sales and accident fatalities is not clear. The evidence suggests that lifting the ban on Sunday sales does increase alcohol consumption. However, there is no strong evidence to suggest it has significant impact on accident fatalities. Stehr (2010) measured the effect of Sunday sales of alcohol on highway crash fatalities, and found that of all the states that relaxed Sunday alcohol sales, only the state of New Mexico had increased fatalities, because it led to large increase in alcohol sales in that state, and “a greater fraction of traffic fatalities involved alcohol in New Mexico than in the other repeal states.”

Additional tax revenues are expected from an increase in sales, resulting from voiding the Sunday sales ban. The State of Alabama, Shelby County, and Shelby cities additional tax revenues are determined by applying city, county, and state tax rates to the sales increase which result from lifting the Sunday sales ban on alcoholic beverages. While the state and county rates assumed fixed at 4% and 1% respectively, city taxes are not the same for all cities. However, a majority of cities in Shelby County have a tax rate of 4%. Table 2 is an example of state, county, and city taxes for Shelby County. It is not unreasonable to assume that city sales taxes are fixed at 4%.

Table 2 State of Alabama, Shelby County, and City Tax Rates State Zip Tax Region Combined State County City Special AL 35007 ALABASTER 0.09 0.04 0.01 0.03 0.01 AL 35040 CALERA 0.09 0.04 0.01 0.04 0 AL 35124 PELHAM 0.09 0.04 0.01 0.04 0 AL 35115 MONTEVALLO 0.09 0.04 0.01 0.04 0 AL 35080 HELENA 0.09 0.04 0.01 0.04 0 AL 35043 CHELSEA 0.09 0.04 0.01 0.04 0 AL 35186 WILSONVILLE 0.08 0.04 0.01 0.03 0 AL 35178 VINCENT 0.09 0.04 0.01 0.04 0 AL 35242 HOOVER 0.09 0.04 0.01 0.03 0.01 AL 35051 COLUMBIANA 0.09 0.04 0.01 0.04 0

B. Sunday Sales ban, new business entry, and expansion

In economic theory, imposing restrictions on supply is considered direct government interference in the market system, which derails the supply and demand mechanism. Sales restrictions create imbalances in market supply and demand, which lead to an unfavorable business environment. Economic theory further suggests that sales bans lead to under-capacity utilization of affected businesses, which translates into higher costs, and lower profits. This, in turn, makes existing businesses less competitive, and results in loss of market share, which has a potential to force

6 some businesses to exit the market. The consequences are loss of jobs and revenue for both private and public sector. Comparing the number of establishments in the retail sector of Shelby County at different points in time indicates that the number of retail establishments has steadily declined in Shelby County by an average of 0.74 percent each year since 2004 (BLS 2013). Although one can point to various reasons as underlying causes of such decline, Sunday sales bans can be one. Adverse implications of Sunday Blue Laws in Shelby County is evident by comparing estimated supply and demand in the county’s retail sector. According to ESRI estimates (see Exhibit 2 for a retail marketplace profile of Shelby County, AL), demand for retail trade in the food and drink industry as a whole exceeds supply by $458,166,396. For ‘Food Services & Drinking Places’ in particular, this gap amounts to $107,094,254. These gaps are an indication of a leakage (shortage) in the market that is satisfied by outside of the area businesses. While the leakage- surplus factor for the county’s ‘Total Retail and Food & Drink’ is 5.9, its value for ‘Food services and Drinking Places’ is 15.2 (see Exhibit 2). This is a strong indication that much of growth potential in the retail sector comes from ‘Food Services & Drinking Places.’ The ‘Leakage/Surplus Factor’ presents a snapshot of retail opportunity. This is a measure of the relationship between supply and demand that ranges from +100 (total leakage) to -100 (total surplus). A positive value represents 'leakage' of retail opportunity outside the trade area. A negative value represents a surplus of retail sales, a market where customers are drawn in from outside the trade area. The ‘Retail Gap’ represents the difference between ‘Retail Potential and Retail Sales.’v The ‘Leakage-Surplus Factor’ for ‘Drinking Places – Alcoholic Beverages’, and ‘Full Service Restaurants’ are respectively 57.2, and 14.5.

The majority of the reported evidence from existing interviews with business owners and opinions of local authorities across different states, as well as Shelby County, which are reported by local newspapers, suggest that the Shelby’s economy suffers from the ban of alcohol sales3. A majority of restaurant owners and similar establishments, or certain event owners, have argued in favor of Sunday sales. Tuscaloosanews.com interviewed several existing and potential restaurants to see if they were in favor of repealing the ban in Tuscaloosa. Accordingly, about 20 percent of the restaurant chains listed in the International Council of Shopping Centers manual indicate they are less likely to locate in communities without Sunday alcohol sales (Tuscaloosa News, 2011). For example, a newspaper in Georgia4 reported views from some restaurants that argued Sunday sales would enhance their business. Alabama State representatives and local authorities, as well, have expressed concern that many of the existing chain restaurants don’t want to operate in Shelby County due to the lack of Sunday alcohol sales5.

The Daily Press in Tahlequah, Oklahoma6 polled its online readers, asking if they thought “Blue Laws” related to Sunday alcohol sales in Oklahoma should be relaxed. Of 262 respondents, 61

v See ESRI, Retail Market-Place Profile, Shelby County, AL, Exhibit 2.

7 percent, or 159 voters, said they believed alcoholic drinks should be sold on Sunday in restaurants and bars, and liquor stores should be open. Sixteen percent, or 41 respondents, said no alcohol should be sold or served publicly on Sunday. Eleven percent, or 30 voters, said alcoholic drinks should be sold on Sunday in restaurants and bars only; liquor stores should stay closed. Nine percent, or 24 voters, said the law should remain as it is now; liquor stores should be closed and drinks should be served on Sunday, according to the county option. Two percent, or five voters were undecided, and 1 percent, or three voters, said liquor stores should be open on Sunday, but drinks should not be served anywhere on Sunday.

Referring to economic theory and opinion surveys, one can conclude that lifting the ban on sales will increase local supply (increase in capacity utilization, increase in profits, business expansion, and new business entry). However, the extent to which existing businesses expand and new businesses enter Shelby County as a result of repealing the Sunday Blue Laws is beyond the scope of this report. More research needs to be conducted to estimate the number of new establishments that will be constructed in Shelby. As noted earlier, there has been a 0.74 percent decline in the number of establishments in the county since 2004. However, to the degree that the Sunday sales ban is responsible for this decline, Shelby County should be able to reverse the trend or lessen the rate of decline by removing the Sunday sales ban. For example, if Shelby County, after rescinding the Sunday sales ban, could attract at least 5,000 square feet of either new business or business expansion per year, (assuming average construction and renovation cost of $130.00/sq. ft.), a total of $650,000 in new spending will be added to Shelby’s economy.

C. Economic Impacts

a. Direct Impacts Direct impacts result from increase in sales (expenditures) associated with lifting the sales ban on alcoholic beverages on Sundays after 12 Noon. Lifting the ban on Sunday alcohol sales leads to an increase in sales of wine, beer, and spirits in Shelby County.

b. Indirect & induced effects

Indirect impacts result from the sellers of alcoholic beverages that purchase goods and services and hire workers to meet the increase in demand (sales). Induced effects result from the employees of the sellers purchasing goods and services as individuals and as households.

8 These rounds of spending will result in increases in output, earnings, and employment in multiples of the initial increase. The magnitude of these multiples, called impact multipliers, can be calculated from national interindustry input-output relations, which estimate total output, earnings, and employment effects of an initial change in final demand. Regional Interindustry Multiplier System known as RIMS is a modeling system developed by the U.S. Department of Commerce – Bureau of Economic Analysis, in order to estimate output-earnings, and employment effects of a plan or a project.

c. RIMS II

“Regional multipliers share similarities with what are commonly termed macroeconomic (Keynesian) multipliers. Both types of multipliers provide a way to estimate the economy- wide effects that an initial change in economic activity has on a particular economy. Both types are based on the idea that an initial change in economic activity results in diminishing rounds of new spending as leakages occur through saving or spending outside the local economy. The size of both macroeconomic multipliers and regional multipliers is smaller when there are more leakages.” (Bess 2013)

III. THE RESULTS

1. Spending Increase Allowing Sunday alcohol sales results in significant economic impacts for Shelby County in particular and the state of Alabama in general. The impacts can be summarized into the following categories: A. Direct Impacts Sunday spending by households in Shelby County, after relaxing the Sunday sales ban, will increase to $10,185,047 annually. Estimating sales, adjusted for sales that occur after 12 noon, on Sundays amounts to $7,317,152. B. Indirect & Induced effects Indirect and induced sales were calculated using RIMS II multipliers of 1.4923 for output, 0.2982 for earnings, and 23.3146 for employment. Total direct, indirect, and induced impacts of lifting the Sunday sales ban on alcoholic beverages in Shelby County amounts to $7,417,110 of which $99,958 is indirect and induced impact which is added to direct impacts. C. Total Impacts As shown in Table 3, repealing the Sunday afternoon sales ban generates $10,919,386 total output; $2,181,975 in earnings; and creates 171 jobs.

9 Table 3 Economic Impacts of repealing Sunday Sales of Alcohol Impacts Output Earnings Employment Direct (spending $7,317,152 increase) Indirect and induced $3,602,234 $2,181,975 171 Total $10,919,376 $2,181,975 171

A. Tax revenue impacts The additional sales of $10,919,376 on alcoholic beverages are subject to state, local, and city taxes. An annual total of $982,745 will be added to the state, county, and city tax revenues. As shown in Table 4, while the state of Alabama receives an additional tax revenue of close to half a million dollars a year, Shelby County and Shelby cities will generate an annual tax revenue of more than half a million dollars each year. Table 4 shows the tax revenue at corresponding state, county, and city levels from increase alcohol sales.

Table 4 Annual tax revenue as a result of repealing the Sunday sales of alcohol Alabama Shelby County Cityvi Total Tax Rate 4% 1% 4% Tax Revenue $436,775 $109,194 $436,775 $982,745

vi Not all the city rates are equal in Alabama, but it is reasonable to assume an average rate of 4% for all cities.

Notes

1 http://www.al.com/news/birmingham/index.ssf/2016/01/shelby_county_to_vote_on_sunda.html http://www.al.com/news/birmingham/index.ssf/2015/07/shelby_county_leaders_voicing.html

2 See Stehr (2007). Table 9, page 101

3 See AL.com, March 25, 2015; Tuscaloosanews.com, FEB 20, 2011; Catoosa.com, Vol 58 No 2, January 10, 2007; DailyIndependent.com, Sunday, January 20, 2013 4 Catoosanews.com Vol 58 No 2, January 10, 2007. http://www.northwestgeorgianews.com/restaurant-owners-differ-on-sunday-alcohol-sale-local- new/article_3955fa89-3a03-5d58-9aa9-4a9764948beb.html

5 Mike Hill of Columbiana was quoted by AL.com saying, "We're all in economic development and we've been recruiting these sales and restaurants like Longhorn and Applebee’s ... [and] Buffalo Wild Wings," noting many of them don't want to open in Shelby County because of a lack of Sunday alcohol sales.” State Representative Matt Fridy, quoted by AL.com, noting the potential financial benefits that would accompany the bill for Shelby County. "At its face, it's about economic development. Particularly there are certain developments, restaurants, and hospitality industry establishments that have not looked at Shelby County because there are no alcohol sales allowed on Sunday," he said. (see al.com, March 25 2015; Tuscaloosa News, 2011; al.com March 2015)

6 http://www.tahlequahdailypress.com/news/most-citizens-businesses-favor-sunday-sales-of-alcoholic- drinks/article_3560b022-2190-11e4-ac73-001a4bcf887a.html

References

Al.com. “Shelby County to vote on Sunday alcohol sales on March 1”, January 08, 2016. http://www.al.com/news/birmingham/index.ssf/2016/01/shelby_county_to_vote_on_sunda.html

Bess, Rebecca and Zoë O. Ambargis. “ Input-Output Models for Impact Analysis: Suggestions for Practitioners Using RIMS II Multipliers.” Southern Regional Sience Association Conference, March 23-27, 2011.

BLS, U.S. Bureau of Labor Statistics. 2013 County Business Patterns (NAICS). Censtats.census.gov.

NABCA. 2015. Sunday Alcohol Sales: History and Analysis. NABCA.

NABCA. 2015. "Sunday Alcohol Sales: History and Analysis." White Paper.

Nothdurft, John. “Research & Commentary: Georgia Sunday Sales Local Option.” The Heartland Institute, March 1, 2011

Reed, Martin J. “Shelby County Leaders Voicing Support for Sunday Alcohol Sales.” Al.com, July 22, 2015 at 3:01 PM

Stehr, Mark, The Effect of Sunday Sales of Alcohol on Highway Crash Fatalities (June 14, 2010). Available at SSRN: http://ssrn.com/abstract=1625047 or http://dx.doi.org/10.2139/ssrn.1625047

Stambaugh, Carrie. “The economic impact of alcohol.” The Independent, January 20, 2013.

Stehr, Mark. 2007. "The Effect of Sunday Sales Bans and Excise Taxes on Drinking and Cross-Border Shopping for Alcoholic Beverages." National Tax Journal IX (1), p. 101.

Tahlequah Daily Press, “Most citizens, businesses favor Sunday sales of alcoholic drinks.”

The Heartland Institute. “Policy Analysis: Sunday Sales and Georgia.” Distilled Spirits Council of the United States. 2015 https://www.heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/29458.pdf

Yoruk, Baris. 2015. "Legalization of Sunday alcohol sales and alcohol consumption in the United States." PMC 109 (1): 55-61.

EXHIBITS

Exhibit 1 Retail Goods and Services Expenditures Shelby County, AL

Reported by ESRI

Exhibit 2 Retail Market Place Profile Shelby County, AL ESRI