Liquor licenses

Corey Mitchell, front of house manager and bartender at Saint Lawrence Gridiron on Bannock Street in Boise, prepares a cocktail for a customer on Wednesday, Jan. 30, 2019.

BOISE — Lawmakers say Idaho’s outdated liquor license laws halt business development and create a cutthroat secondary market for state liquor licenses behind the scenes. A new bill traveling through the Statehouse would override the current system and give licensing power to cities.

On Wednesday, state Sen. Jim Rice, R-Caldwell, introduced his bill to the State Affairs Committee that would stray from Idaho’s current quota system of licenses based on population. Rice’s bill would allow cities and counties to issue liquor licenses, add incentives to state-license holders and increase server training.

As it stands, every city in Idaho is awarded at least two liquor licenses with a provision that adds extra licenses based on population — one additional license for every 1,500 people.

Businesses in areas such as Boise that are the most attractive to new bars and restaurants must often purchase existing liquor licenses rather than wait for new ones to be issued. That demand has created an active secondary market where a license can run into the six figures.

All around the state, especially in highly populated areas like Boise, restaurants and bars with pre-existing liquor licenses hold an unbeatable advantage, Rice said.

“(Existing license holders) have a competitive advantage that is created by a shortage that the state itself created,” Rice said. “The state shouldn’t be in the business of creating shortages of competition. Especially in something like the restaurant industry.”

The quota system that went into effect in the 1950s has caused a wait time of five to eight years in Boise for a $750 state-issued license. As the city grows in population and a new license is issued, the next person on the waiting list could receive it.

Currently Boise has one available license of the 152 the city is allowed to issue based on population, Eagle has three available out of 18 allowed and Meridian has six licenses available of its 67 allowed, according to Nicole Harvey, licensing and litigation manager for the Alcohol Beverage Control Bureau of the Idaho State Police.

Opponents of the bill say that the quota system is the way it is for a reason.

Brad Selvig, owner of The End Zone sports bar on Broadway Avenue in Boise, said the state has not changed the quota system for so long because it maintains market stability. Selvig is the secretary and treasurer for the Idaho Licensed Beverage Association, a group that strongly opposes the bill and sees no problem with the current situation.

“If you wipe out the quota system, you will undermine stability and create chaos,” he said. “I don’t believe that cities and counties understand the undertaking of distributing liquor licenses. Allowing them to distribute licenses will bring the value down and flood the market.”

Selvig has a loan on his license. If the value of state liquor licenses decreases, he said, his bank could come back and say that it did not match previous collateral estimations. The same story could play out for many local business owners.

Rice pushes back against the idea that changing up the liquor license system would undermine the property rights of license owners.

“A license doesn’t create a property right in not having other people have the license. But some of them will claim that,” he said. “And some of them who purchased it from somebody else have had to pay quite a bit, but that’s not a good reason not to fix the problem.”

If the bill passes, current state licenses would have an attached incentive — a 10 percent discount on liquor purchases from the state dispensary. The current discount is 5 percent. All standing state licenses would still be valid and would be allowed to be transferred or sold across the state instead of only within their issuing cities.

‘CURRENT SYSTEM IS MESSED UP’

Chris Mitchell, general manager of Saint Lawrence Gridiron on Bannock Street, said he consulted for bars and restaurants around the country for years, and Idaho’s liquor license system is “by far the worst” he’s ever seen.

“You’re paying more than New York and more than Chicago for a liquor license in Ada County, Idaho,” he said. “A license in downtown Manhattan right now can run for $7,700. Here in the open market you would pay $180,000 to $200,000.”

Saint Lawrence Gridiron used to rent a license from a broker for $1,500 per month. When it came time to renew the license, the broker sold it to the Marriott in downtown Boise. Saint Lawrence went from serving liquor to putting a halt on all cocktails overnight. The restaurant had no liquor license for three months and subsequently lost an estimated $100,000 in business, Mitchell said. The ordeal also cost him employees.

“What makes Idaho unique is that after two years of having a liquor license in a building, it seasons and it can be sold as a commodity,” he said. “People own liquor licenses without an intention of owning a restaurant and just collect them to flip them for profit.”

Legislation to revise the system isn’t new. Lawmakers in the past attempted to amend liquor license laws but were never successful. Rice said his revisions will succeed because they carefully considered how to maintain a portion of the state-issued system and avoid an explosion in license issuance.

“A lot of ideas weren’t well thought out,” Rice said, “and were not a comprehensive bill that was ready to go forward.”

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Pam Eaton, president and CEO of the Idaho Retailers Association, said the association has worked on liquor license reform for “decades, if not longer.” The association represents both current license holders and non-licensees — the association looks to serve the interests of both, she said.

“The current system is messed up, and I think there is a fear that someone may just come in and wipe out the whole system and start from scratch,” Eaton said. “We worked to try to figure out a way to see what changes we can make so you keep some value with the current licenses but open it up for others to get licenses.”

If passed, beginning on Jan. 1, 2020, the state would no longer issue licenses, and cities and county entities such as the city councils, mayors, county commissioners or other municipal officials would fill the role. These municipal licenses would only be given to sit-down or hotel restaurants and not be allowed to be sold or transferred. New bars and nightclubs could not be granted municipal licenses and would have to obtain a grandfathered state license.

The bill requires businesses that want to obtain a liquor license from the city or county to have a full kitchen and menu — catering toward full restaurants and hotels that have restaurants, Eaton said. New bars and nightclubs would have to wait for existing state licenses to become available.

“There are a lot of restaurants who want to open in various places, but they feel like they need a liquor license so they don’t end up trying to open,” she said. “(Liquor license reform) will help economic growth, it really will in a lot of cities across Idaho.”

Rice’s bill hinges on that argument, that the current system blocks economic growth in Idaho.

“It makes it harder to get restaurants that are more sit-down types and mid-range to high-end restaurants in a lot of places,” Rice said. “So, what you end up with is the type of restaurants that sell liquor, especially your chain stuff, they don’t come in unless they can get a license.”

But that’s part of the problem that Selvig sees with the proposed bill — it’s economic perks may largely apply to chains moving in.

“Liquor licenses don’t promote economic growth, they get issued because of economic growth,” Selvig said. “In regards to hotel restaurant licences, a lot of downtown places make a considerable amount of money from people leaving their hotels and going to bars to drink. Allowing a hotel to have a small bar in their lobby doesn’t help local businesses.”

FOR AND AGAINST THE BILL

The issue was posed to be “a highly contested” one, Senate Assistant Majority Leader Chuck Winder, R-Boise, said Wednesday during the bill’s introduction to the Senate State Affairs Committee.

“It’s something we do need to take a look at as we try to modernize and adjust for what’s going on in our state,” Winder said. “I commend Senator Rice for having the courage and the time to go back in and really look at these laws, and I look forward to hearing the public testimony as we move forward.”

The bill won’t go through without some opposition, Selvig with the Idaho Licensed Beverage Association said.

“I know that we’re going to fight it. It’s certainly not going to go through unopposed,” he said. “We’re going to testify and raise some eyebrows. … There’s a lot of people that will be hurt if it goes through.”

The issue shouldn’t be pitched as a statewide crisis, he said. If anything, the system would need to be evaluated regionally and in areas where population is increasing.

Some restaurant owners are skeptical the legislation will pass.

“It’s not going to change, in my opinion, as much as I would love it to,” Mitchell with Saint Lawrence Gridiron said, “because the state gets paid for liquor licenses, they get a cut of the taxes.”

The state gets a 10 percent transfer fee when licenses change businesses by full purchase, and one-half the annual fee for liquor when licenses are leased or a business files for bankruptcy. All license fees are maintained in a dedicated fund for the state’s Alcohol Beverage Control Bureau program, according to Harvey.

“You’re going to lose the financial aspect,” Selvig said. “The system has been put in place and it’s state run. The state has profited tremendously from this system. They’ve made billions of dollars.”

But Eaton thinks the problem has been building long enough to force Idaho’s legislative hand toward significant change of the system.

“Legislators are tired of Band-Aid fixes,” she said.

Riley Bunch is the night reporter for the Idaho Press. Reach her at 208-465-8169 or follow @rbunchIPT on Twitter.

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