Monday, July 1, 2013

Rant: Eliminating The Liquor License Cap?

Let us hurt 1000 existing businesses so we can help new businesses get established.

Is that a fair trade-off? Is there an alternative which can help promote new businesses without hurting existing ones? Though several news articles have praised this potential new law, they have largely ignored the negative impact it will have on existing businesses. The proponent of this new law also seems to be avoiding discussing this negative effect.

Recently, Boston Councilor Ayanna Pressley, after working on the issue for a year or so, filed a home rule petition which will basically remove the numeric cap on liquor licenses in Boston, allowing the licensing board to determine who can get a new liquor license. Though the petition is not posted on the Councilor's website, her office sent me a copy. In short, the petition seeks to amend Massachusetts General Laws, Chapter 138, Section 17 by striking out the sixth and seventh paragraphs in their entirety, and replacing them with some different language.

Curiously, Councilor Pressley's website says very little about the petition beyond an initial press release and a few links to news articles about the petition. I would expect to find much more supporting information about the petition on her site, such as the results of studies or a list of everyone who supports the petition. Why fail to post supporting information on your website? How can anyone make an informed decision about the petition if they can't find sufficient information on the website of the person proposing this petition?

There are approximately 1,030 liquor licenses (675 full licenses and 355 beer/wine) in Boston. Because it is nearly impossible to obtain a new liquor license, new businesses must usually purchase a liquor license from another business, and the cost for a full license can reach over $400,000. Essentially, an existing liquor license has become a financial asset of the business and it has significant value. If you possessed such a significant asset, would you support a law which drastically devalued that asset? Seems doubtful.

Councilor Pressley is concerned because many liquor licenses have been sold to downtown restaurants, in neighborhoods like the Seaport and North End. That means that some of the more outlying neighborhoods have fewer liquor licenses. Good restaurants can help elevate a community so the inability to obtain liquor licenses, which greatly help profitability, can hurt neighborhoods. The lack of licenses can also mean that some businesses will choose to locate in places like Cambridge and Somerville, where it may be easier, and less expensive, to get a liquor license. I agree that this is a valid problem which needs to be addressed. However, I don't think Pressley's petition is the best way to fix this matter.

People must also understand that Pressley's petition still has a long way to go before it might even become law. First, it must be signed by Mayor Tom Menino, who has not yet taken a public position on this matter. Second, if the mayor signs off, then the petition must be approved by the state legislature. I have not yet seen any public positions that anyone in the legislature will support this petition. What is the chance that this petition will overcome those hurdles?

Councilor Pressley's website does not provide a list of any people and organizations which support the petition. I have contacted her office to gather such a list but I have not yet received any response. I have also tried to determine the position of any of the local restaurant associations on this petition, but none have responded either. Does this petition have any significant support?

I have heard from a few individual restaurants about the potential effect of this petition, and how it would devalue their existing liquor licenses. With such licenses being able to be sold for $200-$400K, that forms a significant asset for their businesses. If there is no longer a cap on liquor licenses, then the value of those existing licenses drastically drops. They might be worth maybe 10% of their current value. The petition does nothing to address that problem, or compensate existing liquor license holders for that financial loss.

Under the new law, these businesses would still be able to sell their liquor licenses, but who would buy them when new licenses were now available? And if someone would buy them, they would be willing to pay only a tiny fraction of their prior value. With over 1000 existing liquor licenses, that is a lot of businesses that would lose a significant asset due to this law. They are very unlikely to support Pressley's petition and I am sure many of those businesses would actively oppose the petition.

Most of the recent news articles about this petition have been very supportive of the petition, and I see how allowing more liquor licenses could help small business owners start new restaurants, which could help to revitalize certain neighborhoods. However, helping those businesses should not come at the cost of significantly hurting other existing businesses. Businesses with existing liquor licenses don't want to stifle competition, but they also don't want to lose their financial assets. That is a very reasonable position.

Though I approve of the basic concept, of helping certain neighborhoods obtain liquor licenses, I think it could be accomplished another way beside simply lifting the cap on all liquor licenses in Boston. Instead, you could simply raise the limits on some liquor licenses, especially those set forth in the current paragraph 7, like "main street districts, urban renewal areas, empowerment zones or municipal harbor plan areas."

The current law already sets aside a small number of liquor licenses for such areas. If that limit was raised, there would not be a need to eliminate the main cap of liquor licenses. It would make liquor licenses available in the areas of concern. In addition, it would largely protect the value of liquor licenses belonging to existing businesses. I think that small change would be far more likely to gain general support than Pressley's petition.

What do you think?


Frederick Wright said...

As others have already explained, the roots of the existing liquor laws lie not (directly) in Boston's Puritan heritage but in the racist, anti-Irish sentiment that dominated post- Prohibition Boston. For that reason alone they should be re-examined.

One observation from a world traveler - other cities in other states and countries have businesses which are thriving without this law. No doubt, Boston is special. But are we really so unique that businesses cannot prosper without the protection of racist and oppressive laws?

Richard Auffrey said...

Hi Frederick:
Do you think the liquor cap should just be eliminated, hurting 1000 existing businesses? Or do you think a lesser option would work better?

I agree changes need to be made, but I don't think a blanket removal is fair, just or necessary.

Frederick Wright said...

Richard - I think that outright elimination wouldn't be fair to the many businesses who paid, in good faith, their fees. A gradual phase out might be more fair, or appropriate compensation. Could the distributors be approached to contribute towards a large fund? At least the issue has been raised and is being discussed.

Next step: happy hour. I'm not 17 and I don't need the Neo-Prohibitionist Mommies from MADD dictating the price I should pay for a drink after work just because their precious Dylan or Dakota was irresponsible.

Richard Auffrey said...

Agreed that discussing the issue is an important step. I don't see Ayanna's petition actually getting passed. There just doesn't seem to be enough support for it anywhere.

Happy Hour is another volatile issue, and when the matter was discussed when the issue of casinos arose, most restaurants/bars were against the idea of reinstating Happy Hour.

Frederick Wright said...

Boston must shed it's laughably parochial image if we're serious about becoming a true residential city and attracting world class talent. I don't aspire for us to be New York, or Vegas. But it will be very hard to convince anyone to pay $2000/sqft for an apartment in a city where they cannot get a sandwich after 10pm, and cannot enjoy a drink anywhere.

E J Kalafarski said...

The reason to keep the license cap seems to have nothing to do with the reason the cap was instituted in the first place. Under your reasoning, we should also have a cap for the number of hamburger joints that should operate, the number of nail salons we should allow, etc.

Richard Auffrey said...

EJ, there currently isn't a cap on hamburger joints or nail salons, so I don't see where my reasoning has anything to do with them. I simply don't want existing businesses to take a significant financial hurt when there are other options available. Hurting 1000+ businesses is not an acceptable trade off.

Anonymous said...

I think you're right that removing the cap completely might not be the best call (although if I understand correctly, just because there are infinite license does NOT mean that anyone applying for a license would get one - still hoops to jump through; and already-established businesses would have a leg up).

But it should be re-examined. It wouldn't just help outer neighborhoods as Pressley's arguing. I work in the theater field in town and it's damn near impossible to have a drink when you go to a show, because theaters can't get even a malt/wine license. But the ability to sell a beer at a play is not going to put any bars out of business (or contribute to Irish drunkenness). I think there are many such small businesses where patrons expect to get a drink as part of a larger experience, and can't because of the current cap.

Richard Auffrey said...

As I said in my post, raising the limit is a good idea, but completely removing the cap would hurt too many businesses. A measured response would best serve the needs of the community.
There is no immediate for an unlimited amount of liquor licenses. A small to moderate raise would serve the needs at this time.

Matthew said...

The cap is anti-competitive and a barrier to entry. In most other contexts, it would be illegal under anti-trust laws. It must go. The government should not be using the force of law to guarantee profits to private enterprise.

Plain and simple. Whining about "1000 existing businesses" is pointless, unless you are a shill for them. Removing the cap is better for consumers, business and society.

Now here's how you do it: liquor licenses should be more like driver's licenses: non-transferable and subject to fees and revocation.

Liquor license mandatory fees should be assessed to pay for the cost of the externalities imposed on communities by consumption of alcohol. That means paying for emergency services, enforcement, and clean-up in the community where the license is issued.

The new system kicks in after a certain date, and new applicants must apply for a license and pass qualifications, and pay the fees. They must uphold the rules and regulations of the license terms in order to maintain possession.

To ease the transition, current license-holders have their existing license grandfathered and converted into the new system. The value of the license at last transfer is assessed and a percentage of that value is credited to the holder in the form of exemption from fees for some number of years.

Everyone gets something. The city and the citizens get a healthier, more competitive market in the long run. The existing license holders receive a good value for their investment. And the police and emergency services finally get a source of funding which naturally increases in the places where it is needed most -- instead of being stretched thin.

Richard Auffrey said...

Plain and simple, caring about the owners of existing businesses with liquor licenses is a human thing to do, not a "shill" thing. Ignoring the harm that will occur to those businesses is unsympathetic to their plight, uncaring of what damage can occur to a number of small businesses.

Those who want the cap totally lifted, saying it is better for business, still have been unable to offer any studies to support their call. There are plenty of allegations, but nothing based upon a foundation of evidence.

I agree that more liquor licenses are needed. I simply see a different path to accomplishing that goal, while protecting the interests of existing businesses. That would stimulate competition.

Though your own solution is interesting, there might be a significant issue dependent on the amount of "mandatory fees." One could say that those fees are a "barrier to entry" and "anti-competitive."

Anonymous said...

And 400K is not a barrier to entry?

Unknown said...

Thanks for such a great article.

liquor license ny

Sarah said...

As a holder of a no value liquor license in Kendall Sq, I can understand the frustration of those who have invested in value licenses but I should point out that no value licenses serve their purpose in certain communities. In my neighborhood, as I sure you are aware, there has been a huge push to develop the area and entice restaurants to set up shop. To a potential business owner, without such an incentive being offered, it is unlikely that Kendall Sq would be the dynamic area that it is now. Because there were no existing restaurant available for purchase, we have all been in the position that we've had to build from scratch. HVAC,kitchen equipment etc is prohibitively expensive. To be required to purchase a liquor license on top of that would essentially knock most of us out of the game. Currently, the license commission is attempting to double the annual fee and add a hefty fee in addition every 3 years. Personally, I would prefer to have a value license because what I will pay over the course of my lease will amount to close to the purchase value of a regular license. I firmly believe that if a no value license was not an option, the city would be struggling to develop this neighborhood.