Jeff Larsen and George DuBois got the same advice in the 1990s: Put your name on the waiting list to get a liquor license in Boise.
DuBois took that advice. Larsen didn’t. Those decisions have come to shape their lives.
Six years ago, Larsen and his wife paid $150,000 — plus a 10 percent mandatory fee to the state — for the liquor license when they bought Terry’s State Street Saloon at the corner of State Street and Collister Drive in Northwest Boise. That was half of their total investment in Terry’s. They’re still paying off the loan.
DuBois paid $200 to put his name on the list. He didn’t think much about it after that. Until three years ago, some 20 years after he applied, when someone from Alcohol Beverage Control — a division of the Idaho State Police — called to say his name had come up.
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DuBois had long since moved away from Boise. He was living in New Mexico, writing commercial loans for a bank there. Today, he owns Capitol Bar, about a mile up State Street from Terry’s. Unlike Terry’s, it’s not burdened by the cost of a liquor license purchased on the secondary market.
“We’ve just continued to ramp up and cut expenses, grow revenue,” DuBois told the Idaho Statesman in a telephone interview. “And lo and behold, we have a profitable little business.”
This contrast is one reason Idaho’s system for liquor licenses has drawn criticism from both right and left. In a state whose laws are dominated by people who claim to be conservatives, the rules violate “central tenets of conservative philosophy,” Phil Haunschild, a writer for the Idaho Freedom Foundation, a conservative think tank, said in an email.
“The belief that government involvement is the best way to change individuals’ behavior forces government intrusion into the market, limits economic prosperity, and puts more power in the hands of government officials,” Haunschild said. “This system hurts entrepreneurs, hurts the tourism industry and hurts municipalities who wish to see something different in their community.”
Larsen might have agreed with that six years ago. Now that he has paid for an expensive license, though, he doesn’t want the rules to change.
“Every once in a while, a legislator or somebody decides that they want to change the laws and basically make our licenses worth nothing,” he said. “It’s upsetting when people do that.”
How did we get here?
Idaho’s liquor laws date to the 1940s. In Prohibition’s wake, the Legislature struggled to balance a growing thirst for alcohol with the state Constitution’s “promotion of temperance” to further “the virtue and sobriety of the people, and the purity of the home.”
They came up with a quota system for establishments that sell liquor by the drink, such as bars, restaurants and night clubs. Every incorporated city is allowed two liquor licenses, no matter its size. Larger cities can have up to one license for every 1,500 residents.
Cities oversee licenses for beer and wine.
As a city’s population increases, the state makes more hard liquor licenses available to it. In some cases, demand doesn’t keep pace with population. Nampa and Caldwell have fewer liquor licenses than they are allowed.
In many cities, demand far exceeds supply. In these cases, applicants put their names on a list, and as the population grows, their names move up the list until, one day, they get the call that came George DuBois’ way.
And as DuBois can attest, it can take a while to work your way to the top of the list. Sixty-six names are on the waiting list for Boise, said Nichole Harvey, the Alcohol Beverage Control’s licensing manager, in an email. The name at the top has been on the list since 2008, she said. The oldest application in Coeur d’Alene is from 2001.
A few cities have more licenses than they are allowed, because their populations have shrunk since the state awarded licenses there. Wallace, a once-booming mining town in north Idaho, now has fewer than 1,000 people, but it has seven active licenses — enough for a city more than 10 times its size. In addition, Harvey said, seven establishments in Wallace have “specialty licenses” — a special category the Legislature has carved out for private groups like the Elks and Eagles clubs, golf courses, airports, race tracks and the like.
Do these limits really foster “virtue and sobriety?”
“I don’t think anybody really believes limiting the number of ... bars and restaurants does anything to promote temperance,” said John Rusche, a retired physician and former Democratic legislator from Lewiston who tried to change liquor laws during his tenure in the Idaho House.
‘Seasoning’ the license
After getting the call from Alcohol Beverage Control three years ago, DuBois had a choice. He could claim the license and open a bar within six months — with an optional three-month extension — or forfeit his spot in line.
The state offered to refund the $200 he put down when he applied.
“I was like, ‘No, I don’t want to do that. (Opening a bar) sounds too cool. This sounds too fun,’” DuBois said.
So he moved back to Boise and recruited Francine and Kevin Hopper to help him run the bar. (Kevin Hopper writes a periodic column about cocktails for the Idaho Statesman.)
The state requires a licensed establishment to be open eight hours a day, six days a week for the first six months a license is active. After that, Harvey said, Alcohol Beverage Control loosens the rules so that licensees can operate on schedules that fit their business models. The agency just wants to make sure they have viable operations, she said.
After two years, the owner can sell or rent the license on the open market. Some owners follow the rules just long enough to get past the two-year threshold, then sell their licenses. That’s know as “seasoning” the license.
That’s what DuBois had in mind for Capitol Bar. But the business has been so popular that he decided to keep it rolling.
An exclusive club
Idaho’s system has given rise to a lucrative secondary market, the one that doubled Larsen’s cost when he bought Terry’s.
His license might be worth a lot more now. The average price of the last three licenses sold in Boise is almost $180,000, Harvey said. That’s not even close to the high mark in Idaho. In Coeur d’Alene and Ketchum, the average is more than $250,000.
So you can understand why Larsen gets alarmed when proposals to loosen the laws surface in the Legislature. He’s not alone.
“Because of this artificial scarcity that has been introduced into the market for the liquor licenses, (licensees) have a very valuable asset that they don’t want to lose,” Rusche said. “And many of those are very politically connected to their local legislators or to the governor’s office.”
A decade ago, Rusche said, a handful of legislators, a couple of lobbyists and state staffers worked with Gov. Butch Otter’s office on a proposal to increase the number of liquor licenses in Idaho cities and ban the private sale of licenses. To offset the losses of people who already held licenses, the proposal included an extra discount on liquor purchases, which the state controls.
A bill was written but never introduced. Rusche believes it was doomed by influential applicants already on the waiting list.
That just shows the danger of government interference, Haunschild said.
“Allowing market incumbents to dictate policy decisions moving forward will always limit progress towards a more fair and just system,” he said. “The countless individuals who are priced out or prohibited from entering the market currently ought to have their voices heard as well.”
On the other hand, Haunschild said, licensees who, like DuBois, waited their turn on the state’s list or, like Larsen, paid dearly for their licenses, “should not be punished for abiding by the law.” Haunschild proposed phasing in a new licensing system to protect those people.
‘Unless it were an astronomical number’
Larsen never wanted to be a bar owner. He wanted to be a nurse. But he had an emotional connection to Terry’s. He’d worked there for 15 years. He met his wife — now his business partner — there when she came in to play pool.
He was studying for a nursing degree when Sherman told him he was going to sell Terry’s.
That forced a hard choice on Larsen.
“It’s a neighborhood watering hole,” Larsen said. “And I knew if somebody who wasn’t from the bar bought it, it was going to change.”
Together, he and his wife came up with a business plan and pitched it to a lender.
“I was trying to get out of the bar and ended up buying it instead,” he said.
The license and bar are almost paid off, he said. Even knowing how valuable the licenses are, though, he doesn’t plan to sell his.
“I don’t think it’s anything we’d ever entertain unless it were an astronomical number,” he said.
DuBois doesn’t expect to sell his license, either. Also like Larsen, he’s in no rush to change Idaho’s laws, though he sees why some people want to.
“I don’t think the system is overly broken at all,” he said. “A free-market system has its positives for sure. But these owners like myself would feel the sting a little bit in the first go-round.”
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This article appears in the Nov. 21-Dec. 18, 2018, edition of the Statesman’s Business Insider magazine as part of the edition’s special coverage of the business of alcohol.