Advocates seek legislation to reform Idaho liquor licensing
If you want to open a restaurant that serves liquor in Eagle, you are out of luck.
Want to do the same thing in any unincorporated area of any county in Idaho? You’re out of luck, there, too, unless you happen to own a golf course, ski resort or waterfront resort.
The reason? Idaho’s well-intentioned 70-year-old liquor license laws have become out of whack, resulting in two unintended consequences: creating a profitable market in liquor licensing speculation and impeding economic development and private businesses.
State Sens. Jim Rice and Patti Anne Lodge, both Republicans in Canyon County, think they have a solution. Their aim is to reform Idaho’s liquor licensing laws to allow cities and counties to issue — or choose not to issue — liquor licenses, provide added incentives to existing state-issued liquor license holders, improve alcohol server training to curb violations and eliminate the secondary market of trafficking state liquor licenses.
The changes could fundamentally shift major aspects of how liquor licenses are distributed, including allowing counties and cities to opt out of approving liquor licenses for any new businesses all together. Licenses for new bars and nightclubs would also have new stipulations: Owners would have to purchase an already-existing state license to open a new establishment.
Rice plans to introduce the bill before the Senate State Affairs Committee this week.
The archaic problem
Under Idaho’s archaic liquor-by-the-drink licensing system, each incorporated city in the state initially receives two licenses and an additional license for every 1,500 residents. As the city grows, so do the number of licenses.
But over the decades, demand has outpaced supply in some cities, so the state created waiting lists for cities that have received their quota of licenses. When a new quota license is issued, the next person on the list received it.
Some people waited more than a decade to get a license. This artificial scarcity created a secondary market in selling and leasing existing licenses, since a license can only be sold or leased within the city it was issued. Some people put their names on a list multiple times in multiple cities just so they can get a license and turn around and sell it after jumping through a few hoops.
This is why Bardenay owner Kevin Settles cannot get a liquor license in Eagle. None are available from the state because Eagle has received all of its quota licenses and currently none are for sale, he told the Statesman. And those that come up for sale can cost six figures.
“I talked to a gentleman the other day who said he had a liquor license I could lease, but it would cost 10 percent of all alcoholic beverage sales,” Settles said. “You are not going to be able to pay the bills if you are paying that kind of rate.”
Additionally, the state only issues liquor licenses in incorporated cities, which is why Avimor, a planned community northeast of Eagle, cannot have a restaurant that serves liquor. It is in unincorporated Ada County. The state does have a specialty license exception for golf courses, ski resorts and a few other recreation or hospitality facilities.
A proposed modern solution
Lawmakers for the past decade have drafted and redrafted bills to remedy this inequity, trying to find a plan that does not completely wipe out existing state licenses, but also does not allow an unreasonable proliferation of liquor licenses.
Rice thinks his plan can achieve this.
If Rice’s bill becomes law, starting Jan. 1, 2020, the state will stop issuing new liquor licenses and cities and counties will start issuing them.
Rice said the licensing fees cities and counties collect would cover the cost of administering them. The state will continue to receive renewal fees and 10 percent of all private sales of existing state licenses.
Here’s what will happen to existing state-issued liquor licenses:
▪ Licenses will be grandfathered in and remain valid as long as they are active and in compliance with state law.
▪ Licenses can be privately transferred or sold statewide instead of only within city issued.
▪ Licensees will get a 10 percent discount on all state liquor dispensary purchases. The current discount is 5 percent.
▪ Specialty licenses issued to golf courses, ski resorts, etc., also will be grandfathered in, but cannot be transferred or sold.
Here’s what will happen in all Idaho counties and cities:
▪ County commissions and city councils, if they choose, can issue municipal liquor licenses to restaurants and hotels that have a beer and wine license.
▪ Residents by referendum can decide if they want their respective city or county to issue municipal liquor licenses.
▪ Bars and nightclubs are not eligible for a municipal license. Anyone wanting to open a new bar or nightclub would need to privately purchase one of the grandfathered state licenses.
▪ Municipal licenses cannot be sold or transferred and are site specific.
▪ Licensees do not get a discount on state liquor dispensary purchases.
▪ Alcohol server training becomes mandatory statewide for all establishments serving alcohol.
That doesn’t mean there will be unlimited licenses
The proposal will not create an unlimited number of municipal liquor licenses, Rice explained, because it is up to each county and each city to first decide if it wants to issue the licenses and then set the parameters under which it will issue them, as long as it complies with state law.
This could create “dry” cities or counties when it comes to purchasing liquor-by-the-drink if a city or county decides not to issue municipal liquor licenses. Such a decision would not affect establishments with existing state-issued licenses or retail sale of liquor in state-run dispensaries.
“The jurisdiction can either issue them or they can decided not to issue any,” Rice said. “But they can’t pick and choose and say we will give them to some of these qualified restaurants and not to others.”
Residents also have a say.
“Let’s say a city council says no, then the citizens still have the ability to go back and say we want to have them in our town,” he said. “We are making this a local process on the issuance of the licenses so the citizens in the city or in the county can by initiative override their city council or county commission.”
Not a property right
Rice wants to correct a misconception that state-issued liquor licenses are a property right and changing state licensing laws takes away that property right by possibly reducing the license’s monetary value.
“If you already have one and, currently, let’s say it sells for $250,000 in your city and now it is only going to be worth $30,000, that is not a taking,” Rice said. “That’s is just the state changing the number of licenses it is going to issue or the conditions.”
The existing licenses will remain valid and transferable, Rice said. The only thing that will change is the state will not issue any new licenses, which does affect people on a waiting list, but being on that list provides no guarantee of receiving a license, he said.
Rice continued, “The only right you get with a state license is the right to sell the liquor, not the right to have the state maintain [the licenses’] particular value.” Additionally, Rice said the state could simply cancel all licenses and start over.
Settles said people who assume their state-issued license are automatically devalued under the proposed law are mistaken.
“We found some creative ways to add some value in the existing licenses,” said Settles, who helped craft a similar 2009 bill, which failed by one vote and from which this new bill is derived. “The problem with it is you have to actually understand the bill to understand where the value is.”
Stop trafficking, start competition
Not all state-issued liquor licenses have equal monetary value. A liquor license in Boise or Eagle can fetch six figures, while one in a small rural city may sell for less than $1,000.
What this has created is an artificial scarcity and a profitable secondary market of selling or leasing permits in cities where they are in high demand.
By keeping the prices high and not issuing any new permits, it eliminates competition, Rice explained. But, he cautions, “The issuance of liquor licenses is not an economic development tool.”
“When you have a shortage so that you have greater demand for restaurants than you have liquor licenses available it does become an impediment to some economic development,” he said. “It is not something you do as an economic development driver, but it is something that if you have got the wrong policy it can actually inhibit or prevent your economy from having more restaurants.”
Settles, who owns restaurants in Boise, Eagle and Coeur d’Alene, said he has run the numbers and determined it is more profitable for him to operate under a state-issued license than a municipal one because he gets 10 percent off of his liquor bill, license renewal costs are cheaper and he does not have to keep his kitchen fully staffed while serving liquor.
“Those pieces make a difference,” he said.
A restaurant with a municipal license would have to provide food service while serving liquor, under Rice’s proposal.
“In an operation like mine, where we generally close the kitchens down an hour or two before we close the restaurants down, that equates to a very significant amount of cost,” he said.
Under a municipal license, “If somebody walks in and orders a hamburger and a drink and you say, ‘You can have the drink but not the hamburger,’ you just violated your license,” Settles said.
Additionally, by not making municipal licenses available to bars and nightclubs and by stopping issuance of state licenses, this adds value to existing state licenses, which would be required to open a bar or nightclub.
“It is capping the number of opportunities to run a straight bar without a food requirement,” he said.
Currently the state has about 1,100 liquor active licenses. The proposed law caps the number of state license available to bars, but by making the state licenses transferable statewide, it removes the caps on cities. This means someone who wants to open a bar in Eagle, which currently has no licenses available, can procure one from Lewiston or Twin Falls.
Additionally, current state licenses are being used for hotels, restaurants and bars. Under the proposal, as restaurants and hotels shift to municipal licenses, this would free up more state licenses to be used for bars. But the number of bars statewide will not exceed the number of state licenses grandfathered in if the proposal becomes law.
“Depending on the operation, paying more for a legacy license would quickly pay for itself,” Settles said.
“If this legislation passes, the question becomes which type of license would I like to have?” he said. “Would I like to get one of these new licenses that have a lot of restrictions to them or would I like to see if I can obtain a legacy license which has less restrictions and some financial advantages as an operator? That is a pretty big change in our marketplace.”
When asked about the downside to the proposed system, Settles responded, “The disadvantages to it are if you are an existing operator and are afraid of competition you might end up with competition you don’t want.”
Settles also said the proposed bill will put an end to the waiting list and stop people who are on the waiting list solely to flip a license, so those people likely will not support the plan.
Rice, who did a soft release of the bill last year to get it circulating for discussion among lawmakers and stakeholders, said he has talked to some license owners who support it and some who do not.
Boise Mayor David Bieter supports the proposed bill.
“It creates more opportunity for local entrepreneurial restaurant owners to get a license — and what’s good for our entrepreneurs is good for the local economy,” said Boise spokesman Mike Journee. “This bill also provides for more local control around this issue —those cities not interested can opt out and rely solely on state issued licenses.”
New Gov. Brad Little said he is open to liquor reform and will closely watch Rice’s proposal and any others introduced this session.
“Government can always be more efficient,” he said in a written statement, “but we must be mindful of people’s property rights.”
More licenses does not mean more drinking
Rice does not think issuing more liquor licenses will lead to more DUIs or increased drinking.
“Every restaurant can get a beer or wine license,” Rice said. “It is not more alcohol. It may change which selection it is, which drink you drink.” Restaurant patrons who plan to order alcohol will have three choices instead of two: beer, wine or liquor.
Rice noted his bill does not benefit him personally.
“I do not drink. I am LDS,” he said. “This is not related to me wanting to have a different selection at a restaurant that I go to. I represent a lot of people with a lot of different life choices and belief systems. I don’t just represent people that don’t drink.”
The proposed legislation could also help reduce excessive and underage drinking by making alcohol server training mandatory statewide and by curbing the number of bars in the state.
The proposal “tends to be somewhat of a long-term inhibitor to the numbers of bars, which is where you are going to get your most intoxication,” Rice said. “People are less likely to drink to excess at the restaurant. But if they are, they are already doing it on the beer and wine.”
Settles agrees making alcohol server training mandatory statewide may lead to more responsible drinking and fewer violations.
“These programs do a tremendous job of helping servers understand their liability for overservice or service of underaged,” Settles said. “It helps servers identify people who have overindulged. It teaches them how to diplomatically reduce consumption. It worked very effectively in the city of Boise. We saw the trouble levels immediately drop. We do not see the issues to the extent that we use to see. That same type of program would go statewide.”
This really is not a to-drink or not-to-drink issue, he said.
“This is a good business issue.”