On Tuesday, February 23, on a 41 to 27 vote, House Bill 255 (HB 255) passed the New Mexico House and was referred to the State Senate for hearings. On Wednesday, March 3, the Senate Judiciary Committee voted 5-4 to send the bill to the Senate floor for a final vote. HB 255 will create a new type of liquor license. The bill is strongly opposed by current liquor license holders.
As amended and approved by the Senate Judiciary Committee, the legislation has 3 major components :
It allows restaurants to deliver alcoholic drinks with food. Retailers could also apply for permits to deliver alcohol. An earlier version of the bill would have limited retail delivery to smaller stores, but the committee on Wednesday removed the size restriction, a move that would allow big-box stores to deliver, too.
It establishes a new license intended to make it easier for restaurants to sell liquor, not just beer and wine.
It Imposes a 2% tax on retailers selling alcoholic drinks to help raise revenue to offset other changes to the liquor tax structure. But the 2% tax would sunset in four years, a change added by the Senate Judiciary Committee on Wednesday.
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RESTAURANT B LICENSE
HB 255 allows for the creation of a new “Restaurant B” license. It would allow restaurants to serve liquor by paying a yearly fee of $2,500 to $10,000, depending on restaurant capacity. The new licenses would be the first major change to New Mexico liquor licensing in 40 years.
It was in 1981 the New Mexico legislature created a system that allows for issuance of only 1,411 liquor licenses for the state where holders of the licenses can sell, transfer or lease the licenses. The legal effect of giving the authority to sell, transfer or lease the licenses results in granting a property right by the state.
The sale, transfer or leasing on the open market and the limited number of licenses available resulted in dispenser licenses, which allows the sale of all alcohol, to increase in value. Under current law restaurants wanting to serve hard liquor must own or lease a liquor license, which can cost hundreds of thousands of dollars Dispenser licenses known to sell upwards of $1 Million.
Interlocal Dispenser Licenses are the type license most commonly used by restaurants. There are 413 Interlocal Dispenser Licenses. According to the State Alcoholic Beverage Control the licenses can cost up to $400,000. The state does not keep track of how many of the licenses are held by restaurants, as opposed to full-service bars, entertainment venues or hotels. As a result, it is difficult to determine how many license holders will be affected with the issuance of the new type of license.
The proposed Restaurant B license would drastically change the Interlocal Dispenser Licenses system but there will be limiting conditions. Those who opt for the Restaurant B license would have to keep alcohol sales under 40% of their total revenue and end alcohol sales at 10 p.m. Current liquor licenses allow owners to sell alcohol until 2 a.m.
Bars and restaurants that choose to stay open later and use Interlocal Dispenser Licenses would not be eligible for the Restaurant B license. However, the bill also includes several tax deductions that aim to help current liquor license holders recoup their original costs.
In addition to the new Restaurant B licenses, HB 255 will allow home-delivery of alcohol in some circumstances and establish tax breaks intended to help the holders of certain liquor licenses. Under HB 255, local communities could choose to opt out. Also, HB 255 would expand tastings to craft distilleries and expand restaurant alcohol licenses that meet local ordinances to include not only beer and wine but also spirits with a 10 p.m. cutoff.
GOVERNOR’S SUPPORT AND SPONSOR REACTION
Governor Michelle Lujan Grisham supports the aim of HN 255 which is to help the struggling restaurant industry amid the coronavirus pandemic.
HB 255 is clearly a bi-partisan effort. Democratic Representative Javier Martínez and Dayan Hochman-Vigil, and Antonio Moe Maestas, all 3 of Albuquerque, and Republican Representatives Rod Montoya of Farmington and Joshua Hernandez of Rio Rancho are sponsors of the bill.
Representative Antonio “Moe” Maestas, D-Albuquerque had this to say during the floor debate before house passage:
“This is the first time in 40 years a liquor bill has gone this far that expands business opportunities for some New Mexicans. … Creation of a new license could prove to be beneficial to current license holders who now have the choice to sell their license or keep their license and retain the ability to serve until 2 a.m. … If you have a liquor license and you don’t stay open past 10 [p.m.], it is as if this bill is giving you the equivalent of a $350,000 license, because you can purchase the restaurant B license.”
OPPOSITION CONCERNS RAISED
The creation of the new type of license has generated strong opposition from the restaurant and liquor industry. Liquor license owners who oppose the proposed legislation say the creation of the new Restaurant B license grants other restaurants the same privileges as current liquor license owners for a fraction of the price they had to pay and it is felt unfair and devalues their original investment.
CEO of the New Mexico Restaurant Association Carol Wight said her association has members on both sides of the issue and that the association does not support of the HB 255 in its current form. Wight did say she is working with the bill’s sponsors with the hope changes can be granting more privileges to Interlocal Dispenser License holders and placing more restrictions on the new Restaurant B license.
Wight put it this way:
“It would be nice for restaurants to have [Restaurant B licenses]. On the other hand, I have members who own liquor licenses that they paid $300,000 for, and they’re not going to be very happy because now they’ve got a licensee that’s coming in at $10,000.”
Terry Keene, one of the owners of the Artichoke Café in Albuquerque had this to say:
“[The Restaurant B license] makes our liquor license worthless. … We use that as an investment … towards our retirement, and to give value to our restaurant if and when we ever choose to sell it.”
Mike and Alice Romero, owners of Michael’s Mini-Mart & Package Liquor Featuring Your Favorites By Alice in Velarde, urged House members to strike down the bill and had this to say to them:
“It is too drastic a bill, attempting to do too much without proper study. Large out-of-state chain establishments will be able to absorb the proposed license devaluations, and we will become a state full of the generic restaurants and stores that you find anywhere else in America. ”
The Romero’s did say some changes are needed in the liquor control laws and that alcohol home deliveries are a good step forward but that they fear other changes could harm New Mexicans.
Myra Ghattas, owner of Slate Street Cafe and Sixty-Six Acres, acknowledged it’s likely that existing license holders will pay a price for the reform and labled it as “unfortunate.” Notwithstanding, Ghattas supports the bill and said:
“The most important thing is our state needs liquor license reform to attract new business to be competitive with our neighboring states – to give local, small, independents a chance in the market. We don’t all have those deeper pockets like some of the big chain restaurants or big chain retail stores, so it’s long overdue.”
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COMMENTARY AND ANALYSIS
In general terms, licensing by a government agency means the government gives permission to an individual, business or corporation to do something or do an activity that is highly regulated for the protection of the public health, safety and welfare. Licensing usually requires minimum qualifications mandated by state regulations such as education, training and certifications and even inspections at times.
Examples include licenses to drive, to do business, practice certain trades such as construction, plumbing, electrical, architecture, the practice of law, the practice medicine and even selling some goods and services. Health code inspections for restaurants and grocery stores are good examples of government licensing regulations of goods and services.
Under the current liquor control laws enacted some 40 plus years ago, a “dispenser’s license” allows for the sale of package liquor sales as well as the on-premise sale and consumption of alcohol. Although beer and wine licenses are available, full scale dispenser licenses are tied to population numbers in counties and limits the number of licenses that are available.
Once issued by the state for a one-time fee the liquor license becomes the property of the purchasers. As a result, liquor dispenser licenses carry with them property rights, are limited in numbers and can be sold on the open market. Over the years, dispenser licenses have increase in value and are now known to be sold for upwards of $1 Million dollars. Consequently, only the wealthy or major corporations can purchase dispenser licenses.
Current owners of liquor dispenser licenses have strongly resisted any efforts to allow the creation of different categories of licenses. The argument made by the owners of “dispenser’s licenses” is that creating new licenses or increasing the availability of more licenses will devalue their investment purchase. The argument made by owners of full scale “dispenser licenses” is that their investments would suffer a sever devaluing making them worthless. One argument made is that the state should be required to reimburse or purchase back the licenses for what the owners have paid for them on the open market.
Out of state “chain stores and restaurants”, which are now proliferating Albuquerque and squeezing out locally owned businesses, can afford whatever it takes to buy a liquor license. Smaller, locally owned restaurants cannot compete nor afford to pay hundreds of thousands for a liquor license. Any average New Mexican who wants to open a new bar or restaurant with a full liquor license cannot do so because the cost of a liquor license is so prohibitive as a result of the cap placed on the number of licenses that can be issued based on population numbers.
The biggest problem with the existing state liquor control laws is that they create the problem of granting a “property right” to those who were originally issued state licenses by allowing them to be sold or leased on the open market. The state did so for the sole purpose of putting a cap on the number of liquor licenses in order to avoid the proliferation of liquor businesses in a county, city or neighborhood. It was a good idea at the time and was intended to have an impact on the state’s alcohol abuse problem and DWI rates.
The state originally issued the licenses over 40 years ago for a significantly reduced or nominal fee and buy back those licenses today by the states would be at the tremendously inflated market value.
IMPEDIMENT TO ECONOMIC DEVELOPEMNT
To be blunt, the state’s existing liquor licensing laws impairs economic development. The dispenser licensing law works against the small business owner or entrepreneur. As the market exists now, only out of state chain stores and restaurants, which are proliferating Albuquerque and squeezing out locally owned businesses, can afford whatever it takes to buy a liquor license.
Smaller, locally owned restaurants cannot compete nor afford to pay hundreds of thousands for a dispenser liquor license. Any average New Mexican who wants to open a new bar or restaurant with a full liquor license cannot do so because the cost of a liquor license is so prohibitive. Although there is a cap placed on the number of licenses that can be issued based on population numbers, there is no real evidence that fewer licenses reduce DWI rates and increase public safety in any meaningful way.
Regulation and Licensing spokeswoman Bernice Geiger had this to say:
“Currently one of the impediments to economic development in the state is the relatively high cost of a dispenser type liquor license. One of the goals of this bill is to give people who are priced out of the market the ability to get into the market, to decrease the cost of licenses across the board, but [to give] current licensees the flexibility to pivot to new business opportunities by allowing the buy-back of lost package privileges or the ability to sell the license in markets that currently are restricted.”
RETURN TO TRUE MEANING OF STATE LICENSING TO PERMISSION
The sale of liquor in the state is one of the most highly regulated industries in virtually all states. Licenses usually have ongoing qualifying mandates for renewal and at times have terms as to how long the license is effective and must be renewed. There is also a liquor license revocation process in place, such as revoking a license if liquor is sold to minors. Normally, licenses issued by a state do not give vested property rights to those individuals who apply for and issued the license to be able to sell or transfer on the open market. Dispenser licenses are viewed as “speculative investments” that accrue in value, and that was never the intent of the legislature.
The unintended consequence of New Mexico’s current liquor control act is that it gives property rights to the license holder to sell, transfer or lease the license. This was done for the purpose of limiting the total number of licenses the state can be issued based on population levels. One thing is for certain, the state needs to abolish the population caps on the number of liquor licenses, abolish dispenser licenses and refrain from ever giving property rights to a license’s it issues for permission to do a state regulated activity in the future.
There is very little doubt that the pandemic, the public health orders and the business closures have had the biggest impact on the restaurant and hospitality business in New Mexico. Restaurant owners who don’t have a liquor license will be able to sell liquor with only a yearly fee is an attractive possibility and will result in much-needed business. It’s likely the demand for Interlocal Dispenser Licenses will continue even with more licenses are available once the economy rebounds. No doubt there will be more and more venues and restaurants who will want to sell liquor.
The approach being taken by HB 255 with the issuance of Restaurant B Licenses is a step the right direction, but more needs to be done. The legislature should make it clear that there are no property rights vested in the new licenses, they must be renewed yearly and if not renewed, they revert back to the state. A holder of a Restaurant B license should be strictly prohibited from selling or leasing the licenses, otherwise the State is creating another market as an unintended consequence.