Last Friday, the 7 a.m. legislative conference call at the Twin Falls Chamber of Commerce featured a full house. There were some infrequent attendees who were concerned about the changes being proposed to the State’s liquor licensing regulations. There was no disagreement that the current process, intended to promote temperance, had also produced the unintended consequence of an asset which, bought at a much lower price from the state, immediately increased in value in a significant way. The sale of our local Pioneer’s Club license for almost a quarter of a million dollars has recently brought this value to public attention.
This problem was identified over a decade ago. There was some interest in addressing it, but it is not a popular thing to propose that someone’s equity interest in property would be lowered by government. On the other hand, the need for more liquor licenses has grown. The proceeds especially appeal to those of us who think of the “sin taxes” as fair game for expansion of revenue. There is also the problem of the Republican party’s election season mantra of “smaller government” which, in part, means fewer and simpler to understand regulations. In order to be equitable, the statutory law and the accompanying regulations will have to be complex.
When I think of mitigating the negative effect of having a new liquor license, issued by cities or counties according to criteria they establish, I see only permissions or prohibitions modified by exceptions. A headache to read and understand. In fact, early proposals are for two tiers of license. The existing, grandfathered license can be sold anywhere in the state while the newer license cannot be sold. I believe there is also a proposal that newer licenses cannot be leased to premises not owned by the person who holds the license. The older license will also have an additional 5 percent discount at state liquor stores. Complexity, consisting of exceptions and their consequences must be borne if this problem is to be solved.
Both of those ideas will preserve some value in the older licenses — a good thing. However, there are some license holders who are essentially counting on lease income to finance their retirement plans. They no longer own a business but lease the license(s) to someone who does. Why would anyone pay for a lease plus the annual renewal fee when they can buy a new license for less money? Also, the estimated value of a liquor license has become part of the assets of many businesses. What do they do about the loss in value which is sure to come?
I have some ideas to propose to the legislators, and you, able reader, may think of others. The first is that, for the next five years, all chain restaurants whose corporate headquarters is located outside of Idaho must purchase a legacy license to operate. This might be a boon to our local entrepreneurs who want to establish a new restaurant. It would also establish a market for another suggestion. Legacy license owners who register to sell within the 6 months after the new license is offered are the only ones who may sell those licenses. If all licenses offered are sold before the five years, the chains may buy the newer license.
During the five-year legacy period, existing owners could be offered a chance to write off ½ of the assessed value of the license at a rate of 1/5 a year. They would have to make the business decision to keep or sell in the first 6 months. This would not be a make-whole answer but would allow the legacy licenses to retain the value of the ability to sell and lease the license within the state. This would have value in areas where the city or county does not issue licenses.
It is time to legislate this situation. Postponing it will only make the cost to license purchasers harder to bear. It will also decrease the satisfaction of Idaho’s budding restaurant entrepreneurs and their investors.