Liquor Licenses and Economic Development, Part 1

liquor license and economic development_Part1In the last few weeks, we’ve looked at the issue of overhauling the liquor license quota system in Massachusetts. Those who believe the quota system in Massachusetts should be abolished view liquor licenses and economic development as going hand in hand. (See “Lifting Liquor License Caps in Massachusetts.”)

The same argument is being made in other states with a quota system in place, including Pennsylvania and Michigan.

Pennsylvania’s Economic Development Licenses

Pennsylvania’s liquor license quota system is based on a ratio of one license per 3,000 inhabitants in a county. Once the limit is reached, liquor license acquisition depends on supply and demand. However, legislation was passed to enable the issuance of liquor licenses for economic development even after a county’s quota has been reached.

According to Pennsylvania’s Liquor Control Board, “Act 141 of 2000 and Act 10 of 2002 amended the Liquor Code to allow the Board to issue a restaurant or eating-place retail dispenser license for the purpose of economic development, even if the existing number of restaurant and eating-place retail dispenser licenses in a county exceeds one (1) license per three thousand (3,000) inhabitants.”

There are specified and strict criteria to obtain such a license. The applicant must demonstrate that all other reasonable means of acquiring a license have been exhausted. Of course, that raises the question of the definition of “reasonable.” If a regular liquor license (available within the quota system) is for sale, but at a price deemed too high by the applicant, does that demonstrate “reasonable means”?

Geography presents another restriction. The premises must be located within a specified economic development zone as defined either by the state or by the municipality. Plus a surcharge fee of either $50,000 or $25,000 (depending on population classification) is levied. The number of economic development liquor licenses that can be issued is limited to two (or one, depending on the location’s classification).

The real caveat to these economic development licenses may be the ratio of food-to-alcohol sales. Licenses may be validated or renewed only if the applicant shows that food and non-alcoholic beverage sales are 70 percent of total sales that include alcohol.

If a restaurant falls below that ratio, they may be forced to halt liquor sales, close, or apply for a standard (i.e. non-economic development) liquor license, should one be available.

The problem of falling below the 70 percent ratio is real. So real, in fact, that Pennsylvania’s House of Representatives adopted an amendment earlier this month to increase access to economic development liquor licenses by reducing the ratio of food and non-alcoholic beverage sales to 50 percent of total sales, according to The York Daily Record’sPa. House approves reducing requirements for economic development liquor licenses.”

Rep. Kevin Schreiber (D-York) is quoted in a news release saying, “”These licenses, reserved for special districts designated for economic development incentives, have been underutilized due to an unnecessarily burdensome food sales requirement.”

It’s obvious to us that the issuance of a liquor license does nothing to guarantee economic development. There are many more pieces to the puzzle that must be in place.

(We’ll review similar legislation in Michigan later this week.)