In most of the United States, a liquor license for a restaurant costs only a few hundred dollars, or a few thousand at the most.
In any major city in Montana, a license can cost as much as a $1,000,000, and rarely will cost less than $500,000. Many Montanans are not even aware of this.
Montana has a “quota system” which severely restricts the number of liquor licenses in each county. We are in fact one of the only states in America still operating such a regime, which has been in place since the decade following the repeal of Prohibition when liquor was still considered an evil that must either be kept illegal or else heavily controlled by the state. That was the thinking 70 years ago. Today, the system today is defended only by its beneficiaries, who have become wealthy under it and must protect their interests.
When you want to open a restaurant or bar in Montana you are required to purchase a liquor license from a private party who already owns one. In other words, you must hope that somebody is ready to close down their establishment, so you can buy a license from them. The state rarely issues new ones, and so in our large cities there are only a few dozen licenses in existence (hence the “quota”), a number that has barely increased over many decades, not at all keeping pace with the growth of population and commerce. The licenses are thus ferociously expensive, worth a thousand times their weight in gold.
For example, when Famous Dave’s opened a few years ago in Kalispell it paid $965,000 for a liquor license. The Red Garter casino in Helena paid $650,000 in 2011. Famous Dave’s is a chain and can absorb the cost. A casino can also afford it because full gaming privileges come with the license. But a small entrepreneur who wants to open a little place and have a full bar in the restaurant? Forget it.
It is the opposite of what we might call a progressive policy. It is a private market kept artificially inflated, by which anybody seeking to open a restaurant must buy into a quasi-monopoly, created and perpetuated by state government, for an outrageous price.
The supposed justification for this policy, the preposterous fiction behind it, is that the drinking of alcohol might get out of hand, might become a huge societal problem, if there is an abundance of locations where citizens can buy a drink. And therefore it must all be carefully controlled. As you can see, the policy does not work very effectively. Statistically, Montanans drink more, and drink and drive more, than citizens of most other states.
Everybody, even the participants in the scheme, admits that there is no real purpose to the policy other than protectionism.
License-holders are desperate to keep the system as is. I suppose I have some sympathy for them. Some bar and restaurant owners paid peanuts for their licenses decades ago and these licenses are now worth a fortune on the market. These players have made life financial planning decisions around this. Others bought their licenses more recently and had to literally take out a mortgage to afford it. Either way, license-holders cannot afford to see Montana convert to a normal system like 95 percent of America. It would cost the license holders (known collectively as Tavern Owners) dearly.
Tavern owners, via the Tavern Owners Association, thus push hard at the Montana state legislature to keep the law as is, and also make donations to help legislators and other politicians get elected. Lobbying by tavern owners includes much more than simply trying to prevent a tearing down of the quota system. Other reforms are also opposed, sometimes successfully, sometimes not.
For example, in recent years there have been efforts by the legislature to loosen certain rules so as to allow brewers and distillers to serve their products, beer and whiskey, on the premises. Tavern owners have fought hard against all of these. Sometimes they win, sometimes they lose.
Economically, the system creates a sizeable hardship for small businesspeople, namely for aspiring restaurateurs. The rule of thumb in the restaurant business is that one must generally expect to make 50 percent of revenue from serving booze. And even then it’s brutally tough to succeed. As somebody once said, the restaurant business is like owning an elephant. It costs a fortune, and will eventually shit on your head. Now add to this challenge the additional expense–an upfront, three-quarters-of-a-million dollar fee for the right to do business– and you can see that Montana is a very tough, nearly impossible, place to try your hand at opening a place of your own.
This may be why Montana does not have quite the gourmet food scene that has bloomed in other places in the West. In Portland, Oregon a license costs $350. In Missoula it costs almost $900,000. If you were an aspiring, talented chef, considering moving somewhere in the West to open a place, you would not view Montana with trepidation?
On the other hand, the Olive Garden or Chili’s have large corporate parent companies that can easily plunk down the money for a license, and amortize the cost over many years. Though even some of these players refuse to spend the money to buy the license when the going rate has gotten too high. Some cities, sadly, have no Outback, Chili’s, Buffalo Wild Wings or TGI Fridays. ~Sigh.~
It’s also why so few independent new restaurants succeed. Think of some of the establishments that have gone bust in Helena, after trying to serve foul tasting slop for exorbitant prices. (Then again, think of such places that are succeeding–they share liquor licenses or have large corporations behind them, or provide gaming).
To fix our system, current license owners would have to be compensated in some fair way. Simply opening the system up and dragging down to zero the value of something that was purchased for hundreds of thousands of dollars would be unfair. There would have to be some compensation, some scheme to phase out the quotas.
It might as well be now. Maybe we can have a bipartisan legislative overhaul. Or maybe a ballot initiative, taking the question directly to voters. Certainly the quota system does not fit the dogma of any political party. Republicans purport to believe in free enterprise and in protecting business from the yolk of burdensome regulations. Democrats believe in this too, but also in affirmatively fashioning policy so that large, monied interests don’t get a leg up over ordinary people. And both parties profess a great interest in “economic development,” which I take to mean the opening of new businesses, especially small businesses (or “Main Street” businesses, as our politicians like to say) on which communities depend and thrive.
And who in Montana might serve as the public face of such an initiative?
We’ve been hearing from Max Baucus’s camp lately that Max is not only a major advocate for small brewers (he’s the head of the Senate Brew Caucus, in fact), but is also not afraid to stand up to tavern owners. So perhaps this is an historic opportunity for Max, to do what’s right for Montana. Heck, if he brought down the quota system, I might even consider voting for him.
At any rate, there was one positive development this week. Tavern owners tried to get a few of their buddies in the legislature to pass a law against Bringing Your Own Booze to a restaurant. It went down in flames.
This was a nice rumbling. Maybe an earthquake is coming.