New Idaho law bans selling scarce liquor licenses. Restaurant owners aren’t happy

In Idaho, a state license to sell liquor in a bar or restaurant can take years — even decades — to acquire, thanks to a nearly 70-year-old state law that limits hard alcohol sales. But there’s another way to get a license, if you have $20,000 to $350,000.

Last year, a license to sell liquor in Meridian sold privately for $60,000, and another permit in Salmon collected $20,000, according to listings published online by Arthur Berry and Co., a brokerage service. A Boise license last year sold for nearly $350,000, according to the website.

“There’s a ton of people who put a lot of money into those liquor licenses, including people who have borrowed against their homes and borrowed from family and friends to be able to buy those things,” said Dave Krick, owner and president of popular downtown Boise restaurant Bittercreek Alehouse.

A new law seeks to eliminate a secondary market for license sales that’s flourished because of the state’s grip on how many liquor permits each city can have. Senate Bill 1120 banned selling or leasing liquor licenses. Owners of existing liquor licenses will be able to transfer their permits one time after the new law takes effect in July.

The goal of the new law was to “migrate away” from a system that’s given Idaho liquor licenses “obscene value,” Sen. Jim Guthrie, R-McCammon, who sponsored Senate Bill 1120, told the Idaho Statesman. Over the last five years, the state has collected about $488,000 annually in transfer fees, according to Senate Bill 1120’s fiscal note. That means sales and leases on licenses altogether are worth about $5 million each year.

“It was never intended to be something worth the better part of a half-a-million dollars,” Guthrie said by phone.

But bar and restaurant owners and property developers said the licensing system will go from bad to worse with the new restrictions. The changes don’t address the root problem, that the state’s population-based “quota system” for liquor licenses is choking the supply of permits available, Krick said. And it limits opportunities to buy, lease or sell one, Krick said by phone.

“What it’s going to do is create a lot of frustration,” he said. “It’s just going to put more pressure to find ways to get more inventory.”

Idaho Constitution ‘calls for temperance’

In Idaho, only state-operated stores are allowed to sell bottles of liquor. Each Idaho bar or restaurant that sells liquor by the drink must obtain a license. But under the quota system, cities can have two liquor licenses plus an additional license for every 1,500 residents, with some exceptions for certain establishments, like golf courses and airports.

The quota system is likely the most controversial of Idaho’s stringent liquor laws that date back to the post-prohibition era. After Idaho repealed prohibition in 1933, Idaho lawmakers over the next two decades crafted laws to limit alcohol sales. The regulations were justified by a provision in the Idaho Constitution that directs the Legislature to “further all wise and well-directed efforts for the promotion of temperance and morality.”

While some liquor laws — like one banning alcohol sales on Election Day — have been repealed in recent decades, the 1950s quota system is still in effect, and the “temperance” provision in the Constitution continues to be a guidepost for lawmakers.

“There’s been ideas about blowing the quota system up and just opening it up to everybody, but that’s contrary to the Idaho Constitution, which calls for temperance,” Guthrie said. “I don’t think that’s ever going to be something that’ll gain traction.”

The limited supply of liquor licenses has increased their value. Costs to obtain a license from the state range from $100 to $700, but areas with high demand for bars and restaurants have waiting lists to get a new license when one becomes available through the quota system. That process can take more than a decade, Boise restaurant owners told the Statesman.

Meanwhile, those who already obtained liquor licenses collect top dollar by selling or leasing their licenses privately. Previously, Idaho law allowed licenses to be transferred to a different operator or location with a 10% fee.

Guthrie said it’s “absolutely incorrect” that liquor licenses are being valued as property. The law to bar people from transferring licenses was meant as a solution and a disincentive to buy them as investments, the six-term East Idaho Republican said.

The legislation moved quickly this session, passing both the Senate and House in less than a month. Current license holders said the process was too hasty and lacked sufficient input from the food and beverage industry.

“I’m very disappointed,” Mel Dick, owner of 219 Lounge, a historic bar in downtown Sandpoint, told the Statesman by phone. “I think it has some unintended consequences that are going to affect a lot of the license owners around the state.”

Business owners: Liquor law limits options

The new restrictions on transferring liquor licenses could produce a slew of negative effects, bar and restaurant owners and one property developer told the Statesman.

Some worry licenses purchased for hefty sums in the private market will be devalued. The single-transfer cap on current licenses may turn off prospective buyers or limit what they’re willing to pay, Dick said.

“It complicates things for people who’ve invested in these licenses, because they’re now stuck with less options,” Krick said. “When they get to the point where they’re at retirement or need to pass on the business, how do they make that work?”

Guthrie said critics of the new law are “seeing a lot of boogeymen” before they can even evaluate its effects. The fears over diminishing value in liquor licenses are unfounded, he said, because liquor sales will remain lucrative.

“You’ve got to ask yourself, ‘Why would somebody pay $300,000, $400,000 for a liquor license?’ It’s because there’s a lot of money in selling liquor by the drink,” Guthrie said.

Krick is a board member for FARE Idaho, an advocacy group for independent restaurants, farms, and food and beverage producers who strongly opposed Senate Bill 1120. While banning transfers on new licenses might’ve been a good idea, barring transfers on existing licenses was not, and it will limit opportunities to get a license when the quota system remains, Krick said.

For example, the new ban on leasing licenses will be particularly tough on start-up restaurants, Krick said. Leasing a license allows small, independent restaurateurs to get into the business if they don’t yet have the capital to buy a license in the private market, he said. Leases range from $1,500 to $3,700 monthly in the Treasure Valley, according to online listings.

Additionally, the limits on transferring licenses to a new operator could fetter economic development, Krick said. Many developers purchase liquor licenses for a property and allow restaurant tenants to use the permit as part of a lease, he said.

But the transfer restriction means only one tenant could use the license, said Clay Carley, a prominent Boise developer.

Carley’s firm, Capitol Partners, recently built The Lucy, a downtown Boise mixed-use development with apartments and commercial space. The building will soon host an upscale Italian restaurant, which won’t open until the new liquor law takes effect next month. That means the single transfer option will be immediately used up on the license that cost Carley $200,000.

“I bought a liquor license for a lot of money as an asset to my property, so that I had the liquor license and I could offer it to any operator, rich and poor, assets or no assets,” Carley said by phone. “After I do it once, it goes away. So I invested poorly based on this new law.”

The new law is confining liquor sellers to two options when acquiring a license, Carley said: Wait years to get a license from the state through the quota system or cobble together “huge amounts of cash” to buy a license in the speculative market.

“Neither one of them is practical, and both inhibit free enterprise and business to a very high degree,” he said. “That is anti-American capitalism as you get, restricting supply in the midst of growing demand.”

Guthrie said he’s the first to admit the new law isn’t perfect, and he’s open to tweaks, which may come next legislative session. But he said licenses were never intended to hold significant value, and high-dollar investments in a license is “a business risk, just like anything else.”