ND: Liquor reform again? Calls for liquor-license overhaul echo in Fargo history but change is slow, limited
By Tu-Uyen Tran
March 5, 2018
FARGO — What might normally be a routine request to transfer an existing liquor license has been held up by city officials concerned that the new downtown bar would be too close to two others.
Broadway is “our jewel” and Fargo must take care that it doesn’t become a “row of bars,” said City Commissioner Dave Piepkorn, chairman of the Liquor Control Board. “We’ve had that in the past.”
The new saloon would be within 100 yards of the Bismarck and Empire taverns, all bars with limited food service.
Ironically, a couple of weeks earlier, the saloon’s would-be owner had applied for a new liquor license for a bar at the edge of downtown and more than 500 feet from any other bar. But the city only had one new license available and the other applicant’s name was the one drawn from a hat.
These debates over how many liquor licenses to issue and where bars may locate have come up time and again since the city began issuing liquor licenses 80 years ago, according to a review of Forum news archives.
What happened at last Monday’s City Commission meeting has also come up many times over the years: a city leader called for an overhaul of liquor laws.
Commissioner Tony Gehrig, a Liquor Control Board member who favors a more free-market approach, said the city should limit the number of liquor licenses in any one area if that’s the concern rather that put a cap on the number of licenses citywide. “South Fargo does not have too many bars. North Fargo does not have too many bars.”
He said he’ll ask commissioners to hire a consultant at their next meeting.
Randy Thorson, an owner of Old Broadway, J.L. Beers and other downtown establishments, said the city has formed many committees in the 40 years he’s been in the industry. “They haven’t changed a thing. They have these committee meetings, but it’s a very tough subject, very difficult to understand.”
Alphabet soup
Gehrig and others have long complained that the existing “alphabet soup” of liquor laws are too convoluted.
There are now 30 liquor-license classes on the books, from A for on-sale wine, beer and spirits; to FA for restaurants with bars that serve all three; to FA-GOLF for the same restaurants but at golf courses; to O for wineries that don’t sell wine; to Z, which is exactly like A but can’t be resold to another establishment.
The costs vary greatly, reflecting how concerned the city is with the social impact of each. Licenses involving hard liquor cost more than those involving just beer. On-sale costs more than off-sale. Food service decreases costs, as is being located at a golf course or hotel.
When the city issued its first liquor licenses in 1937, there were just two classes: on-off sale for beer, wine and liquor, and off-sale only.
For a while, the number of license classes grew very slowly, with city leaders adding one whenever a new business model emerged. In 1978, when the city’s “stem-to-stern” overhaul created the alphabet licenses, there were seven classes.
The proliferation began in the 1990s as the city added new liquor licenses for very specific business models such as riverboats, breweries, special events at stadiums, wineries, large breweries, Renaissance Zone restaurants and hotels, and events centers.
Attempts at simplification since 2003 have not led to any changes.
Artificial scarcity
Most discussions of liquor-law overhauls throughout Fargo’s history have had more to do with caps on the number of certain licenses, especially for bars with limited food service and liquor stores, and how scarcity has caused their value to soar on the secondary market.
If someone wanted to open a bar, typically he’d have to get the owner of an established bar to agree to a transfer for a price. The new owner would still have to pay an initial fee to the city.
Today, licenses for bars and liquor stores carry initial fees of $90,000 to $150,000, but Gehrig said he’s heard they cost hundreds of thousands more on the secondary market.
Since the start, the city has tried to control the number of liquor establishments in town. Caps for each license class limited the total to 25 in 1937, which worked out to one liquor establishment per 1,300 residents; compare that to today, when 188 licenses are in circulation, some capped and others not, which works out to one liquor establishment per 640 residents.
Part of the rationale was the impact of alcohol on society. In the early years alcohol was a barely tolerated vice but, as alcohol use became more common, city leaders worried more about binge drinking. Capping the licenses was a way to limit excessive competition that could flood the city with alcohol.
The secondary market didn’t always exist. At the start, the city was firm liquor licenses could not be resold.
“I hope there will be no misunderstanding on the part of those in the liquor business,” Mayor Fred Olsen said in 1941. “As I understand it, if a man sells his business, that cancels his license and there will be no refund.”
The city attorney backed him up, saying state law forbade transfers.
But that law changed at some point and the city allowed it.
In 1973, Mayor Herschel Lashkowitz complained about the secondary market, saying that licenses “ultimately become property in the eyes of some people, so what the city is doing when they issue a license is dispersing property.”
The licenses were worth $1,000 to $2,000, but he said they were selling for $50,000; that’s about $280,000 in today’s money.
But the city was never able to change that despite repeatedly discussions about doing so over the years. City leaders feared they might undermine investments already made by businesses, an argument made by liquor dealers themselves, and offers of buyouts were ignored.
Today, Gehrig identifies buyouts as a major impediment to any liquor-law overhaul that involves eliminating caps or replacing the alphabet soup system. “It’s certainly a road block. That is one of the things we talk about every time we talk about reform,” he said. “If we’re going to do any kind of dramatic change at all, it’s gotta happen.”
Control of place
Lest liquor-law overhaul be seen as a sisyphean task, restrictions on where alcohol was sold were also targeted by reformers and here they’ve proven more successful.
In 1937, all the liquor establishments were downtown and, for many years, that was the only place city leaders wanted them.
But the city and its residents were changing. In 1966, residents wanted city leaders to prevent liquor establishments from opening at Northport and at the Southside Center on South University Drive, which were mostly residential areas. By 1971, liquor stores were allowed in those mall areas.
At one time, restaurants couldn’t even serve alcohol.
When society viewed alcohol as a vice, there was an attempt to isolate it. The temperance movement that had put Prohibition in place between 1920 and 1933 took a different tack in 1946. It convinced voters to pass the food-liquor divorcement act forbidding establishments that sell food to also sell alcohol as a way to stigmatize alcohol use.
The law wasn’t partially repealed until 1964, when restaurants could serve alcohol again; grocery stores still can’t sell alcoholic beverages without having a separate entrance for the liquor shop. By this time, having a drink with dinner wasn’t seen as a big deal and maybe even a good idea.
City law today seems to think so, reducing liquor license costs for restaurants and placing no caps on them.
‘History bias’
The last time the city attempted an overhaul of liquor laws was 2015, after community activist Joe Burgum said the existing laws were too convoluted and inflexible, impeding businesses that don’t fit existing business models from opening.
Burgum gave the example of an intimate cocktail lounge or neighborhood burger joint that would have too few seats to pay for the kind of liquor license needed.
The city formed a committee to explore changes but, after a lot of discussion, it abruptly stopped meeting.
City Auditor Steve Sprague said there had been growing agreement among members, made up of liquor-industry owners and their regulators, but the committee wasn’t sure it really had a mandate from the City Commission.
He said they’d managed to consolidate liquor-license classes down to eight and agree to base fees on seating capacity.
Gehrig, who chaired the committee, said there were ideas but many members were reluctant to take the next steps to recommend implementation. “No one wants to change except for the folks that are trying to get into the business or the folks that are trying to navigate that whole process.”
A consultant, he said, could be the one to take the next steps.
But any change that leaves in place licenses based on business models would seem likely to become convoluted over time as new business models emerge. Yet more radical changes would meet resistance and possibly require costly license buyouts.
“History bias can be a really dangerous thing,” Burgum said of the long history of liquor-law overhauls. “I’m a big believer that every day is a new day and we have an opportunity to shape a new future. But when we have individuals that have good historical knowledge, they look back and say ‘Well, they’ve done this a bunch of times and it’s never worked.’ Well, right off bat, you’re setting something up to fail.”