Lawmakers examine liquor license quotas

Arguing that Montana’s current quota system for liquor licenses is hurting downtown business in his district, a Belgrade-area lawmaker is sponsoring legislation that would give municipalities the power to raise or lower the number of available liquor licenses within city limits.

During a Wednesday hearing before the House Business and Labor Committee, Rep. Bruce Grubbs, R-Bozeman, said his bill was proposed by the Belgrade Chamber of Commerce after the town’s liquor licenses began migrating out of the downtown area and into nearby Bozeman, which shares a quota capping the number of total available licenses.

“We think we have a good idea to help cities and towns have local control when it comes to their economy and licenses, partly for small restaurants and entrepreneurs in their towns,” Grubbs said.

Under House Bill 412, municipalities would be able to set an “alternative quota” for retail beer licenses and all-beverage liquor licenses within city limits, allowing them to raise or lower the limits currently set by the state.

“A liquor license is worth significantly more in Bozeman than it is in Belgrade,” said John Youngberg, with the Belgrade Chamber of Commerce, who joined other speakers from Belgrade in urging the committee to endorse the alternative quota system.

While offering different perspectives on the bill’s potential impacts, testimony from both proponents and opponents illustrated the complexity of Montana’s current system for alcoholic beverage sales.

DEPENDING ON the type of establishment and how beverages are sold, alcohol licenses come in many forms. The state’s Liquor Licensing Bureau offers licenses specifying on- and off-premise sales, the type of alcohol sold, operating hours and food-serving requirements. Special licenses also exist for airports, resorts, golf courses and veterans’ or fraternal organizations.

The most sought-after — and expensive — licenses are known as “all-beverage” licenses. They allow establishments to serve beer, wine and liquor from 8 a.m. to 2 p.m., and also allow gaming on the premises.

All-beverage licenses are allotted both to counties and incorporated cities and towns on a quota basis. Counties get one all-beverage license per 750 residents, and may only be obtained by businesses located at least 5 miles outside an incorporated jurisdiction.

Incorporated cities and towns operate under separate quota systems based on their population, and the quota area extends across a 5-mile buffer surrounding city limits. Cities with 3,000 or more residents get five licenses, plus one for every additional 1,500 residents. Many municipalities have more licenses than their quota allows, as bars and restaurants that operated before the 1947 law went into effect were grandfathered into the system.

In addition, once a city or town grows to within 5 miles of another municipality’s boundaries, the state groups them into the same quota area — meaning the licenses in Belgrade can now be transferred into Bozeman, and vice versa.

Even in above-quota areas, like those in Flathead County, liquor licenses can fetch hundreds of thousands of dollars each. Because of the significant investment required to obtain one, bars, restaurants and casinos that are already licensed argue that changing the system now would unfairly devalue their investment.

Representing the Montana Tavern Association, John Iverson told the committee that House Bill 314 would “destroy the quota system” and punish business owners who have paid to participate in the current quota system,

“Every one of us obeyed the law when we started our businesses, we bought our licenses under the law and continued to operate under the law the way we were supposed to,” he said. “This bill would certainly pull the rug out from under all of us.”

Iverson also argued that the measure would create potential legal conflicts and further complicate the state’s existing labyrinth of liquor rules.

The bill was also opposed by the Montana Bankers Association and the Montana Independent Bankers Association, with representatives telling the committee that devaluing the high-dollar licenses would prompt banks to call in loans to those businesses currently using their licenses as collateral.

LIKE BELGRADE and Bozeman, Flathead County’s other two municipalities lie within 5 miles of each other, meaning the cities share a single quota area containing 24 licenses.

Jay Marquesen, the owner of the Nite Owl & Back Room in Columbia Falls, argued against Grubbs’ bill in an interview with the Inter Lake. He said he hasn’t seen any evidence of licenses migrating to Whitefish over the years, despite the resort town’s higher concentration of drinking establishments and high-income vacationers.

Marquesen said all-beverage licenses in the quota area go for around $500,000 each, and argued that if Columbia Falls was able to bump up its quota, the policy would effectively devalue his and other bar owners’ investments.

“Unless they were going to pay us back,” he added. “They’re valuable. That’s the deal. They’re like property.”

Although the Montana Brewers Association hasn’t weighed in on House Bill 412, the trade group and individual brewers have previously endorsed measures that would ease the financial barriers that often keep them confined to a more limited brewery license.

The state places no cap on the number of those licenses it issues, but restricts taprooms to selling no more than the equivalent of three 16-ounce pints of beer per customer, per day, and prohibits sales after 8 p.m.

For Graham Hart, owner of Bonsai Brewing Project in Whitefish, that substantially limits the degree to which he’s able to grow his business. While he understands the owners of bars and restaurants who worry about the possible devaluation of their all-beverage licenses, he argued that the current system amounts to an “anti-competitive” approach to small business.

“It’s definitely something that would help us a ton, as a brewery, if we could get one, because we could sell more beer and stay open later and that would increase business quite a bit,” Hart said. “The quota system is kind of too bad. It was designed to keep public drunkenness down back in the day, but I just don’t think that’s the case any more.”

Hart said the impacts of the quota system are more pronounced in Kalispell, where residents often bemoan the lack of night life in the immediate downtown area. Over the years, many of the available liquor licenses have migrated to chain restaurants in North Kalispell’s sprawling commercial area, or the casinos along Idaho Street and in South Kalispell.

“It does not allow any forward change in your community, and the drinking environment and drinking atmosphere in your community,” Hart said. “If they lifted that, I think you would end up having better businesses and some of the worse ones [would] fade away.”

Kalispell’s liquor-license area has 30 active all-beverage licenses, above the current cap of 17. Of those 30, two — Scottibelli’s and Brannigan’s — are located within the downtown area. The Veterans of Foreign Affairs post and the Eagle’s Club both have special all-beverage licenses that don’t affect the quota.

Five licenses have migrated to North Kalispell as commercial development has spread through the area, while casinos along U.S. 2 and in South Kalispell account for six. Five additional licenses are held within city limits while the remainder are located in Evergreen and the outskirts of the 5-mile radius surrounding Kalispell.

Three of those licenses are held by businesses in Somers, which falls within Kalispell’s 5-mile doughnut, including Del’s Bar, owned by Robert Lincoln. Testifying against House Bill 412 on Wednesday, Lincoln said he used to own businesses in Kalispell, and offered an alternative reason for the lack of liquor licenses operating in downtown Kalispell.

“When there were a lot of licenses in the downtown area, when we were active, there was definitely a problem with police overzealous programs, and a lot of them left because of that,” he said.

“The population quota has been pretty successful for a lot of years. It’s good for the safety of the people and it’s held control on this.”

The committee did not take action on the bill this week.

Reporter Sam Wilson can be reached at 758-4407 or by email at swilson@dailyinterlake.com.