Special session results in boozier future for C-Falls

On Black Friday, Montana Gov. Steve Bullock signed into law a bill that could have a profound impact on the way liquor licenses are distributed throughout the state.

Senate Bill 5 changes the distribution mechanism for alcoholic beverage licenses from a lottery to an auction, and prevents municipalities located near each other from sharing licenses. Its passage in the recent special legislative session was lauded as a partial solution to addressing Montana’s budget crisis, and is projected to funnel about $13 million to the state’s general budget over the next four years, according to fiscal notes attached to the bill.

The biggest potential impact locally likely will be to the distribution of licenses between Whitefish and Columbia Falls.

Under the old law, all types of alcoholic beverage licenses could be used within 5 miles of the city limits of the municipality in which they were purchased for use.

Municipalities with 5-mile boundaries that intersected with another municipality, such as Whitefish and Columbia Falls, were lumped together so their populations were combined when determining how many licenses the area got. It also meant licenses could move freely between the two adjoined towns.

The Whitefish and Columbia Falls area earned more licenses than either municipality would have earned on its own, but no rules regulated the distribution of licenses between the two cities. Owners of new licenses were free to pick whatever spot they thought would be most lucrative in the 20-mile span that encompasses the eastern-most edge of Columbia Falls with the westernmost edge of Whitefish.

The result is that the larger market often sees the lion’s share of the licenses in use, said John Iverson, government affairs consultant with the Montana Tavern Owner’s Association. The effect is the same in Belgrade and Bozeman, where new license owners were gravitating toward Bozeman, where there is simply a larger population of people with higher incomes.

“What it really comes down to is disposable income,” Iverson said.

The new rules dictate that municipalities stand alone, and a line will be drawn between nearby cities that dictate which municipality can count residents in its population area and limit new license owners to opening up shop in the city their license calls for.

The result is that projected population growth in Columbia Falls has the town poised to receive three new all-beverage licenses in the next four years, along with one beer license and one restaurant beer-and-wine license, according to a document attached to the bill.

The other part of the bill switches the process of determining who can purchase licenses from a lottery system to an auction. Some worried that would favor corporations with deeper pockets over small-town entrepreneurs, but Iverson said the financial barriers to opening a bar are already so great that the additional costs imposed by the auction is unlikely to dissuade small business owners who would have participated in the lottery.

The state has a formula for determining how many of each type of three different alcoholic beverage licenses a given municipality can have. All-beverage licenses are the most valuable, followed by beer licenses and restaurant beer-and-wine licenses.

The number of each type of license in a given municipality is determined by U.S. Census data. Some urban centers that used to be much more populous than they are now, such as Butte, have many more licenses than their current population would qualify for, Iverson said. Others qualify for new ones as their populations increase.

Previously, all parties in a given market that qualified for a new license could enter into a lottery that would determine who won the right to purchase a liquor license on the market. There was no fee to enter the lottery, but whoever won would pay a fee to the state when they purchased a license, said Mary Ann Dunwell, a public relations officer with the Montana Department of Revenue and a Democrat representing Helena in House District 84 who also voted in favor of the legislation.

There will be no fee to enter the auction system either, Dunwell said, and it will be conducted in a fairly low-key way. All interested parties will submit bids to the Department of Revenue. The highest initial bid will be declared the winner, while subsequent rounds of bidding only happen between two parties in the case of a tie.

“It’s all going to be done by paper,” Dunwell said.

Auctions will take place each year, after the Census data is examined and run through the formula to determine which municipalities qualify for new licenses. That will be no different than the frequency of lottery draws under the old system, Dunwell said.

“What we do is every year in the summertime, we take a look at the Census, and if an area has grown beyond its quota, then our team gets together and decides whether it warrants another license,” Dunwell said.

Dunwell said she struggled when deciding whether to support the bill in her capacity as a representative, but was persuaded that the additional auction fees could help the state and wouldn’t be prohibitive to people who were otherwise prepared to finance opening a bar.

“I had a little bit of heartburn, personally, that it could disenfranchise somebody fresh out of business school that wants to work hard and start a business,” Dunwell said.

She said she also became convinced the lottery system was too easily gamed. Recently someone in Bozeman won the lottery after starting 50 different LLCs just to enhance their odds of winning, Dunwell said.

Others representatives were more steadfast in their concern that changing the distribution mechanism to an auction would raise the barrier to entry for small mom-and-pop businesses.

Both Greg Hertz of District 6 and Derek Skees of District 11, both Flathead Valley Republicans, voted against the legislation. They comprised two of just 19 total “no” votes.

Hertz said he thought the changes would benefit big corporations.

“You are going to get into a bidding war with a big, national chain that wants to come to Montana versus a small mom-and-pop restaurant who wants to open a bar,” Hertz said in an interview with the Inter Lake. “My primary concern is that it gives a disadvantage to small businesses.”

Projections attached to the bill predict nearly $1 million will be raised from five different auctions over the rights to purchase licenses in Columbia Falls in the next four years.

It is also projected rights for an all-beverage license in Rexford, which is just west of Eureka, will fetch $80,000 at auction; rights for a restaurant beer-and-wine license in Eureka will go for about $14,000 and rights for another restaurant beer-and-wine license in Kalispell would go for around $54,000.

Iverson said these projections should be taken with a grain of salt, and the predicted revenue may end up being more than what is actually collected.

“It’s an entirely new market,” Iverson said. “We supported it because the state of Montana was giving away something they could sell. For most license holders, it’s not a significant impact.”

Reporter Peregrine Frissell can be reached at 758-4438 or pfrissell@dailyinterlake.com.