Liquor license issue is 2-part problem: Here’s 2-part solution

High on the list of antiquated regulations that are stifling competitiveness in New Jersey are those governing restaurant liquor licensing. So, kudos to Gov. Phil Murphy for being the first governor in modern state history to openly call for the overhaul of a system that for decades has prevented many restaurants from offering their customers the convenience of an adult beverage. The Murphy administration’s plan is to make restaurant liquor licenses less expensive and more readily available. Both are laudable goals, but the governor’s initiative has encountered resistance from an array of special interests, and legislators are now focusing more narrowly on the issue.

George Jacobs. (File photos)

We suspect that the underlying reason for this disappointing response is Trenton’s collective fixation on one remedy — increasing the number of liquor licenses commonly used by restaurants to serve all kinds of alcoholic beverages at a sit-down bar as well as the dining table — to solve two distinct supply problems confronting two very different types of restaurants.

First, there are the “high-rent” restaurants found along highways, in shopping centers and anchoring large mixed-use developments, which typically are regional or national chains. These restaurants are the very sort of eating establishments that need all the perks of a full-fledged liquor license. While these restaurants often struggle to find liquor licenses in many municipalities and rationalize their steep cost (usually in the six-figures and exceeding a million dollars in some municipalities), it’s really a second, much larger group of restaurants that are at the heart of the problem: the “Main Street” restaurants found in every downtown.

These BYOBs, mostly family-owned, operate without a liquor license not by choice, but because they cannot find, let alone afford a liquor license. They are typically too small to include a sit-down bar or utilize the other perks of a liquor license. Instead, most BYOBs merely want the additional revenue that would come from offering beer and wine for sale at the table. Simply put, most BYOBs don’t need a full liquor license, and the current price tag for such a license could never be lowered enough to be affordable anyway. In fact, if the price were to be lowered so dramatically, the diminution in value of existing liquor licenses would be financially devastating to current license holders and too costly for the state to step in and cover the anticipated difference in values with tax credits, as is currently being proposed.

Ted Zangari.

So, how can policymakers in Trenton solve both supply problems with the least amount of market disruption?

The current population cap on liquor licenses (one license for every 3,000 residents in a given municipality) is certainly impeding the ability of property owners to fill large vacant stores and needs to be increased. But, there are other solutions. The state can also cause a “reset” of the nearly 1,400 inactive and pocket liquor licenses currently resting mostly in municipalities where supply greatly outpaces current and predicted future demand. Indeed, one proposed bill would allow such dormant licenses to be revived and freely sold by the host municipality to the highest-bidding municipality, with the caveat that the transferred license be utilized in a redevelopment project.

Still more licenses could be issued if a never-used 2007 law, which created a new class of “smart growth” restaurant licenses for large-scale, mixed-use redevelopment projects, were simply tweaked to make the eligibility requirements more realistic in today’s economy. Some of the fees generated from the issuance of these new licenses could be apportioned to the existing license holders in the municipality, up to the price each paid for their licenses and after first deducting the amount already depreciated.

The two-tier solution

The answer to New Jersey’s liquor license shortage can be addressed not only by adding more licenses for large restaurants with sit-down bars, but by creating a new class of permits for BYOBs to offer only beer and wine at the dining table. Consider:

  • Highway and mall restaurants (mostly regional & national chains): Raise the population cap on licenses per town; revive nearly 1,400 inactive licenses; allow towns with excess licenses to auction them to other towns.
  • Main Street restaurants (mostly mom & pop BYOBs): Create a new restricted liquor permit that only allows the sale of beer and wine at small restaurants — and only served at a table with a food order.

Now, for the “Main Street” restaurants. We believe former Assemblyman John Burzichelli had it exactly right when he previously proposed a new class of restaurant liquor permit (not a license) to satisfy the needs of our BYOBs. A scaled-down permit would not materially impact the liquor license market, despite costing only a few thousand dollars per year, because of the tight constraints that would be imposed. A limited permit would only allow the sale of beer and wine; a sit-down bar would be prohibited; only table service would be allowed, and table service would be tied to hours when food is also offered; and no dance floor would be permitted. Further, the size of a qualifying restaurant could not exceed 4,500 square feet (which is below the size of most “high-rent” restaurants) and eligible locations would be restricted to downtowns, local business districts and neighborhoods. In addition, municipalities would control how many of these permits would be issued in their communities. The new permits would not be transferable or able to be sold on the open market; they would be purchased and renewable on an annual basis for the right to sell beer and wine, period. These limits on a new class of permit would greatly ensure that current liquor licenses remain special and retain valuable advantages.

We question the premise that introducing more liquor licenses into a community will diminish the value of existing licenses. The authors are old enough to recall the saying “What’s good for Macy’s is good for Gimbels” — in other words, having two department stores in Herald Square attracts more customers to the area than one does. In any event, the potential for diminution in value would be limited by the proposed allocation of new fees to existing license holders and greatly minimized by the use of a restricted beer and wine permit to solve most of the supply problem.

Let’s not squander this opportunity to heed a rare call from the top, from Murphy himself, to eliminate a large chunk of red tape from the restaurant industry, which was severely impacted by the pandemic, while at the same time giving owners and redevelopers of retail properties access to more licenses and permits to fill their empty spaces with restaurants.

George Jacobs is president of Jacobs Enterprises, a commercial real estate firm based in Clifton, and Ted Zangari is a real estate attorney and registered state governmental affairs agent at the law firm of Sills Cummis & Gross P.C., based in Newark. Jacobs and Zangari, both active in retail and shopping center real estate, have been involved in efforts to overhaul New Jersey’s archaic liquor licensing laws for almost 30 years.

Disclaimer: The views expressed in this opinion piece belong solely to the authors, and not necessarily to the authors’ respective employers or its management or employees, or their clients.