Bill would gradually relax existing cap, lower costs

Much anticipated legislation that would advance Gov. Phil Murphy’s vision to revamp New Jersey’s decades-old liquor license system has been introduced into the state Legislature. Sponsored by state Sen. Gordon Johnson, D-37th District, and Assemblymembers Raj Mukherji, D-33rd District; Shama Haider, D-37th District; and Ellen Park, D-37th District, Senate Bill 3675/Assembly Bill 5270 would expand the number of plenary retail consumption licenses by gradually relaxing an existing cap as well as lowering the costs for restaurants and bars seeking to obtain one.

The measure would also create a targeted tax credit for current license holders that would be affected by the expanded number of licenses in the state and remove recently implemented operating restrictions on craft breweries, distilleries and wineries.

After identifying liquor license reform as a top legislative priority for his second term, Murphy has stressed the need to update the “antiquated and confusing” regulations in order to promote “a stronger and fairer economy” in the Garden State.

Since 1947, New Jersey has restricted the number of licenses a municipality can grant based on population. Under the law – which was most recently amended in the late 1960s – towns can issue one consumption license for every 3,000 residents. As a result, the ability to sell alcohol is a highly coveted right in New Jersey and business owners often spend as much as $1 million to secure one of the limited number of licenses via the private market.

During a Feb. 23 roundtable discussion in Clinton with restaurant owners, lawmakers and municipal officials, the Democratic governor unveiled what he described as “a new equitable, affordable framework that has the potential to generate massive economic opportunities for small businesses and communities statewide.”

Besides creating a pathway for a “next generation of aspiring restauranteurs, brewers, distillers, and vintners,” the plan would make them “more competitive with small businesses in neighboring states while transforming our economies and our downtowns,” he said.

“Equally important, it will establish a tax credit to support existing license holders and it will maintain local control over the licensing process so that communities have a say in the future of their town,” Murphy added.

After gathering feedback from stakeholders, Murphy said the input would help inform final decisions on the proposal and that legislation would be forthcoming from Johnson and Mukherji, both of whom were present for the roundtable at Pru Thai restaurant.

Following a Feb. 28 introduction, the bill was referred to the Assembly Oversight, Reform and Federal Relations Committee and the Senate Law and Public Safety Committee.

Johnson – whose district is home to several towns known for their eclectic dining scenes, like Englewood, Teaneck and Hackensack – said he was “excited” to be working alongside Murphy “to reform our archaic liquor license laws.”

He went on to say, “Updating these outdated statutes will uplift our main streets and finally give our local restaurants a real chance to purchase a license.”

As representative of the 33rd District, an area with popular foodie destinations including Hoboken, Jersey City and Weehawken, Mukherji said he believes the state’s liquor laws are “an obstacle” to “realizing the full potential of economic growth and job creation in the industry and are stifling competition.”

The assemblyman also applauded Murphy’s “call for modernization and the creation of new opportunities for restauranteurs and small business operators throughout our state, while seeking a fair and innovative approach to balancing growth with the interests and significant investments of existing liquor license holders.”

Phasing out

Under the bill, the existing population cap for plenary retail consumption licenses and seasonal retail consumption licenses would be reduced each year by 10% over a five-year period starting in January 2024:

• On or after Jan. 1, 2024: one license for every 2,700 residents
• On or after Jan. 1, 2025: one license for every 2,430 residents
• On or after Jan. 1, 2026: one license for every 2,187 residents
• On or after Jan. 1, 2027: one license for every 1,968 residents
• On or after Jan. 1, 2028: one license for every 1,771 residents

After the phase-out is complete in January 2029, municipalities would be able to determine and regulate the number and types of licenses to be issued. The local review process would be the same as the one in place currently, which is done with supervision from the state Division of Alcoholic Beverage Control.

By expanding the number of consumption licenses, New Jersey “has the potential to increase sales for both existing restaurants and new restaurants that open due to the increased availability of licenses,” according to information provided by the administration.

Citing projections from the New Jersey Economic Development Authority, the governor’s office said reforming the system could generate up to $10 billion in new economic activity over a 10-year span and create upwards of 10,000 jobs annually. It also has the potential to introduce “significant new state and local revenue” that could be reinvested “into new economic development efforts.”

It is unclear how the NJEDA came up with its projections and the agency did not respond to a request for comment from NJBIZ.

Lowering the cost of doing business: According to the bill, new licenses would be issued at progressive prices and associated fees based upon business size, which would be gauged by number of employees.

Prices would be reviewed and set annually by the ABC, while municipalities would retain the right to assess local fees upon issuing a new license with a cap on the annual renewal fee – not to exceed $2,500 – in order to maintain affordability.

Support for existing license holders: It would also authorize the state to establish a means-tested tax credit for current plenary retail consumption license holders to offset financial losses they would face as the supply of licenses grows.

According to the proposal, the tax credit would be determined based on taxable sales within the preceding three calendar years: $50,000 for license holders with sales of less than $1.5 million, $40,000 for license holders with sales of more than $1.5 million but less than $2.9 million, and $30,000 for license holders with sales that exceeded $2.9 million.

Out of pocket: Under the proposal, licenses that have been purchased but not in use for more than two years can no longer be held in perpetuity by the license owner.

Additionally, licenses that have not been active for five years preceding enactment of the bill will go to the municipality for reissuance at public sale. It would also designate the municipality as the entity to handle any future issues with inactive licenses, rather than the ABC.

Changes for breweries, wineries and distilleries; The bill would lift operating restrictions that the ABC imposed on breweries, distilleries and wineries in July 2022 that aimed to balance the interest of full retail license holders – such as restaurants and bars – and the craft brewing industry.

Under those rules, breweries, distilleries and wineries are prohibited from serving food and non-alcoholic beverages and face a limit on participation in special events.

S3675/A5270 would remove those regulations, allowing for coordination with food vendors as well attendance at unlimited off-premises events and hosting of unlimited events on premises. It would also eliminate a requirement that breweries and distilleries must give customers full tours before selling alcoholic beverages for taproom consumption.

Better balance

Dana Lancellotti, president and chief executive officer of the New Jersey Restaurant and Hospitality Association, said the organization remains open to talks on ways to improve the current liquor license system and promote small business growth, while also ensuring fairness for restaurants and bars that have already purchased their licenses—a cost that can run anywhere from $350,000 to more than $1 million.

“Most restaurant owners who hold licenses are family-owned, small businesses whose livelihoods depend on the investment they made under the rules and regulations currently in place. Flooding the market with new licenses will instantly diminish the value of these licenses and financially devastate thousands of small business owners during an already challenging economic climate,” she said.

According to Lancellotti, the NJRHA has offered possible solutions for lawmakers to consider, including using the over 1,400 inactive licenses across the state before there is any discussion about adding new licenses to the market; and allowing for the transfer of inactive licenses between municipalities for redevelopment, improvement or revitalization zones.

The association is also calling on the state to “appropriately” recognize the significant investment made by current license holders.

“The value of these investments, often held as collateral by financial institutions, will instantly diminish once new licenses are added to the market. We must support these small business owners who will face tremendous losses overnight,” Lancellotti said.

The NJRHA has also come out in support of a measure introduced in January by state Sen. Troy Singleton, D-7th District, and state Sen. Paul Sarlo, D-36th District, that would establish procedures for municipalities to transfer plenary retail consumption licenses for use as part of an economic redevelopment plan.

The bill – which Singleton said he believes “strikes a fair balance between the need to expand access to liquor licenses in our state, without devaluing existing owners’ significant investments in them” – has since been referred to the Senate Law and Public Safety Committee.

Companion legislation by Assemblymembers Stanley Sterley, D-16th District; Reginald Atkins, D-20th District; and Carol Murphy, D-7th District, also remains at the committee level.

Murphy’s proposal has drawn praise from the New Jersey League of Municipalities, a statewide association that has long sought reforms to the liquor license application process.

In a statement, the League said the proposal “has the potential to generate significant economic opportunities for small businesses and communities throughout the state.”

The organization also said it supports “retaining local discretion over the licensing process and recognizes the need for reforms that will provide municipalities with the ability to meet the changing needs of their community and to advance economic development and redevelopment.

Princeton University President Christopher Eisgruber also backs the changes.

During the university’s annual meeting Feb. 27 with municipal officials to discuss shared issues affecting the community and the school, Eisgruber said, “It may be surprising that it’s of interest and importance to the University, but I am someone who’s very glad that Gov. Murphy put liquor license reform on the legislative agenda.”

He went on, “I think one of the advantages that New Jersey could get by this kind of reform is the opportunity to have more of a kind of entrepreneurial restauranteur, the young chefs, the chefs from underprivileged backgrounds or minority backgrounds, who may want to open up restaurants of the sort that I think will attract a younger population and encourage more students to stay to make their careers in the state of New Jersey.”

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