Phil Murphy's plan to change liquor license rules stirs debate over 'antiquated' system

The state's longstanding liquor license laws are under new scrutiny after Gov. Phil Murphy proposed reform during his State of the State address last week. Referring to the system as “antiquated” and “confusing,” he pledged to modernize it as a way to help grow the economy.

While some see reform as a step in the right direction to help struggling small businesses, others said they're worried about losing out on million-dollar investments. They also questioned whether more liquor licenses would grow the market and why Murphy wants to add them at a time when more than 1,000 licenses sit unused now.

“There is no adequate way to compensate a license holder,” said Michael Halfacre, executive director of the Beer Wholesalers' Association of New Jersey.

“It’s going to hurt the thousands of small-business owners that may have their life savings tied up in the purchase of that license, which is part of their net worth, their retirement planning and everyday financial planning," he said. "And to just — with one fell swoop — decide that it’s worth too much is patently unfair.”

Dana Lancellotti, president of the New Jersey Restaurant and Hospitality Association, said the group recognizes "the significant investment many restaurateurs have made by purchasing a liquor license at market value.”

Though it's “heartened that Governor Murphy acknowledged liquor licenses are major assets to thousands of business owners, we do not believe flooding the market with additional licenses is the answer,” she said.

Murphy doesn't see it that way. The outlines of his proposal would gradually increase the number of available licenses in each municipality and offer tax credits to those who paid for a license, which can fetch several hundred thousand dollars or over $1 million depending on the location.

The governor's office estimates that his plan “could generate up to $10 billion in new economic activity over 10 years and create upwards of 10,000 jobs annually.”

To some in the industry, such an expansion could be a lifeline.

“An affordable liquor license will help stabilize a BYO [bring your own alcohol] restaurant, will help provide for the long term instead of just a survival period every month,” said Ehren Ryan, owner of Common Lot in Millburn, a guest at Murphy's speech who has been pushing for liquor license reform.

Prohibition-era rules still in effect a century later

For decades, New Jersey has allowed one liquor license for every 3,000 residents in a municipality. Murphy’s plan calls for a gradual increase of the licenses over five years. During that time the population cap would also be phased out and new licenses would be “be issued at progressive prices and associated fees based upon business size.”

The proposal would also expand the rights of business that have brewery, distillery and winery licenses, and would “establish a new consumption license" for them without caps or restrictions.

It's unclear why Murphy made alcohol reform his biggest policy idea of his annual speech. But there was already some legislation on the table even before Murphy’s announcement.

Bills introduced by Sen. Vin Gopal, D-Monmouth, last year would make the number of licenses available unlimited and provide a payout of 50% of the value of their license to current license holders in the form of a tax credit to be paid out over 10 years.

“He’s looking at a 50% buyout. That would hurt people,” said Regina Gragnano-Vitti, owner of Cenzino Ristorante in Oakland. “I’m not so sure where their heads are at with it."

Gopal isn’t the only one proposing legislation about the liquor licenses, though. Sen. Troy Singleton, D-Burlington, introduced a bill last week that would deal with so-called pocket licenses. There are an estimated 1,400 of these inactive licenses “sitting out there right now,” he said.

Singleton said the governor's proposal is "well-intentioned" but the state would give up "a fairly significant" amount in tax credits to honor the value of existing licenses.

“I think we’ve all come to realize that we’re long past time to redo our Prohibition-era statute as it revolves around liquor laws and really look at how we can modernize that statute as well as spur economic development in areas that are in need of redevelopment,” Singleton said. “The quickest way we can do that is by having these inactive licenses put back into circulation and really get some of those opportunities moving faster.”

His bill would allow towns to publicly sell licenses that haven't been used for two years to the highest-bidding municipality. It would also require that buyer to issue the license in connection with an economic redevelopment plan.

Lancellotti also pointed to such a potential solution, saying that “getting these inactive licenses utilized should be the first step in any meaningful discussion regarding liquor license reform.”

Would more licenses help or hurt small businesses?

There's no consensus in the industry on whether more liquor licenses would help small business, many of which have struggled to rebound from the COVID-19 pandemic.

For Ryan, who opened Common Lot in 2016, New Jersey's restriction on licenses is “outdated and anticompetitive.” He has worked on grassroots levels to try to get help for businesses that don’t have licenses, and he’s been helping the governor’s office understand the “BYO aspect” of the industry for about six months.

Ryan said “time is of the essence” because there are so many businesses struggling, but he recognizes that “there’s going to be some cynicism" around the idea.

“This is the most progress that we’ve seen in years, so do I think that this has legs? Yes,” he said. “I’m optimistic and I want this to happen.”

Other restaurateurs, like Gragnano-Vitti, are not sold on the supposed benefits.

“Do the local towns want a plethora of new bars or sources of alcohol in their township? It’ll be a burden on the towns to manage and monitor that, and also the issue of consumption,” she said. “I’m not quite sure where they come up with so many more consumers. From the distribution position, consumption is consumption. It’s not going to skyrocket because the pizzeria can now sell wine, beer and spirits.”

Halfacre made a similar point. His group represents wholesalers and distributors — who do not face a cap on liquor licenses — but he said the change would affect its retailers.

“There would be more customers, but there wouldn’t be more drinkers … the only thing that creates a new drinker is a birthday,” Halfacre said. “You’re not going to sell more beer, you just split it more ways, which puts all of them at risk. At the end of three years of some of the hardest times for the hospitality industry, the governor wants to add insult to injury.”

Marilyn Schlossbach, owner of several restaurants in Monmouth County, said she thinks “there’s more pressing issues for our industry and business in general, and middle-class small-business owners and families, than liquor reform.”

She suggested Murphy form a panel to come up with a solution that benefits "a lot of people, not just some people." Schlossbach also said licenses are a “commodity” and that it’s “not one size fits all.”

“We tend not to really think things out before we start promoting the situation, and there are a lot of moving parts to liquor licenses that I don’t think have been really thought out by anybody at this point,” she said.

Mike Egenton, executive vice president of the New Jersey Chamber of Commerce, said his organization has members on both sides of the issue with differing opinions, so he would “not actively take an official position.” But he said “something definitely has to be done.”

“I don’t want to see those [business] opportunities lost for some bureaucratic or delayed reason,” he said. "I think we can get there. I think the governor presented a beginning platform.”

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