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Food and beverage in N.J. Serving up a great debate – Liquor license reform bill has plenty of supporters … and plenty of opposition

Mario Mangone, owner of Chambers Walk Cafe and Catering.

Mario Mangone has seen the benefit of serving alcohol at his Lawrenceville restaurant.

Taking advantage of some recent tweaks to the state’s liquor laws, he has been able to offer wine to his customers at his bistro-style Chambers Walk Café.

There are some very strict rules about the process. The wine has to be served by the bottle and it has to come from a local vineyard. And wine is the only alcohol that can be served.

Mangone wishes he had more options, but that would require him to buy a liquor license.

And that’s not likely to happen.

Mangone — like many other restaurant owners across the state — said buying a liquor license is not a realistic possibility because of the regulative red tape, the lack of license availability in some communities and potential overall costs that could reach six figures and more.

That may be changing.

Last year, Assemblyman John Burzichelli (D-West Deptford) introduced a long-awaited overhaul bill that some proponents have referred to as a “common sense” approach to updating what they deem to be a set of archaic state liquor laws.

The measure, which has huge implications for New Jersey’s real estate development community, didn’t see the voting floor in previous sessions.

Burzichelli, however, says he plans to formally roll out a new version of the bill next month, one that will give municipalities a little more say in the matter, among other provisions.

The bill, which is an attempt to address one of the most contentious business issues in the state, would cause quite a commotion if it gets to the floor.

Burzichelli said it’s time to finally have it out on the issue.

“The idea is to bring a new economy to life and to make commerce available where it presently isn’t,” he said.

# # #

Currently, municipalities issue liquor licenses based on population. New licenses are limited to one per every 3,000 residents, capping the limit in many communities and often driving the price up for existing licenses.

Which is one of the problems. There is a finite number of licenses.

Under Burzichelli’s bill, there would be an unlimited number of restricted licenses — available at a reduced cost.

With these licenses, restaurants would not be subject to the population restriction. Instead, they will follow a new set of rules, such as mandating that they operate a full-service kitchen, do not operate a walk-up bar, begin serving liquor no earlier than noon and stop serving no later than 10 p.m. Sunday through Thursday and 11 p.m. on Friday and Saturday.

The restricted license, which would not be transferrable, would include an initial fee and annual renewal fee of $3,000 for restaurants of 1,500 to 3,000 square feet, and $10,000 for establishments with 3,001 to 6,000 square feet.

A large chunk of that fee, some $2,500, would go directly to the host municipality. The remainder would go to the state in order to offset the costs associated with issuing tax credits to full license holders.

A license to just sell wine and beer, given that restaurants meet similar requirements, would also be available under Burzichelli’s bill at a reduced cost, ranging from $1,500 for smaller establishments and $5,000 for larger ones.

Burzichelli said his interest in the bill was sparked by his time on the Red Tape Review Commission and an interest throughout his career to “make New Jersey a more competitive place for business.”

“In this particular area, I know firsthand restaurant entrepreneurs that have had a harder time succeeding and some that have failed because they did not have that revenue stream that the sale of alcoholic beverages provides to a restaurant owner,” Burzichelli said. “It’s a very, very difficult process and you need every revenue stream that’s possibly available to have any chance of making it.”

Not everyone supports the bill.

And some of the biggest detractors are restaurant owners — the ones who spent upward of hundreds of thousands of dollars to buy liquor licenses.

In fact, two recent license sales in Montclair fetched more than $1 million.

Bill Kapas, president of Rochelle Park-based J.C. Kapas Real Estate, said the threat of devaluation is very real, especially in areas such as Montclair where license prices have soared.

“What happens to all those people that have invested hundreds of thousands of dollars?” said Kapas, whose firm specializes in restaurant transactions.

Fun and games (and beer)
Here’s at least one type of liquor law reform you might not have to wait around for.
Gov. Chris Christie signed a bill late last year that would allow businesses to hold both a liquor license and a license to operate amusement games, paving the way for the state to attract national restaurant and entertainment chain Dave & Buster’s.
Businesses had previously been prohibited from simultaneously holding both licenses under a 1959 law. The new law now makes it possible for a business to hold both permits as long as the operating facility is at least 20,000 square feet and offers a minimum of 100 amusement games.
The size provisions built into the law are a clear nod to the popular chain, which is reportedly eyeing entry into the New Jersey market and had previously unsuccessfully attempted to secure a waiver to operate from the Games of Chance Control Commission.
“The only thing that was standing between a multimillion-dollar job creator like Dave and Buster’s — which is interested in opening multiple locations here as soon as possible — and the state of New Jersey was one outdated law,” said Assemblyman and bill sponsor Joseph Lagana (D-Paramus).” No other state in the country had that ban, and the bottom line is that it simply made New Jersey less competitive. This new law helps make our state more business-friendly and opens the door to new jobs.”
Lagana said that neighboring states like New York and Pennsylvania have been collecting millions in tax revenue from their multiple Dave & Buster’s locations.
“New Jersey ought to be welcoming companies that want to establish themselves here, not keeping up a decades-old barrier to new businesses, jobs and tax revenues,” said Assemblyman Raj Mukherji (D-Jersey City), also a bill sponsor. “Repealing this one prohibition will create jobs, enable us to compete with neighboring states, make New Jersey more attractive to these employers and offer additional options for consumers.”   
But while the legislative roadblock for Dave and Buster’s may have been cleared, it’s still unclear as to when the company will look to put down roots in the Garden State.
Multiple calls left for a company spokesperson last week went unreturned.

That’s compounded by the fact that those who are currently in possession of a traditional license have played by the rules — and paid a substantial price to acquire it.

“I think it’s extremely unfair,” Kapas added.

Burzichelli said he’s well aware of the issue. His solution? Compensation from the state.

Burzichelli said his bill calls for qualified holders to receive a credit, equal to 100 percent of the fair market value of the license prior to the bill’s enactment, against the corporation business tax. The credit would be issued in annual installments over a five-year period.

This compensation would be paid for by increased revenue from the increased licenses. But while some early projections show that the bill could lead to about $1 billion in new local and state revenues and the creation of some 15,000 to 20,000 new jobs, questions remain about how those projections will stack up against the state’s proposed financial liabilities to existing license owners.

Burzichelli himself has recognized in the past that his bill may lead to a slight devaluation of existing licenses, but that’s why he’s hoping those stakeholders will recognize that some concessions are being made to honor that.

“I think those of us who are advocating for this are on the right side of this issue and I think that we are conducting ourselves properly by saying upfront that there has to be a degree of compensation in place for these existing license holders under certain circumstances,” he said.

# # #

The bill’s impact will reach a lot more than just those in the hospitality sector.

Developers say the bill has the potential to be a game changer.

“The real estate community has examined this issue for about two years, and the simple fact is that change is inevitable,” said Anthony Pizzutillo, a partner at Smith Pizzutillo LLC, who represents the commercial real estate group NAIOP New Jersey.

George Jacobs, president of Clifton-based Jacobs Enterprises, said restaurants and real estate development are becoming increasingly intertwined and the availability of liquor licenses in a given area is always a focal point.

“Restaurants have been functioning as really the anchor of a lot of different projects recently,” Jacobs said. “And many of them, because of the antiquated nature of our liquor laws, are missing out on a very significant opportunity for sales. The way the assemblyman has designed the bill, we think the impact on most larger restaurants will be negligible, but the impact on the downtown redevelopment scene will be extraordinary.”

Jacobs sees a scenario unfolding in New Jersey’s downtowns in which the added competition of more restaurants serving alcohol will lend itself to increased patronage across the board.

“You can see how the rising tide lifts all ships when you look at downtowns like Morristown,” Jacobs said. “Hoboken had a lot of licenses and Morristown really did not. But they put in Roots (Steakhouse) with liquor and a lot of other restaurants have grown up around it.”

More could be coming, Jacobs said.

“With this new license, every one of those restaurants will have an option that’s not available to them right now,” he said.

# # #

New Jersey Restaurant & Hospitality Association President Marilou Halvorsen said the issue isn’t so black and white.

“I certainly applaud the Assemblyman’s acknowledgement of the investment that current licensees have taken and he’s trying to address that compensation is a part of it, but the reality is that there are some problems,” she said.

Halvorsen questions the state’s ability to fund the compensation program and cites other concerns, such as credit mortgages tied to devalued licenses, which could have “serious financial repercussions on license holders.”

“I absolutely think that the assemblyman was the first person, with any kind of liquor license reform, to formally acknowledge the investment,” Halvorsen said. “So, I think that that was certainly a step in the right direction. But how that would play out, I think, has been kind of a concern and that’s something that we have been talking about internally within membership and in the industry.”

Halvorsen also wonders if New Jersey would be better served implementing the new license program with more of a surgical, slower approach to start, rather than opening the floodgates across the state following such a major overhaul.

Even with about 65 percent of its membership comprised of existing license holders, the NJRHA’s decision to not take an official stance on the bill last spring was rooted more in its desire for additional answers and research on the issue, rather than straight opposition.

Halvorsen said she’s been receiving constructive feedback from members on both sides of the licensing matter and that Burzichelli has also been an active listener.

“We are trying to be fair and balanced,” Halvorsen said. “We’re concerned about the reality of how this happens, kind of being more conservative in this.

“You can’t un-ring that bell.”

# # #

Burzichelli hears the discussion. And he knows the issues.

That why the bill he will introduce soon is different than ones he has tried to bring to a vote before.

The major difference between then and now? An added provision that had been suggested by the New Jersey State League of Municipalities that would allow towns to opt in to the program.

As the bill was previously written, municipalities were required to abide by the new liquor license parameters until they chose to opt out, if they wanted to do so.

But that time frame, which is still being discussed, will be limited, Burzichelli said.

“Along with that, we’re going to say to the municipalities that if you don’t opt in within a period of time, probably in the three-year range, that after that period expires, then the equity protection that will be accorded to your existing license owners will not be available to that municipality,” he said. “We’re not going to keep that door open indefinitely.”

Halvorsen noted that the addition of such a provision is just another reason why there needs to be more debate on the issue.

Burzichelli said that after years of being in the works, the bill is a measured one that does its best to adapt to a changing industry while still offering a fair deal for those who have entered the field more traditionally.

And it’s one that he says better mirrors today’s eating habits.

“Frankly, in many cases, I don’t even know why people put kitchens in their homes, because people just eat out,” Burzichelli said. “So, we have to catch up with how society has changed.

“Right now, government’s inability to react to how society has changed causes people trying to go into business not to have the same advantages of someone else who is in business.

“That’s not fair.”

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Andrew George

NJBIZ Business Events