Sides struggle to find right mix for NJ liquor license reforms

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The latest effort to revamp New Jersey’s Prohibition-era liquor license laws is getting mixed reviews.

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 and one retail license per 7,500 residents. Since the number is based on the most recent U.S. Census data, unless a community’s population increases substantially, officials cannot create any more licenses. As a result, the ability to sell alcohol is a highly coveted right and business owners often shell out big bucks to secure one of the limited number of available licenses on the private market.

During his Jan. 10 State of the State address, Gov. Phil Murphy pledged to reform the “antiquated and confusing” regulations, which were drafted after federal Prohibition ended.

Despite the ratification of the 21st Amendment in 1933, officials in New Jersey still sought to regulate and control alcohol by restricting the number of liquor licenses that could be granted to businesses in each town based on population.

Over the years, there have been attempts to overhaul the restrictions, which are considered among the most restrictive in the country. Advocates for change have said the regulations impede economic development of communities, particularly downtowns and Main Streets, and called on lawmakers to lower the cost of licenses to allow for more restaurants to serve alcohol while also being mindful of any perceived loss of value to businesses that hold liquor licenses.

Murphy, who named liquor license reform as a legislative priority for his second term, proposed the state “gradually relax” the cap until it’s eliminated completely. To offset financial losses, current license holders would be eligible for a “targeted tax credit … to support them as the supply of licenses grows,” the governor said.

“The old rules have purposely created market scarcity and driven up costs to the point where a liquor license can draw seven figures,” said Murphy, who estimated that expanding the number of licenses – which would most likely require legislative approval – could create 10,000 jobs and generate $1 billion in new tax revenue.

“Expanding the number of available liquor licenses will not only help keep our favorite local restaurants healthy, it will also keep our economy healthy,” said Murphy, who went on to say, “We rely on a foundation of rules written immediately after Prohibition to govern a 21st century economy. That makes no sense.”

The governor also said he’d seek to remove licensing and operating restrictions on craft breweries, distilleries and wineries, though he proposed no specific changes.

After a 2019 special ruling by the state’s Division of Alcoholic Beverage Control meant to balance the interests of full retail license holders – such as restaurants and bars – and the craft brewing industry, a new set of rules for craft brewery operations went into effect July 1, 2022.

The regulations include a limit of 25 special events per year, no more than 52 private parties and no more than 12 special off-site events.

Additionally, businesses can no longer serve food or coordinate with food trucks or vendors and they can’t serve coffee. New Jersey law only allows breweries to provide token food items, such as potato chips or crackers — all of which must be prepackaged.

Murphy did not say if he was specifically endorsing already proposed legislation to loosen restrictions but said he believed it is “absolutely imperative” to keep the state’s brewing industry going strong.

“People from all across the Northeast, and indeed from across the country, are coming to taste what is being poured from bottles, taps and barrels across New Jersey,” Murphy’s prepared text reads. “They are coming to enjoy one of the best and most diverse restaurant scenes of any state.”

Taking sides

Following Murphy’s address, the New Jersey League of Municipalities praised the proposal, saying the statewide association has long sought reforms to the liquor license application process. League President and Millstone Mayor Raymond Heck said, “Society has drastically changed since Franklin Roosevelt was president and New Jersey’s ability to issue liquor licenses needs to join the long list of those positive changes.”

Heck went on to describe the process as a “relic of post-prohibition reforms in the 1930s” that has “been badly broken for decades.”

“The League, and our Liquor License Reform Task Force, is eager to vigorously participate in this process, including the development of new consumption licenses for the growing craft beer, wine, and spirits industry that creates jobs and economic activity in our communities while providing broader access to liquor license,” he said.

Michael Cerra, the League’s executive director, called the initial proposal, with the phasing out of the population cap and ability for municipalities to generate needed revenue, “steps in the right direction.”

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 redesign the state’s “complex liquor laws.”

“We are glad that work is being done and efforts are once again in play to change this system,” she said. “We know this is a complex issue with many stakeholders. We look forward to continuing this conversation to ensure any changes to the laws are fair for all involved.”

However, Lancellotti noted a concern in ensuring fairness for restaurants and bars that have already purchased their licenses, a cost that can run anywhere from $350,000 to over $1 million.

“While we have welcomed and hosted discussions exploring changes to the liquor license system, we have emphasized that there are tremendous financial investments at stake for our liquor license holders. Under the laws that have been in place, many licensees paid an exorbitant cost, purchasing the license at market value as required. Adding more new licenses to the market will immediately diminish the value of those licenses and devastate this asset. Small businesses who followed the rules and paid the cost required of them, will be faced with huge financial loss,” she explained.

If the state “changes the value of this asset,” current license holders “will be faced [with] tremendous losses financially,” Lancellotti said. “There needs to be a pathway that will avoid a devastating blow to these investors.”

While Murphy is calling for an increase in liquor licenses – and eventually allowing an unlimited number – Lancellotti said she believes one possible solution is for the state to consider liquor licenses that are not being used. “Rather than adding entirely new licenses to the market it would make sense to focus on ways to get the more than 1,000 inactive licenses back into the market. These ‘pocket’ licenses could be publicly bid so that anyone can compete. The transfer of the pocket license between municipalities should also be considered,” she said

A new proposal by state Sen. Troy Singleton, D-7th District, aims to do just that. Under the bill introduced Jan. 12, the state would establish procedures for municipalities to transfer plenary retail consumption licenses for use as part of an economic redevelopment plan.

With an estimated 1,400 inactive licenses in New Jersey, Singleton says putting them in use will help solve the issue of not having enough licenses available and doing so in a way that protects the financial investment that goes into obtaining one.

He also believes it’s an alternative that “strikes a fair balance between the need to expand access to liquor licenses in our state, without devaluing existing owners’ significant investments in them.”

According to the proposal, towns that have already reached their limit of liquor licenses could apply to transfer one of the state’s inactive licenses from any license holder in New Jersey. Then, the municipality that has the inactive license could approve the request — as long as it’s part of a redevelopment effort. Any license that is not used within two years would expire and be eligible for possible transfer.

Lancellotti said the NJRHA supports Singleton’s bill. “The measure would incentivize holders of inactive licenses to use or lose them thus making them available to other entrepreneurs,” she said. “The bill would allow the targeted movement of licenses to areas in need. Finally, the proposal allows the free market to determine the value of a liquor license.”