Interim Economic and Rural Development Legislative Committee hears suggestions to reform the liquor license laws
Editor's Note: This is the final, albeit long, report from the ERDC meeting held in Silver City on July 14-15.
By Mary Alice Murphy
At the Western New Mexico University J. Cloyd Miller Library, on Wednesday morning, July 15, 2015, members of the Interim Economic and Rural Development Legislative Committee heard about changes to liquor license laws that would benefit economic development from Alex Ocheltree, Silver City restaurant owner; Teresa Dahl-Bredine, co-owner with her husband of two establishments including a restaurant and inn and a restaurant and craft beer production plant in Grant County, and Shannon Murphy, Santa Fe Nighttime Economy Task Force member.
"We hope you've had a chance to see the downtown Silver City area," Ocheltree said. "We think it's special, but it's a work in progress. We think our future lies in weekend getaways to Silver City. Bisbee is full of people from Tucson, and we're just an hour or so farther.
"We don't have the necessary infrastructure," he continued. "Although we throw great events, we need weekend visitors all year for tourism economic development."
He said most members of the Liquor Control Act Task Force, of which he was a member, achieved what they wanted at the last legislative session. He alleged the Liquor Control Act causes speculation because people can't expect to get a return on their license.
"There is no full liquor license left in downtown Silver City," Ocheltree said. "We have a town full of liquor stores. That's where the licenses are headed. Chains have their own monopolies. Corporate restaurants are buying the full license. Prevention folks have it wrong when they say no new licenses. The full licenses are so expensive that bar sales have to be driven to pay off the license.
"We believe part of the problem is those aggressive sales," Ocheltree said. "I went into the task force with the idea of creating a distillery license. The license would create a limited amount of alcohol by New Mexico for New Mexico. Then (Sen.) Bill Soules introduced a bill that we didn't know was coming. The idea was too broad and didn't include restrictions.
"We would like to combine the restrictions to Soules' idea of an enhanced restaurant license, which would include craft distilleries," Ocheltree continued. "It would enhance downtowns, and historical and cultural districts. Challenges in downtown Silver City are small buildings, parking, infrastructure, and we need to fill up empty buildings. The only way to survive is with entertainment, food and spirits."
He said the trend in liquor licenses is the rural areas will continue to lose them because of costs. "We can't affect existing licenses because they are worth too much. We need to build a separate license parallel to them. A craft-distilled spirits license needs restrictions, but it could be joined with a restaurant beer and wine license."
"Cities and counties are different," Ocheltree said. "Some are in historic districts. It's important not to have a statewide standard."
He said most restaurants in Silver City close by 10 p.m., although his stayed open until midnight. "But we got lost in the shuffle. Football games and the rodeo are done by 10:30 or so, with the only options being to buy fast food or go to bars."
Ocheltree noted that House Bill 339 passed the House and the Senate but was not signed by the governor. "We want to add distribution up to 3,000 gallons to the bill. A craft distiller has to make 1,000 gallons, but they can't distribute and that's a lot to sell in one place. If they build the brand locally, then they could be able to distribute."
Dahl-Bredine said the distillers' bill almost made it through. "I, with my husband, own Little Toad Creek Inn and Tavern near Lake Roberts known as "The Country Toad," and in Silver City, the Little Toad Creek Brewery and Distillery, known as "The Toad." The first year, we had a restaurant beer and wine license. Our second year, we doubled because we were making craft beers. Our third year we have tripled our revenue. We are a pretty big contribution to the economy. With a brewers' reciprocity bill, we can sell one another's product. We are now distributing to other wineries and purchasing from them. Reciprocity for distillers could open up huge growth. It would also help tourism."
"The perceived threat is to the full licenses," she said. "Yes, we need to protect them. I don't think it's a threat to a full license, because they would not be transferrable. Tourists want locally created items."
Murphy said, although she is not a member of the Liquor Control Act Task Force, "it's a parallel process. The quota system is impacting the arts economy. Santa Fe, over the past 10 years, has seen 10 music venues closed, which creates devastating failures on the entrepreneurs, many of whom are leaving New Mexico. The Santa Fe City Council funded a pilot process focusing on why performance spaces are failing. They are not about going out to an event to get drunk, but the revenue model depends on alcohol sales. Tickets pay for the performing artist, but the person owning the venue has to make money on other sales. Alex and I and a team are working on legislation, which would expand the restaurant beer and wine license to include venues with performing artists. It would create a higher ratio, with 70 percent of revenue from the ticket and food and 30 percent from alcohol. They would not be able to sell alcohol when there is no performance event."
She said three criteria need to be met: 1) It will not threaten existing license value; 2) It will not put out of business any current liquor license owner; and 3) It will not create a threat to public safety.
Murphy said entrepreneurs are not currently threatening the full license owners, because they must use them. She said some entrepreneurs tried leasing a license, but they have gone out of business. It will not remove any licenses from the pool.
She said Santa Fe put out a request for proposal for a pilot project for concerts in bars for three full days. When they collected the data from 3,000 visitors, they found that 67 percent bought dinner and spent an average $38 per person on food, drink and the event ticket. One bar owner, whose venue was too small for a performance event, grossed two to three times what he gained even during huge events. "A rising tide floats all boats," Murphy said. "It would bring more people out of their homes to support the economy."
Murphy said the legislation would not threaten public safety, but would alleviate such threats. "When new entrepreneurs have to lease licenses, they have to sell a lot to make up the cost of the sometimes $3,000 a month for the lease. When a person attends a concert, they may sell only one beer per ticket holder. Entrepreneurs can come up with ways that don't benefit the public. This license would help without creating an environment that harms people."
She said many musicians come to Santa Fe, but there are not enough venues to host them. Sometimes they find "underground" venues, such as hosting in homes. "These are unsafe, because there is no occupancy restriction, no servers, people bringing their own alcohol and no responsibility or accountability. On a semi-regular basis, there are three to four unregulated underground venues being utilized."
"We need to increase venues to bring people out for a meaningful experience," Murphy said. "It models responsible behavior."
She said another piece of legislation that is needed is to allow art galleries that want to host a reception to be able to offer wine. "It would be a special dispensary permit. Quota holders don't want to offer that license. Venues have a huge permitting hurdle. Liquor stores have a stable of professional servers. I think we should explore a cultural license so the art galleries could contract with the certified servers and not put a quota on the license holders. Allow art galleries to contract with the professional servers, who have the same responsibility and possibility of losing their license, if they do something wrong."
Rep. John Zimmerman said his biggest concern is the return on investment for those who have bought the liquor licenses. "Don't they depreciate?"
Ocheltree said owners of the liquor licenses often borrow money against them, so they have to pay the banks in order to keep their licenses. He said when the Buffalo Bar was going into decline, it was a public health risk, because they cut their prices and were selling cheap liquor. "Often, the licenses are so much borrowed against that the debt accumulates. With a restaurant wine and beer license, when the place closes, the license vaporizes.
"As I see it there are three competing interests," Sen. William E. Sharer said. "There are some people who want no alcohol. There is the property owner of the liquor license, and there is the entrepreneur who wants to keep his business."
"I think a reasonable liquor license law would make a healthy community economy," Ocheltree said. "If a downtown is not healthy, all of the town is unhealthy. It is important to bring in tourists for the quality of life. Such a license would make life exciting. And the retention of our youths is also important."
Sharer said the current law repels economic benefits. "It bothers me the way, the property right developed. We have an unhealthy relationship with alcohol. In Germany, they have a different attitude. The liquor laws are dramatically different, and you don't see drunks. They were drinking stronger beverages, but they didn't get drunk. It's going to be a problem until we figure out a mindset to be healthier."
"As long as we have to sell alcohol aggressively to pay for the license, that adds to the unhealthy mindset," Sharer said. "In our effort to have more control and regulation, it leads to an unhealthy mindset. We have to tell the bankers and license holders before we made a drastic change that this is coming. It's not healthy to be drunk, but I don't think it's unhealthy to drink. We can't be pusillanimous about attacking the problem. It is our obligation to do something. We need a grander scheme and we need your help in developing a healthy attitude toward alcohol."
Sen. Richard C. Martinez said the legislators need to change the formula, while providing an opportunity for places to keep their licenses. "It is important to allow liquor licenses in areas that don't have them. I wish we had consolidated the bills. HB 440 on reciprocity got signed. It's sad we're losing the full liquor licenses to big boxes and hurting small businesses, which cannot compete with the casinos."
Sen. Ron Griggs said the discussion continues to show the challenges small businesses face without the opportunity for small businesses to buy licenses. "We did get the licenses in under the quota areas. They can leave, but it will keep licenses from ever returning to Silver City or EspaÃ±ola."
"We're hearing one approach, but there are restaurants outside downtowns and cultural districts, who also can't afford the licenses," Griggs continued. "These suggestions would enable small businesses to compete with a Chili's or an Applebee's. The big restaurants can buy the full licenses, but they are pretty much unaffordable for mom and pops. If they have to pay an additional half a million dollars for a license, the corporates are not going to look at smaller communities.
"One of the challenges we have is the DWI problem," he continued. "Maybe it's more prevalent in some areas, but advocates don't want more alcohol. I'm not sure more licenses equates to more DWI. Be sure we can address the DWI issues. The big lobby doesn't support changes in penalties. This is an issue across the state. We can approach it piecemeal or in an omnibus manner. It's being driven by people to have a need to make a business viable. Government is a roadblock and does not help in this situation. If we want to be business-friendly, we need to help you guys. We need to figure out why we lost HB 339. I hope you get to present to more committees."
Zimmerman gave an example about people in Las Cruces crying out for an Olive Garden, but they kept hearing from franchisees that they couldn't afford the liquor license for the city's population. "Finally the city reached the population point where it came in."
Rep. Patricia Roybal Caballero said: "We recognize a great deal of antiquity in our laws. There probably was once a reason for the huge fees for licenses. There is now an apparent need to do a clean sweep. In rural New Mexico, there is a disparity in economic development. The discrepancy between urban and rural need not exist, because rural areas need access to the same opportunities. I am fully supportive of relaxing what we need to relax. You have provided options. You have addressed reducing fees, providing new options, expanding access and respecting local authority. We also need to address prevention advocates. They look at educational efforts. We need to reduce penalties to address excess drinking."
"As a state, New Mexico needs to find ways to reduce the anxiety of the opponents and the proponents," Roybal Caballero continued. "I recognize the level of fear. We need not fear having a balance and being synchronized to reach the resolution of the problem. I do have a question. Did you in your proposals consult with other states?"
Ocheltree said in his research, the Commerce Clause comes up in many states with New Mexico-only products. "We discussed with the former attorney of gaming and alcohol. The U.S. says we can't do explicitly New Mexico products. We can get around it by making only small amounts available to small distributors. Arizona law includes liquor with wine and beer for restaurant licenses. Here, we can't do that because of the Commerce Clause and because of the existing liquor licenses."
Roybal Caballero said the information provided in the presentation addressed some of the fears and a balanced approach to address all components. "The fees are outrageous and meant to be only in the hands of those who can afford them. It does not allow the low- and middle-income people to compete. A new component is necessary. We rely on gaming. By proposing the Bingo and raffle exceptions, it gives us a health balance. We have to find common ground. We're focused on rural communities by building on assets they already have. I strongly urge our committee to take a holistic approach. It can be 'our' way including opponents and proponents. We can dispel the fear by finding common ground."
Committee Chairman Benny Shendo said it was clear a lot needs to get done. "We see the value. I haven't read about the Arizona liquor license structure."
"We are proud and ready to welcome Tucson every weekend," Ocheltree said. "I understand Arizona went through an overhaul of their license structure 30 or 40 years ago. There is no value to their licenses, just an annual fee, and no quota. They have local governing body authority. It is simple and cut-and-dried. We have a foundation with the restaurant beer and wine license, which is different from the bar license. In our restaurant, we cut off drunks that come in. Prevention advocates like food with drinking, unlike bars where they have to push the drinking."
Dahl-Bredine said the success in craft beers is helping change the culture of drinking. "There is an awareness in the DWI program that it is dangerous to promote shots after shots. But if you come in to taste a craft beer, you are there to taste and enjoy. It's a different type of product, and allowing the expansion of craft beverages encourages tourism. We are creating jobs in manufacturing. We have 10 jobs coming with our distillery."
Rep. Debbie A. Rodella said she had concerns about the comments about bars pushing shots and drinks, but "I think the campaign and awareness about DWI is effective. We have struggled to get a handle on the licenses. At the Liquor Control Act Task Force, we endorsed the omnibus bill. As chairman of this committee, I chose to move forward only those parts with total consensus. Were these issues the ones considered?"
"The ideas came through the task force," Ocheltree said, "and we remixed them. We want to regroup with merging the best of what's left."
Murphy said, although she came late to the task force, there were good ideas raised. "A lot is new, and some is reformed and remixed."
Rodella said the sentiment is that no new license should devalue existing licenses, but "we can't afford to buy them all up. I think the issue is still out there. Maybe we need a new task force."
Shendo said maybe there was a need to understand how many licenses there are and how to deal with the property right.
"I have one more issue," Ocheltree said. "The possibility of a charity casino night. We did the first one without knowing the legalities. We wanted to do one again with the Rotary Club to benefit the Palomas School. The SID guy showed up and said we couldn't play games, but only could bid on auction items. My first call was to Gaming and Alcohol. They said we had to take the alcohol out and we couldn't use game receipts for the auction. They told me I needed to talk to the Silver City Police Department and the chief said I had to call the SID. The SID guy said no games, or 'I'm going to arrest you. The District Attorney has to decide.' She told me to call the SID office, which referred me to Gaming and Alcohol. Everyone agreed it needed a legislative solution. We cancelled the event. I did it in Florida. It was a great way to raise money for charity. It was a casual event, showing people having a good time. It was a very effective fundraiser."
Rodella said she understood the problem, because she had addressed issues even with Bingo games for churches. "We need input for the Gaming Control Board. I'm not sure on the rule on poker and poker tournaments. We need to ask for clarification from the Gaming Control Board at a future meeting."
Public comments began.
[This author had to leave, but Cissy McAndrew sent her comments.]
"I am Cissy McAndrew, an independent businesswoman €”realtor, tour guide and director of the SWNM Green Chamber of Commerce," she said.
"I encourage the committee to:
€¢ Keep gathering the facts and real numbers before making decisions;
€¢ Consider "the big picture" and long-term impacts of decisions;
€¢ Exercise Triple Bottom line practices, weighing the impact on the people, planet and profits (corporations now use the Triple Bottom line process or they have found they cannot succeed); and
€¢ Support small business and renewables. They are the lifeblood of our local economies and communities.
"Finally, I encourage the committee to utilize the resources available to you," she concluded. "Let's communicate and work together to build a stronger New Mexico!"