Mayor Proposes Measure to Address Inactive Licenses

Yesterday, the Current alerted GM to the fact that the Mayor has proposed legislation that would address the problem of inactive liquor licenses.

If passed, the proposed Omnibus Alcoholic Beverage Regulation Amendment Act of 2010 would levy a fee on inactive liquor licenses, which are better known as “licenses in safe keeping.” In Georgetown, there are about fourteen such licenses. The existence of the Georgetown moratorium means that the only way to get a new license in Georgetown is to buy it from someone else (and since it’s unlikely that an actively used license will be sold, the only real source is the list of inactive licenses). This regulatory scarcity has caused the market rate for licenses to sky-rocket into the high 5 figures.

In fact, it was this specific problem that the ABC Board wanted to address when they authorized the issuance of seven new licenses last month. GM has argued that a more effective long term solution to the high market cost of obtaining a new license would be to charge a “use-it-or-lose-it” fee on those licensees who continue to sit on inactive licenses in Georgetown.

This bill would attempt to do just that, unfortunately it doesn’t go far enough. Right now, owners of inactive licenses simply pay the annual renewal fee. Since all the licenses in safe keeping in Georgetown are restaurant licenses either class CR1 or CR2, the annual fee is either $1000 or $1,300, respectively (Legend: C means they can sell beer, wine and liquor, R means they are restaurants, 1 means capacity of 99 or fewer, and 2 means capacity of 100-199). Thus the annual fee is only about 1% of the supposed market rate of the licenses. That’s not much of a disincentive against simply sitting on the license, either to increase the marketability of a commercial space or to eventually sell the license for an exorbitant price. Unfortunately, the proposed fee under the bill wouldn’t do much to increase that disincentive.

Under the bill, for the first two years that a license is inactive, the licensee shall pay an additional 25% of the annual fee every six months. In other words, if you sit on an inactive license for one year, you will pay the normal annual fee, plus two additional charges of 25% of that fee for each six month period. That would mean it would still only cost the licensee $1,500 for a CR1 and $1,950 for a CR2.

After two years, the per-six-month fee goes to 50% the annual fee. Thus, after two years of inactive status, it will cost the licensee double the normal annual fee. This is still a pretty insignificant cost. Some of the licenses in safe keeping are for restaurants that haven’t been operational for many years, therefore the licensees have already likely paid thousands of dollars in annual fees without making use of the license. The bill should set the fee for inactive licenses in moratorium zones much higher.

The Mayor has been accused of raising “nickel and dime” fees left and right as a means of increasing revenues without increasing taxes. Perhaps this is part of that alleged effort. The thing is, GM really thinks this is a fee worth leveling, regardless of the city’s finances. Lowering the market rate of these licenses means not unduly rewarding a private actor for a public franchise and it means lowering the cost of entry for new restaurants in Georgetown. But at the proposed rate, it really is more of a nickel and diming effort than a serious attempt to clear the inactive licenses from the shelves. And because of that, this bill is a lost opportunity.