Liquor reform is vital to grow NM’s private sector

“I own this Legislature.” — Liquor lobbyist Frank “Pancho” Padilla to then-State Sen. Fabian Chavez in a 1963 battle over liquor law reform

While the above comment was dismissed by many as political grandstanding and Padilla denied ever saying it, the reality in 2016 is individuals and companies do “own” the 1,411 active full liquor licenses in the state — and not only has a new one not been issued since 1982, but the state population would have to hit almost 3 million, up from the current 2 million, for the state to issue any more.

That 30-plus-year stranglehold limits economic development in the retail and hospitality sectors to those who can afford to wait for an existing license to go up for sale, then shell out upwards of $380,000 for the privilege of selling/serving hard liquor by the glass or package.

Those fortunate few, as well as those who have in essence inherited their licenses from parents and grandparents and great-grandparents, consider the licenses personal property. So do lenders, who accept them as collateral for loans. That’s understandable — owners have paid good money for licenses, might have mortgaged themselves to the hilt to finance them, or have depended on them for income for generations.

Yet this closed system — much like the closed system that regulates the state’s taxi industry — suppresses competition while limiting consumer choices, all in the name of patronage politics. So much for encouraging eateries to open up along tourism corridors in smaller communities. So much for encouraging the ancillary businesses that support them. So much for adding jobs and paychecks and choices.

If New Mexico is ever going to level the playing field with its neighboring states, it has to find a way to honor the investment of current license holders — perhaps with phased-in tax credits and phased-out exclusivity — while allowing capitalism to finally flourish in these sectors.

New Mexico has tried for decades, with extremely limited success, to reform the way liquor is sold in the state. In 2007, Edward Lopez, then the superintendent for the Regulation and Licensing Department, said “if you wanted to design a more dysfunctional set of laws that we have governing the liquor industry, I don’t think you could if you tried.”

That’s an understatement. There are more than 30 types of liquor license, with dispenser licenses that include hard liquor by the drink or package the gold standard. A quota system limits the number of these licenses to one for every 2,000 residents and ties them to those population centers (talk about the antithesis of tourism development). In 1997, the Legislature allowed up to 10 licenses to move annually regardless of population. In 1998, the Legislature allowed 300 licenses to move anywhere as part of the deal to close drive-up liquor sales. Stores that sell only by the package still pay for a full license that allows them to sell by the drink; bars and restaurants that sell only by the drink still pay for a full license that allows them to sell by the package. And beer and wine licenses are not in the quota.

It means that, in the fifth-largest state in the nation geographically, one that prides itself on its tourism industry and has tried for decades to diversify its economy and strengthen its private sector, there are just 1,411 full licenses active today for all businesses selling hard liquor.

So, for every Maurice Bonal, a fourth-generation license holder in Santa Fe who bristles at the suggestion of additional licenses that would devalue his, there are Matt DiGregorys (Range Cafe chain and Standard Diner) — who has “more than a million dollars wrapped up in liquor licenses, enough to open up one or two more stores.” And there are Jeff Spiegels (M’tucci’s family of eateries), who lease licenses because “if you’re going to buy them, they cost as much or more than the restaurant you want them for.” And there are Myra Ghattases (Slate Street Cafe) who operate with limited beer and wine licenses that run $1,050 a year.

And there are planned retail developments like one in Artesia that never happen because the anchor restaurant tenant could not negotiate down the price of a liquor license.

Meanwhile, Texas imposes no artificial limit on the number or location of its licenses and charges just $6,602 for an initial two-year “mixed beverage” permit that allows for the sale of hard alcohol. And, while Arizona has quota limits on some licenses — specifically liquor stores and bars — it has none for restaurants and hotels, and charges $2,000 for a year and $500 to renew. There are 3,668 active restaurant liquor licenses in Arizona.

Former Albuquerque Mayor Jim Baca, who was state liquor director from 1979-81, says treating licenses like private property, as well as continuing an “outdated and outmoded” quota system are big flaws. “If you want economic development ... you should not have a quota system. You should give licenses out to responsible people who will use them properly.”

The challenge will be opening the liquor-license marketplace without slamming the door on current license holders who have livelihoods on the line. Yet the state Economic Development Department needs to make that happen, to help Regulation and Licensing, Alcohol and Gaming, legislators and stakeholders find a compromise, if New Mexico is going to finally belly up to the bar of competitiveness.