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Boston councilors look at paying coronavirus-slammed small restaurants for their liquor licenses to help keep them afloat
By adamg on Wed, 05/27/2020 - 5:23pm
East Boston restaurant owner Phil Frattaroli talks licenses at hearing.
Warning of "vulture capitalists" snapping up the liquor licenses of locally owned restaurants at depressed prices as the restaurants permanently shut because of the pandemic, Boston city councilors today began looking at ways they could pay restaurant owners for their expensive liquor licenses as a way to give them enough capital to get back on their feet.
City Councilor Lydia Edwards, who represents the North End, which is currently stuffed with small, locally owned restaurants, initially proposed buying restaurants' liquor licenses and then leasing them back to their owners at a hearing today.
But after Licensing Board Chairwoman Kathleen Joyce warned of potentially insurmountable difficulties under current state liquor laws - by formally buying the licenses, the city might become responsible for everything from restaurant payrolls to damages for customers who drunkenly go out and crash into somebody - Edwards said she would rather see a system where the city pays restaurant owners the equivalent value for their licenses and then lets he restaurants keep them and stay open.
Regardless of the final form of any proposed regulations - which, given how liquor licenses are controlled in Massachusetts, would likely require approval of the state legislature and the governor - Edwards said coronavirus is both a crisis for local restaurant owners and a chance for the city to do something to help them, in a way that recently announced small-business grants of a few thousand dollars apiece announced by City Hall cannot.
"Do we sit back and watch while the Cheesecake Factory, while Bertucci's, while the Olive Garden, while the casino is able to buy [licenses] up and then expect our mom and pops to survive?" she asked. She said that left unchecked, the market would simply have neighborhood restaurants replaced with larger chains in tourist areas. Given the economic opportunity and community vitality that neighborhood restaurants represent, "I'm not comfortable just letting the market do that," she said.
Councilor Kenzie Bok, who represents the Back Bay, which is also full of restaurants, agreed. She said she doesn't want the city to just sit back as "a small group of vulture capitalists" who still have money snap up liquor licenses on the open market and turn Boston into a desert of high-priced, boring national chains rather than innovative restaurants owned by local entrepreneurs.
That Boston is at this point is partly due to what Joyce agreed is a convoluted, archaic licensing system, in which the number of Boston liquor licenses is regulated by the state. In what was, until March, a booming city, that led to a shortage of licenses, and prices that, before the pandemic shut dining rooms and bars, often exceeded $400,000 on the open market. License holders can use them as collateral for loans. But also, landlords often negotiate deals giving them right of first refusal on the licenses should a restaurant go out of business.
Further compounding the issue is that in 2006 and 2014, the state legislature approved additional liquor licenses for Boston that cannot be sold on the open market and many of which have to be used in specific neighborhoods. Edwards's proposal would do nothing to help holders of these licenses; although because they have no value, they also mean the holders are not in a financial hole for them.
Joyce said that June could prove a critical month for restaurant owners. If they are allowed to re-open, even at curtailed occupancy, summer sales might be enough to keep them going. But should the state or city delay their opening because of Covid-19 numbers, that could mean the permanent end of a lot of Boston restaurants. Joyce said the full impact would become clearer in the fall, when restaurants have to pay renewal fees for their licenses.
Edwards said she has seen estimates that as many as 40% of restaurants might not survive the pandemic.
City Councilor Michael Flaherty (at large) said the issue is worth examining, but said he would be wary of anything that might depress the value of existing licenses, because for many restaurant owners, they are part of an investment the value of which went into their decisions on whether to open.
Phil Frattaroli, owner of the Cunard Tavern agreed. He has one of the "neighborhood" licenses that have no intrinsic value, but his father, Filippo, owns two - for Ristorante Lucia and Filippo Ristorante in the North End. He said restaurant owners want to retire, too, and that the value of their licenses can help them do that. He said his father paid $150,000 in 1985 for a liquor license for Lucia, which was a lot of money back then.
Watch the hearing:
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Comments
I haven't thought this
I haven't thought this through so I'm sure there are issues, but what about putting a minimum floor price set to the market price as of Jan 1, 2020 for license resales for the next 12 months and they are restricted from companies that have more than x amount of locations. The licensing board has final say in a license transfer, so I would think that ultimately they have control over who gets it. IDK just a thought. It definitely moves it further away from a free market but it already is heavily regulated anyways.
Crazy idea, I know
Have the state buy back all the licenses at the market rate and then issue licenses for a dollar to anyone who wants one.
So the citizens of the whole of MA should ...
Fund an issue that the Boston City Council should've resolved decades ago for establishment that 99% of them have never and will never patronize once, much less regularly?
Should we also ask the citizens of MA to pay for Boston restaurant workers' uniforms while we're at it?
Responsibility for inaction on this issue hardly lies with the
mostly powerless Boston City Council. The state grabbed control of and capped the number of Boston liquor licenses in the 1930s in an attempt to stem the ebbing of Brahmin power in the city as Irish-American and Italian-American mayors and city councilors got elected.
The Commonwealth owns the problem and the absurd license valuations that have resulted, not the City. I've railed against this setup for many years, as it clearly stifles the ability of innovative indie chefs to open their own places in favor of dull, middlebrow, deep-pocketed chains. It has always been bad for our restaurant scene.
Take away state control and the cap, and the ability to grant favors only to the well-connected with the right lawyers goes away. More neighborhood places farther than a couple of miles from the State House could afford to serve alcohol for a change, too, which would be another big plus for our dining scene.
Ya, pretty much.
Look at it this way...the Cottage Tavern (hey, why not?) sells a piece of paper on the open market. That paper was worth more than the wall it hung on.
How did this come about and why?
Several points...it eliminates the whole annual 'envelope' shakedown for a license renewal. I'm not saying that was what was going on, but can't discount it. Another? Consider that before the Cottage it was someone else. Before them, someone else.
At some point, there was a first guy that had the license issued to them. What did they pay for? Well, "Mr. Smith, it's transferable. You own it. You can sell it to whomever you want (within reason of course)."
Handshake.
Licenses are so valuable that the financing of
nearly every restaurant startup is predicated on getting one. Margin on alcohol sales keep most Boston restaurants afloat, particularly in the pricier downtown neighborhoods. The $350K-$450K cost for a full license (with spirits, not just beer and wine) in a location within a couple of miles of the State House has made investing in talented young chefs trying to establish their own place much riskier. That's a huge hole for a first-time chef/owner to dig out of.
That's why so many of our more innovative, idiosyncratic indies of the past few years have opened in Somerville and further-flung suburbs rather than in Boston. It's also why plenty of owners of cool Old Man Bars and ancient neighborhood joints have chosen to sell their licenses to damnable Seaport chain outlets and retire, to the eternal loss of their locals and the city's unique character. I don't blame those owners, but it's a crying shame for the rest of us.
Preserve that execrable system, and Boston's restaurant scene will soon be as chain-dominated and dull as Dubuque's, but for a few more oysters. It was already headed that way, but the pandemic has accelerated the process.
The evidence is here.
Bunch of stories on uhub start out with:
"(insert name here) to close permanently."
Hanging on in good times, then sunk swiftly.
Maybe it can be compared to the taxi/Uber problem. Guy pays $gazillion for a medallion, then along comes a guy in a Honda eating his lunch.
So, guy pays $391,237 for a license and it's...wallpaper. So, issue cheap licenses to start ups and his investment still goes to shit. Almost a no-win situation. Worse, find a lot of hard hit taxpayers that are inclined to make him whole with a government handout.
Does anyone have any evidence of allegedly
routine bribery involved in handing out and renewing licenses? Maybe someone with direct experience in the restaurant industry?
(I'm not suggesting the abrupt end to license caps, as I noted elsewhere in this thread, but a graduated system that softens the blow somewhat for more recent licensees who have had little time to monetize their investment.)
A little bit of history
Boston doesn't control those licenses - the state set up this clusterfuck because OMFG Irish and liquor and criming oh my!
Actually...
...it worked out quite well until the prices of the licenses went off the rails.
Had little to do with 'Irish and liquor and criming oh my!'
Plenty to do with who was
paid offfriendly on a regular basis. You do realize that the liquor store ownership limits was capped at three for a reason...a very good one.ok, I'll bite
what's the 'very good reason' liquor store ownership is capped at three?
It had everything to do with Old Yankee fears of new immigrants
The belief in state government was that certain ethnicities were inherently criminal and couldn't be trusted to exercise home rule properly - a theory that you seem fond of, but with different newcomers subbed in.
Somebody
Really needs both a civics and history lesson it sounds like. This is an issue solely created by the state legislature.
And roads?
I don’t use 99.9999999% of the more than 77,000 miles of roads in Massachusetts. Yet I pay for them and I see zero interest from drivers of cars to do more to cover the cost from their use.
And if you think the pennies of gas tax and auto excise tax come close to covering the cost, I have a pockmarked, over-engineered bridge to sell you.
I don’t know if buybacks are the solution, but we have to end this ridiculous, archaic system and open up this city to entrepreneurs. There is no better time to end this system which serves only corruption and the interests of a few.
Better idea:
Tell everyone it was never "their" license to begin with, and change the laws so that they can't be bought and sold.
Do the same with taxi medallions.
Not that simple.
Tell Food Network Celebrity Chef the license they bought last year for $400 K is shit.
Adios, Boston. FNCC just took a hike, then told all the other chefs. Opens a hole for 'newbies' but that's a whole different thing.
Medallions? Apparently one guy owned a shitload of them and leased them out at exorbitant rates.
A good argument for limiting liquor (retail) license ownership. Looking at you, Cumbies.
What happened to the free market?
Seems like if "FNCC's" can run profitable businesses here - they will. And if new ones don't have to pay $400k for a liquor license, then that makes it even more likely that new businesses will move in to fill the gap from whoever "takes a hike".
Sunset
Sunset the whole damn set-up- there's no perfect solution but the current system is very poor indeed. With a 5 year time line, it won't matter if venture capitalists or the Cheesecake factory buy a license.
Anyone know how many general purpose liquor licenses there are in the city?
Edit - it looks like a bit of 1000 licenses with 547 full licenses but online I see a 600 count figure.
https://data.boston.gov/dataset/liquor-licenses/resource/aab353c1-c797-4...
Let's say it's $250k value x 600 licenses would be $150m. Sorry to Frank and his heirs but I'm just not here for us to spend $150m to help out 600 businesses optimize their balance sheet and or retirement plans. Maybe cap it to one buyout per holder or something or to a certain size business? I'm more concerned that the owners of the Behan are ok than say Davios.
Yup
Except doing so would reduce the power of the council to dole out a pretty big favor to restaurant owners.
What a joke. At least cab medallions attempted to say there was limited space on the roads (which, I am not actually defending but at least attempted a coherent argument)
I've often wondered without plumbing the idea too deeply
whether there could be a scaled payout based on the length of time each license holder has had to monetize their investment. I imagine there are hidden problems and unintended consequences there, too, but it strikes me as saner and fairer than buying back at current market rates, or just ending the cap abruptly and seeing the value of existing licenses plummet.
I also wondered about that
Perhaps the best solution would be to 5 year sunset the licenses, set up a modest annual fee for having a license ($1000/yr or something) after that and offer to buy out license holders for $25k. Regardless of when they bought it or how much they paid, they get $25k for it and no licensing fee for 15 years - this costs us $15m and future revenue and sets a level playing field for the future. Alternately, they can sell to whoever for however much they can get and then pay the $1000/yr. immediately. That transferred license isn't eligible for the buyout.
As noted above, the problem is that this State House legislation and Deleo and Moran do not care about anything but the license holders and entrenched interests.
You can't put the State
in the position of deciding who is worthy of getting full price for what they own. That is both inequitable and perilous, as opportunities for corruption in such a scheme are endless. If you want to do away with the current scheme - and I certainly do - you have to pay every license owner a fair price, or screw them all equally.
Determining a fair price would be extremely difficult once it is decided that the trade in liquor licenses is going to be abolished, because there will no longer be an open market to set that price. Nevertheless some approximation could be made. Some deserving people would probably fell they were being treated unfairly, and some evil bastards would make good money for very little work. This can't be helped. People are being screwed by this system every day; it's unrealistic to think that an escape from it could be bloodless.
I think that someday the existence of a market for government-issued business licenses like liquor licenses and taxi medallions will be considered a relic of a near-barbaric past, similar to the sale of officer's commissions, or of clerical benefices, or of the taxing authority itself (a practice, called tax farming, that used to be commonplace).
Why pay anything more than the original fee?
Personally, I don't see why the city should pay for anything beyond whatever fee they charged in the first place. If you paid extra for an investment that doesn't pan out, that's on you.
Instead of donating taxpayer
Instead of donating taxpayer money to restaurant owners, what about simply giving back to restaurant owners the freedom to open up?
I sense
A swirly headed your way for such an outrageous* comment
Boilerplate blatherings
Not outrageous, but not sensible either.
I mean, if people were willing to take out supplemental insurance policies to cover the easily predictable damage to their own health and the health care and life insurance systems ... sure! Some people just can't seem to wrap their head around the fact that hating science/scientists/facts doesn't render immunity to viruses - in fact, quite the opposite.
Note that we have a Republican governor who doesn't agree with our usual knee jerk covidiot, either.
Your freedom to spread a deadly virus ...
Ends roughly six feet from my nose.
Also how much business will these freedom fighters get
Even in places like Georgia, restaurants are nowhere near pre-closure business levels. You think a high cost place like Boston is going to be a good place to run a restaurant at 60% capacity and not lose money?
Yeah
Screw public health and containing a deadly virus. #freeTyphoidMary
Guess who doesn't care about your freedom?
covid-19
https://www.universalhub.com/2020/north-station-area-burger-place-shuts-...
Let's rearrange the deck chairs on the Titanic.
After the mess the politicians created with this archaic system they want ride to the rescue of these hard working restaurant owners who are just about to slip under.
They dont realize how screwed up things are untill it's too late, the pandemic isn't their fault but the screwed up system is.
You contradict yourself
How can the system be both archaic and "their fault"?
As some have noted above, the former is true; the system goes back to the 30's (I am relying here on the background provided by MC Slim JB, who I think knows what he is talking about). You can't then blame it on current politicians (unless you are just blaming it on "politicians" in general, a class that includes everyone who has ever been involved in governing, from Tom Menino to Genghis Khan). You might blame them for their failure to fix it, but it's not so easy to fix the fuckups of the past. This one is particularly intractable, because it involves booze, which is Sinful, and the Great and General Court gets very confused when Sin is involved.
Archaic
I'm blaming it on Massachusetts politicians in general
because they never changed it. and Boston Politicians for not trying to get changes made
The Boston City Council passes endless useless resolutions and debate policies they have no say or power to change but policies and systems they can influence stay the same year after year until the poop hits the fan.
If I have an archaic heating system in my home and it fails, who is at fault, the person who installed it 80 years ago or me for not updating it?
Bad analogy
It's more like the archaic heating system in the home you rent fails. Sure, you could have done more to bring it to your landlord's attention, but ultimately it wasn't ever under your control. Just like the Boston City Council doesn't actually have any control over liquor licenses in the city, since they're controlled by the state.
My analogy is fine
Unless you look at the Boston City Council as the tenants of Boston, I don't.
You've admitted that they don't have any actual power
So what are they then? They're certainly not the homeowners with the ability to do this themselves. I guess maybe a tenants association?
Regardless of analogies, the fact remains that they don't have the actual power to do anything about this. Why not concentrate your attention on the people who actually can do something in the state legislature?
I must have missed the part in the MA Constitution that
lets the Boston City Council change laws enacted by the state legislature.
They don't
But they can petition the State to have it changed, they have more influence than you or I do, and that is what they are paid for.
As I said.
So you didn't miss any part of the Massachusetts constitution, you missed my point.
At lease one Boston City councilor has
done exactly what you suggested. It went nowhere. Has the Council petitioning the State Legislature ever worked? Or is this just how you wish things worked?
You seem to like to argue
Stay safe.
Warning of "vulture
So, instead of greedy venture capitalists snapping up licenses, let the City do it?
Sure. What could possibly go wrong?
Options
Option 1: let restaurants sell their licenses at bargain basement prices to try to recoup some of their capital as they declare Chapter 7 (and probably personal, if they're chef-owners or it's not a chain) bankruptcy. Owners earn back pennies on the dollar on their original investment, and a lot of them never open another restaurant.
What does the landscape look like in five years? Venture capitalists hold those licenses for six months, until the state reopens and the land-grab commences as demand for restaurants climbs back toward its early 2020 level but there are only 30% as many dining room seats in the city. VC resells those licenses to the highest bidder, probably for ten times what they paid for them, and the only restaurants who can afford them are the Davios/Legal Seafoods of the world that have venture capital backing them. Liquor licenses further concentrate into the Seaport and downtown, and local chefs trying to open new places find themselves unable to afford the same licenses they were forced to sell during the pandemic. Consolidation of restaurants into chains and existing medium/large holding groups continues.
Option 2: the city offers to buy back licenses for some percentage of their value as of January 2020. For the sake of argument, let's say it's $25K apiece, or roughly what your rogue VC firm would have offered. Owners earn back pennies on the dollar on their original investment, and a lot of them never open another restaurant.
What does the landscape look like in five years? The city holds those licenses for six months, until the state reopens and the land-grab commences as demand for restaurants climbs back toward its early 2020 level but there are only 30% as many dining room seats in the city. The city creates a program that looks something like what it did with licenses in outlying Boston neighborhoods a few years back, charges a nominal fee for the license, and gets to decide where and how to distribute the pool of licenses that it suddenly has control of for the first time in thirty years. The application process requires public hearings, so there's at least moderate transparency as to who is being given preference. Davios/Legal Seafood gets to explain to a room full of city councilors and reporters and other local restauranteurs why their fifth location on Congress Street deserves a full license more than the newly reopened Cajun place on Dot Ave. Chefs trying to reopen the restaurants they were forced to shutter during the pandemic don't have to plan on paying $400K for the piece of paper that lets them turn a profit, which cuts the capital costs of opening a new place in half. The city spends $1.5 million on this program, significantly less than it has already outlaid on the Small Business Relief Fund.
I'm having a hard time figuring out how even the most die-hard free-marketer could look at those two options and think "yeah, we should completely gut the Boston restaurant scene so a few hedge-fund bros can make some money off the pandemic." Even if you're OK selling your city's culture to the highest bidder, you still have to live here.
This all makes sense, but I'm
This all makes sense, but I'm not sure how option 2 actually works. Only license owners facing the prospect of going out of business will be motivated to sell, and those owners will be looking for the highest price for the license. The city wouldn't be able to compete with VC firms on price, since the VC firms will happily beat whatever the city offers since they're just going to flip the licenses at a near-guaranteed profit anyway. So what, exactly, motivates these owners to sell to the city at a discount? The prospect of being able to afford buying another license at some point in the future? The cultural benefits to the city of holding off national chains and consolidation? These are noble things, but I doubt most small restauranteurs would pass up big money for them.
I think the only way VC/consolidation is avoided is by preventing the current license owners from wanting to sell in the first place, which means supporting the restaurants that are in trouble until the crisis passes and they can get back to making money from their license. Once bidding starts, it's lost.
Even in better times, a lot
Even in better times, a lot of those licenses went out of neighborhoods and small places to big restaurants and developers and friends (like in the Seaport).
Even if times were good - without specific proactive protection built-in, why would there be any reason to expect any better?
...and since times are most specifically not good (and it will be some time until they approach "good") - what will the powers-that-be do with the available cover of revenue shortfalls and important reforms needed and schools and potential cuts & layoffs, etc*...? Pretty soon we're at: Tough times call for making tough choices, and it would be irresponsible to not use (exploit) the maximum value of any assets we have... cough... harrumph....
-
-
* cue the Howie Carr It's for the children... clip
A tragedy of the pandemic
This system needs a total overhaul, and the city is probably better off making it so the next set of restaurants has fewer barriers to entry then bailing out the existing set of restaurants.
It really sucks that so many restaurants and owners are going to go broke, but there is a massive budget crunch coming and we have scarce resources. Real financial pain is coming from this public health crisis.
Economy will slowly rebuild once the public health situation is under control (in my humble opinion we are closer to middle than late innings there). We should redesign the license system to encourage new restaurants to flourish over time, which probably involves phasing out the existing system.
The carnage coming to existing restaurants and their owners is tragic, and different policy decisions and investment pre pandemic and early pandemic could have been helpful, but the damage is probably unavoidable at this point. We probably have more bland chains in our immediate future, but 10 years out the situation will look better.
I don't get how the City pays for this
It seems highly likely that there's a severe budget crunch coming for municipalities and states nationwide as property/sales/income tax revenues will plummet. I doubt the City of Boston will be immune. I get and applaud the desire to help small businesses persevere but I still don't see how they can fund this and maintain essential City services as well.
City Hall too corrupt to control liquor licenses
---
Good point dmc but the envelope shakedown is still alive in well at City Hall. We just saw Mayor Walsh's friend and BPDA official John Lynch sentenced to 40 months last year for literally taking an envelope full of money. So we know that this still goes on and absolute power to city officials will corrupt absolutely. Keep some state oversight. As for the councilors plan, probably not feasible in the current form but at least somebody is seeking creative ideas instead of Baker and Walsh's forlorn, hopeless approach.
Most of us here have reacted negatively to the Boston License Board and their BPD Detectives issuing fines and holding hearings for petty offenses. Imagine that power on steroids with the
potentialguarantee for payoffs if there is no oversight by the state ABCC and no right of appeal outside City Hall. The system is bad enough now, don't give 100% power to a City Hall that has proven they can't be trusted with absolute power, see Lynch.Incoherent as usual
So you're arguing that the State House leadership cabal of Deleo is a better form of governance than Marty's City Hall? How bout no.
I'll say this, you're definitely well represented by Jim Lyon at the party level. In that he's just full of incoherent ideas and just dying to lick Trump's boots.