Op-Ed: NJ’s restaurants and downtowns need liquor license reform now

Bob Zuckerman | November 6, 2020 | Opinion, Business
‘If saving small businesses and boosting our downtowns is not enough of an enticement, then think about the potential revenue for state coffers’
Bob Zuckerman

New Jersey’s liquor license laws are antiquated and have been in need of reform for a long time. A bill recently introduced by state Sen. Vin Gopal (D-Monmouth) addresses the outdated liquor license laws by creating a new type of license that would allow restaurants to serve non-spirit alcohol (beer, wine, and cider) at a significantly reduced cost from that of a full license. This bill is similar to legislation Assemblyman John Burzichelli (D-Gloucester) has been promoting for a number of years. With our small restaurant owners struggling to survive from the economic havoc of COVID-19, this reform is needed now more than ever. But pandemic aside, this reform is needed to bring New Jersey’s liquor laws into the 21st century and make us more competitive in the region.

After Prohibition ended in 1933, policymakers in New Jersey still sought to restrict who could sell liquor. And today, a law passed in the 1960s still stands, which limits the number of licenses for a bar or restaurant to one for every 3,000 residents in a town. If the population of New Jersey was distributed evenly, then each municipality would only be allowed five licenses. As the population of New Jersey is not evenly distributed, municipalities with low populations are even more severely limited than their more populous neighbors.

The finite number of licenses means that when a license becomes available, the cost to obtain that license is often prohibitive. Licenses are purported to average $350,000 statewide, but have gone as high as $1 million at auction. These astronomical costs are a clear indication that demand outstrips supply. On top of the cost of obtaining the license, there is an annual renewal fee upward of $2,500. When compared to nearby states, the relative magnitude of this expense to New Jersey restaurant owners is clear. In New York, a restaurant liquor license is obtained directly from the state and runs upward of $4,500 (depending on location) every two years. In Connecticut, a restaurant liquor permit is just $1,550 a year.

The impact the sale of alcohol can have on a restaurant’s bottom line is substantial. Alcohol can constitute 20%-30% of a restaurant’s income. With margins of 20%-40%, compared to food margins 10% or less, the ability to sell liquor can be the difference between thriving or merely surviving. With our restaurants already severely hampered by closures and capacity limitations since the public health crisis began over seven months ago, both the carrying cost to existing license holders and the lost potential revenue to non-holders drives home the point that New Jersey’s archaic laws are hurting small-business owners.

Why is the state so obstructive?

Since the pandemic started, the state Legislature and New Jersey Division of Alcoholic Beverage Control have been passing stopgap measures to help liquor license holders by allowing takeout and delivery of alcoholic beverages and expediting permits to serve liquor outside. Clearly, the importance of liquor sales to the well-being of restaurants is understood in these actions, so why does the state continue to hamper the over 70% of New Jersey’s restaurants that do not currently have an active liquor license?

If saving small businesses and boosting our downtowns is not enough of an enticement, then think about the potential revenue for state coffers. In 2018, when Assemblyman Burzichelli’s bill was first introduced, the expanded licenses were projected to add almost $1 billion in local and state revenues and add 15,000-plus new jobs. Even with the proposed 10-year tax credit to help compensate existing liquor license holders from potential devaluation of their licenses, this is a net positive for a state that will continue to have tough budget discussions as we try to pull ourselves out of a pandemic-induced recession.

And one final thought on equity. The artificial market created by New Jersey’s restrictive liquor license laws means that only those with abundant resources or those willing to take a huge risk can afford to get into the game. While demographic information about license holders is not available, one does not have to use much imagination to figure out what the distribution looks like (especially for licenses sold in the last decade or two). Even in our diverse cities, we know anecdotally that liquor licenses are being sold out of low-income Black and brown neighborhoods to support development in gentrifying areas. Given what we know about the value of these licenses to restaurateurs, how will these neighborhoods realize their own revitalization goals with a dwindling number of opportunities to support new business?

New Jersey rivals only Utah in terms of antiquation with our liquor laws that are more than 60 years old. Not only is reform long overdue, but it is imperative to the economic recovery of the state. The Gopal and Burzichelli bills are both steps in the right direction that we hope are only the beginning to needed comprehensive change — change we need as soon as possible.

If you are a restaurant owner, local or regional chamber organization, elected official, or individual that would like to get involved, please contact Downtown New Jersey at 201-472-0356 or policy@downtownnj.com to join our coalition for reform.