How Liquor License Caps Are Killing PA’s Cities

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The main thing cities are good at is bringing a bunch of people and businesses together for face-to-face exchanges.

In the future, a lot more retail commerce is going to happen online, but cities will still be very useful for businesses in the non-tradeable sector. Think restaurants, bars, concert venues, hair and nail salons, gyms and yoga studios, professional services, and all the other stuff people need to do face to face.

We’re starting to see some of PA’s older downtowns reemerging as entertainment clusters as this trend plays out, but one thing that I think is really holding them back is the state’s dumb policy of capping the number of tavern liquor licenses at 1 per 3000 people per County.

Think about it: most restaurants rely on alcohol sales to provide their profit margin. You know the famous phrase “There’s No Such Thing as a Free Lunch?” It refers to the pre-Prohibition days when many bars actually used to offer free lunch with drink purchases. There’s a huge mark-up on drinks. In less-crazy states, using drink profits to cross-subsidize food is a key part of the restaurant business model.

In PA, not all restaurants can do that – only the ones who have liquor licenses.

This is a disaster for a lot of reasons.

For one thing it means less competition. Restaurants who can afford a liquor license have a huge advantage over their competitors. If one Mexican restaurant is BYOB and the other has delicious margaritas, obviously you’re going to the one with the margaritas.

And the other reason the Mexican place with the margaritas is probably better is, again, because of the cross-subsidy. The BYOB restaurant has to rely on the food for their profits. They can’t afford to take big risks with the menu, and have to try to appeal to the median diner’s tastes. That’s going to mean blander, less original dishes. The restaurant with the liquor license can afford to take more risks with the menu and be more creative.

But the biggest reason why this is an urban policy problem is that capping liquor licenses just means there are fewer restaurants in total.

If every new restaurant was allowed to sell alcohol, the high markup on drinks would make opening restaurants less risky, and more people would do it. It would be easier for everyone to make a profit, and you would see more total restaurants opening in Pennsylvania’s downtowns.

More urban storefronts that are now sitting empty could be leased by restaurants and bars, contributing to the city tax base and the state booze tax base.

While no politicians are currently talking about ending the liquor license cartel, I am extremely glad to see state Senator Don Moul (R-Adams County) introducing a bill to allow restaurants to buy special wine-only liquor licenses that would be much cheaper than full-service liquor licenses, and crucially, would not be capped:

The pitch from Republican state Rep. Dan Moul is simple: make it easier to buy wine in restaurants. Here’s how the Adams County lawmaker wants to do it: offer wine-only licenses at lower cost than restaurants would be able to pay for full liquor licenses, and don’t cap them the way full liquor licenses are capped now, so restaurants wouldn’t have to outbid each other to seize on one that’s up for sale.

“I don’t want any limitation on the number of licenses,” said Moul. “I think that’s a horrible law to have in effect, or a horrible regulation, because what that does is, it now puts these things in a bidding war.”

Moul is absolutely right about this, and this seems like a good temporary step toward ending the cartelization of PA’s bars and restaurants.

I hope that the bill will be amended to include beer-only licenses as well.

The license cap policy is crippling PA’s cities with a substandard culinary culture, and is pointlessly slowing the reemergence of the state’s older downtowns as clusters of culture and entertainment businesses.

While lawmakers are considering reforms to the Act 47 law to help distressed municipalities get their fiscal positions in order, they should recognize that many of these distressed municipalities are older core cities with struggling downtowns. Helping them increase the level of downtown business activity would be a great way to alleviate some of the fiscal pain, repairing the tax base through real growth.

(Thanks: Mary Wilson)

This entry was posted in Economy.

4 Responses to How Liquor License Caps Are Killing PA’s Cities

  1. Ed H. says:

    Ok… So what are the projected numbers in new restaurants and employment. And how do you deal with the issue of BYOB in a place with a wine license, but someone wants to bring beer or spirits?

    • Jon says:

      I don’t have any data on it, but the profits on drinks are huge. I just think you’d see a lot more investment in restaurants than you do now, just because there would be more opportunities to make money.

      I guess if places with wine licenses also had BYOB approval, which I believe is up to city governments right now, people could bring whatever they wanted. Personally I’m for getting rid of the cap on full-service licenses, but the political economy is terrible. Not gonna happen for a long time. Moul’s plan seems more politically feasible. There already are “economic development liquor licenses.”

      • Ed H. says:

        Fair enough. I hadn’t heard of wine licenses also allowing BYOB. The next thing I’d wonder about is if there would be a bigger pressure on lowering wages of Restaraunt workers and wait staff. Still, particularly out side of Old City, Manayunk and other trendy areas in Philly, I’d like to see it in the Northeast, as a means to get more young professionals to stay in the city and raise families, instead of the continuing white flight to the burbs.

        • phillydem says:

          Lived 3 decades in NE Philly. There were plenty of bars and restaurants within walking or very short driving distance of almost anywhere. It’s has a much more suburban than urban feel than anywhere else within city limits. It can’t compete with the coolness of Center City for young professionals and chic restaurants like are in Center City and the gentrifying neighborhoods wouldn’t be very successful. The NE will always be the preferred destination of those city employees like cops and firemen who are required to live in the city and who can’t wait to retire and move out.