The Tavern License Cartel Threatens to Choke Off Philly’s Restaurant Boom

The saying “there’s no such thing as a free lunch” refers back to the pre-Prohibition days when you could actually get a free lunch at a bar in exchange for buying a drink or two.

The point is that the lunch wasn’t really free – it was cross-subsidized by the booze sales. The people buying the drinks were paying for the lunches.

Even though all restaurants charge for food today, it still works like this to some extent. In restaurants who sell alcohol, the booze is cross-subsidizing the food.

And it’s a great deal for restaurants, their workers, and also for diners who don’t buy drinks with their food. It gives restaurant owners a fatter profit margin that helps them weather the business cycle and buck the industry’s high failure rate. It means higher tips and wages for servers and other staff. And it means lower food prices for people who don’t buy the drinks.

But Pennsylvania for some reason rations this awesome opportunity instead of extending it to all restaurants.

This creates huge barriers to entry and competition in the restaurant market, lowers service sector wages, and deprives state and local governments of revenue from sales and property taxes as storefronts that want to be bars and restaurants sit empty instead.

Michael Klein shows how it’s creating barriers to entry in Philly, where the number of licenses has been declining even as the city’s been experiencing a restaurant boom:

Licenses that last fall sold for $60,000 to $65,000 are now fetching $85,000 and perhaps more, according to lawyers who specialize in the transactions. That is more the double the asking price for a license in 2002, when they sold for $35,000 [...]

Although Philadelphia is known for its BYOBs, which do not require licensing, a liquor license is considered important for the bottom line of a restaurant and, of course, is necessary for a bar [...]

In Washington, D.C., where his company is based, liquor licenses go for a fraction of that price – between $9,000 to $11,000, including legal fees, Bucher said.

In Philadelphia, prices for a license hovered between $15,000 and $18,000 in the 1970s and early 1980s. They rose, to $28,000, in the early 1990s, and reached $35,000 in 2002 before making a steady climb over the last decade.

The LCB counts about 1,440 active restaurant/bar licenses in Philadelphia County, down from 1,543 in 2011 and 2,112 in 1997. Some of these so-called R licenses are in safekeeping – perhaps awaiting a sale – but others have been withdrawn permanently because of liens and violations incurred by their owners [...]

Prices in Pennsylvania’s suburban counties are dramatically higher, with most at $200,000 or higher. Their prices have not risen dramatically recently, observers said.

This is completely ridiculous. Any restaurant that wants a liquor license should be able to get one for like $5000. Not through an auction, but by paying the state or locality a simple flat fee.

The County Quota system which caps liquor licenses at 1 per 3000 people per County needs to be unwound in a big settlement with tavern license owners. While Philly and Pittsburgh manage to avoid the full misery of the tavern license cartel because of high population density, older downtowns in smaller cities are suffering needlessly with empty storefronts that want to be bars and restaurants but can’t because the license prices make opening restaurants unaffordable.

This is a much worse problem than the state monopoly on wine and liquor, but politicians left it completely untouched in the alcohol reform proposal.

Obama Popularity at 3-Year High

Bloomberg:

President Barack Obama enters the latest budget showdown with Congress with his highest job- approval rating in three years and public support for his economic message, while his Republican opponents’ popularity stands at a record low.

Fifty-five percent of Americans approve of Obama’s performance in office, his strongest level of support since September 2009, according to a Bloomberg National poll conducted Feb. 15-18. Only 35 percent of the country has a favorable view of the Republican Party, the lowest rating in a survey that began in September 2009. The party’s brand slipped six percentage points in the last six months, the poll shows.

Feelings toward U.S. President Barack Obam are the most positive since December 2009, with 56 percent of Americans holding a favorable opinion of the president and 40 percent a negative one. Photographer: Andrew Harrer/Bloomberg

Americans by 49 percent to 44 percent believe Obama’s proposals for government spending on infrastructure, education and alternative energy are more likely to create jobs than Republican calls to cut spending and taxes to build business confidence and spur employment.

Who do you think the public is primed to blame for the sequester cuts?

The Residency Requirement Scourge

People with a conservative political outlook tend to like to complain about the low quality of municipal workers. I think this is an exaggeration and  an unfair stereotype, but if people want higher quality public employees, one policy they need to have in their crosshairs is residency requirements.

Arbitrarily restricting your labor market to a small geographic area is the best way I can think of to ensure that a labor market will be uncompetitive, and turn up job candidates of mediocre quality. Everybody likes to think that all the best people live right here in this town, and that’s a cute feel-good idea, but obviously if you expand your labor market to the entire United States, odds are you can attract a wider range of quality candidates, and the candidate who’s truly best will emerge from a more competitive process. Local government isn’t a local jobs program. The purpose is to deliver high quality public services, and to do that you need the highest quality workers.

Bernie O’Hare is exactly right about this:

Northampton County row officers are ministerial. They are not decision-makers. In the Recorder of Deeds Office, for example, I can record a ham sandwich as long as it is acknowledged, properly notarized and has a tax ID number. These clerks would have to take it because they have no discretion. It doesn’t matter whether they live in Easton or Emmaus.

So what public policy is served by requiring them to reside inside the County? You could argue that a person who lives here is more invested in his community and cares more. But couldn’t that be said of all County workers? And in my experience, it’s just not true. A strong work ethic and dedication to duty has very little to do with where someone lives. An Allentown or Phillipsburg resident might very well be a much harder worker than someone who lives just two blocks away from the courthouse.

What this proposal really does is penalize anyone who wants to be a department head. At least thirty per cent of the county workforce lives in New Jersey. This legislation tells them they can never aspire for more than a minor promotion. It also making their lives harder. It reduces their opportunities to find affordable housing, or to be close to family members who help with child-rearing and other intangibles.

If also flies in the face of regionalism. If we are really interested in promoting the Lehigh Valley, a residency requirement should include Lehigh, Warren and Monroe County.

Finally, it reduces the pool of available employees, making it more difficult to find good and qualified people.