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Group to study overhaul of Fargo's 'convoluted' liquor laws

FARGO - A is for bars that sell liquor, beer and wine. B is for bottle shops. C is for bars that may only sell beer. You could use the city's liquor-license system to teach children their ABCs. Every letter of the alphabet save eight are represented.

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FARGO - A is for bars that sell liquor, beer and wine. B is for bottle shops. C is for bars that may only sell beer.

You could use the city's liquor-license system to teach children their ABCs. Every letter of the alphabet save eight are represented.

"I think we all agree that it's a convoluted system," said City Commissioner Tony Gehrig, a member of the Liquor Control Board. "It's not just an A and B and C license, there's an FA, there's so many of them."

Including FA, which is a restaurant with a bar, there are 29 license classes.

On Wednesday, at the urging of community activist Joe Burgum, the board agreed to form a committee to study how the system can be reformed. Burgum's contention is that not only is it convoluted but it also limits the kinds of businesses allowed. He also wants the city to eliminate the caps on certain kinds of liquor licenses.


Board members voted unanimously to form the committee, but they noted several limitations.

Any change to the liquor-license system must not allow bars to compete for the cheapest drinks - the current system doesn't do that, but bar owners agreed to avoid extreme drink specials - have license fees that are too low to contribute significantly to the cost of policing bars or undermine the investments of existing liquor-license holders.

"We're not going to be in a big rush. It will be methodical," said board Chairman Dave Piepkorn, another city commissioner.

"I just think it's a great opportunity," he said. "We want to ensure that we're encouraging new businesses."

He said the task force will have nine members - four city officials, one of them Gehrig, four liquor-license holders and Burgum - but the full roster won't be picked until the next meeting in September.

Another license class

Under the current liquor-license system, there can be only as many business models as there are licenses. That means every time someone comes to the liquor board with a new model, a new class of license will have to be created, which means a new law will have to be written.

That can take a lot of time.


In mid-June, two entrepreneurs came before the Liquor Control Board to ask for a license that would allow them to open a wedding-centric events center at the old St. Mark's Lutheran Church downtown. Kilbourne Group, owned by Burgum's father, Doug, bought the 100-year-old church to keep it from being demolished.

The entrepreneurs wanted a Class F liquor license for restaurants, which is relatively inexpensive at $3,000, because they didn't expect cashflow to justify one of the $100,000-plus licenses for bars. But to qualify as a restaurant, they'd have to have 50 percent of sales come from food, which wouldn't be possible unless caterers are included. They asked that caterers be included.

Two months on, the city is still drafting a new class of licenses for events centers. The liquor board got an update Wednesday, but the law wasn't ready yet for approval. Even if the board approves the law in September, it will take at least another month to get final approval from the City Commission.

Joe Burgum said he wants a system that's more flexible so people with novel business ideas can get a liquor license as a matter of course rather than lobby for a change in the law. Eliminating caps on the number of licenses and cutting license fees would also make the system more flexible, he said, for example charging less for smaller, more intimate venues that can't afford it.

But that could require wholesale changes to the liquor-license system. Liquor board members and current liquor-license holders are cautious about the consequences of changes.

"I think change is possible, but I can't say it's definitely time to make some broad wholesale changes until we actually see what comes," said Rick Nymark, one of the owners of Tailgators Sports Cafe, a restaurant. He expressed admiration for Burgum's approach, but said he worries that an increasing number of bars would spread police thin, and lower license fees would undermine current license holders who have already spent a lot on fees.

Binge drinking

Fargo has struggled with binge drinking for decades, so city leaders frown on drink specials they believe encourage that behavior. Occasionally, those drink specials can get out of hand and city leaders have threatened to ban them, each time backing off and allowing the industry to police itself.


But what happens if liquor licenses, especially those that allow any kind of drink to be sold, are so easy to get that bars proliferate? It's the "bar on every corner" scenario that's now avoided by high license fees and caps on the number of licenses.

Burgum said the current system is characterized by "high volume, deep pockets," meaning only people with a lot of money to invest can afford to have a bar and they have an incentive to sell more alcohol in a bigger venue to recoup their investment.

The problem isn't bars but bars that over-serve, he said, which already is against the law. He said the solution should be tougher and unambiguous enforcement of the law, for example, through a three-strikes-you're-out regime. Right now, a license holder would have to violate liquor laws five times over 18 months before revocation of the license is even considered, he said.


The other problem is one that's inherent in an oligopolistic market that the city created by capping the number of licenses in the most desirable classes, which have the least restrictions.

For example, an AB license allows the holder to sell any kind of alcohol in any venue - there is no requirement that the holder sell any food - for consumption both on or off premises. The initial fee costs $150,000 with renewals costing $2,400. There are only 22 of them.

With supply limited and demand unfettered, their value often far exceeds what the city charges for them.

"There is that secondary market that everyone knows about. People are selling these licenses for triple what they bought them for," Gehrig said. License holders could even demand a stake in a business as the price of a sale, he said.

But if the city decides to cut license fees and lift caps, a business owner who has just entered into such a deal would be at a distinct disadvantage against newcomers who haven't had to invest so much to open a bar.

"They all went through that really hard system to get their licenses, and paid a lot of money," Gehrig said. "If you all of a sudden lower cost, how do you make that fair?"

Burgum suggests buying up all licenses at a markup. Gehrig says a credit for future license renewals is more palatable. But they'll have to convince seven others on the committee, which will include current liquor-license holders.

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