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: